## IMF Executive Board Concludes 2024 Article IV Consultation with Tonga

_IMF News, November 25, 2024_

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## Bibliographic details
- Published: November 25, 2024

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### Key findings on recent performance
- Economic activity strengthened, bolstered by consistent remittance flows, continued tourism recovery, and robust construction activities.
- GDP in FY2024 (July 2023 – June 2024) is estimated to have expanded at 1.8 percent.
- Agricultural output fell, and supply-side constraints including labor shortages have hindered a stronger recovery.
- Inflationary pressures have substantially eased: headline inflation peaked at 14.1 percent in September 2022 and fell to 3 percent in July 2024, below the NRBT 5 percent reference rate, driven by a steady decline in core prices and moderation of global goods and commodity prices.

### Executive Board assessment
- Directors agreed with the thrust of the staff appraisal and welcomed authorities’ efforts to support recovery following the volcanic eruption and secure donor financing for substantive infrastructure projects.
- Directors noted the firming economy and favorable near-term outlook but judged medium-term growth prospects weak with important downside risks.
- Emphasized need for steadfast policy implementation, reforms, sustained international financial support, and IMF capacity development.

### Fiscal stance, debt, and policy recommendations
- Current fiscal stance is judged appropriate to support reconstruction and resilience building, but debt distress risk is high and financing needs are sizable.
- Over the medium term, Directors stressed:
  - A credible fiscal consolidation,
  - Additional grant financing,
  - Refraining from new non-concessional borrowing,
  to place debt on a downward trajectory while achieving development goals.
- Recommended revenue mobilization measures, including streamlining tax exemptions and strengthening tax administration.
- Called for enhancing public financial management and spending efficiency, containing the public sector wage bill, and adhering to the fiscal rule.

### Monetary policy and financial sector recommendations
- Directors concurred that the current monetary policy stance is appropriate given inflation stabilized below the central bank’s reference rate; tightening would be warranted should inflation pressures resurface.
- Forthcoming amendments to the central bank act present an opportunity to strengthen the monetary policy framework in line with IMF recommendations.
- Noting localized banking vulnerabilities, Directors encouraged close monitoring of credit risks and ensuring adequate provisioning for loan losses.
- Recommended expanding supervisory and regulatory frameworks to cover non-bank financial institutions.

### Structural reforms and governance
- Structural reforms are essential to enhance resilience to climate change and natural disasters and to promote private sector development.
- Directors stressed enhancing anti-corruption and governance frameworks as crucial; welcomed appointment of the first anti-corruption commissioner.
- Supported continued strengthening of the AML/CFT framework to reduce the risk of losing correspondent banking relationships.
- Encouraged advancing digitalization, boosting financial inclusion, addressing supply-side constraints, reducing gender inequalities, and enhancing quality and timeliness of macroeconomic statistics.

### Near-term outlook and risks
- Near-term baseline outlook favorable, supported by expansionary fiscal and monetary policy.
- Real GDP growth is projected to accelerate to 2.4 percent in FY2025, led by continued domestic demand, large public investment projects, and a rebound in agricultural output as El Nino effects dissipate.
- Medium-term growth prospects are uneven; long-term growth projected at 1.2 percent due to exposure to natural disasters, persistent emigration, and limited economies of scale.
- Balance of risks is tilted to the downside: a global slowdown could reduce tourism receipts and remittances; banking sector vulnerabilities pose a downside tail risk.

### Tonga — Selected Economic Indicators, FY2021–FY2025 (selected items)
- Population (2021): 100 thousands
- Major exports: root crops, vegetables, shellfish, fish

Output and prices (Real GDP, Consumer prices)
- Real GDP:
  - FY2021: -1.3
  - FY2022: 0.0
  - FY2023: 2.0
  - FY2024: 1.8
  - FY2025 (proj): 2.4
- Consumer prices (period average):
  - FY2021: 1.4
  - FY2022: 8.5
  - FY2023: 10.2
  - FY2024: 4.6
  - FY2025 (proj): 3.2
- Consumer prices (end of period):
  - FY2021: 6.9
  - FY2022: 11.3
  - FY2023: 7.4
  - FY2024: 5.4
  - FY2025 (proj): 3.0

Central government finance (percent of GDP)
- Revenue:
  - FY2021: 49.6
  - FY2022: 47.3
  - FY2023: 53.5
  - FY2024: 52.5
  - FY2025 (proj): 41.5
- of which: Grants:
  - FY2021: 23.0
  - FY2022: 19.9
  - FY2023: 27.6
  - FY2024: 26.7
  - FY2025 (proj): 15.8
- Expenditure:
  - FY2021: 50.6
  - FY2022: 48.1
  - FY2023: 47.4
  - FY2024: 49.0
  - FY2025 (proj): 49.5
- Expense:
  - FY2021: 42.9
  - FY2022: 42.0
  - FY2023: 39.6
  - FY2024: 37.2
  - FY2025 (proj): 38.6
- Net acquisition of nonfinancial assets:
  - FY2021: 7.7
  - FY2022: 6.1
  - FY2023: 7.8
  - FY2024: 11.8
  - FY2025 (proj): 10.9
- Primary balance:
  - FY2021: -0.6
  - FY2022: -0.2
  - FY2023: 6.7
  - FY2024: 3.9
  - FY2025 (proj): -7.5
- Overall balance:
  - FY2021: -1.0
  - FY2022: -0.7
  - FY2023: 6.0
  - FY2024: 3.5
  - FY2025 (proj): -8.0
- Overall balance (excl. grants):
  - FY2021: -24.0
  - FY2022: -20.7
  - FY2023: -21.5
  - FY2024: -23.3
  - FY2025 (proj): -23.7

Money and credit
- Broad money (M2):
  - FY2021: 25.0
  - FY2022: 13.4
  - FY2023: -0.3
  - FY2024: 1.7
  - FY2025 (proj): 3.6
- Domestic credit:
  - FY2021: -8.2
  - FY2022: -3.3
  - FY2023: -15.6
  - FY2024: 38.5
  - FY2025 (proj): 6.2
- Of which: Private sector credit:
  - FY2021: 1.0
  - FY2022: 9.0
  - FY2023: 6.8
  - FY2024: 5.0

Balance of payments (selected)
- Current account balance (In percent of GDP):
  - FY2021: -6.8
  - FY2022: -6.6
  - FY2023: -7.4
  - FY2024: -7.7
  - FY2025 (proj): -?  (Note: table lists "-44.1" above and then "(In percent of GDP)" series; the percent series shown is -6.8 to -7.7 — follow source context for percent series)
- Exports of goods, f.o.b.:
  - FY2021: 16.2
  - FY2022: 15.1
  - FY2023: 13.1
  - FY2024: 12.9
  - FY2025 (proj): 15.4
- Imports of goods, f.o.b.:
  - FY2021: 215.4
  - FY2022: 216.1
  - FY2023: 235.4
  - FY2024: 257.6
  - FY2025 (proj): 271.4
- Tourism receipts:
  - FY2021: 9.1
  - FY2022: 9.9
  - FY2023: 43.9
  - FY2024: 49.9
  - FY2025 (proj): 55.0
- Total remittances (In millions of U.S. dollars):
  - FY2021: 220.8
  - FY2022: 215.9
  - FY2023: 256.0
  - FY2024: 263.1
  - FY2025 (proj): 274.2
- Compensation of overseas workers:
  - FY2021: 41.3
  - FY2022: 35.3
  - FY2023: 55.3
  - FY2024: 59.2
  - FY2025 (proj): 62.3
- Personal remittances:
  - FY2021: 179.6
  - FY2022: 180.6
  - FY2023: 200.6
  - FY2024: 203.9
  - FY2025 (proj): 211.9
- Official grants:
  - FY2021: 10.5
  - FY2022: 24.6
  - FY2023: 22.9
  - FY2024: 29.1

Capital and financial accounts
- Capital account balance:
  - FY2021: 69.1
  - FY2022: 73.2
  - FY2023: 66.1
  - FY2024: 17.2
- Financial account balance:
  - FY2021: 0.9
  - FY2022: 29.5
  - FY2023: 17.6
  - FY2024: -17.5
  - FY2025 (proj): 44.7

Reserves and debt
- Gross official foreign reserves (In millions of U.S. dollars):
  - FY2021: 320.7
  - FY2022: 378.5
  - FY2023: 388.8
  - FY2024: 386.1
  - FY2025 (proj): 403.9
- (In months of next year's total imports):
  - FY2021: 11.7
  - FY2022: 11.2
  - FY2023: 10.6
  - FY2024: 10.7
  - FY2025 (proj): (not listed)
- Public debt (external and domestic):
  - FY2021: 48.8
  - FY2022: 47.5
  - FY2023: 43.3
  - FY2024: 37.8
  - FY2025 (proj): 44.0
- Of which: External debt:
  - FY2021: 42.3
  - FY2022: 32.3
  - FY2023: 38.0
  - FY2024: (not listed)
- External debt service ratio:
  - FY2021: 0.8
  - FY2022: 1.5
  - FY2023: 2.2
  - FY2024: 3.8

Exchange rates and memorandum items
- Exchange rate (National currency per US dollar):
  - FY2021: 2.3
  - FY2022: ...
- Real effective exchange rate (2010=100; +=appreciation):
  - FY2021: 107.1
  - FY2022: 115.7
  - FY2023: 125.4
- Nominal GDP (millions of US$):
  - FY2021: 458.6
  - FY2022: 475.4
  - FY2023: 520.3
  - FY2024: 545.4
  - FY2025 (proj): 571.1

Sources: Tonga authorities; and IMF staff estimates and projections.

*International Monetary Fund press release, November 25, 2024.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Tonga and the IMF](http://www.imf.org/external/country/TON/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2024/11/25/pr-24437-tonga-imf-executive-board-concludes-2024-article-iv-consultation_