More than four years on from one of the most powerful volcanic eruptions in history, Tonga is struggling to improve its infrastructure as it pays off a massive Chinese loan.
When Hunga Tonga-Hunga Ha'apai erupted on January 15, 2022, the blast could be heard as far away as Alaska and sent a powerful tsunami crashing into Tonga's main island some 65 kilometres (40 miles) away, killing three people.
Hundreds of homes were destroyed, businesses flattened and roads washed out, while most water supplies were left undrinkable as six inches of ash fell on the Tongan islands.
Tongan Prime Minister Lord Fakafanua said last month that most government programmes to rebuild were complete, but conceded there were "some leftovers" his government needed to finish.
The damage caused by the tsunami remains obvious in parts of Tonga.
Debris from homes and businesses knocked down by the waves remains scattered near beaches on Tongatapu's west coast, and on the nearby 'Eua island, tourists are encouraged to bring cash with them from the capital, Nuku'alofa, as ATMs and banking services have not been restored.
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But as much as Lord Fakafanua may want to address these issues, he told AFP his government has stopped taking loans.
Budget documents show a $67.36 million (NZ$118.3m) loan owed to China's Exim Bank, taken out to rebuild Nuku'alofa's central business district after the 2006 riots.
The initial loan, taken out in 2008, was for $55 million (NZ$96.6m) , but with interest, the debt reached more than $100 million (NZ$175.65m) by 2024.
Tonga's government has committed to paying down its debt by 2030, and in the year to June 2025, it paid China $17.7 million (NZ$31m) as part of total debt repayments of $29.4 million.
The repayments represent a large share of government spending in the small nation where the annual infrastructure budget was just $10.1 million (NZ$17.7m).
The health budget for the same year was $24.9 million (NZ$43.7m), boosted by one-off funding provided by donors, including New Zealand and Australia, to redevelop Nuku'alofa's hospital and nursing buildings.
The health budget is expected to be significantly lower this year, despite the country's dire rates of obesity, diabetes and non-communicable diseases.
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While Tonga shows fiscal restraint, China wants to spread its influence in the Pacific by offering loans and building infrastructure.
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[Tonfa PM] Lord Fakafanua said his country will not be accepting any more Chinese loans.
"We're currently in a position where we're not taking any more loans, we're not taking any more debt," Lord Fakafanua told AFP.
"We're being a lot more clever with our fiscal management," he added.
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Tonga has received several grants from the World Bank and the Asian Development Bank to build much-needed infrastructure.
That includes the $97 million (NZ$170.4m) Fanga'uta Lagoon Bridge project currently under construction -- the largest infrastructure project in Tonga's history.
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New Zealand's Prime Minister Christopher Luxon viewed the bridge site during his two-day visit to Tonga in March, speaking to the New Zealand firm McConnell Dowell, which is building the bridge.
Luxon said he supports Tonga's focus on fiscal restraint, and it "goes without saying" that New Zealand was ready to help when needed.
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Yes.
A lot of these poorer countries accept Chinese loans because no other country will lend to them as cheaply. Tonga likely didn't have any better options back then.
This is not true.
Borrowing from Beijing is not cheap: whereas a typical rescue loan from the International Monetary Fund (IMF) carries a 2% interest rate, the average interest rate attached to a Chinese rescue loan is 5%.
In addition, Chinese loans come with opaque terms and many clauses that put the borrower at a disadvantage.
We find widespread use of “No Paris Club” and “no comparability of treatment” clauses—that expressly prohibit the borrower country from restructuring their outstanding debts to China in coordination with Paris Club creditors and/or on comparable terms with them. This practice suggests that Chinese state-owned banks are effectively seeking to position themselves as “preferred creditors” exempt from restructuring. More generally, we find that Chinese contracts give lenders considerable discretion to cancel loans and/or demand full repayment ahead of schedule. Such terms give lenders an opening to project policy influence over the sovereign borrower, and effectively limit the borrower's policy space to cancel a Chinese loan or to issue new environmental regulations. [Emphasis mine.]
A new report reveals many of these hidden structures of Chinese loans in global lending:
These and may other investigations clearly show that Chinese is a bad borrower, putting creditor at their peril.
Tonga is the latest sad example. Let's hope that New Zealand and possibly other democracies and/or Western institution will support them.