Tonga: Economy

The outlook for Tonga's financial year 2016 is unchanged from previous estimates as the government is expected to continue its expansionary fiscal policy.

Selected economic indicators (%) 2015 2016
  ADO 2015 Update ADO 2015 Update
GDP Growth 2.4 2.4 2.6 2.6
Inflation 0.4 0.4 1.0 1.2
Current Account Balance (share of GDP) -4.5 -4.5 -6.0 -6.0

Source: Asian Development Outlook 2015; Asian Development Outlook 2015 Update

Economic performance

Tonga’s estimated economic growth in financial year (FY) 2015 matches the forecast in Asian Development Outlook ADO 2015.

Large capital outlays include expenditures for the 2019 South Pacific Games and new projects financed by development partners. The approved budget of $242.4 million for FY2016 is 17.5% higher than for the previous year, with 53.0% of expenditure expected to be funded by development partners.

Consumer price inflation in Tonga slowed in FY2015, largely reflecting lower oil prices and transport costs but remained unchanged from the earlier forecast.

Economic prospects

Higher departure taxes and a contemplated foreign exchange levy (with revenues from both earmarked for South Pacific Games preparations) and higher excise taxes on unhealthy food and drinks, are projected to contribute to higher government revenues. However, the higher departure taxes and the foreign exchange levy risk harming tourism and remittances. Alternative sources of revenue could include import duty reform and reductions in tax exemptions. The government is prioritizing expenditure reform in line with recommendations from an ongoing public service remuneration review and the introduction of a regular formula-based wage review.

Inflation in FY2016 is expected to be slightly higher than predicted as the South Pacific Games boost demand. The forecasts for current account deficits remain unchanged for FY2015 and FY2016.

Excerpted from the Asian Development Outlook 2015 Update.