Tonga asks China to restructure heavy debt load

SYDNEY, (Reuters) - The Pacific island nation of Tonga has asked Beijing to restructure its large bilateral debt load, the government said yesterday, as the pandemic upends the region’s tourism revenues and an onerous Chinese loan repayment schedule looms.

Tonga is one of the biggest Chinese debtors in the South Pacific, with its financial reliance dating back to loans taken more than a decade ago to rebuild its capital, Nuku’alofa, after riots.

The small economy, largely dependent on external aid and remittances from Tongans living abroad, has since taken out additional loans.

Tonga is due to make small principal repayments to the Export-Import Bank of China (EXIM) this financial year before the schedule ramps up in 2023-2024, when it will need to set aside about 15% of revenue to service external debts.

“Government is putting in place a strategy to prepare for future payment of these EXIM loans while noting that it has further requested a restructure of both loans,” the government said in a budget statement.

Tonga’s government did not respond to questions. Two sources with knowledge of its financial position told Reuters it had asked for the debt to be cancelled, but had yet to receive Beijing’s response.

The foreign ministry in Beijing did not immediately respond to a request for comment.

Tonga has previously got reprieves on the timing of principal repayments, though the debt has remained outstanding. Its total external debt stands at $186 million, with almost two-thirds owed to China, the budget statement shows.

The United States and its Western allies worry that China is using debt to secure influence over strategically located Pacific islands, claims China has repeatedly denied.

In February, the International Monetary Fund said that despite recent prudent management, Tonga’s risk of external debt distress was high due to past borrowing.

With no confirmed coronavirus infections, Tonga has been easing internal controls, though travel restrictions around the world have devastated the tourism industry in the Pacific.

“Most money coming into Tonga at the moment is through remittance,” said Simana Kami, owner of the Oholei Beach Resort, adding that most of his customers arrived on cruise ships or via international flights.

“Those without relatives earning an income overseas are suffering,” he told Reuters by telephone. “We are open, but not at breakeven. It’s sad, we are an empty paradise.”