KINGDOM OF TONGA - SPREP

Strategic Development Plan 8 2006/07-2008/09
appropriated in the budget. Most of the remaining amount was to be met by
$10.1 million in savings ― cancelling capital and program expenditure ($5.4
million), freezing 899 vacancies that existed at 1 July 2005 ($3.2 million) and
cutting administrative expense-related items, machinery repairs and construction
materials ($1.6 million). The Contingency Fund provided another $1 million,
leaving a $3.7 million shortfall. The latter was to be covered by the February 2006
Cabinet decision to defer automatic salary increments, cease all acting
appointments, and replace cash overtime payments with non-monetary
compensation.
Government thus sought to maintain aggregate fiscal discipline in
2005/06 while minimizing adverse impacts on government operations. However,
a major fiscal problem loomed in 2006/07, when the postponed second tranche
of 40% of the salary increases had to be paid, as well as the full 100% of the salary
increases ― which necessitated the initiation of a civil service downsizing
exercise in the latter half of 2005/06 (see chapter 4, strategy 2). Additionally, the
civil service wage rise had flow-on effects to the private sector that potentially
reduced business profitability and added to inflationary pressures.
Macroeconomic stability is a national goal, the achievement of which is
important to public welfare and critical to encouraging private sector
development. Macroeconomic policies are discussed in Chapter 5 and the
economic and fiscal outlooks for the SDP8 period are presented in Chapter 13.
In sum, the period FY2000-FY2006 was characterised by:
• modest, fluctuating economic growth
• rising inflation largely due to currency depreciation forced by low foreign
exchange coverage of imports
• continued heavy reliance on private remittances and foreign aid as
sources of foreign exchange
• increased pressure on Government to maintain aggregate fiscal discipline
and improve the strategic allocation of public resources, while
simultaneously providing for civil service salary increases.
Looking to the Future, Building on the Past 18