By PMN
The destruction from the 2006 riots, pictured, led Tonga to secure a major Chinese loan to fund reconstruction of the capital. Additional loans were later used for road upgrades and the International Dateline Hotel. Photo: Photo/John Ewen via Wikimedia Commons (CC BY-SA 2.5)
China's embassy in Tonga has taken to Facebook to defend its loans to the Kingdom, following fresh media coverage and concerns about the country's rising debt.
The Facebook post, shared on 24 April, says China gave the loans to help Tonga during a difficult time.
"Recently, there were news reports on the loans provided by China to Tonga many years ago," the post says.
"China offered concessional loans to Tonga based on the principles of bilateral friendship and equal cooperation.
"When Tonga was in trouble and asked for loans to ease economic pressure, China was the only country to lend a helping hand."
The embassy says China's Export-Import Bank has provided three concessional loans.
One of them has already been paid off for the International Dateline Hotel.
The other two, for rebuilding Nukuʻalofa's CBD and upgrading national roads, are still being repaid. The remaining debt is about USD$58 million (about NZD$97 million).
China says the loans helped Tonga's economy and were similar to those offered by the World Bank and the International Monetary Fund (IMF).
The embassy also says China has given Tonga more time to repay through debt rollovers and grace periods, including under the G20 debt relief programme.
"We hope an objective and fair position could be observed on this matter without misleading the public with groundless speculation," the Facebook statement concludes.
China's response follows recent media reports highlighting concerns about Tonga's debt.
ABC Pacific reported on 21 April that Tonga still owes around US$190 million (about NZ$318 million) in external debt, two-thirds of which is to China.
Former Prime Minister Siaosi Sovaleni told ABC Pacific, "We took the loan, benefited from it, so we must pay it back. Otherwise, we are just passing this burden on to our children and their children."
Republishing and expanding on the ABC Pacific story, PINA reported on 22 April that the Lowy Institute warned the debt has become "a millstone around Tonga's neck."
The original loan was taken out to help Tonga recover after the 2006 riots, which damaged 80 per cent of central Nukuʻalofa.
In 2007, Tonga and China signed a concessional loan deal worth about TOP 118 million (about NZD$83 million). The money was disbursed from 2009 to 2012.
The loan had an interest rate of two per cent and was meant to be repaid over 21 years. It included a five-year grace period, which was later extended. Management and commitment fees also applied.
Most funds were used for government projects; the rest were lent to private businesses. However, many of those businesses struggled to repay the loans.
Work included rebuilding buildings like the Tungi Colonnade, fixing streets and drains, and building the Vuna Wharf. Chinese construction firms China Civil Engineering Construction Corporation (CCECC) and China Railway Construction Corporation (CRCC) carried out the project.
A joint IMF and World Bank debt sustainability analysis says Tonga is still at high risk of debt distress.
The 2024 report shows Tonga's external debt was USD$ 189 million (about NZD$ 316 million), or 38 per cent of GDP. More than half of it is owed to China.
Debt repayments jumped to 3.5 per cent of GDP in 2024 and will likely stay high until 2027.
The World Bank says Tonga's debt could pass safely by 2034 without more grants or tighter budgets.
Both institutions say Tonga needs to manage its debt carefully and work to bring in more financial support.
China has already allowed Tonga to delay repayments twice. The grace period was extended to 10 years in 2013 and again to 15 years in 2018.
This means Tonga only started repaying the principal in September 2023 and will finish in 2028.
While the loans were intended to help rebuild the capital, support businesses, and build infrastructure, some worry they have made Tonga too dependent on outside help.
Political commentator and community leader Melino Maka, writing for the Tonga Independent News, defends the former government's decision to forgive 25 per cent of the loans owed by four private companies.
He says the buildings were poorly built, and the businesses couldn't repay loans on defective properties.
"The Sovaleni government made a pragmatic decision ... In return, the businesses agreed to fix the problems and paid back $5 million (about NZD$8.4 million)," Maka writes.
He says the government also worked out a deal to repay the debt to China by 2030.
"The reality is simple: the government acted in good faith to protect the public interest... The bigger issue now is not just the loan, but the quality of governance and public discourse in our nation."
-This article was first published by PMN.
