Time to Rethink TDB’s Dual Mandate
Part I, Engine of Growth Series
The Tonga Development Bank (TDB) was established with a dual mandate: to operate as both a commercial bank and a development lender. In practice, this hybrid role has proved unworkable. Combining profit-driven banking with socially motivated lending has constrained efficiency, blurred accountability, and limited the availability of capital for small and medium-sized enterprises (SMEs).
By 2020, state-owned enterprise returns had fallen to just 3.1 per cent. This weak performance coincided with Tonga’s rising dependence on foreign creditors, particularly China, where outstanding debt now exceeds $100 million. TDB’s inability to deliver on either commercial competitiveness or targeted development lending has left space for foreign banks and businesses to expand their footprint in Tonga, often at the expense of local firms and jobs.
This institutional problem is not new. During Hon. Hu’akavameiliku Siaosi Sovaleni’s tenure as CEO of the Ministry of Public Enterprises, reforms also reshaped SOE governance, reducing boards of directors from eight to ten members to just four or five, each responsible for multiple enterprises. The intent was efficiency; the result has been concentration of power and weakened oversight.
The case for reform is clear. Tonga needs both a development bank and a robust commercial bank, but they should be separate entities with distinct objectives. TDB should be focused exclusively on development lending—supporting SMEs, promoting import substitution, and catalysing sectors that struggle to attract foreign capital. At the same time, a locally owned commercial bank could ensure competitive financial services, reduce reliance on foreign banks, and strengthen Tonga’s economic sovereignty.
Restructuring TDB is only the first step. Tonga’s economy remains constrained, with IMF and ADB projecting GDP growth of 2.5 per cent and inflation of 3.2 per cent in 2025. Prime Minister Dr. ‘Aisake Eke’s introduction of a domestic bond market, supported by ADB’s paʻanga-denominated bonds, is a welcome initiative. It offers a pathway to cheaper capital, but the scale remains modest relative to Tonga’s needs.
To expand financing options, Tonga should draw on the strength of its diaspora. With more than 100,000 Tongans overseas sending home approximately $200 million annually in remittances, the potential for diaspora bonds is significant. Countries such as India and Ethiopia have successfully tapped this model to fund infrastructure and green projects. Even a modest uptake could boost Tonga’s GDP by 1–2 per cent annually while retaining talent and reducing reliance on aid.
Another underutilised mechanism is credit unions. The 2021 Credit Unions Act provides a framework to build locally rooted, community-based financial institutions. Credit unions have cut poverty by up to 15 per cent in Samoa and Fiji through affordable rural lending. Similar models, tailored to Tonga’s provinces and districts, could provide grassroots access to credit for SMEs and households.
Recent moves by the National Reserve Bank of Tonga (NRBT), including consultations on the Payment Service Providers Bill, point in the right direction. Ensuring this sector is anchored in local operators, or partnerships where local ownership is preserved, will foster innovation while safeguarding economic stability.
Ultimately, these financial reforms must be embedded within a rethought Tonga Strategic Development Framework. The current aid-heavy, government-centred model has not delivered sustainable results. A new framework should place private-sector dynamism, civil society initiative, and diaspora engagement at the centre of Tonga’s development strategy.
TDB’s restructuring—splitting its commercial and development functions—is a necessary starting point. Combined with diaspora bonds, community-based credit unions, and targeted regulatory reform, Tonga can unlock affordable capital, support SMEs, and reduce its vulnerability to external pressures. The choice is stark. Tonga can continue to rely on external assistance and foreign-controlled finance, or it can take deliberate steps to reclaim economic sovereignty. The path to sustainable growth lies in empowering local institutions, mobilising domestic resources, and aligning national policy with private-sector vitality.
Tevita Motulalo
