Debt in Tonga

Tonga's public debt comprised T$309.9 million of external debt and T$89.4 million of domestic debt on 31 March 2026. Multilateral creditors held 65.1% of external debt and China Exim held 34.9%. Debt service reached T$23.9 million in the first quarter of financial year 2025/26, with external debt accounting for 97.4%. No external or domestic payment arrears were reported. Public guarantees totalled T$15.1 million for five private companies, and recovery action was affected by legal proceedings. Government on-lent T$27.1 million, equal to 1.6% of GDP, and T$17.6 million of those loans was in arrears, including T$17.1 million linked to private Nuku'alofa CBD borrowers and T$0.5 million linked to public enterprises. The Government was liaising with borrowers on repayment. Foreign-currency debt represented 77.7% of total public debt. The weighted average interest rate was 1.4% overall, 1.2% on external debt and 2.4% on domestic debt; all public debt was fixed-rate. The International Monetary Fund and World Bank assessed Tonga's risk of debt distress as high, although the current level remained within their sustainability thresholds. Without further grants, the present-value ratios for external debt to GDP and public debt to GDP could exceed 55% and 70% respectively from financial year 2035. Disaster shocks could worsen the position. Current policy limits new external non-concessional borrowing and favours grants and concessional financing, cautious guarantees and careful use of the domestic market. China-related repayments for the Nuku'alofa CBD project are scheduled through financial year 2029 and for the Roads Improvement project through financial year 2030. Suspended China-DSSI amounts are scheduled for servicing through March 2027. The Ministry of Finance, its Financial Framework Division and Debt Management Section handle public debt matters. The National Reserve Bank of Tonga, commonly called NRBT, supervises banks and non-bank financial institutions. The Tonga Development Bank, licensed banks and licensed non-bank financial institutions provide formal credit. TDB products include housing, personal, business, agriculture, fishing, microfinance, education and government-managed funds. Applications normally require supporting documents. Typical TDB rates are about 8% to 13% on a variable or reducing-balance basis, but the exact rate and fees depend on the product. Typical terms are 1 to 12 years for business loans, 1 to 20 years for housing loans, 1 to 3 years for personal loans and 1 to 2 years for microfinance. Some products require at least 25% equity. A TDB housing product lists a rate from 8%, a minimum deposit of 10%, a maximum term of 12 years, mortgage or other assets, a good credit history and a leasehold of at least 20 years; eligibility also includes being a Tongan national or resident. Salary deductions are normally limited to 50%, and a vehicle-loan example requires the borrower to be at least 18, resident in Tonga, creditworthy and able to provide acceptable collateral. Personal approval may take 2 to 3 days, while a term loan may take about 1 to 2 weeks. Government on-lending requires a subsidiary loan agreement with the Ministry of Finance and Attorney General's Office. The agreement can set security, interest, a grace period, maturity and fees, and the funds may be used only for the stated purpose. Borrowers provide periodic or audited reports, and a request can be refused when tax or government-debt arrears exist. Government on-lending is generally limited to 20% of public debt unless Cabinet grants an exception. Licensed moneylenders provide another formal borrowing channel, including short-term liquidity in rural and remote areas. The NRBT recorded 135 licensed moneylenders in financial year 2024/25: 23 Type A, 56 Type B and 56 Type C. The Moneylenders Act 2018 requires a licence, a written agreement with the required terms, signatures and a copy delivered before funds are disbursed. A post-commencement agreement with an unlicensed moneylender is unenforceable. The NRBT policy rate determines the applicable annual percentage rate, and the NRBT prescribes maximum rates and default fees. Interest uses a declining-balance calculation with monthly compounding. Interest and fees above the permitted amount are generally not recoverable beyond the principal unless a court decides otherwise. Security must reflect current market value, and any surplus belongs to the borrower. Borrowers can receive monthly statements, request copies of records and obtain receipts. Lenders must retain records for seven years and may not use harassment or intimidation. Tonga's sole licensed microfinance institution is SPBD. Credit unions, cooperative societies, retirement funds and member or employer loans fall outside the Moneylenders Act's scope. Savings clubs, shop credit and hire purchase are additional informal or non-regulated channels, so their contractual terms and protections differ from licensed lending. Credit growth reached 13.4% in financial year 2025, with business lending up 22.9% and household lending up 4.1%. The banking-sector non-performing loan ratio rose from 11.2% in June 2024 to 14.2% in June 2025. The NRBT monitors bank workout strategies and requires banks to disclose rates and fees. It processed complaints involving one bank and two non-bank institutions in financial year 2024/25. A draft National Credit Register Bill 2026 would have the NRBT administer a register for licensed lenders. The proposed data would include identity details, applications, accounts, repayment history, defaults and debt-collector status, with prior borrower consent. Consultation was scheduled to close on 15 May 2026, so enactment and current operation were not established by the research date. Tonga has no general bankruptcy legislation identified in the reviewed current sources and no universal private debt-relief or debt-counselling programme was evidenced. A person facing repayment difficulty may need to negotiate a lender workout. A judgment creditor may seek attachment of earnings under section 5(2)(b) of the Supreme Court Act, subject to case-specific protection of earnings. A 2020 Land Court ruling recorded an order of TOP$1,500 net per fortnight, but no universal protected-income threshold was evidenced, and repeated enforcement may continue. For a company, a creditor can issue a statutory demand for a due debt at or above the prescribed amount. The company generally has 15 working days to pay, compromise or secure the debt, and it can apply to set aside the demand within 10 working days. Failure to comply can support a presumption that the company cannot pay, leading to court liquidation, a receiver, or a compromise arrangement. Secured and unsecured claims are treated differently, and the creditor bears the costs of an unsecured claim. Court and liquidation fees were not quantified in the reviewed sources.