IMF Executive Board Concludes 2025 Article IV Consultation with Tonga

IMF News, November 10, 2025

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IMF Executive Board Concludes 2025 Article IV Consultation with Tonga

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Bibliographic details

• Published: November 10, 2025

Summary of developments and outlook

• The Executive Board completed the Article IV Consultation for Tonga and considered and endorsed the staff appraisal without a meeting. The authorities have consented to publication of the Staff Report prepared for this consultation.
• Tonga’s economy expanded by 2.7 percent in FY2025, supported by reconstruction activity, strong remittance inflows, a rebound in tourism, and stronger-than-expected grants inflows.
• Growth is projected to moderate to 2.3 percent in FY2026 as reconstruction outlays normalize and supply-side constraints persist.
• Headline inflation has eased below the 5 percent reference rate of National Reserve Bank of Tonga (NRBT), but core inflation has risen to nearly 10 percent, reflecting strong domestic demand pressures.
• Tonga’s external position in FY2025 remained solid, with ample reserves covering about 10½ months of imports.
• The current account deficit widened from 3.8 percent of GDP in FY2024 to 5.2 percent in FY2025, primarily due to reconstruction-related imports, and was financed by sizable capital transfers.
• The outlook is favorable but subject to significant risks: a sharper global slowdown, weaker remittances, or natural disasters could weigh on growth. Long-standing structural constraints include high outward migration, a narrow economic base, and vulnerability to climate shocks.

Executive Board assessment and macro policy guidance

• Growth:
  • Tonga’s economy continues to expand, driven by reconstruction, public investment, strong remittances, and rebound in tourism.
  • Growth projected to peak at 2.7 percent in FY2025 before moderating as large projects wind down and supply-side constraints persist.
  • Medium-term prospects remain subdued due to high disaster vulnerability, outward migration, and structural impediments from Tonga’s small size and remoteness.
• Fiscal policy:
  • The proposed fiscal stance for FY2026 is appropriately contractionary. The expansionary fiscal stance in FY2025 supported the recovery, but with the economy on firmer footing, shifting toward rebuilding buffers in FY2026 is appropriate.
  • Over the medium term, gradual fiscal consolidation and additional grant financing are essential to put debt on a firm downward path.
  • Given Tonga’s high risk of debt distress, consolidation should focus on mobilizing domestic revenues—including phasing out inefficient exemptions—improving tax administration, enhancing spending efficiency, and securing grants.
  • The authorities should refrain from non-concessional borrowing, and strengthen PFM capacity to ensure effective project implementation and support donor confidence.
• Monetary policy:
  • With incipient signs of demand-driven price pressures, monetary policy should shift from accommodative to neutral.
  • Given the spike in core prices and the ample liquidity in the banking system, monetary policy should begin moving toward a neutral stance, with readiness to tighten further in a data-dependent manner.
  • A milestone reform announced by the NRBT—transition to a mid-rate interest rate corridor monetary policy framework—will underpin this shift. The NRBT’s plan to issue short-term securities and transition to a corridor-type framework will help absorb excess liquidity, establish a positive policy rate, and lay the foundation for a more effective interbank market.
• Financial sector and safeguards:
  • The financial system is broadly stable, with banks well-capitalized and liquid, though rising credit risks call for more proactive supervision.
  • Stronger oversight of credit unions and pension funds, alongside continued progress on AML/CFT, will be critical to safeguard financial integrity and preserve correspondent banking ties.
• Structural reforms:
  • Priorities include advancing financial deepening and access to credit, mitigating emigration effects through education and training, accelerating digital adoption, cutting red tape, and addressing governance vulnerabilities.
  • Tonga’s leadership in establishing the Pacific Resilience Facility and the creation of the Anti-Corruption Commission are noted positively.
  • Sustained investment in statistical capacity is needed to support policymaking and surveillance.

Key statistics and projections (selected)

• Population (2023): 100 thousand
• Major exports: root crops, vegetables, shellfish, fish

Output and prices (Annual percent change)

• Real GDP: FY2022 -2.3; FY2023 2.1; FY2024 2.7; FY2025 2.3
• Consumer prices (period average)2: FY2022 6.5; FY2023 12.6; FY2024 8.0; FY2025 2.9; FY2026 2.2
• Consumer prices (end of period)2: FY2022 9.9; FY2023 13.7; FY2024 6.4; FY2025 1.4; FY2026 3.1

Central government finance (In percent of GDP)

• Revenue: FY2022 44.3; FY2023 54.3; FY2024 55.5; FY2025 60.0; FY2026 43.8
  • of which: Grants: FY2022 18.4; FY2023 28.0; FY2024 29.2; FY2025 32.0; FY2026 16.9
• Expenditure: FY2022 44.4; FY2023 48.2; FY2024 51.3; FY2025 51.4
• Expense: FY2022 38.7; FY2023 40.3; FY2024 37.0; FY2025 37.5; FY2026 37.1
• Net acquisition of nonfinancial assets: FY2022 5.7; FY2023 7.9; FY2024 14.3
• Primary balance: FY2022 0.4; FY2023 6.8; FY2024 4.6; FY2025 6.1; FY2026 -7.3
• Overall balance: FY2022 -0.1; FY2023 4.2; FY2024 5.6; FY2025 -7.7
• Overall balance (excl. grants): FY2022 -18.5; FY2023 -21.9; FY2024 -25.0; FY2025 -26.3; FY2026 -24.6

Money and credit

• Broad money (M2): FY2022 13.4; FY2023 -0.3; FY2024 8.2; FY2025 3.7; FY2026 -
• Domestic credit: FY2022 -3.3; FY2023 -15.6; FY2024 14.0; FY2025 18.0; FY2026 15.9
  • Of which: Private sector credit: FY2022 -1.0; FY2023 9.0; FY2024 7.3; FY2025 7.5; FY2026 4.5

Balance of payments (In millions of U.S. dollars)

• Current account balance: FY2022 -27.8; FY2023 -30.4; FY2024 -21.2; FY2025 -30.6; FY2026 -39.3
  • As percent of GDP: FY2022 -5.4; FY2023 -5.9; FY2024 -3.8; FY2025 -5.2; FY2026 -6.4
• Trade balance: FY2022 -201.0; FY2023 -222.6; FY2024 -221.1; FY2025 -243.0; FY2026 -251.2
• Exports of goods, f.o.b.: FY2022 15.1; FY2023 13.1; FY2024 10.8; FY2025 12.0; FY2026 13.5
• Imports of goods, f.o.b.: FY2022 216.1; FY2023 235.8; FY2024 231.9; FY2025 255.0; FY2026 264.7
• Tourism receipts: FY2022 44.0; FY2023 61.6; FY2024 66.7; FY2025 70.2
• Total remittances: FY2022 215.9; FY2023 256.4; FY2024 257.0; FY2025 265.5; FY2026 278.5
  • Compensation of overseas workers: FY2022 41.9; FY2023 50.0; FY2024 46.0; FY2025 45.2
  • Compensation of overseas workers (alternate listing): FY2022 35.3; FY2023 55.4; FY2024 65.0; FY2025 67.2; FY2026 70.4
  • Personal remittances: FY2022 180.6; FY2023 200.9; FY2024 192.0; FY2025 198.4; FY2026 208.1
• Official grants: FY2022 24.6; FY2023 22.9; FY2024 21.9; FY2025 30.9; FY2026 22.2
• Capital account balance: FY2022 73.2; FY2023 66.2; FY2024 45.9; FY2025 51.1; FY2026 10.2
• Financial account balance: FY2022 25.0; FY2023 15.8; FY2024 -22.3; FY2025 38.6

Reserves and debt

• Gross official foreign reserves (In millions of U.S. dollars): FY2022 378.5; FY2023 389.9; FY2024 386.6; FY2025 387.9; FY2026 397.4
• Reserves (In months of next year's total imports): FY2022 11.7; FY2023 11.9; FY2024 10.9; FY2025 10.5
• Public debt (external and domestic): FY2025 31.5; FY2026 37.7
  • Of which: External debt: FY2022 38.2; FY2023 38.3; FY2024 31.7; FY2025 26.6; FY2026 31.0
• External debt service ratio: FY2022 3.8; FY2023 3.6; FY2024 3.5

Exchange rates

• Exchange rate (National currency per US dollar): FY2022 2.4
• Real effective exchange rate (2010=100; +=appreciation): FY2022 115.7; FY2023 112.7; FY2024 118.7; FY2025 119.3

Memorandum items

• Nominal GDP (millions of US$): FY2022 515.2; FY2023 513.1; FY2024 558.1; FY2025 587.5; FY2026 615.7

Policy recommendations (selected, as endorsed by Executive Directors)

• Pursue a contractionary fiscal stance in FY2026 to rebuild buffers while maintaining support for priority spending.
• Implement gradual fiscal consolidation and secure additional grant financing to place debt on a firm downward path.
• Mobilize domestic revenues, phase out inefficient exemptions, improve tax administration, enhance spending efficiency, and refrain from non-concessional borrowing.
• Strengthen PFM capacity to improve project implementation and donor confidence.
• Shift monetary policy from accommodative to neutral and implement NRBT’s transition to a mid-rate interest rate corridor framework, issue short-term securities, and develop the interbank market.
• Increase supervisory vigilance in the banking sector, strengthen oversight of credit unions and pension funds, and advance AML/CFT reforms.
• Advance structural reforms: financial deepening, education and training to mitigate emigration impacts, digital adoption, regulatory reform to cut red tape, governance improvements, and investment in statistical capacity.

IMF Communications Department; Press Release No. 25/365; November 10, 2025.

References

• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• www.imf.org/Tonga
• https://www.imf.org/en/home