Tonga's rising inflation rate a concern [1]
Tuesday, March 1, 2011 - 21:33. Updated on Monday, September 9, 2013 - 18:40.
A large decline in remittances to Tonga is slowing down the economy while the inflation rate is expected to rise continually over the next six months, causing a weak domestic economy, Tonga's Reserve Bank has reported.
The Governor of the National Reserve Bank of Tonga is concerned that a rising inflation rate, which increased by 5 per cent per annum in December, 2010, is projected to continue to rise in the next six months, mainly on due to rising world oil and food prices.
In a bi-annual meeting on February 21 Governor Siosi Mafi, and the Association Bankers of Tonga discussed Tonga's weak domestic economy and the outlook of a slow recovery in the next six to 12 months.
The Reserve Bank stated that in the absence of a substitute income, the large decline in remittances had been a major contributing factor to the slow economic activity of the country.
"The decline in credit growth is not helping and the flow on effects to the domestic economy of aid-funded projects seems to be lagging behind expectation," the Governor stated.
In terms of what the banks are doing to support credit growth, the banks informed the meeting that despite the excess liquidity available in the local system, they were not receiving many bankable project proposals but were continuing to work with their current customers to manage their exposures from further deterioration.
Poor exports
The Governor and general managers of the four banks in Tonga including Westpac, ANZ, MBF and the Tonga Development Bank, discussed the poor performance of Tonga's export sector and the bottlenecks which hinder the development of exports.
They believed that the current and future trend of rising food
prices could provide an opportunity for Tonga in the future. Some of these issues would be discussed at a conference of the Ministry of Agriculture, Fisheries and Forestry this week.
Tourism
But despite the slow growth, there were some positive developments. A financial update showed Tonga's tourism receipts increased by 13 percent in the year to December 2010. After a large decline remittances were beginning to increase again, but only by one percent in the same period.
Imports, however, were slowly increasing.
The Reserve Bank noted that the level of foreign reserves was at a comfortable level of 6.5 months of imports and even though it was forecasted to fall in the next six months it would still remain above the policy minimum level of covering for four months of imports.
"Given the current economic and financial conditions, the Reserve Bank's monetary policy will be maintained in neutral stance," the bank stated.
This is the first meeting for the NRBT Governor and the Association of Banks of Tonga for 2011. A second meeting is expected to be held towards the end of the year in Nuku'alofa.