Private Sector Reform Can Promote Tonga’s Growth

Infrastructure, Private Sector Reform Can Promote Tonga’s Growth - ADB Report

Investing in infrastructure and nurturing private sector-led growth is essential to putting the Tongan economy on a path to more sustainable and inclusive growth, according to the Tonga Economic Update and Outlook 2012, released today by the Asian Development Bank (ADB).

The report, jointly funded by ADB and the Australian Government, outlines the state of the economy and notes that infrastructure spending not only provides a timely boost to jobs and economic activity, but also creates a legacy of assets that could have long-lasting economic benefits. It also highlights the importance of investing in human resources.

“People are Tonga’s greatest asset. A skilled, educated, and healthy workforce will help deliver sustainable economic growth while opening up more opportunities for external migration,” said Laisiasa Tora, ADB economist for Tonga.

Government has made efforts in recent years to improve the policy environment for economic growth and private sector development, including liberalizing trade and foreign direct investment legislation, improving policy coordination, strengthening the link between planning and budgeting, simplifying the tax system and broadening the tax base, reforming state-owned enterprises (SOEs), and strengthening public sector financial management by introducing a medium-term budget framework.

While good progress has been made in these areas, the report warns there is little room for complacency. The government’s fiscal position remains at significant risk given the high level of public debt, the large public sector wage bill, and poorly performing SOEs.

The report supports the government's goal of promoting inclusive, sustainable growth through the development of its private sector. Although small and geographically challenged, Tonga’s private sector has the potential to grow if the business climate is improved by reforms to streamline business laws and regulations.

The Tonga Economic Update and Outlook 2012 is the result of a joint project between ADB and the Australian Agency for International Development (AusAID). The report is part of ADB’s Pacific Islands Economic Report series, which aims to assist governments to formulate policy through deeper analysis of a country’s macroeconomic challenges and development prospects.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2012, ADB assistance totaled $21.6 billion, including cofinancing of $8.3 billion.

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