Tonga 2020/AGILE REPORT/

The Kingdom of Tonga is a constitutional monarchy with a legal system based on English common law. The Chief of State is the King, and the Head of Government is the Prime Minister who is elected by a unicameral Parliament. Parliament consists of 17 people's representatives directly elected in single-seat constituencies by simple majority vote, and nine indirectly elected by hereditary leaders; members serve five-year terms.

The population of Tonga is estimated at 106,000 (2018) with a per capita income of US$ 5,900 as at 20171. Tonga’s economy grew 0.32 percent in 2017/18, against 1.1 percent initially forecast, reflecting the impact of Tropical Cyclone (TC) Gita which caused serious damage to various sectors of the economy.

Fiscal trends
The government’s 2019/20 Budget Statement set outs the main economic indicators and fiscal targets. It also includes information on numerical and qualitative objectives as well as quantitative targets for the budget year and the following two fiscal years based on four key ‘fiscal anchors’ as set out in table A1 below: i) raise domestic revenue collections to pre-global financial crisis levels (at least 22% of GDP); ii) minimize external borrowing, and only borrow externally on highly concessional terms; iii) maintain nominal external debt below 50 percent of GDP; and iv) maintain staff cost at no more than 53 percent of domestic revenue.

The 2019/20 budget projects a small positive fiscal balance (net lending $10.2m), in 2019/20, and positive fiscal balances projected for the two following fiscal years as shown in chart A2. However, it should be noted in this context, that the budget is very dependent on development partner revenues for general budget support and development fund expenditure (major capital investment and other projects). Building on these positive balances, external debt for 2019/20 is projected at 42.7% of GDP, below the government’s target of 50%, but higher than the IMF’s suggested target of 40%.

Rationale and purpose of the assessment
The objective of the Tonga PEFA assessment is to measure the current performance of public financial management (PFM) systems using an objective, internationally-recognized standard. This assessment, together with the draft supplementary gender responsive budgeting (GRB) assessment, identifies the key weaknesses in PFM and the main underlying causes. It also tracks PFM performance against the most recent formal PEFA assessment in accordance with the PEFA Secretariat’s guidance. The assessment will be used to report progress against Tonga’s existing PFM Roadmap and identify reforms, milestones and deadlines in developing a new PFM Roadmap going forward. The assessment will also provide a basis for dialogue within the government on determining its future PFM reform priorities and for development partners to plan their technical support accordingly. The assessment has also provided country officials with experience in using the PEFA to build country capacity to periodically conduct their own self-assessment.

Assessment management and quality assurance
The PEFA assessment was led by the Ministry of Finance (MoF) of the Government of Tonga and was funded by IMF Pacific Financial Technical Assistance Center (PFTAC). The Chief Executive Office of the MoF chaired the oversight team managing the assessment. The oversight team also included the Deputy Auditor General, Deputy CEOs of the Ministries of Finance, Infrastructure and Education and Training, and a representative of the local office of the World Bank. The assessment team was led by Celeste Kubasta (PFTAC advisor) and included Richard Neves (PFTAC advisor) and Kris Kauffman (PFTAC expert), Martin Bowen and Urška Zrinski (PEFA Secretariat), and Kelera Kolivuso Ravono (MoF Fiji). Quality assurance has been applied in accordance with the PEFA Secretariat guidelines. Five reviewers have been nominated: Ministry of Finance, PEFA Secretariat, IMF Fiscal Affairs Division, World Bank, and the Australian Department of Foreign Affairs and Trade. Further details on the assessment management and quality assurance arrangements are presented in Annex 1.

The PEFA assessment was undertaken in accordance with the PEFA 2016 methodology using the pilot ‘Agile PEFA’ approach. The assessment covers 31 indicators and 91 dimensions. As Tonga has no SNGs, PI-7 and PI-10.2 are NA. A supplementary annex tracking performance of selected indicators since the previous PEFA assessment in 2010 using the 2005 framework has also been prepared. The assessment also included the application of the supplementary assessment framework for GRB, recently developed by the PEFA Secretariat. This is presented as a separate report.

Scope and coverage
The scope of the PEFA assessment covers the central government, i.e. entities receiving budget allocations from the central government’s budget including 25 budgetary units (line ministries and agencies); three project management units that represent extrabudgetary operations and, to the extent that they present a fiscal risk to the government, 15 public corporations. There are no units that are classified as extrabudgetary units3. Two entities, the National Retirement Benefit Fund and Retirement Fund Board are considered to be public sector organizations in accordance with GFS, i.e., outside central government. For the purposes of the agile assessment, all budgetary units and the five largest public corporations were reviewed as part of this assessment. A list of agencies covered by the assessment is presented at Annex 2.

Public financial management is underpinned by the Public Financial Management Act 2002. TheAct is supported by detailed Treasury Instructions 2010. A separate Public Audit Act 2007 provides the legal framework for audit activity. The Revenue Services Administration Act of 2002 governs the Ministry of Revenue and Customs.

Sources of information
The assessment team consulted a wide range of documents from various sources including government ministries and development partners. Evidence used is highlighted for each indicator and dimension. Where this information is available publicly on the government website the relevant link is noted. A consolidated list of documents used for this assessment, including by indicator, can be found in Annex 3. The names of all persons interviewed are listed in Annex 4.