Economy

Growth expectations for the South Pacific economies remain largely in line with the Asian Development Outlook (ADO) 2014 forecasts in April.

As forecast in ADO 2014, growth in Tonga’s economy is estimated to have accelerated to 1.5% from a meager 0.3% in Fiscal Year 2013 (ended 30 June 2013) as agriculture (particularly squash, watermelon, and yam production), tourism, and wholesale and retail trade helped the economy recover quickly following Cyclone Ian in January 2014. In the first half of FY2014, tourist receipts rose by an inflation-adjusted rate of 19.1% year on year, tracking a rise in visitor arrivals. Remittance inflows were almost flat, growing by only 0.8%. The FY2015 growth forecast is upgraded by half a percentage point on the improving outlook for agricultural production and exports, rising tourist arrivals, increased private sector credit and retail business, and stimulus from post-cyclone reconstruction and recovery efforts financed by development partners.

Selected Economic Indicators (%) - Tonga 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 1.5 1.5 2.0 2.5
Inflation 2.0 2.3 2.0 2.0
Current Account Balance (share of GDP) -3.7 -4.6 -3.2 -3.0

Source: ADB estimates.

Inflation in FY2014 is estimated to have been 0.3 percentage points higher than projected in ADO 2014 because of cyclone-related food and fuel supply disruptions, and reconstruction on the Ha’apai island group. Inflation is expected to ease slightly in FY2015 as international fuel and food prices continue to moderate.

The ADO 2014 Update revises Tonga’s current account forecast toward a wider deficit in FY2014, reflecting a larger trade deficit more than offsetting higher remittance and tourism receipts. However, a narrower deficit is expected in FY2015 as the outlook improves for exports, remittances, and disaster-related grants.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.