Chapter

TONGA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: March 22, 1991.
Exchange Arrangement
CurrencyThe currency of Tonga is the Tongan pa’ anga.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe external value of the pa’ anga is determined on the basis of a weighted basket of currencies comprising the U.S. dollar, the Australian dollar, and the New Zealand dollar.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketCommercial banks are allowed to provide forward exchange cover, but their gross foreign exchange liabilities must not exceed T$l million. Provision of forward exchange cover for squash exporters requires the approval of the MOF.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payment arrangementsNo.
Administration of controlForeign exchange transactions are regulated by the MOF.
International security restrictionsNo.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedNo.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedNo.
Domestic currency accountsNo.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresLicenses are required for all imports, but they are issued freely for selected imports, e.g., motor vehicles.
Licenses with quotasImport quotas apply only to fresh eggs and are intended to protect domestic producers, but the restriction is not enforced. The importation of certain items is restricted for cultural or environmental reasons or to protect the health and safety of residents.
Import taxes and/or tariffsImport tariffs of up to 35% are levied on an ad valorem basis. Imports of a few items (petroleum, tobacco, and alcoholic beverages) are subject to either specific tariffs or ad valorem rates of up to 300%. The tariff rate on motor vehicles is 45%. Imports by the reigning monarch, by the public sector, and by diplomatic missions; imports under certain technical assistance agreements; and imports of personal effects are exempt from tariffs. Imports are also subject to a 20% port and services tax, except for items under the Industrial Development Incentives Act, which qualify for concessional rates, and imports of government and quasi-government organizations, which are exempt.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsAll export proceeds must be repatriated within 12 months, but this regulation is not enforced.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesLicenses are required for all exports weighing more than 10 kilograms. Licenses are granted liberally except for squash.
Without quotasYes.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersCommercial banks are authorized to provide foreign exchange for invisible payments, but there are controls on all these payments, except for the use of credit cards abroad and the transfer of costs of family maintenance or alimony.
Trade-related payments
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Investment-related paymentsShipping and airline agencies may remit income earned from activities in Tonga upon producing income statements relating to local business activities that have been submitted to their respective head offices. There are no controls on the payment of amortization of loans or depreciation of direct investments.
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Payments for travel
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Personal paymentsThere are no controls on transfer of costs of family maintenance or alimony.
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Foreign workers’ wages
Prior approvalYes.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Other payments
Prior approvalNo prior approval is required for payment of consulting and legal fees.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase abroad by residentsThe acquisition of foreign financial assets is, in principle, prohibited, but in practice the control is not strictly enforced because the repatriation requirement is not enforced.
Bonds or other debt securities
Purchase abroad by residentsYes.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investment
Inward direct investmentLicenses are required for direct foreign investment. High-technology projects are readily approved. Intermediate projects are accepted if there is a local partner, and simple projects that can be undertaken by locals are likely to be rejected. Investment in certain sectors, including wholesale and retail, transportation and some tourism-related activities, and all resource-based activities, such as fishing, are prohibited. However, joint ventures may be allowed if the project is deemed beneficial to the country. No time period has been specified for the approval process, which can be quite lengthy, but once licensed, foreign projects in manufacturing and tourism are fully eligible for incentives.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsNo.
Controls on personal capital movementsNo.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadYes.
Maintenance of accounts abroadYes.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 1999
No significant changes occurred in the exchange and trade system.

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