Tonga: Economic Outline
Tonga is a small, open island economy which remains heavily dependent on foreign aid and remittances from abroad. The nation's heavy reliance on tourism and travel renders it vulnerable to external shocks, such as those induced by COVID-19. Coupled with natural disasters, these shocks have led to substantial setbacks in economic growth and fiscal sustainability. In FY23, the economy expanded by approximately 2.6%, rebounding from a contraction in FY22. The reopening of borders spurred strong domestic demand, supported by remittances and an uptick in tourist arrivals, contributing to growth. Projected growth is set to maintain its upward trajectory, reaching 2.5% before gradually easing in FY25 and further declining in FY26. Short-term growth is supported by increased reconstruction activities, alongside the recovery in agriculture and tourism sectors (World Bank).
The current account deficit widened to 7.9% in FY23 as imports rose to facilitate reconstruction and recovery efforts. Fiscal accounts exhibited a slight surplus of 0.4% of GDP in FY23, primarily attributed to increased grants and slower-than-expected expenditure execution related to reconstruction. The current account deficit is forecasted to persist at a high level of 7.1% of GDP in FY24, driven by substantial imports amid modest export performance. Fiscal balance is projected to revert to deficit in FY24-25, attributed to normalization in grants and an increase in expenditure associated with reconstruction efforts. Inflation surged to around 10% in FY23, fueled by prolonged domestic supply disruptions. It is expected to decrease in FY24 and fall below the 5% reference rate in FY25 (World Bank). 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 labor sector is underdeveloped, and labor regulations are not enforced effectively. Tourism is the second-largest source of hard currency earnings following remittances. The agricultural sector accounts for 16.3% of GDP, whereas industry and services contribute to 15.9% and 49.7% respectively (World Bank, latest data available). Tonga has a reasonably sound basic infrastructure and well-developed social services. The National Strategic Development Framework 2015-2025, which defines the main 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.
The 2021 Household Income and Expenditure Survey (HIES) revealed poverty rates of 1.6% based on the lower-middle-income poverty line of USD 3.65 (2017 PPP) and 21.5% based on the upper-middle-income poverty line of USD 6.85 (2017 PPP). Official unemployment is low (2.4% in 2023 according to the World Bank), although informality is high. With anticipated steady economic growth, the poverty rate, as measured by the upper-middle-income poverty line, is expected to decrease to 16.7% by 2026. However, the outlook remains uncertain (World Bank).
| Main Indicators | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 0.50 | 0.55 | 0.58 | 0.61 | 0.63 |
| GDP (Constant Prices, Annual % Change) | -2.0 | 2.6 | 2.5 | 2.4 | 1.4 |
| GDP per Capita (USD) | 4,978 | 5,488 | 5,840 | 6,112 | 6,312 |
| General Government Gross Debt (in % of GDP) | 45.4 | 41.1 | 43.8 | 50.0 | 57.6 |
| Inflation Rate (%) | 8.5 | 10.2 | 5.4 | 4.2 | 3.7 |
| Current Account (billions USD) | -0.03 | -0.04 | -0.04 | -0.04 | -0.05 |
| Current Account (in % of GDP) | -6.3 | -6.8 | -7.3 | -7.3 | -7.3 |
Source: IMF – World Economic Outlook Database - October 2021.
Note: (e) Estimated Data
| Monetary Indicators | 2016 | 2017 | 2018 | 2019 | 2020 |
|---|---|---|---|---|---|
| Tonga Pa'anga (TOP) - Average Annual Exchange Rate For 1 MUR | 0.06 | 0.06 | 0.07 | 0.06 | 0.06 |
Source: World Bank - Latest available data.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 30.4 | 26.9 | 42.7 |
| Value Added (in % of GDP) | 16.3 | 15.9 | 49.7 |
| Value Added (Annual % Change) | 0.1 | 1.2 | -7.6 |
Source: World Bank - Latest available data.
| 2018 | 2019 | 2020 | |
|---|---|---|---|
| Labour Force | 31,252 | 31,793 | 31,407 |
Source: International Labour Organization, ILOSTAT database
| 2017 | 2018 | 2019 | |
|---|---|---|---|
| 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
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.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
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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.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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.).
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Latest Update: May 2024
