Credit growth continues to contract in Tonga's slow economy [1]
Wednesday, November 2, 2011 - 22:18. Updated on Monday, September 9, 2013 - 18:40.
The growth prospect for the Tongan economy is expected to remain slow in the next six months on the back of uncertainty in the global economy, according to a statement from the National Reserve Bank of Tonga on November 1.
An increase in financial risks comes with the volatility of the world oil and food prices, and Tonga's vulnerability to natural disasters such as earthquakes and tsunamis, and the hurricane season running from November to March.
"The annual headline inflation increased to 9.7 percent in the year ended May 2011, before it eased to 6.3 percent year on year to September 2011. The increase reflected the rise in the prices of imported food and fuel," the NRBT stated.
The bank's dismal outlook confirmed what the private sector already know: that private sector credit growth continued to contract, along with weak domestic demand and slow economic recovery. The export sector remained low in the first half of 2011.
The monetary policy statement for September noted that remittances remained weak. "The high unemployment rate in the United States will continue to affect remittances to Tonga. Credit growth will continue to be subdued..."
Growth prospects
On the brighter side, tourism inflows improved.
The domestic economic activity was mainly driven by foreign aid funded construction and infrastructure projects.
A positive contribution to the economy was expected from the multi-million pa'anga construction and infrastructure works that are being carried out, not only in the Nuku'alofa Central Business District, but also in other island groups and rural areas, funded with overseas loans and by aid donors.
The anticipated benefits from the completion of the new Vuna Wharf would also contribute positively to the economy.
The NRBT expected the level of Tonga's Foreign Reserve to remain high in the next six months, above its current seven months of imports.
There was optimism that that the rate of inflation could fall from the 6.3% in September, on the basis of the IMF forecast that world oil prices will fall.
An increase in agricultural exports could also contribute positively to the development of the economy.
In the first half of 2011, there was a " positive contribution from the proceeds of the sandalwood and sea cucumber exports."
But the export of sea cucumber this year was limited to only 100 tonnes, a drop from a high of 312 tonnes in 2010, and the reduction was to preserve the depletion of the stock.
Board
A meeting of the Board of Directors of the National Reserve Bank of Tonga on November 1 stressed that it would "closely monitor Tonga'e economic and financial conditions in order to safeguard the foreign reserves at an adequate level, promote low and stable inflation, and maintain a sound and efficient financial system."
Currently, the Chairman of the NRBT is Steven Edwards. Also on the board is the Governor of the NRBT Joyce Mafi, and the directors, HRH Princess Pilolevu, Richard Prema, and Siofelusi Tiueti.