flag Tonga Tonga: Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Tonga is a small, open island economy which remains heavily dependent on foreign aid and remittances from abroad. The country’s economy had been profoundly damaged by the tropical Cyclone Gita, which hit the archipelago in February 2018 and affected 80% of population, causing a growth slowdown to 1.5% in 2018. According to IMF, economic damage equalled about 30% of GDP, while Asian Development bank estimates damages equivalent to almost 38%, particularly in the agriculture (80% of the total damage cost), housing (60%) and tourism (14%). The reconstruction efforts, along with the recovery in agriculture and construction, as well as strong private demand, have not led to an acceleration in GDP, which was 0.7% in 2019. According to the latest IMF data, GDP growth remained at 0.7% in 2020 and declined to -2.% in 2021 due to the outbreak of the COVID-19. It is expected to come back at +2.9% in 2022 and pick up to 3.7% in 2023, subject to the post-pandemic global economic recovery (IMF, 2022). Climate resilience will remain as the key policy challenge for Tonga to face.

In December 2021, an eruption began on Hunga Tonga–Hunga Ha'apai, a submarine volcano in the Tongan archipelago in the southern Pacific Ocean. The eruption reached a very large and powerful climax nearly four weeks later, on 15 January 2022, with important economic impact on the country.

The country’s debt-to-GDP ratio reached 41.6% in 2020 (IMF, 2021) while over the last three years the budget deficit stood around 1.1% and the government spending has amounted to roughly 44.4% of GDP. According to the latest World Economic Outlook of the IMF (October 2021), the inflation rate decreased from 3.3% in 2019 to 0.4% in 2020, to rech 1.4% in 2021. It is expected to increase sharply in 2022 at 4.7% before reaching 1.8% in 2023. The dominance of the public sector has led to a low level of economic dynamism despite a workforce that is considered the best educated among the Pacific Island nations. The formal labour sector is underdeveloped, and labour regulations are not enforced effectively. Tourism is the second-largest source of hard currency earnings following remittances, with 94,000 visitors in 2019 against 62,500 visitors in 2017. The agricultural sector accounts for 17.1% of GDP, whereas industry and services contribute to 15.4% and 50.4% respectively (World Bank, 2021). Tonga has a reasonably sound basic infrastructure and well developed social services. The National Strategic Development Framework 2015-2025, which defines the mains policy lines for the medium and long term, provides, among other things, the implementation of structural reforms to improve government efficiency and the quality of services, as well as to increase private sector participation. In 2019 Tonga joined Pacific Islands Regional Oceanscape Program (PROP), a three-phased, multi-year regional initiative designed to help Pacific Island countries strengthen their collective ability to improve sustainable management of their coastal fisheries and the critical habitats upon which they depend. China has a growing role in the country, including financing through loans to build infrastructure that could develop tourism.

Tonga is the last Polynesian constitutional monarchy. Despite the anticorruption measures, bribery of police, custom officials, and members of parliament is widespread. The country is currently facing many problems, with its geographical isolation and vulnerability towards the prices of utilities. The archipelago also has a very high unemployment rate (although Tonga was reporting 3.6% rate in 2020, according to the World Bank collection of development indicators), especially among the young in rural areas (40%). In Tonga, close to 20% of the population continues to live below the national poverty line, primarily in rural areas on the outer islands (data by ADB).

Tonga’s slow recovery from the devastating 2018 Tropical Cyclone Gita has been derailed by twin shocks from the Covid-19 pandemic and Cyclone Harold. External balances are expected to deteriorate, as declines in tourism and remittance inflows, and higher pandemic- and reconstruction-related imports are expected to worsen the current account deficit, sharply reducing reserves in FY2021. Notwithstanding the pandemic, fiscal consolidation continued through FY2020 as a result of donor support and investment delays (IMF, 2021).

The medium-term outlook is modest and fragile. Tonga’s growth potential is low due to its heavy reliance on labor exports, and the pandemic has worsened pre-existing vulnerabilities.

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 0.520.500.500.540.57
GDP (Constant Prices, Annual % Change) 0.70.7-2.02.93.7
GDP per Capita (USD) 5,1514,9795,0105,3985,700
General Government Gross Debt (in % of GDP) 41.343.3e45.644.346.1
Inflation Rate (%) 3.30.41.46.14.3
Current Account (billions USD) -0.00-0.02-0.01-0.04-0.02
Current Account (in % of GDP) -0.9-3.9e-1.3-8.2-4.2

Source: IMF – World Economic Outlook Database - October 2021.

Note: (e) Estimated Data


 
Monetary Indicators 20162017201820192020
Tonga Pa'anga (TOP) - Average Annual Exchange Rate For 1 GHS 0.560.510.490.440.41

Source: World Bank - Latest available data.

 

Main Sectors of Industry

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 19.4 30.9 49.8
Value Added (in % of GDP) 17.1 15.4 50.5
Value Added (Annual % Change) 3.6 4.6 0.8

Source: World Bank - Latest available data.

 

The Active Population in Figures

201820192020
Labour Force 31,25231,79331,407

Source: International Labour Organization, ILOSTAT database

 
201720182019
Total activity rate 50.09%49.31%49.26%
Men activity rate 59.29%58.12%58.07%
Women activity rate 41.19%40.76%40.68%

Source: International Labour Organization, ILOSTAT database

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
57,5/100
World Rank:
115
Regional Rank:
23

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

See the country risk analysis provided by Coface.

 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
2/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
46/180

Source: World Press Freedom Index, Reporters Without Borders

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Sources of General Economic Information

Main Online Newspapers and Portals
Tonga Newspapers and News Sites
Tonga Newspapers online
Tonga News
BBC, Tonga
Useful Resources
Ministry of Finance and National Planning
National Reserve Bank of Tonga
 
 

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Latest Update: May 2022