Government of Tonga Budget Statement for year ending 30th June 2016 ii | P a g e Government of Tonga Budget Statement for year ending 30th June 2016 Table of Contents 1 Foreword _____________________________________________________________ 11 2 Introduction __________________________________________________________ 13 3 Executive Summary ____________________________________________________ 14 3.1 Underlying Conditions ___________________________________________________ 14 3.2 Recent Fiscal Trends _____________________________________________________ 17 3.3 Summmary of the Budget_________________________________________________ 18 4 Tonga Strategic Development Framework 2015-2025 _________________________ 21 4.1 Tonga Strategic Development Framework 2015-2025 __________________________ 21 4.2 Government Priority Agenda _____________________________________________ 23 5 Economic and Social Development Outcomes and Outlook_____________________ 25 5.1 Global and Regional Development _________________________________________ 25 5.1.1 Global Highlights _____________________________________________________________________ 25 5.1.2 Regional Highlights ____________________________________________________________________ 26 5.1.3 Growth in Tonga compared to the Region ___________________________________________________ 29 5.2 Recent Economic Outcomes & Outlook for Tonga ____________________________ 30 5.3 GDP Sector Outcomes ___________________________________________________ 32 5.3.1 Primary Sector ________________________________________________________________________ 32 5.3.1.1 Agriculture Sector __________________________________________________________ 33 5.3.1.2 Forestry Sector _____________________________________________________________ 35 5.3.1.3 Fisheries Sector ____________________________________________________________ 36 5.3.2 Secondary Sector ______________________________________________________________________ 37 5.3.2.1 Construction _______________________________________________________________ 38 5.3.2.2 Mining and Quarrying _______________________________________________________ 39 5.3.2.3 Electricity and Water Supply __________________________________________________ 39 5.3.2.4 Manufacturing _____________________________________________________________ 40 5.3.3 Tertiary Sector ________________________________________________________________________ 41 5.3.3.1 Wholesale and Retail Trade ___________________________________________________ 41 5.3.3.2 Hotels and Restaurants ______________________________________________________ 42 5.3.3.3 Transport and Communication ________________________________________________ 43 5.3.3.4 Financial Intermediation _____________________________________________________ 44 5.3.3.5 Public Administration and Services _____________________________________________ 44 5.3.3.6 Ownership of Dwellings ______________________________________________________ 44 5.3.3.7 Education, Health and Social Work _____________________________________________ 45 5.3.3.8 Recreation, Cultural and Sporting Activities ______________________________________ 45 5.4 Fiscal and Debt Outcomes ________________________________________________ 46 5.4.1 Domestic Fiscal Position ________________________________________________________________ 46 5.4.2 Public Debt Position ___________________________________________________________________ 49 5.4.2.1 Total Public Debt ___________________________________________________________ 50 5.4.2.2 External Debt ______________________________________________________________ 51 5.4.2.3 Currency Denomination of External Debt ________________________________________ 52 5.4.2.4 Domestic Debt _____________________________________________________________ 52 5.4.2.5 Debt Service _______________________________________________________________ 53 iii | P a g e Government of Tonga Budget Statement for year ending 30th June 2016 5.4.2.6 On-lent Debt and Guaranteed Debt ____________________________________________ 53 5.4.2.7 Summary of Debt Ratios _____________________________________________________ 55 5.5 Balance of Payments Outcomes ____________________________________________ 56 5.5.1 Official Foreign Reserves _______________________________________________________________ 56 5.5.2 Foreign Exchange Payments _____________________________________________________________ 56 5.5.3 Foreign Exchange Receipts _____________________________________________________________ 57 5.5.4 Real and Nominal Exchange Rates ________________________________________________________ 58 5.6 Monetary Outcomes _____________________________________________________ 59 5.6.1 Inflation _____________________________________________________________________________ 59 5.6.2 Lending and Deposits Balances & Interest Rates _____________________________________________ 60 5.6.2.1 Lending Balances ___________________________________________________________ 60 5.6.2.2 Deposit Balances ___________________________________________________________ 60 5.6.2.3 Interest Rates ______________________________________________________________ 61 5.6.3 Broad Money Balances _________________________________________________________________ 62 5.6.4 Total Banking System‟s Position and Performance ___________________________________________ 63 5.6.5 Monetary Policy Stance ________________________________________________________________ 63 5.7 Social and Community Outcomes for Tonga _________________________________ 64 5.7.1 Health Performance ___________________________________________________________________ 64 5.7.2 Education Performance _________________________________________________________________ 65 5.7.3 Labour Force Participation in Tonga ______________________________________________________ 66 5.7.4 Changing Demographics in Tonga ________________________________________________________ 67 5.7.5 Parliament Constituency Report __________________________________________________________ 68 5.8 Poverty Reduction and Social Protection ____________________________________ 69 5.8.1 Old Age Social Assistance: 70 years and older _______________________________________________ 69 5.8.2 New Division of Social Protection and Disability _____________________________________________ 71 5.8.3 National Aged Care Services _____________________________________________________________ 71 5.8.4 National Disability Services _____________________________________________________________ 71 6 Government Budget: Funding the Outputs __________________________________ 73 6.1 Budget Strategy _________________________________________________________ 73 6.2 Detailed Priorities _______________________________________________________ 75 6.2.1 Economic Institutions __________________________________________________________________ 75 6.2.2 Social Institutions _____________________________________________________________________ 77 6.2.3 Political Institutions ____________________________________________________________________ 78 6.2.4 Infrastructure & Technology Inputs________________________________________________________ 80 6.2.5 Natural Resources & Environment Inputs ___________________________________________________ 81 6.3 Government of Tonga Recurrent Budget ____________________________________ 81 6.4 Government of Tonga Development Budget _________________________________ 85 6.4.1 Overview of Aid Funded Projects and Programs ______________________________________________ 85 6.4.2 Aid Funded Project Expenditure by Ministry ________________________________________________ 85 6.4.3 Major Project Expenditure (grant and loan) by Development Partners _____________________________ 90 6.4.4 Development Expenditure by Region and National ____________________________________________ 92 6.4.4.1 Projects in Tongatapu _______________________________________________________ 92 6.4.4.2 Projects based in Vava’u _____________________________________________________ 93 6.4.4.3 Projects based in Ha’apai ____________________________________________________ 94 6.4.4.4 Projects based in ‘Eua _______________________________________________________ 95 6.4.4.5 Projects based in NTT and NF _________________________________________________ 96 6.4.4.6 National Projects ___________________________________________________________ 97 6.5 Government Budget: Funding the Outputs __________________________________ 98 6.5.1 Government Domestic or “Recurrent Budget” _______________________________________________ 98 iv | P a g e Government of Tonga Budget Statement for year ending 30th June 2016 6.6 Budget Presented in the GFS Format _______________________________________ 99 6.6.1 Overall Fiscal Balance __________________________________________________________________ 99 6.6.2 Total Expenditure ____________________________________________________________________ 100 6.6.2.1 Total Expenditure by Location ________________________________________________ 101 6.6.2.2 Current Expenditure _______________________________________________________ 102 6.6.2.2.1 Compensation of Employees ______________________________________________ 102 6.6.2.2.2 Use of Goods and Services ________________________________________________ 103 6.6.2.2.3 Social Benefits _________________________________________________________ 103 6.6.2.2.4 Interest payments ______________________________________________________ 103 6.6.2.2.5 Subsidies ______________________________________________________________ 104 6.6.2.2.6 Grants ________________________________________________________________ 104 6.6.2.2.7 Other Expenses _________________________________________________________