IMF Executive Board Approves a US$9.95 Million Disbursement to Tonga

IMF News, January 25, 2021

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Canonical URL: IMF Executive Board Approves a US$9.95 Million Disbursement to Tonga

The Executive Board approved the disbursement of SDR 6.9 million (about US$9.95 million or 50 percent of quota) under the Rapid Credit Facility (RCF) to Tonga.
Purpose: to help meet Tonga’s urgent balance of payments and fiscal needs arising due to the COVID-19 pandemic and Cyclone Harold.
RCF financing features:
- zero interest rate
- grace period of 5½ years
- final maturity of 10 years
The RCF provides rapid financial support in a single, up-front payout for low-income countries facing urgent financing needs; it is provided as an outright disbursement to PRGT-eligible members that face an urgent balance of payments need and where a full-fledged economic program is either not necessary or not feasible.

Shocks and impacts:
- The COVID-19 pandemic and the 2020 Cyclone Harold have derailed Tonga’s slow recovery from the 2018 Tropical Cyclone Gita.
- Early closure of external borders and prompt economic support helped avoid a worse outcome, but an economic contraction is expected in FY2021.
- A sudden stop of tourist arrivals and higher pandemic- and reconstruction-related imports are expected to generate a large external financing gap.
The IMF views the Fund assistance under the RCF as intended to help Tonga cope with immediate balance-of-payments and budget financing needs and to catalyze critical donor support for the recovery.

Macroeconomic and financial stability indicators cited:
- A series of budget surpluses
- Low inflation
- Adequate bank capital buffers
- Ongoing efforts to improve financial supervision
Authorities’ pandemic response measures:
- Fiscal support for health care and affected businesses and households
- Provision of liquidity to the financial sector
- Commitment to enhancing the AML/CFT framework
- Consideration of developing macroprudential tools

Fiscal and debt management:
- High-quality fiscal adjustment post-pandemic to ensure debt sustainability while achieving climate and development goals.
- Continue efforts to broaden the tax base.
- Improve spending efficiency and the targeting of fiscal support.
- Strengthen transparency and accountability in public financial management.
- Ensure effective debt management strategies.
Financial sector:
- Further improvements in financial supervision given rising risks to financial stability.
Structural reforms and external support:
- Undertake structural reforms to promote private sector-led growth to meet fiscal and development challenges.
- Continued support from the international community, through grant financing and debt relief, would be essential.

Press Release No. 21/22 — January 25, 2021; IMF Communications Department