Tonga’s economy showed a mix of progress and setbacks in September 2024, according to the National Reserve Bank of Tonga’s latest report, Snapshot of the Tongan Economy.
While inflation and foreign reserves provided some optimism, declines in exports, remittances, and credit growth highlighted ongoing vulnerabilities.
Inflation reaches three-year low
Headline inflation dropped to 2.1% in September, the lowest since January 2021, down from 3.5% in August. Imported inflation declined, driven by falling prices for fuel, tobacco, and construction materials, while domestic inflation contributed 2.2 percentage points, largely due to local food and transport costs. The Reserve Bank cautioned that the inflation outlook remains “highly prone to ongoing geopolitical tensions and disruptions to global supply chains.”
Exports and Remittances decline
Agricultural and marine export volumes fell significantly, with agricultural exports plummeting by 45.3% and marine exports by 78.6%. Despite these declines, export receipts rose slightly, hinting at a lag in payments. Remittances, a vital income source for Tonga, decreased by $6.8 million (13.9%) in September, attributed to disruptions in MoneyGram systems and declines in private transfers.
Foreign Reserves strengthen
Foreign reserves increased by $10.8 million in October, reaching $898.2 million, equivalent to 10.3 months of import coverage. This rise was primarily supported by government receipts and remittances. “Foreign reserves remain above the IMF’s recommended threshold of 7.5 months, ensuring a stable buffer for external shocks,” the report noted.
Sector-specific challenges
Tourism indicators also declined, with passenger arrivals dropping by 19.2% and travel receipts falling by $2 million. Meanwhile, vehicle registrations decreased by 19%, reflecting reduced government and private sector activity after the Pacific Islands Forum meeting in August.
Credit growth stalls
Total bank lending decreased by $3.4 million in September, primarily due to lower loans to public enterprises and businesses in agriculture and transport. Annual credit growth remained positive at 3.2%, but still lagged behind last year’s levels.
Optimism amid seasonal trends
The Reserve Bank anticipates improved agricultural performance during the upcoming squash and watermelon harvests and increased consumer demand over the Christmas season. However, it warns that climate risks and geopolitical tensions could hinder further recovery.
Tonga’s economy remains resilient, but the path forward demands targeted interventions to address structural vulnerabilities and sustain growth.