Tonga gets five years' grace on Chinese loan as Pacific nation joins Belt and Road initiative

Nov 16 2018

PHOTO: Tonga's King shakes hands with China's President at a meeting earlier this year. (Reuters: Lintao Zhang)

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Tonga has signed up to China's Belt and Road initiative and received a reprieve from Beijing on the timing of debt payments shortly before an onerous schedule to repay loans was due to start.

Lopeti Senituli, political adviser to Tongan Prime Minister Akilisi Pohiva, said Tonga had signed a Belt and Road memorandum of understanding, and the concessional loan had been deferred for five years.

Tonga is one of eight island nations in the South Pacific that owe a significant debt to China.

The deferment came just as Tonga was set to commence principal repayments on its debt, which is expected to put a severe strain on its finances.

'Can't say no-one warned them'

The Tongan Government will soon begin making repayments on controversial Chinese loans that critics have said saddled the small Pacific nation with unsustainable debt.

China's Ministry of Foreign Affairs did not immediately respond to a request for comment but has previously told the ABC its aid spending was "always sincere and unselfish".

Tonga's financial reliance on China dates back just over a decade to after the deadly 2006 riots in the capital of Tonga, Nuku'alofa, destroyed much of the small Pacific nation's central business and government districts.

The Government rebuilt the city, in part, with Chinese financing provided in 2008 and 2010, and the roughly $90 million in China's initial loans to the island now totals about $160 million, due to interest and additional borrowing.

This figure represents almost one-third of Tonga's annual gross domestic product, budget papers show.

Mr Pohiva has been asking China to write off the debt for months, telling the ABC in August the country was in "debt distress" and urging Pacific island leaders to collectively urge Beijing to waive repayments.

The issue of Chinese-issued debt has been at the forefront of the Asia Pacific Economic Co-operation (APEC) summit, held in Papua New Guinea.

On Saturday, US Vice-President Mike Pence criticised President Xi Jinping's flagship program, saying countries should not accept debt that compromise their sovereignty.

While most Pacific island nations are not APEC members, their representatives were invited to attend events, and have been engaged in talks with larger regional neighbours such as China and Australia.

China's official Belt and Road website reported last week Fiji had made a commitment to Belt and Road, joining the likes of Samoa and PNG.