IMF Staff Country Reports

Tonga’s economy is expanding steadily, driven by stronger-than-expected grant inflows, elevated remittances, a rebound in tourism, and fiscal support for the reconstruction. Headline inflation has declined below the reference rate, driven by lower food and energy prices, but core inflation has picked up, reflecting stronger domestic demand. Risks in the banking sector remain contained but have increased and require continued vigilance. Meanwhile, Tonga continues to face significant structural challenges including geographic remoteness, a small and dispersed population, and high vulnerability to natural disasters. This persistent vulnerability discourages investment and incentivizes emigration, weighing on long-term growth prospects and requiring policies and reforms to enhance resilience and growth potential, particularly in a global environment marred by heightened policy uncertainty.