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

_IMF News, January 25, 2021_

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## Bibliographic details
- Published: January 25, 2021

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### Executive action and financing details
- 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.

### Macroeconomic context and outlook
- 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.

### Domestic policy performance and immediate response
- 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

### Policy recommendations and medium-term priorities
- 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*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Tonga and the IMF](http://www.imf.org/external/country/TON/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2021/01/26/pr2122-tonga-imf-executive-board-approves-disbursement-to-tonga_