China Eximbank provides RMB 291 million government concessional loan for Phase 3 of National Road Improvement Project (Linked to Record ID#42210, #64185, #64929)

China Eximbank provides RMB 291 million government concessional loan for Phase 3 of National Road Improvement Project On December 22, 2009, the Chinese Government and the Government of Tonga signed an RMB 291 million preferential loan framework agreement for Phase 3 of the National Road Improvement Project.

Then, on January 22, 2010, China Eximbank and the Government of Tonga signed an RMB 291 million (or TOP 94 million or $44.2 million) government concessional loan (GCL) agreement for Phase 3 of the National Road Improvement Project.

The loan achieved an initial disbursement rate of 30% due to requirements for a (lump sum) down payment by one of the contractors responsible for implementation. The remainder of the loan was disbursed on a quarterly basis.

The loan's amount outstanding was TOP 25,072,560 as of June 30, 2010, TOP 46,005,821 as of June 30, 2011, TOP 72,093,767 as of June 30, 2012, TOP 86,281,500 as of June 30, 2013, TOP 98,823,600 as of June 30, 2015, TOP 96,786,600 as of June 30, 2016, TOP 93,934,800 as of June 30, 2017, TOP 101,704,504 as of June 30, 2018, TOP 101,762,700 as of June 30, 2019, TOP 97,692,857 as of June 30, 2020, and TOP 86,252,400 as of June 30, 2021.

The borrower made a TOP 854,377 repayment (TOP 854,377 in interest and TOP 0 in principal) between July 1, 2009 and June 30, 2010, a TOP 1,007,716 repayment (TOP 1,007,716 in interest and TOP 0 in principal) between July 1, 2010 and June 30, 2011, a TOP 1,241,133 repayment (TOP 1,241,133 in interest and TOP 0 in principal) between July 1, 2011 and June 30, 2012, a TOP 1,576,251 repayment (TOP 1,576,251 in interest TOP 0 in principal) between July 1, 2012 and June 30, 2013, an unknown repayment between July 1, 2013 and June 30, 2014, an unknown repayment between July 1, 2014 and June 30, 2015, TOP 2,060,807 repayment (TOP 2,060,807 in interest and TOP 0 in principal) between July 1, 2015 and June 30, 2016, a TOP 2,103,674 repayment (TOP 2,103,674 in interest and TOP 0 in principal) between July 1, 2016 and June 30, 2017, TOP 2,009,008.29 repayment (TOP 2,009,008.29 in interest and TOP 0 in principal) between July 1, 2017 and June 30, 2018, a TOP 1,971,116.65 repayment (TOP 1,971,116.65 in interest and TOP 0 in principal) between July 1, 2018 and June 30, 2019, a TOP 6,626,171 repayment (TOP 1,958,738 in interest and TOP 4,667,433 in principal) between July 1, 2019 and June 30, 2020, and no repayment of principal or interest between July 1, 2020 and June 30, 2021.

The purpose of Phase 3 was to improve the Alipate Road in the suburb of Kolomotua on the island of Tongatapu, the road from Kolonga to Talasiu on the island of Tongatapu, and the road from Haveluliku to Lavengatonga on the island of Tongatapu. China Civil Engineering Construction Corporation and Yanjian Group were the contractors responsible for implementation.

A formal groundbreaking ceremony took place on January 22, 2010. Phase 3 was officially completed and handed over to the local authorities on March 7, 2011.

However, this project was controversial in that it contributed to debt sustainability problems for the Government of Tonga.

According to a Joint IMF/World Bank Debt Sustainability Analysis that was published in 2011, the combined face value of the RMB-denominated China Eximbank loan for the Nuku'alofa Central Business District (CBD) Reconstruction Project (captured via Record ID#37646) and the RMB-denominated China Eximbank loan for Phase 3 of the National Road Improvement Project (captured via Record ID#39199) was equivalent to 30% of Tonga’s GDP.

Then, In May 2012, the IMF published a report which concluded that ‘Tonga remains at a high risk of debt distress based on the joint IMF-WB low-income country debt sustainability assessment (LIC DSA).

Scheduled repayments on the two loans … from the China EXIM Bank may pose a fiscal challenge unless sufficient cash reserves are built up by improving tax collections and reining in current expenses. [The Government of Tonga’s] balance sheet also faces a currency risk as about 61 percent of the outstanding external debt is denominated in Chinese renminbi.’ Due to concerns about Tonga’s level of public debt exposure, the repayment terms of the China Eximbank loan for Phase 3 of the National Road Improvement Project were rescheduled (through a 5-year grace period extension) in 2013 (as recorded in Record ID#64929).

As as result of the rescheduling, the borrower agreed to make semi-annual principal repayments between March 21, 2020 and March 21, 2030