Tonga’s economy showed mixed performance in early 2025, with inflation easing and job vacancies rising, but exports and remittances declining.
The National Reserve Bank of Tonga’s (NRBT) April 2025 Monthly Economic Update highlighted a 4.0% headline inflation rate in February, down from 5.4% in January and 6.9% a year earlier. This decrease was mainly due to a 12.8% drop in local food prices. However, core inflation rose to 8.0%, driven by higher costs in kava, education, and imported goods.
Job advertisements surged by 88.1% in March, particularly in public administration, trade, and transport sectors. Yet, over the year to March 2025, total job vacancies declined by 5.1%, indicating ongoing challenges in the labour market.
Agricultural exports increased by 5.6% in volume during February, led by taro, watermelon, coconut, and kava. Despite this, export receipts fell by $0.3 million (58.8%), suggesting delays in payments. Marine exports dropped by 47.8% in volume and 15.4% in value, mainly due to reduced tuna catches.
The services sector experienced a downturn, with travel receipts decreasing by $5.1 million (33.9%) and container registrations falling by 20.0%. Vehicle registrations also declined by 38.4%, reflecting lower consumer demand.
Foreign reserves stood at $842.5 million in March, sufficient to cover 9.7 months of imports, exceeding the IMF’s recommended minimum of 7.5 months. However, this marked a decrease of $22.9 million from the previous month, attributed to government loan repayments, dividend outflows, and import payments.
Remittances declined by $1.7 million (4.2%) in February, largely due to lower receipts from Australia and New Zealand, where economic conditions have softened. Over the year, remittances fell by $3.0 million (0.6%), adding pressure to household incomes.
Broad money supply decreased by $7.7 million (0.8%) in February, while total bank lending reached a new high of $593.5 million, up 12.0% annually. The non-performing loans ratio eased slightly to 13.4%, but remained above the 9.8% recorded a year earlier, indicating ongoing financial vulnerabilities.
The NRBT emphasised the need for continued financial support for private sector development and investment in resilient infrastructure to mitigate climate-related risks.
Inflation is expected to rise gradually but remains below the 5% reference rate, while foreign reserves are projected to stay above the recommended threshold, provided that import payments and debt repayments are carefully managed.
