In response to ongoing discussion about Tonga’s fiscal strategy and aid dependence, Prime Minister and Minister for Finance Hon. Aisake Eke outlines the Government’s new fiscal model for 2025/26. He explains how concessional lending, bond markets, and private-sector investment will drive sustainable growth and gradually reduce reliance on aid finance.

By Hon. Aisake Eke

Prime Minister and Minister for Finance

Tonga’s economic future depends on building a fiscal model that is both resilient and sustainable. The Government’s 2025/26 Budget Strategy introduces a new approach designed to stimulate private-sector growth, generate higher domestic revenue, and gradually reduce the nation’s reliance on aid finance.

Fiscal Context

The Government’s national goal is to make Tonga more prosperous by developing the economy to its full potential in a way that is sustainable. To achieve this, our policy priorities are to mobilise adequate funding — both domestic and external — to maintain quality public services while building the infrastructure needed for private-sector activities to thrive.

Government Resource Mobilisation Policy

Government financing in the past has been drawn from several sources:

Domestic revenue and domestic debt (such as government bonds)

External revenue, including concessional loans from partners such as China and multilateral institutions like the World Bank, IMF, and ADB, as well as aid grants.

China remains our largest external creditor, following the loan raised in 2006 to reconstruct Nuku‘alofa after the public unrest that year. Once repayment began, our debt service increased substantially. The IMF debt stress assessment advised that Tonga should avoid new external borrowing except under special circumstances.

Since then, the Government has relied on domestic revenue, domestic borrowing, and aid grants, and has not taken on new external loans. This approach has helped maintain fiscal stability. The China loan will be fully repaid by 2029/30, freeing approximately TOP 30 million annually that can be redirected toward new development priorities. This will accelerate national development and raise average per capita income from about TOP 10,000 to TOP 15,000 and eventually to TOP 20,000.

Private Sector Growth Strategy

The Government has long encouraged economic growth through private-sector expansion, mainly by improving policy and regulatory frameworks. However, financing has been left to commercial banks, which lend at relatively high interest rates.

Businesses have repeatedly raised concerns that high borrowing costs make it difficult to operate profitably and expand. This was a major issue discussed during the National Development Summit (NDS) in March 2025, which the Government organised to hear directly from the public and business community about their challenges.

Policy Shift in Budget 2025/26

In response to what we heard at the NDS and from our own economic analysis, the Government decided to make a major policy shift. Under the 2025/26 Budget, we will not only facilitate private-sector activities through policy and regulation, but also provide financial support through concessional lending.

The new initiative offers loans to the private sector at a concessional rate of 3 percent, significantly lower than the commercial average of around 10 percent. These loans will be financed through the issue of government bonds and on-lent to businesses. The Government plans to raise TOP 30 million from the local bond market for this purpose.

In addition, the Asian Development Bank (ADB) will provide further local currency lending — about USD 100 million — at concessional rates. This support complements the Government’s drive to boost private-sector activity and overall economic growth.

Economic Growth as the Engine of Self-Reliance

The provision of low-interest loans to businesses through the bond market will help them expand operations, increase production, and create jobs. Growth in sectors such as fisheries (particularly longline fishing), tourism, agriculture, and manufacturing will raise national output and income levels.

This is an initial step toward restructuring the economy for more resilient, sustainable growth. As private-sector activity expands, domestic revenue will increase, allowing the Government to fund more of its own budget and gradually reduce reliance on aid.