Tonga's economic growth for 2008-09 is likely to be only around half a per cent, after a year in which remittances have slowed, and lending has been cautious.
Matangi Tonga online quotes an International Monetary Fund report which says the government borrowing for the reconstruction of Nuku'alofa increases Tonga's risk of debt distress during the difficult global economic times.
The report says that some non-reconstruction budget constraints along with continued remittances will be required to ensure debt sustainability.
Government's tax collections also decreased during the year by around 10 per cent, due to lower levels of spending in the community, less importing, and lower levels of consumption tax .
The report says remittances are down by about 15% for the 2008-09 year that will end in June.
It says increases in government expenditure to stimulate growth will therefore be reliant on foreign grants given the weak revenue outlook and Tonga's already relatively high debt.
Matt Davies of the IMF's Asia and Pacific Department was in the country recently.
He says the growth rate for 2009-10 is likely to remain low as remittances fall in line with global recession and the domestic banking sector continues to consolidate.