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Yong Sarah Zhou, Tao Sun, Anca Paduraru, Arvinder Bharath, Stephanie Forte, Kathleen Kao, Yinqiu Lu, Maria Fernanda Chacon Rey, Piyaporn Sodsriwiboon, Chia Yi Tan, and Bo Zhao
The departmental paper, "Rise of Digital Money: Implications for Pacific Island Countries," delves into the fast-evolving landscape of digital money in a diverse region of extremes in size, remoteness and dispersion, highlighting its significant macroeconomic and financial consequences. It provides an overview of the development of digital money and payment systems in Pacific Island Countries (PICs), assessing potential benefits and risks, with a focus on how they can harness digital technology to enhance financial inclusion and payment efficiency while minimizing risks. To this end, the paper also examines the prerequisites for successfully adopting various forms of digital money and proposes a strategic framework for policy decisions. The paper underscores the potential of digital money in advancing public policy goals, like financial inclusion and improved cross-border connectivity – given the specific characteristics of the region – while cautioning against the risks of rapid and inadequately regulated adoption. Accordingly, it advocates a gradual, well-informed approach, tailored to PICs' unique monetary and financial circumstances, including the presence of national currencies and the maturity of payment systems. Moreover, the paper suggests that a regional approach could help address capacity and scalability challenges in introducing new digital money forms and payment methods in PICs.
International Monetary Fund. Asia and Pacific Dept

IMF Country Report No. 23/361

International Monetary Fund. Asia and Pacific Dept
The 2023 Article IV Consultation discusses that The Tongan economy is performing strongly, underpinned by resilient remittance inflows and major reconstruction activities following the Hunga Tonga–Hunga Haʻapai volcanic eruption in January 2022. The authorities are confronting a challenging trade-off between supporting reconstruction and managing inflation in the short term. In the long term, Tonga’s high vulnerability to natural disasters complicates its efforts to create the fiscal space necessary to finance development spending. Tonga is one of the largest recipients of IMF capacity development resources in the region, and the authorities have shown strong ownership. In the medium to long term, once the recovery becomes entrenched, Tonga should strengthen the public finances through a combination of domestic fiscal measures―including rationalization of tax exemptions and tax administration reform―and by seeking continued donor support, which is essential to meet Tonga’s development spending needs while reducing the risk of debt distress.
International Monetary Fund. Asia and Pacific Dept

1. Tonga is rebounding strongly from a major double shock in early 2022. Following the Hunga Tonga-Hunga Ha’apai (HTHH) volcanic eruption-tsunami and the first local COVID-19 outbreak in January-February 2022, intensive reconstruction efforts have been underway, with strong support from the international community, including emergency financing under the IMF’s Rapid Credit Facility (RCF) in July 2022 (50 percent of quota, equivalent to about US$9 million). However, progress on rebuilding has been uneven, with many tourism-related facilities remaining damaged.