Tonga Second Resilience Development Policy Operation with a Catastrophe-Deferred Drawdown Option

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The development objectives and pillars of the Second Resilience Development Policy Operation in Tonga support the Government of Tonga to: (i) strengthen public finances; (ii) enhance resilience to climate change, natural disasters, and health-related risks; and (iii) support economic recovery and improved labor market outcomes. Pillar 1 supports adoption of a new medium-term debt management strategy (MTDS), a policy on government guarantees, and tighter controls on public-sector wage bill spending. Pillar 2 supports the rollout of the COVID-19 vaccine, national disaster risk management legislation and a national disaster risk financing policy. Pillar 3 supports reforms to strengthen labor mobility and financial sector stability, and the adoption of the nation’s first public service sector sexual harassment policy. The reform program builds on and deepens reforms supported by the first development policy operation (DPO) in the series and the standalone ‘Dual Shocks’ DPO. The program represents a continuation of reform regarding fiscal sustainability, climate and disaster resilience, employment opportunities, and financial sector development. The hybrid structure of the operation is appropriate for Tonga, given the importance of reforms that increase resilience to shocks, and the need for financing that disburses quickly following a natural disaster or public health emergency.