With its project validation report published in 2024 by ADB’s Independent Evaluation Department, the Economic Recovery Support Program in Tonga is one of the first projects or programs approved, implemented, closed, and validated during the FSA implementation period (2021–2025).³ The program’s largely positive project validation report ratings included an overall rating of successful along with individual ratings of highly relevant, efficient, and likely sustainable (although its effectiveness rating was less than effective, indicating that some design and monitoring framework indicators were only partially achieved). Here we take a look at what went right—and also what remains to be achieved.

Tonga, a mid-sized, non-FCAS SIDS with a population of 107,000, faces risks and drivers of fragility that are typical of most remote SIDS, including high exposure to disasters caused by natural hazards, geographic remoteness, and a small economy. The country is highly reliant on the public sector and remittances by overseas foreign workers to drive its economy. The private sector is underdeveloped and the female labor participation rate is low in both the private and public sectors. Some 98% of imports arrive by sea. These vulnerabilities are particularly acute during times of crisis, such as the coronavirus disease (COVID-19) pandemic, which saw Tonga close its borders while remittances temporarily dipped.

With debt surging and the economy in recession during the pandemic, ADB approved a $5 million Asian Development Fund grant to support a targeted program to restore economic growth in Tonga. The program was led by the Social Sectors and Public Sector Management Division of ADB’s Pacific Department (and subsequently, under ADB’s new operating model, the Public Sector Management and Governance Sector Office).

The program had a clear focus on improving the enabling environment for increased private sector participation in the economy, through reform area 2 of the policy matrix (business environment for the private sector). The program’s single outcome was inclusive private sector-led economic growth in Tonga restored and accelerated.

This private sector development thrust aligned with ADB’s Strategy 2030 and the FSA, which called on ADB to do more to promote private-sector-led growth and increase innovative private sector engagement in higher-risk SIDS contexts. Private sector development is key for SIDS like Tonga to build macroeconomic resilience to external shocks such as the COVID-19 crisis.

Components to boost the private sector under reform area 2 included improving the international commercial arbitration framework and enhancing access to finance and supervision of nonbank financial institutions.

These components were largely successful, as the government passed the following reforms:

• (i)

  the International Arbitration Act 2020, which improves the enabling environment for foreign investment,

• (ii)

  the Energy Bill 2021, which supports greater private sector participation in the energy sector, and

• (iii)

  the Credit Union Bill 2021, which strengthens supervision and regulation of nonbank financial institutions.

However, as the Credit Union Bill had not yet been put into force as of project completion, the
project completion report (PCR) rated this component only partly achieved.

The program also sought to increase the number of higher-skilled workers ready for deployment for overseas jobs under reform area 3 (human resource management). This included revision of an act to empower the Tonga National Quality Assessment Board to provide workers skills relevant for national and overseas markets. Although the act was revised in 2020, the PCR found results in this area to be inconclusive and rated this component under progress.