The Tongan government is aiming to spend one fifth of domestic revenue on government services, half of its domestic revenue on wages and a debt to GDP ratio of less than 50 percent.

Tonga’s Ministry of Finance and National Planning said the three financial targets would be the basis for future budget planning.

The Ministry said the targets would not always be met, but when this happened budgets would be adjusted to keep the targets as a medium term aim.

While the three-year ahead forecasts of budgetary outcomes would vary from year to year, these medium-term targets were expected to remain constant over time.

The three targets are:

A target of 22 percent of domestic revenue relative to GDP, which represents the amount needed to sustain government services, after accounting for other sources of funding such as external grants.

The second is a financial target reflecting the amount the government can spend on wages while preserving sufficient space for other essential spending on goods and services, etc.

This a wage to domestic revenue ratio of less than 53 percent, moving towards 50 percent.

The third is a government debt target which represents how much debt the government can accumulate while maintaining the fiscal space necessary to respond to national emergencies. This is expressed as a ratio of external debt to gross domestic product of less than 50 percent.

The Ministry said the fiscal targets had been set to insure it against fiscal risks while maintaining public services.

“The Government of Tonga is committed to providing the highest quality of public services and the most competitive public sector wages possible, while maintaining fiscal sustainability so that we can also ensure quality services for future generations,” the  Ministry said.

“Over the past five years, the government has made major steps in improving the health of the public finances, and this has put the country in a strong position to face the future and support a high quality of life for all Tongans.

“These targets have been developed based on robust economic modelling within the Ministry of Finance and National Planning, which has taken into account the possibility of shocks such as natural disasters happening in the future, and the destabilizing impact they can have on the public finances.”

The  main points

• The Tongan government is aiming to spend one fifth of domestic revenue on government services, half its domestic revenue on wages and a debt to GDP ratio of less than 50 percent.
• Tonga’s Ministry of Finance and National Planning said the three financial targets would be the basis for future budget planning.
• The Ministry said the targets would not always be met, but when this happened budgets would be adjusted to keep the targets as a medium term aim.
• While the three-year ahead forecasts of budgetary outcomes would vary from year to year, these medium-term targets were expected to remain constant over time.