Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

TONGA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: March 22, 1991.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictionsNo.
References to legal instruments and hyperlinksn.a.
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%), yen (6%), New Zealand dollar (23%), and 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 value.
References to legal instruments and hyperlinksn.a.
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.
Use of foreign exchange among residentsn.r.
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 the equivalent of T$50,000 with supporting documents. All payments exceeding T$50,000 require the prior approval of the NRBT. All capital transfers require the prior approval of the NRBT.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotes
On exports
Domestic currencyUnder the emergency powers, effective November 1, 2006, the export of cash exceeding the equivalent of US$10,000, whether in local or foreign currency, is prohibited, except with the written permission of the governor of the NRBT. Work is in progress to amend the legislation to make the cash border controls permanent.
Foreign currencyUnder the emergency powers, effective November 1, 2006, the export of cash exceeding the equivalent of US$10,000, whether in local or foreign currency, is prohibited, except with the written permission of the governor of the NRBT. Work is in progress to amend the legislation to make the cash border controls permanent.
References to legal instruments and hyperlinksn.a.
Resident Accounts
Foreign exchange accounts permittedResident individuals are allowed to open foreign exchange accounts. The NRBT delegates to ADs approval authority to open these accounts using funds from abroad. To open these accounts using local funds, approval from the NRBT is required.
Held domesticallyYes.
Approval requiredYes.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyNo.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedThe NRBT delegates to ADs approval authority to open these accounts using funds from abroad. To open these accounts using local funds, approval from the NRBT is required.
Domestic currency accountsYes.
Convertible into foreign currencyNo.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
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 a 20% 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.
References to legal instruments and hyperlinksn.a.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsAll export proceeds must be repatriated within 12 months, but this regulation is currently not enforced.
Surrender to the central bankn.a.
Surrender to authorized dealersn.a.
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.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersADs may, without reference to the NRBT, provide foreign exchange for invisible payments, except for travel payments, effective December 1, 2006, up to the equivalent of T$50,000 with submission of supporting documents. 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 approvalEffective December 1, 2006, the prior approval of the NRBT is required for amounts exceeding T$20,000 an application.
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.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Surrender requirements
Surrender to the central bankn.a.
Surrender to authorized dealersn.a.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsPrior approval of the NRBT is required for all capital transactions.
Repatriation requirementsn.a.
Surrender requirementsn.a.
Controls on capital and money market instrumentsControls apply to all these transactions.
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 investmentControls on foreign direct investment (FDI) are provided in the Foreign Investment Act of 2002. Licenses are required for FDI. 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). Business activities included in the reserved list are reserved for Tongans. Business activities included in the restricted list are open to foreigners under certain conditions. 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 investmentYes.
Controls on real estate transactionsControls apply to all these transactions.
Controls on personal capital transactions
LoansControls apply to all these transactions.
Gifts, endowments, inheritances, and legaciesADs are allowed to transfer abroad up to the equivalent of T$10,000 a year. Outward transfers exceeding this limit require NRBT approval.
Settlements of debts abroad by immigrantsYes.
Transfer of assets
Transfer abroad by emigrantsYes.
Transfer into the country by immigrantsn.r.
Transfer of gambling and prize earningsYes.
References to legal instruments and hyperlinksForeign Investment Act, 2002.
Provisions Specific to the Financial Sector
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 exchangeAll foreign currency loans are financed from head offices or from customer foreign exchange receipts. Banks are not allowed to buy from the NRBT to finance foreign currency loans. Local borrowing by customers to fund profit remittances is prohibited.
Purchase of locally issued securities denominated in foreign exchangeYes.
Provisions specific to institutional investors
Pension fundsn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Arrangements for payments and receiptsNovember 1. Under the emergency powers, written permission of the NRBT was required to export cash exceeding the equivalent of US$10,000.
Payments for invisible transactions and current transfersDecember 1. ADs were allowed, without reference to the NRBT, to provide foreign exchange for invisible payments, except for travel payments, up to the equivalent of T$50,000 with submission of supporting documents.



December 1. The prior approval of the NRBT was required for payments for travel exceeding the equivalent of T$20,000 an application.

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