Photo: The loans were used in part to rebuild the capital's CDB after riots in 2006. (Reuters; file photo)
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The Tongan Government will soon begin making repayments on controversial Chinese loans that critics have said saddled the small Pacific nation with unsustainable debt.
- Two-thirds of Tonga's $240 million external debt is owed to China's Exim Bank
- China granted an extension to the loans' grace period but refused to convert them into a grant
- Tonga's Chinese debt is held up by some as a prime example of China's debt-trap diplomacy
Tonga's Prime Minister Akilisi Pohiva recently confirmed his Government would start to repay the principal on two loans worth around $160 million from China's Export Import Bank.
The loans from 2008 and 2010 were used, in part, to rebuild the central business district in the capital Nuku'alofa after riots in 2006.
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Mr Pohiva told a press conference last week that his Government would continue to ask China to waive the debt.
"Our journey now into the future is that we would keep on asking China to divert this loan into a grant," he said, according to the Matangi Tonga news website.China did grant a five-year extension to the loans' grace period but so far has refused the request to convert them into a grant.
Tonga is still recovering from the impact of Tropical Cyclone Gita which struck the main island of Tongatapu in February and caused about $210 million worth of damage, equivalent to nearly a third of the country's gross domestic product (GDP).
In this year's budget the Government said much of its efforts would be focused on recovery and reconstruction.
Tonga held up as example of China's 'debt-trap diplomacy'
Photo: China has drastically ramped up its worldwide aid program in recent years. (ABC News: Eric Tlozek)
The budget papers put Tonga's total external debt at about $240 million dollars — that's 41 per cent of GDP. Nearly two-thirds of that is owed to China's Exim Bank.
Principal repayments on the two loans will see the Government's foreign debt repayments double to $15.6 million this financial year.
That's more than the $11 million dollars the Government has budgeted for post-cyclone reconstruction work.
"There are definitely people in Tonga who would be feeling disappointed, let down," Graeme Smith, an expert on China's activity in the Pacific at the Australian National University, said."But certainly, they can't say no-one warned them that this day would come."
Tonga's Chinese debt is held up by some as a prime example of what's been called China's debt-trap diplomacy in the Pacific region.
Australia's Foreign Minister Julie Bishop is among those to voice concerns about the potential for unsustainable debt burdens to erode the sovereignty of Pacific Island nations.
But there is also criticism of the previous Tongan government that took on the loans and its management of the funds.
"Money was left over, it got put towards renovating the Royal Palace in Tonga which definitely gives no return to Tonga as a whole," Dr Smith said.
"Also it was complicated in the sense that even the money for the reconstruction was then re-loaned out to a few Tongan businesses and they haven't paid back the loan of the loan."Dr Smith said he believes Tonga's handling of the Chinese loans should serve as a warning to other Pacific Island nations.
"How well Chinese aid is used comes down to the state of governance in the recipient country, and if your recipient country isn't able to handle the money sensibly or in a transparent way, then you get problems like this," he said.