[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-detail-111069-en":3,"doc-seo-111069-105":29,"detail-sidebar-cat-0-en-105":91},{"code":4,"msg":5,"data":6},0,"success",{"doc_id":7,"user_id":8,"nickname":9,"user_avatar":10,"doc_module":4,"category_id":11,"category_name":12,"doc_title":13,"doc_description":14,"doc_content":15,"file_id":16,"file_url":17,"file_type":18,"file_size":19,"view_count":20,"is_deleted":4,"is_public":20,"is_downloadable":20,"audit_status":20,"page_count":21,"language":22,"language_code":23,"site_id":24,"html_lang":23,"table_of_contents":25,"faqs":26,"seo_title":13,"seo_description":14,"update_tm":27,"read_time":28},111069,1099513958607,"Jiven","https://ap-avatar.wpscdn.com/avatar/100002390cf8733938c?x-image-process=image/resize,m_fixed,w_180,h_180&k=1778829742770036399",8,"Research & Report","Tonga - Joint Bank-Fund Debt Sustainability Analysis - High Risk of External Debt Distress","Tonga’s joint IMF-World Bank Debt Sustainability Analysis finds a high risk of external debt distress and an overall high risk of debt distress. Even after fiscal consolidation before the pandemic, repeated shocks since 2020 increased public debt to above 40 percent of GDP before FY2023, with elevated financing needs expected from FY2026 onward as grant commitments decline and SDG and climate resilience spending continues. Under the baseline, key debt-burden indicators breach high-risk thresholds starting FY2035 and remain above them through FY2044. A large natural-disaster shock would further worsen debt sustainability, increasing the urgency of stronger revenue mobilization and expenditure measures to rebuild fiscal buffers and resilience.","Public Disclosure Authorized  \nPub lic Disc losure Authorized  \nApproved by:  \nManuela Francisco and Lalita Moorty (IDA) , and Lamin Y.M. Leigh and Bergljot Bjornson Barkbu (IMF)  \nPrepared by the staff of the International Development Association (IDA) and the International Monetary Fund (IMF)  \n\n| TONGA: JOINT BANK-FUND DEBT SUSTAINABILITY ANALYSIS |  |\n| --- | --- |\n| Risk of external debt distress | High |\n| Overall risk of debt distress | High |\n| Granularity in the risk rating | Sustainable |\n| Application of judgment | Yes. Considering the expected significant breach over the extended projection horizon from FY2035 until FY2044 and the impact of natural disasters on debt dynamics. |\n\nThe risk of debt distress rating for Tonga remains high.1 Before the pandemic, public debt had gradually declined from FY20152 to FY2019 owing to much-needed fiscal consolidation. Since 2020, however, the economy has been hit by multiple shocks. In response, the international community provided significant financial support through grants, concessional loans, and debt service suspensions. Nevertheless, public debt rose to over 40 percent of GDP and remained elevated until FY2023 . In FY2025, the public debt-to-GDP ratio is expected to decline to 31.5 percent, reflecting increased external debt repayments. At the same time, the fiscal deficit is expected to widen sharply in the coming years due to a gradual decline in grants under current commitments and continued spending needs related to the sustainable development goals (SDGs) and climate resilience. This will result in double-digit gross financing needs as a share of GDP annually from FY2026 onward. Debt service will remain elevated in FY2026 due to scheduled repayments to the China Exim Bank. Under the baseline scenario, the present value (PV) of the external debt-to-GDP ratio is expected to breach the high-risk threshold starting in FY2035, while the PV of public debt-to-GDP ratio is also expected to exceed its indicative threshold in the same year. Both debt burden indicators are projected to remain above their respective thresholds through 2044. A tailored, large natural disaster shock would further worsen debt  \n1 The Tonga Composite Indicator (CI) index, calculated based on the April 2025 World Economic Outlook (WEO) and the 2023 Country Policy and Institutional Assessment (CPIA), is at 3.09; hence, Tonga’s debt carrying capacity classification remains “strong”.  \n2 All the figures are computed using fiscal year beginning in July, e.g. , FY2024 runs from July 1, 2023, to June 30, 2024.  \nsustainability. To rebuild fiscal buffers and enhance resilience to shocks, measures for stronger revenue mobilization and expenditure  \n1. Tonga’s public debt includes obligations of the central government, local governments, other elements of the general government, and central bank. The central bank’s debt is borrowed on behalf of the government. Local governments do not incur debt, nor do other entities in the general government. As of end-December 2024, other government-guaranteed debt was small, about 1.2 percent of GDP. 3 Since the Debt Sustainability Analysis (DSA) coverage does not include debt of state-owned enterprises (guaranteed and non-guaranteed) due to data limitations, an additional 2 percent of GDP is added to the contingent liability test. Contingent liabilities also include a standard 5 percent of GDP cost to the government of a financial crisis, which is above the existing stock of financial sector NPLs.4 The government has approved and published a revised guarantee policy and the new on-lending policy to improve contingent liabilities management, supported by the World Bank’s FY25 SDFP in FY25 . These measures could help mitigate fiscal risks associated with on-lending and guarantees. The DSA is conducted on a residency basis. The coverage is appropriate for the DSA but would be enhanced if the debt of SOEs were available.5  \n\n|  |\n| --- |\n| 1 Subsectors of the public sector S","cbCaiva308OaMrO1","https://ap.wps.com/l/cbCaiva308OaMrO1","pdf",1776293,1,22,"English","en",105,"# Key Risk Findings\n## External and Overall Risk Ratings\n## Judgment and Disaster Sensitivity\n# Debt Dynamics Under the Baseline\n## Public Debt Path and Financing Needs\n## Threshold Breaches (FY2035–FY2044)\n# Scope, Coverage, and Contingent Liabilities\n## Public Debt Subcomponents\n## Contingent Liability Add-ons and Policy Measures\n## Data Limitations and SOE Debt Coverage","[{\"question\":\"What is Tonga’s assessed risk of debt distress?\",\"answer\":\"The analysis rates both the risk of external debt distress and the overall risk of debt distress as high.\"},{\"question\":\"When do the debt indicators breach the high-risk thresholds under the baseline scenario?\",\"answer\":\"The present value of external and public debt-to-GDP indicators is expected to breach its respective high-risk thresholds starting in FY2035 and remain above them through FY2044.\"},{\"question\":\"Why do fiscal financing needs widen in the coming years?\",\"answer\":\"Financing needs increase because grants decline gradually under current commitments while spending needs for the SDGs and climate resilience continue, producing double-digit gross financing needs from FY2026 onward.\"}]",1784488431,55,{"code":4,"msg":30,"data":31},"ok",{"site_id":24,"language":23,"slug":32,"title":13,"keywords":33,"description":14,"schema_data":34,"social_meta":86,"head_meta":88,"extra_data":90,"updated_unix":27},"tonga-joint-bank-fund-debt-sustainability-analysis-high-risk-of-external-debt-distress","",{"@graph":35,"@context":85},[36,53,68],{"@type":37,"itemListElement":38},"BreadcrumbList",[39,43,47,50],{"item":40,"name":41,"@type":42,"position":20},"https://docshare.wps.com","Home","ListItem",{"item":44,"name":45,"@type":42,"position":46},"https://docshare.wps.com/document/","Document",2,{"item":48,"name":12,"@type":42,"position":49},"https://docshare.wps.com/document/research-report/",3,{"item":51,"name":13,"@type":42,"position":52},"https://docshare.wps.com/document/tonga-joint-bank-fund-debt-sustainability-analysis-high-risk-of-external-debt-distress/111069/",4,{"url":51,"name":13,"@type":54,"author":55,"headline":13,"publisher":57,"fileFormat":60,"inLanguage":23,"description":14,"dateModified":61,"datePublished":62,"encodingFormat":60,"isAccessibleForFree":63,"interactionStatistic":64},"DigitalDocument",{"name":9,"@type":56},"Person",{"url":40,"name":58,"@type":59},"DocShare","Organization","application/pdf","2026-07-20","2026-07-19",true,{"@type":65,"interactionType":66,"userInteractionCount":20},"InteractionCounter",{"@type":67},"ViewAction",{"@type":69,"mainEntity":70},"FAQPage",[71,77,81],{"name":72,"@type":73,"acceptedAnswer":74},"What is Tonga’s assessed risk of debt distress?","Question",{"text":75,"@type":76},"The analysis rates both the risk of external debt distress and the overall risk of debt distress as high.","Answer",{"name":78,"@type":73,"acceptedAnswer":79},"When do the debt indicators breach the high-risk thresholds under the baseline scenario?",{"text":80,"@type":76},"The present value of external and public debt-to-GDP indicators is expected to breach its respective high-risk thresholds starting in FY2035 and remain above them through FY2044.",{"name":82,"@type":73,"acceptedAnswer":83},"Why do fiscal financing needs widen in the coming years?",{"text":84,"@type":76},"Financing needs increase because grants decline gradually under current commitments while spending needs for the SDGs and climate resilience continue, producing double-digit gross financing needs from FY2026 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