The International Monetary Fund (IMF) said in a preliminary statement this week that Tonga’s “economic activity is expanding and likely to remain relatively strong into the next couple of years”.
However, the IMF found that there was a lack of recent statistical information available such as government finance, inflation, balance of payments, and national accounts data for their assessment of economic development. The IMF said Tonga needs to increase human and financial resources in its Statistics Department as a matter of priority before their next consultation later this year.
In spite of that, the IMF said economic growth in Tonga grew 3.5% in 2016 and is expected to remain between 3 and 4% over the next few years, partly because of construction and activities related to the 2019 Pacific Games.
Spending in 2016 was lower then expected largely due to the postponement of maintenance works and a smaller increase to public servants salaries.
But Tonga’s deficit account is expected to widen due to imports related to the Pacific Games and the potential increase of public servants salaries as well as the start of maintenance works. The upside is that the increase in spending will boost growth temporarily.
Although the deficit will increase, the IMF says Tonga's external balance of imported and exported goods and services remains stable with a strong flow of remittances coming in and a solid level of international reserves.
Annual inflation reached 6.7% in December 2016 due to a new tax on imported fatty food and tobacco in July 2016 as well as higher oil prices. The increase in inflation is expected to be temporary returning to around 3 percent in 2018.
With regards to risks, the IMF warns it is on the downside with weaker global growth and a retreat from cross-border economic integration such as international trade that may affect Tonga’s economic growth and finance through grants, remittances and tourism.