China Eximbank suspends debt service payments from Government of Tonga in 2020

In response to the COVID-19 pandemic and the G20 Finance Ministers and Central Bank Governors meeting that took place on April 15, 2020 and on November 13, 2020, the Chinese Government agreed to work with other G20 members to implement the Debt Service Suspension Initiative (DSSI). As part of DSSI, China Eximbank and the Government of Tonga signed a debt suspension agreement during calendar year 2020 (most likely between May 2020 and July 2020). Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between May 1, 2020 and December 31, 2020 under one or more loan agreements. The total estimated suspension is RMB 20,973,757. At the time that the parties signed the debt suspension agreement, they both acknowledged that the total suspension amount would ultimately be determined at the end of the suspension period (since loan disbursements could be made during the suspension period and the lender agreed to suspend the payment of interest accrued on any disbursements during the suspension period). The lender and borrower agreed that the suspension of debt service would be undertaken on a net present value (NPV)-neutral basis. Therefore, the borrower agreed to pay interest accrued on the amount outstanding under the total suspension amount (‘Suspension Interest’) by paying the Suspension Interest on the amount outstanding under each loan agreement’s suspension amount at the same rate of interest set forth in the original loan agreement. The lender and the borrower agreed that the repayment of the suspension amount for each loan agreement would take place in equal, successive, and semi-annual installments during a 4-year repayment period after an unknown grace period (starting from and including the repayment date/repayment date of principal and interest falling within the suspension period). Under the terms of the debt suspension agreement, the lender and the borrower also agreed that ‘[t]he suspension interest on the amount outstanding under the Suspension Amount concerning each Loan Agreement shall be calculated on the basis of the actual number of days elapsed and a year of 360 days, from and including the Repayment Date/Repayment Date of Principal and Interest falling within the Suspension Period to the date of payment in full of the corresponding Suspension Amount, and shall be paid in arrears on each Interest Payment Date under the corresponding Loan Agreement.’ The borrower also agreed that (1) ‘it shall continue to perform all its obligations […] under the Loan Agreements as supplemented and amended by [the debt suspension agreement]’; (2) ‘it shall use the created fiscal space to increase social, health, or economic spending in response to the COVID-19 crisis […]’ and ‘work closely with the International Financial Institutions who are expected to put in place a monitoring system’; (3) ‘it shall disclose to the Lender all Public Sector Financial Commitments (as defined in the Government Finance Statistics Manual 2014 (GFSM2014)), respecting commercially sensitive information’; and (4) ‘it shall contract no new non-concessional debt during the Suspension Period, other than agreements under the DSSI’.

Additional details

1. AidData assumes that the same basic terms and conditions that governed China Eximbank’s DSSI (debt suspension) agreement with other governments also applied to its DSSI agreement that it signed with the Government of Tonga. Illustrative DSSI agreements can be accessed via https://www.dropbox.com/s/huwa695j3w9hwig/DSSI%20Agreement%20for%20Kyrgyz%20Republic.pdf?dl=0 and https://www.dropbox.com/s/67n1oq44it27kvu/3.%20Debt%20Suspension%20Agreement%20for%20GCL%20Other%20Projects.pdf?dl=0 and https://www.dropbox.com/s/n69i598f0fg7s80/6.%20Debt%20Suspension%20Agreement%20for%20PBC%20C2.pdf?dl=0. 2. The total estimated suspension amount is based on the size of the debt service deferral that the Government of Tonga secured from the Chinese Government in 2020 (as recorded by the Government of Tonga via http://mail.finance.gov.to/sites/default/files/2022-11/Public%20Accounts%202020-2021%20en.pdf). 3. According to a February 2021 Monetary Policy Statement released by the National Reserve Bank of Tonga, ‘[China Eximbank] has deferred the principal loan repayments due on both the Tonga National Road Improvement Projects Loan and the Nuku’alofa CBD Reconstruction Project Loan from FY2020-21 to FY2021-22 under the G20’s Debt Service Suspension Initiative (DSSI).' The Government of Tonga’s Fiscal Year runs from July 1 to June 30. Therefore, FY2020 corresponds to July 1, 2019 to June 30, 2020, FY2021 corresponds to July 1, 2020 to June 30, 2021, and FY2022 corresponds to July 1, 2021 to June 30, 2022. 4. According to an August 2021 Monetary Policy Statement released by the National Reserve Bank of Tonga, ‘it is estimated that around $14.6 million will be suspended under the DSSI agreement with [China Eximbank]’.

Number of official sources

7

Number of total sources

10