Building Macroeconomic Resilience Subprogram 2 (RRP TON 48361-002) JOINT POLICY REFORM MATRIX, FY2016 FY2018 Version: March 2017 I. SUPPORTING FISCAL RESILIENCE Fiscal strategy Partners: ADB, IMF, PFTAC, WB 1. The Recipient s Cabinet has approved a transparent, targetbased fiscal anchor system and monitoring framework that supports medium-term fiscal sustainability and a more efficient mix of public spending [Tongan Gov t, ADB, Analysis of the relationship between current fiscal outcomes, budget projections, and the path toward fixed medium-term fiscal targets conducted as part of Budget preparations Baseline (FY13-FY17): No such analysis in Budget documents Target: (FY18-FY20): Analysis included in Budget documents Revenue Gov t lead: Ministry of Revenue and Customs Services Partners: PFTAC (lead), WB 1. Increase in the rate of fuel duty by 12% and other excise duty and import duty rates in order to improve revenue mobilization and strengthen incentives to consume healthy foods 1 [Tongan Gov t, ADB, 2. Develop and begin to implement a new risk-based compliance strategy in order to improve tax collection efficiency and recover tax arrears [Tongan Gov t] 2. Increase in the rate of fuel excise tax by 16% and other excise tax and import duty rates in order to improve revenue mobilization and strengthen incentives to consume healthy foods. [Tongan Gov t, ADB, 2 1. Cabinet approval and submission to Parliament of Revenue Services Administration Act 2. Cabinet approval and submission to Parliament of new customs legislation 3. Follow up on NCD reforms, including evaluation of impacts on consumption 4. Review and reduce corporate tax exemptions [Tongan Gov t, ADB, Proportion of borrowing that is highly concessional Indicator: Borrowing that is above 35 percent concessionality as a proportion of all borrowing Baseline (FY13-FY15): 100 percent Target (FY16-FY18): 100 percent Domestic revenues as a proportion of GDP increases Indicator: Tax revenue as a proportion of GDP Baseline (average FY11-FY14): 17.3 percent Target (average FY16-FY18): 18.3 percent or higher 1 Excise duty on alcohol and tobacco has been increased, a new excise duty on instant noodle implemented, import duty on turkey tails increased to 15% and import duties on various fruits, vegetables and fresh fish decreased.
2 Debt (Debt unit, senior management) Partners: WB 3. Cabinet has approved a new Medium-Term Debt Strategy which has been made public [Tongan Gov t, ADB, Proportion on borrowing that is highly concessional Indicator: Borrowing that is above 35 percent concessionality as a proportion of all borrowing Baseline (FY13-FY15): 100 percent Target (FY16-FY18): 100 percent Public service management reform Other gov t agencies: Remuneration Authority, PSC Partners: ADB, WB (lead) 4. Cabinet approval of remuneration review that aligns with the aggregate fiscal targets and which includes a new relative salary structure that ensures fair and appropriate remuneration based on a robust analytical assessment [Tongan Gov t, ADB, 3. Cabinet approval and initial implementation of a new public service remuneration structure and performance management system to ensure effective public service delivery, adequate pay, and consistency with fiscal sustainability II. SUPPORTING AN INCLUSIVE, MODERN AND ACCOUNTABLE STATE Procurement 5. Cabinet has approved a revised set 4. Implementation of new (Procurement Unit) Partners: DFAT (lead), WB of Procurement Regulations, and prepared standard bidding documents and procurement manuals in support of the Regulations [Tongan Gov t, ADB, procurement tracking database and identification of a small number of compliance and performance indicators and associated targets, to be publically disseminated 5. Cabinet has approved draft legislation to institutionalize a transparent reward and pay-setting mechanism to support improved control of the wage bill and effective performance and motivation of public servants. 6. [Follow-up action on any issues raised by monitoring of procurement indicators] Improve wage bill affordability Indicator: Public wage bill as a proportion of domestic revenue Baseline (FY14): 57 percent Target (FY18): 53 percent or lower Increased compliance with requirements for public procurement Indicator: Proportion of contracts above the small purchases threshold that are subject to open competition 3. Baseline (FY14): 35 percent of contracts subject to open competition Target (FY18): At least 50 percent of contracts subject to open competition 2 Fuel duty has increased by 16%. Excise duty on alcohol and tobacco has been increased, import duty on lamp flags increased to 15% and import duties on education materials, construction materials, sports materials, fruits and vegetables decreased. 3 Aligned with the definition of PEFA Dimension PI-19(i) based on M2 scoring methodology as set out in 2011 Public Financial Management Performance Measurement Framework, which relates to the use of open competition for award of contracts that exceed the threshold for small purchases.
3 Financial management, accounting, reporting and audit (Treasury, budget) Partners: ADB, DFAT, PFTAC (lead) 6. A new Audit Oversight Committee of Cabinet established that (i) maintains a comprehensive database on past audit recommendations and follow-up actions, and (ii) reports regularly to Cabinet, with the aim of ensuring timely and thorough follow-up of audit recommendations [Tongan Gov t, ADB, 5. Approval of a government accounting policy which will clarify the government s accounting practices in line with cash basis IPSAS [GoT, PFTAC] 7. Activate and add key IFMIS modules, such as budget preparation, sales and receipts, cash management [Tongan Gov t, ADB, 8. Implementation of revised Chart of Accounts to improve reporting for line ministries [Tongan Gov t, PFTAC] External audit recommendations acted upon Indicator: Proportion of outstanding audit recommendations 12 months after submission of the audit report to the Legislative Assembly 4 Baseline (FY15): 85 percent (115 of 136) Target (FY18): 50 percent Anti-corruption Gov t lead: Ministry of Justice 9. Appointment of the Anti-Corruption Commissioner to establish the Commission [Tongan Gov t] 4 Where an outstanding audit recommendation is one which has not been adequately addressed as determined by the Auditor General in his Audit Report. The baseline for this indicator is based on audit recommendations made in all management reports for FY2011 and FY2012 which are outstanding as stated in the Tonga Audit Office Annual Report for FY2012. These are 36 recommendations in FY2012 and 112 recommendations in FY2011, of which it has received 33 responses. The baseline and target for this indicator will be reviewed and updated as information from more recent audit reports becomes available.
4 Utility and service 7. Parliament has approved a new 6. Cabinet has approved for public 10. The National Energy Bill has been Effective oversight of regulated regulation Communications Act and a consultation a National Energy Bill, finalized, incorporating feedback sectors Gov t lead: MEIDECC, Communications Commission Act which includes provisions for multisector regulation for all energy sub- submitted to Parliament. [Tongan from public consultations, and Indicator: Monitoring reports for MCTL, MPE that will establish an independent regulated sectors published on a Partners: ADB, WB regulator [Tongan Gov t, ADB, sectors (electricity, gas, petroleum) Gov t, ADB, regular basis Baseline (2015): No baseline report Target (2018): Reporting issued by regulators that covers all sectored under their oversight Increased proportion of renewable electricity Indicator: Share of renewable electricity in total electricity Baseline (FY15): 6.4% Targets: FY17-9% ; FY18-12%; FY19-16% Improvement in efficiency Indicator: Fuel consumption per kwh electricity generated Baseline (FY16): 4.04kWh/L Targets: FY17-4.06kWh/L ; FY18-4.08kWh/L; FY19-4.10kWh/L
5 Labor market 8. Cabinet has approved membership of the ILO and adherence to core 11. Employment Relations Bill that, among others, reduces gender Key labor market protections are in place Partners: ADB, ILO principles of rights at work and disparities approved by Cabinet for Indicator: Number of basic labor (lead), WB decent employment opportunities submission to Parliament [Tongan rights enshrined in domestic [Tongan Gov t] Gov t, ADB, legislation 5 Baseline (2015): None of eight in place Target (2018): At least six of eight in place III. SUPPORTING A MORE DYNAMIC AND INCLUSIVE ECONOMY Private sector development strategy Partners: ADB Financial sector development Partners: ADB, PFTAC, WB 12. Cabinet approval of a prioritized and sequenced private sector development strategy that supports inclusive growth and economic participation of women, youth and disabled [Tongan Gov t, ADB] 13. Establishment of new arrangement for credit bureau operations, and issuance of central bank directive to mandate credit reporting in order to ensure universal use of credit bureau, reduce costs of due diligence and thereby support access to finance for SMEs and individuals [Tongan Gov t, ADB, Increased utilization of credit bureau for credit checking Indicator: Number of credit checks for new loan requests for; i) sole male applicants; ii) female applicants or joint applications Baseline (FY15): i) 636; ii) 588 Target (FY18): i) 800 or more; ii) 750 or more 5 Where the basic rights consist of: As measured in the annual WBG Ease of Doing Business index. The 8 basic labor rights measured are: i) paid annual leave; ii) notice period for redundancy; iii) severance pay for redundancy; iv) equal remuneration for equal work; v) gender non-discrimination; vi) right to maternity leave; vii) paid sick leave; viii) right to unionize.
6 Business law reform, including foreign investment Partners: ADB 7. Foreign investment legislation approved by Cabinet for submission to Parliament [Tongan Gov t, ADB, 14. Cabinet approval of revised foreign investment regulations, including reserved and restricted lists, and work permit rules [Tongan Gov t, ADB, Energy Gov t lead: MEIDECC Partners: ADB, EU (lead), WB 9. Cabinet approval of the revised Tonga Energy Road Map 2010 2020 integrating the REEEP and the M&E Framework [Tongan Gov t, EU] 8. Submission of the Receivership Bill to Privy Council, with Cabinet approval [Tongan Gov t, ADB] 9. Cabinet approval for submission to Parliament of a new National Energy Act to, among others, promote private sector-led investment [Tongan Gov t, EU] 15. Cabinet approval of a Contract Bill that codifies common law on contracts [Tongan Gov t] Increase in interest from foreign investors Indicator: Vetted application from foreign investors Baseline (FY15): 21 applications Target (FY18): 30 applications or greater Increased proportion of renewable electricity Indicator: Share of renewable electricity in total electricity Baseline (FY15): 6.4% Targets: FY17-9% ; FY18-12%; FY19-16% Improvement in efficiency Indicator: Fuel consumption per kwh electricity generated Baseline (FY16): 4.04kWh/L Targets: FY17-4.06kWh/L ; FY18-4.08kWh/L; FY19-4.10kWh/L
7 Public enterprise reform Gov t lead: MPE Partners: ADB 10. Cabinet tasks MPE to implement the Reform Plan of the new PE Ownership, Performance Improvement and Divestment Policy [Tongan Gov t, ADB] 11. Cabinet has approved the appointment of shared boards of directors, in accordance with the PE director selection and appointment process, of public enterprises in the information, communications, and technology sector, and the utilities sector in order to streamline the number of Directors and achieve greater efficiency [Tongan Gov t, ADB, 10. Cabinet approval to reform at least two PEs in accordance with the PE Reform Policy, where reformed may consist of privatization, liquidation, substantial restructuring, outsourcing or another form of public-private partnership [Tongan Gov t, ADB, 16. Cabinet approval to reform at least one additional PE in accordance with the PE Reform Policy, where reformed may consist of privatization, liquidation, substantial restructuring, outsourcing or another form of public-private partnership [Tongan Gov t, ADB, Increased private participation in PE portfolio Indicator: Number of private enterprises that have been reformed Baseline (FY2015): None Target (FY18): At least three 12. Tonga Water Board concluded contract with a private sector business to outsource asset maintenance and pipe-laying services [Tongan Gov t, ADB] ADB = Asian Development Bank, DFAT = Department of Foreign Affairs and Trade, FY = fiscal year, GDP = gross domestic product, GoT = Government of Tonga, ILO = International Labour Organization, IMF = International Monetary Fund, JPRM = joint policy reform matrix, MCTL = Ministry of Commerce, Tourism and Labour, MEIDECC = Ministry of Meteorology, Energy, Information, Disaster Management, Environment, Climate Change and Communications, MFAT = Ministry of Foreign Affairs and Trade; MFNP = Ministry of Finance and National Planning, MPE = Ministry of Public Enterprises, PEFA = public expenditure and financial accountability, PFM = public financial management, PFTAC = Pacific Financial Technical Assistance Centre, SME = small and medium enterprises, WB = World Bank. Sources: Asian Development Bank, Government of Tonga, World Bank. Note: The Joint Policy Reform Matrix (JPRM) is a living document that is updated based on government priorities and reform context. The JPRM guides overall reforms undertaken by government. Not all actions in the JPRM are indicative triggers or prior policy actions for budget support operations. However, the matrix for ADB s budget support operations and the JPRM overlap to a considerable degree.