Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

TONGA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

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
Pegged exchange rate within horizontal bandsThe external value of the pa’anga is determined on the basis of a weighted basket of currencies comprising the Australian dollar (19%), the Japanese yen (6%), the New Zealand dollar (23%), and the U.S. dollar (52%). The exchange rate of the pa’anga in terms of the U.S. dollar, the intervention currency, is fixed monthly by the National Reserve Bank of Tonga (NRBT) within a band of ±5%.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketCommercial banks may provide forward exchange cover for exporters and importers up to the equivalent of US$2 million a bank in gross.
Arrangements for Payments and Receipts
Prescription of currency requirementsThere are no particular requirements, but settlements are normally made in convertible currencies acceptable to both parties.
Payments arrangements
Regional arrangementsTonga participates in PACER and PICTA.
Administration of controlThe NRBT administers foreign exchange control regulations.
The NRBT delegates to ADs approval authority for current payments and transfers not exceeding T$50,000. All payments exceeding T$50,000 require the prior approval of the NRBT. All capital transfers require the prior approval of the NRBT.
International security restrictionsNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedResident individuals are allowed to open foreign exchange accounts.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsADs may, without reference to the NRBT, approve applications for import transactions for amounts not exceeding T$50,000 or its equivalent. The prior approval of the NRBT is required for transactions in excess of T$50,000.
Import licenses and other nontariff measuresLicenses are required for selected imports, such as motor vehicles, firearms, and explosives.
Negative listImports of noxious gases and fireworks are prohibited.
Licenses with quotasImport quotas apply only to fresh eggs and are intended to protect domestic producers, but these restrictions are currently not enforced. Imports of certain items are restricted for cultural, environmental, health, or security reasons.
Import taxes and/or tariffsAd valorem import tariffs on most goods range up to 35%. Imports of a few items (petroleum, tobacco, and alcoholic beverages) are subject to either specific or ad valorem rates of up to 525%. The tariff rate on motor vehicles is 45%. Imports by the government, the public sector, and diplomatic missions of certain goods under technical assistance agreements, and of personal effects, are exempt from tariffs. Imports are also subject to a20% port and services tax, except for items covered under the Industrial Development Incentives Act, which qualify for concessional rates, and for imports by governmental and quasi-governmental 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 currently not enforced.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesLicenses are required for all exports weighing more than 10 kilograms. Licenses are granted liberally, except for exports of squash.
Without quotasYes.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersADs may, without reference to the NRBT, provide foreign exchange for invisible payments up to the equivalent of T$50,000. The prior approval of the NRBT, with submission of supporting documentation, is required for payments in excess of T$50,000.
Trade-related payments
Prior approvalYes.
Indicative limits/bona fide testYes.
Investment-related payments
Prior approvalYes.
Indicative limits/bona fide testYes.
Payments for travel
Prior approvalYes.
Indicative limits/bona fide testYes.
Personal payments
Prior approvalYes.
Indicative limits/bona fide testYes.
Foreign workers’ wages
Prior approvalYes.
Indicative limits/bona fide testYes.
Credit card use abroad
Prior approvalYes.
Indicative limits/bona fide testYes.
Other payments
Prior approvalYes.
Indicative limits/bona fide testYes.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsPrior approval of the NRBT is required for all capital transactions.
Controls on capital and money market instrumentsControls apply to all transactions in capital and money market instruments.
Controls on derivatives and other instrumentsControls apply to all these transactions.
Controls on credit operationsControls apply to all these transactions.
Controls on direct investment
Outward direct investmentYes.
Inward direct investmentLicenses are required for foreign direct investment. High-technology projects are readily approved. Intermediate projects are approved if there is a local partner. Investment is allowed in certain sectors, including wholesale and retail, transportation, some tourism related activities, and all resource-based activities (such as fishing). Joint ventures may be allowed if the project is deemed beneficial to the country. The time period for the approval process is normally about one week. Once licensed, foreign projects in manufacturing and tourism are eligible for all incentives.
Controls on liquidation of direct investmentControls apply to all these transactions.
Controls on real estate transactionsControls apply to all these transactions.
Controls on personal capital transactionsControls apply to all these transactions.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadYes.
Maintenance of accounts abroadA limit of T$1 million applies on commercial banks’ total net nostro account balances.
Lending to nonresidents (financial or commercial credits)Yes.
Lending locally in foreign exchangeYes.
Purchase of locally issued securities denominated in foreign exchangeYes.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 2004
No significant changes occurred in the exchange and trade system.

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