Tonga’s TP$233.3 million debt to China won’t go away, says Prime Minister

The Tongan government owes China TP233.3 million and Prime Minister ‘Akilisi Pōhiva has warned that China will not forgive the debt.

And Hon Pōhiva has accused the former government of Lord Sevele of borrowing heavily from China because they  believed China would write off the debt.

Tonga’s debt position was revealed in a recently released Ministry of Finance  statement which says total public debt in January this year was  estimated  at TP$392.6m. Of this, TP$361m was owed to foreign creditors, including  TP$233.3m to China’s Export-Import (EXIM) Bank.

The government owes the Chinese bank TP$138.9m for a loan it took out for the reconstruction of Nuku’alofa after the 2006 riots. It also owes the bank $91.8 million for funding a road project and TP$2.6m owed for the money it borrowed for the Dateline Hotel project.

The Ministry said some of the Chinese money it lent to local borrowers for the reconstruction was handed over without the borrowers having signed any repayment documents.

One of the companies involved is owned by former Prime Minister Lord Sevele.

The Ministry of Finance said Tonga’s second largest creditor was the Asian Development Bank, to which  it owed TP$60.8m and the IDA, to which it owed $50.6m.

The main currencies in which debt is owed are the Chinese  Yuan  at TP $241.2.m  (66.7% of the total debt)  and  TP$119.7 (33.1% of the total debt) in Special  Drawing  Rights. SDRs are a financial mechanism created by the International Monetary Fund.

About TP$51.5m of the borrowed money has been re-lent to businesses in Tonga.

The kingdom’s domestic debt is estimated at TP$30.98m for Government bonds.  A total of TP$19.2m of the bonds are held by financial institutions at $19.2m, while the Retirement Fund Board holds $7.6m worth of bonds.

The government lent TP$42.9m for the rebuilding of the capital’s central business district. About a quarter of the repayments of these loans are in arrears. Companies currently owing money include:

  • Sea Star TP$6.3m
  • G.Sanft Ltd TP$1.04m
  • Taumoepeau Ltd TP$720,000
  • Tungi Colonnade Ltd TP$410,000
  • City Assets Ltd TP$340,000
  • Royco Ltd TP$55,000

The Ministry said Royco, O.G.Sanft, Taumoepeau and Tungi Colonnade had now signed loan agreements. At the time the ministry’s report was published, City Assets Ltd, owned by former Prime Minister Lord Sevele, had not signed a loan repayment agreement.

The Ministry of Finance said only Royco Building was re-paying the money it had borrowed satisfactorily.

Vuna Wharf was also rebuilt from the Chinese loan, even though it was not damaged in the 2006 riots. The Finance Ministry said the  Ports Authority of Tonga was now considering the loan agreement with Government.

No Write-off

Prime Minister ‘Akilisi Pohiva told an audience in Auckland earlier this month the Chinese government would not write off Tonga’s loan for the reconstruction of Nuku’alofa.

Hon. Pohiva said the government of Lord Sevele decided to borrow the money thinking the Chinese government would eventually write it off.

Hon. Pohiva told the audience it was clear now China would not in any way write it off.

The Prime Minister said this was because many other countries had loans from China and if China wrote off Tonga’s loan it would have to write off other countries’ loans as well.

He said two different team of delegates from Tonga were sent by the former government to China in a bid to write off the loan, but to no avail.

“What happens now for the loan from China is we have to stay with it,” the Prime Minister said.

“Just leave it as it is and let’s see.”

Hon Pohiva’s government has said it would create policies to strengthen overseas remittances and avoid borrowing any more money while it tried to pay off its debts.

The main points

  • The Tongan government owes China TP233.3 million and Prime Minister ‘Akilisi Pohiva has warned that China will not forgive the debt.
  • And Hon Pohiva has accused the former government of Lord Sevele of borrowing heavily from China because they believed China would write off the debt.
  • The level of the kingdom’s indebtedness was revealed in a recent Ministry of Finance statement, which showed that total public debt was  estimated  at TP$392.6m.
  • The Ministry said some of the Chinese money was re-lent to local borrowers without them signing any repayment documents.

For more information

Ministry of Finance

Chinese Export-Import Bank

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