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Governance and Public Sector Managemen

Helping Tonga Strengthen its Public Sector Economy

  • Project Name: Building Macroeconomic Resilience Program
  • Region/Country: Pacific/Tonga
  • Sector and Themes: Governance and Public Sector Management
  • Year: 2019
  • Project Leaders: Ananya Basu
Helping Tonga Strengthen its Public Sector Economy
The grant will help Tonga strengthen its fiscal position by adopting prudent policies and better public financial management, and improve the country’s business climate with policy, regulatory, and public enterprise reforms.

The program has been critical for better management of government spending and costs.

—Lia Maka, chief executive officer, Tonga Public Services Commission

Development challenge

Like other small island developing states, Tonga is far from the mainstream of regional and global economic activity. Resources and current sources of income are limited, and the private sector is sparse. Governance and institutional issues, such as complex laws that have discouraged potential foreign investors, and public spending that has often outstripped public revenues, have not made economic growth and development any easier. Tonga, which buys more from the rest of the world than it sells, is exposed and vulnerable to external economic shocks.

Solution

ADB and Tonga employed policy-based support to work together on the country’s root governance and institutional challenges under the Building Macroeconomic Resilience Program, with funding from the Asian Development Fund. The program provided $10.25 million as grants and approximately $4.15 million in concessional loans through 3 subprograms in 2016–2019. It was targeted at improving Tonga’s fiscal position by adopting prudent policies and better public financial management and supporting the business climate by continuing policy, regulatory, and public enterprise reforms.

Knowledge products and services delivered

The TA support from ADB helped strengthen public financial management to boost tax revenue. It aided adjustment of the public service salary structure, and supported policy reforms to make the tax regime more productive and efficient. It raised the performance of the country’s public enterprises and made the investment environment more hospitable to private businesses. The program also reviewed the public service salary and performance structures, and analyzed the private sector development environment in Tonga.

Impact and results

The program helped raise tax revenues as a share of GDP from 17.4% in the 2011 to 2015 fiscal years, to 21.0% in the 2017 to 2019 fiscal years. It introduced policy and legislative frameworks for foreign investment, contracting, and bankruptcy; and reformed five public enterprises to promote efficiency of service delivery. The project has helped government agencies improve management of public spending, and civil service performance has also improved. The second phase of the project strengthened public financial management to boost tax revenue, adjusted the public service salary structure, raised the performance of the country’s public enterprises, and made the investment environment more hospitable to private businesses.

Lessons for Replication

Lessons from the program include the importance of building ownership of reform through participation and consensus, incorporating the need for capacity and institutional development, and keeping the program design simple and flexible. Provision of significant TA to undertake knowledge work helps to underpin reforms.

Hashtags:
#Tonga #Economy #PublicSector #Macroeconomics #EconomicAffair
Find out more: https://www.adb.org/projects/48361-003/main
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