No debt forgiveness from China, analyst warns as Tonga faces repayment pressure

A research fellow warns that China will not take a haircut on Tonga’s debt after Beijing took to Facebook to defend its lending practices.

Riley Duke from the Lowy Institute's Pacific Aid Map unit highlights China’s firm stance amid rising concerns about Tonga’s substantial debt burden.

“We see that in Tonga, as well as other parts of the world,” Duke says. “So the focus is on who signed the deal, and accountability for that is a debate about people who were leaving Tonga almost two decades ago. The focus really needs to be on the repayments.”

Tonga currently owes US$190 million in external debt, two-thirds of which is owed to China following loans taken to rebuild Nuku'alofa after the devastating riots in 2006.

China's messaging

Duke, who recently visited Tonga, emphasises China's increased sensitivity regarding its Pacific reputation.

"I think China doesn't weigh in regularly on debates about its loans in the country, the countries that it provides credit for, but when it does, its messaging is pretty consistent.

“It tends to want to focus on the idea or its messaging that it's a responsible lender, that the responsibility for the debt is with the developing country.”

However, Duke argues that China's lending terms and transparency are different from those of traditional lenders such as the World Bank and International Monetary Fund.

Prime Minister of Tonga Dr 'Aisake Eke. Photo/PMN Digital/Joseph Safiti

“China’s loans are kept very secretive. The idea that a Chinese loan is compatible with the transparent kind of lending that multilateral banks do, I don't think that's correct.”

Local dynamics and miscommunication

Tongan political commentator Melino Maka strongly critiques how misinformation has dominated discussions on the debt issue.

"As it came down to it, there was no wrongdoing,” Maka says. “There was nothing there to have concerns about.

“There was no money from China's loan that came to Tonga - it was actually going directly to the contractor.”

Maka recalls his direct involvement in investigations around allegations of embezzlement.

“Tonga was very fortunate that China came in, but the way the politics played out, it's twisted the whole thing in a way that it should never be.”

Listen to Riley Duke's full interview below.

Maka further argues that the controversy surrounding the previous Government's decision to forgive a portion of the loans taken by private businesses was largely driven by poor communication.

"The problem is Tongan governments have always had a terrible way of communicating their decisions to the public. And of course, people would start leaking this and that and forming their own opinions.

“Before you know it, it's a full-blown issue and the Government is just scrambling around trying to manage it.”

A fragile path forward

Despite the challenges, both Duke and Maka see a viable pathway forward.

Duke describes Tonga as "walking a tightrope”, where repayments are sustainable but vulnerable to external shocks like natural disasters.

“Tonga is on a sustainable path, but disaster risks are very costly and they have a big impact on the economy,” Duke says. “I think the path is sustainable, but there are certainly big risks.”

Watch Melino Maka's full interview below.

Maka, on the other hand, underscores the critical need for improved leadership and media responsibility.

"We need to identify good leadership early because at the moment, we are starving for good leadership in Tonga.”

Broader Pacific lessons

Both agree that Tonga’s experience serves as an essential lesson for other Pacific nations.

“Loans and lending and taking on debt is not a bad thing,” Duke says. “If the project is good for the economy, if it drives growth, but really, it's about a high degree of accountability on the Pacific side, on the Pacific government side, about the type of project that they take on debt for.

“Those projects are managed well, and the terms of the loan are highly concessional, and the project is well proven out, and it makes sense.”

Maka stresses the importance of clarity and public engagement. “In a small country like Tonga, the truth will come late,” he says. “I think this is where Tongan media needs to step up.”