China Gives Tonga Five Years Loan Extension

China - Tonga
This year marks the 20th anniversary of the establishment of China-Tonga diplomatic ties
(Photo: PDChina/Twitter.com)

Tonga recently announced that the Polynesian country is signing up with China's massive expansion project called the Belt and Road Initiative. As part of the deal, the Polynesian country will receive a reprieve on its debt payments.

The news was confirmed by Lopeti Senituli who acts as a political adviser to Tongan Prime Minister Akilisi Pohiva Mr. Senituli said that Tonga had signed a memorandum of understanding which gives the country and the concessional loan had been deferred for five years giving the country a much-needed leeway to cover its debts.

Tonga is just one of the eight island nations located in the South Pacific region that has a significant debt with China. It is important to note that China has been quite lenient when it comes to terms of the loans it is giving out to other countries.

The recent deferment came in a time when Tonga was supposed to start paying the principal amount of its debt. Many economic experts agree that this repayment will put a lot of pressure on Tonga's finances, a factor that will severely affect its economy.

China's Ministry of Foreign Affairs has yet to comment about this recent development. Nevertheless, the country has always stood firm on its stance regarding foreign debts and that its spending is "always sincere and unselfish."

Tonga's financial dealings with China started well over a decade ago. Following the deadly riot that ravaged that country's capital of Nuku'alofa in 2006, Tonga has been heavily reliant with trade deals with China.

Through 2008 and 2010, Tonga started rebuilding parts of the capital through various financing deals with China which amounted to roughly $90 million in initial loans. As of this writing, Tonga's total debt with China amounts to roughly $160 million due to additional borrowing and interest. Based on government data, this figure represents close to a third of Tonga's annual gross domestic product.

For several months now, Mr. Pohiva have pleaded, on several occasions, China to write off the debt adding that the country is experiencing "debt distress." Chinese-issued debts have been one of the most important topics tackled during the Asia Pacific Economic Cooperation summit held in Papua New Guinea.

While many nations located in the Pacific region are not members of APEC, their representatives were invited to join the recent summit. These countries were able to engage in talks with their larger regional neighbors including China and Australia.

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