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Preliminary estimates suggest that Tonga's economy grew by only 0.5% in Fiscal Year 2013 (ended 30 June 2013), also in line with the Asian Development Outlook (ADO) 2013 Forecast in April. The slowdown from 0.8% growth in FY2012 is largely attributed to declines in private sector credit and stagnant remittances. Despite evidence of ample liquidity in the financial system and low interest rates, loans to households were down by 0.8% year on year, and business loans had fallen by 14.3% as of March 2013. The increase in nonperforming loans - which represented 14.9% of all loans in March 2013 - appears to be constraining credit supply, while demand for credit remains weak amid limited opportunities for private investment.
During the first half of FY2013, visitor arrivals declined, led by a 50% drop in arrivals aboard cruise ships and yachts, though arrivals by air increased by 9%. Indicators nevertheless showed a 27% increase in tourism receipts, suggesting that expenditure per tourist visiting Tonga has increased.
The forecast is for growth in Tonga to slow further to 0.3% in 2014 (maintained from ADO 2013). Remittance prospects remain low, and only a few infrastructure projects financed by development partners have been confirmed for implementation in FY2014.
|Selected Economic Indicators (%) - Tonga||2013||2014|
|ADO 2013||Update||ADO 2013||Update|
|Current Account Balance (share of GDP)||-6.3||-6.3||-6.3||-6.3|
Source: Asian Development Outlook (ADO) 2013 Update; ADB estimates.
Inflation in Tonga is still estimated at 2.7% in FY2013 as well as in FY2014, amid continuing expectations of lower international food and fuel prices in the coming year.
Tonga's current account deficit is estimated at 6.3% of GDP in FY2013 and projected to stay at this level in FY2014, as in ADO 2013. Continued declines in remittances are offset by a narrowing trade deficit. The first 3 quarters of FY2013 saw Tonga’s trade deficit narrow, as imports decreased by 12.6% with the winding down of infrastructure projects and as merchandise export earnings grew by 30.2%. However, the first 3 quarters of FY2013 saw Tonga’s trade deficit narrow, as imports decreased by 12.6% with the winding down of infrastructure projects and as merchandise export earnings grew by 30.2%.
Source: ADB. 2013. Asian Development Outlook 2013. Manila.