Tonga: Staff Report for the 2013 Article IV Consultation

International Monetary Fund. Asia and Pacific Dept

doi:10.5089/9781475537628.002.A001

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International Monetary Fund. Asia and Pacific Dept

International Monetary Fund. Asia and Pacific Dept
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Publication Date:: 25 Jul 2013

eISBN:: 9781475537628

Language:: English

Keywords:: ISCR; CR; Tonga; GDP; net; fiscal year; government; reform effort; excess reserves; debt relief; broad money; monetary policy transmission mechanism; financial crisis; Budget planning and preparation; Credit; Public expenditure review; Global

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This staff report on Tonga’s 2013 Article IV Consultation discusses the economic development and policies. Banks in Tonga have been fixing their balance sheets since late 2008. Shrinking the loan books and increasing holdings of reserve assets have prompted negative macro-financial linkages, and reduced business confidence. In response, the National Reserve Bank of Tonga has aggressively infused liquidity into the system, and stepped up risk-based supervision. Progress in improving the regulatory and institutional infrastructure has also continued, including inauguration of a credit bureau. Major gains have been made in budget transparency, the establishment of a Treasury Single Account system, and better prioritization of the budget.

Abstract

The Macroeconomic Situation

1. After achieving about 3 percent of annual growth during FY 2008/9–10/11 (fiscal year ends on June 30), real GDP growth slowed down to 0.8 percent in FY 2011/12. In the previous three years, public investment projects, particularly those funded by China’s EXIM Bank, had offset the negative spillovers from the global financial crisis. However, those projects are now completed and exerting a drag on growth—along with weaknesses in remittances, other investment spending, and tourist arrivals. Growth is thus expected to slow further to about ½ percent in FY 2012/13. Starting in FY 2013/14, a gradual recovery of remittances and tourism—along with improved infrastructure—is expected to raise growth to about 1¾ percent.

2. Headline inflation has fallen significantly. After peaking at 9.7 percent in May 2011 (above the official reference range of 6–8 percent), inflation decelerated to 0.5 percent in April 2013, led mainly by imported food and oil prices. Going forward, inflation is expected to recover to the historical trend (about 5.5 percent). However, in the near term, there is an upside risk to inflation from the need to realign electricity prices with fuel costs.

3. There are no imminent risks to the external balance. Despite the continued contraction of remittances since 2008, increases in foreign grants and, more recently, a decline in imports, led gross official foreign reserves to rise by about 45 percent since December 2010. In the medium term, however, the overall balance of payment is expected to return to a deficit. This will cause gross international reserves to fall but remain above 4 months of imports (the NRBT’s target).

4. Risks to the near-term outlook are tilted to the downside given continued fragilities in the global economy as well as domestic vulnerabilities. Tonga is highly dependent on growth prospects in Australia and New Zealand, its primary markets for exports, tourism, and seasonal migrant employment. Accordingly, global developments that could adversely impact these regional economies represent the main risks to Tonga. Currently, key risks relate to lingering uncertainties over fiscal policy in the United States, possible re-intensification of euro area stress, and a broad-based and deeper-than-expected slowdown of emerging market economies. On the domestic side, slippages in critical reforms could undermine investor confidence.

A. Authorities’ Views

5. While being more cautious, the authorities broadly agreed with the staff on the macroeconomic outlook. They noted that remittances, one of the key drivers of Tonga’s underlying growth, will likely not soon recover to pre-crisis levels notwithstanding the global economic recovery, considering lags in the recovery of jobs (particularly in California that hosts a large share of the Tongan diasporas) and the need to rebuild household net worth in advanced economies.

Rebuilding Policy Space to Better Manage Risks to Growth

Tonga needs to rebuild policy buffers by strengthening its fiscal position given its high external vulnerability. At the same time, consideration should be given to a timely unwinding of the accommodative monetary policy stance.

A. Background

6. Tonga’s fiscal position improved significantly in recent years. The overall budget deficit decreased to 2.7 percent of GDP from 7.6 percent in the previous year. The FY 2012/13 budget aims to eliminate the fiscal deficit in line with the expected ending of China-funded investment projects. Although the mid-year assessment of the FY 2012/13 budget points to shortfalls in both revenue collections including grants, these are expected to be offset by corresponding cuts in grant-related expenditures and savings from the wage freeze.

7. Following an improvement in the World Bank’s CPIA rating of Tonga’s macroeconomic policies and institutions from weak to medium, the country has been upgraded from high to moderate risk of external debt distress.¹ The government adopted a No New Loan Policy in June 2011 committing to no new borrowing (including concessional ones) in light of Tonga’s external debt vulnerability. The authorities are also seeking debt relief from the China EXIM Bank, through either debt reduction or rescheduling.

Tonga: Medium-term Fiscal Financing Projection

(Percent of GDP)

Source: Authorities and IMF Staff estimates.

Tonga: Medium-term Fiscal Financing Projection

(Percent of GDP)

				2012/13	2013/14	2014/15	2015/16	2016/17
Overall deficit/surplus				0.2	-0.1	1.3	1.8	1.7
	External financing			-0.7	-0.3	-0.6	-0.8	-0.7
		Disbursements		0.9	1.4	1.4	1.3	1.3
		Repayments		0.9	1.8	2.0	2.1	2.0
			of which: China EXIM Bank	0.1	1.0	1.2	1.4	1.4
	Domestic financing			0.5	0.4	-0.7	-1.0	-1.0
		Net changes in cash balances		0.3	-0.4	0.7	0.9	0.9

Source: Authorities and IMF Staff estimates.

Tonga: Medium-term Fiscal Financing Projection

(Percent of GDP)

				2012/13	2013/14	2014/15	2015/16	2016/17
Overall deficit/surplus				0.2	-0.1	1.3	1.8	1.7
	External financing			-0.7	-0.3	-0.6	-0.8	-0.7
		Disbursements		0.9	1.4	1.4	1.3	1.3
		Repayments		0.9	1.8	2.0	2.1	2.0
			of which: China EXIM Bank	0.1	1.0	1.2	1.4	1.4
	Domestic financing			0.5	0.4	-0.7	-1.0	-1.0
		Net changes in cash balances		0.3	-0.4	0.7	0.9	0.9

Source: Authorities and IMF Staff estimates.

8. Monetary policy continued to focus on thawing the credit freeze within the constraints set by the NRBT’s stated objectives. These objectives include protecting international reserves and stabilizing inflation. Despite a basket peg, limited capital mobility allows the NRBT to maintain substantial control over the reserve money. Since late 2009, the NRBT has continued to limit sterilization to help re-grow private credits. While recent data show some signs of stabilization in credit growth, there has been concern over the effectiveness of monetary policy transmission mechanism for some time (see Box 1).

B. Staff Views

9. The government should continue to focus on strengthening the fiscal position to restore fiscal space. External indebtedness remains an important vulnerability, and continuing moderate primary surpluses should be targeted over the medium term to strengthen Tonga’s debt and debt service indicators (Table 5). Medium-term fiscal consolidation should be supported by strong debt management and continued avoidance of nonconcessional borrowing.² Staff also supports Tonga’s intention to maintain usable cash balances equivalent to 2 months’ cover of recurrent spending as a fiscal buffer, given its limited options for borrowing and high level of vulnerability to shocks. With a rise in recurrent spending in FY 2013/14 and limited savings to build the cash balance, the latter is projected to slip to about six weeks’ cover of recurrent spending by year-end. However, with increased primary surpluses from FY 2014/15, domestic savings would rise sufficiently to stabilize and rebuild cash balances toward the 2-month coverage ratio.

10. For FY 2013/14, the primary fiscal surplus should be maintained at around 1 percent of GDP, in line with the projected FY 2012/13 outcome. Some financing from the World Bank and AsDB that was formerly grant-only is expected to shift to an equal grant-loan mix starting in FY 2013/14, consistent with the upgrade of Tonga’s debt distress rating. With this decline in grant financing, a phased increase in the primary fiscal surplus to the 2 percent of GDP medium-term range by FY 2014/15 is reasonable.³ Grace periods on some external loans will also expire in FY 2013/14, and while the government has requested debt service relief, the design of the fiscal consolidation strategy should not count on this being available. This approach would allow any exceptional financing to be used to expand priority spending while also further strengthening the primary surplus to help build cash buffers.

11. Over the medium-term, fiscal consolidation will require wage restraint and revenue reforms. The gradual recovery of economic growth is expected to increase the revenue-to-GDP ratio by 1 percent, supported by revenue reforms. At the same time, the government aims to reduce the share of the wage bill to 45 percent of recurrent spending. This will create fiscal space to enable priority spending to rise to about 1½ percent of GDP, while protecting capital investment outlays of about 2½–3½ percent of GDP (Table 5).

12. The authorities need to start considering an unwinding of the accommodative monetary policy stance. The NRBT’s accommodative monetary policy during the last three years, while appropriate, has resulted in a large liquidity overhang in the banking system, reflecting both weak demand for credit and bank deleveraging. In the absence of a timely unwinding, the overhang may amplify the procyclicality of the credit cycle. In view of this, the NRBT should stand ready to mop up excess reserves, including by raising reserve requirements as needed, once signs become clear that the credit cycle is bottoming out.

13. The authorities intend to add a full commercial banking function to the Tonga Development Bank (TDB). To this end, the authorities would like to seek equity participation from two retirement funds and potential foreign investors to address the credit squeeze. This plan has merits, given Tonga’s under-developed financial sector which is prone to market failure. However, expanding commercial banking at TDB could also potentially increase fiscal and governance risks, which should be properly addressed with the completion of a due diligence process being conducted by the IFC. The authorities can also consider a carefully crafted safeguard mechanism to advance its plan to introduce a risk-sharing facility (i.e., a donor-sponsored credit guarantee scheme). Interest rate controls should be resisted.

14. Staff’s exchange rate assessment suggests that there is no evidence of misalignment of the exchange rate from the medium-term fundamentals (see Box 2). The current basket peg of the exchange rate has served the country well as a nominal anchor.

C. Authorities’ Views

15. While concerned about the expected decline in revenue in FY 2012/13, the authorities did not expect this to require resort to new external financing—which would be contrary to the No New Loan Policy. They expected the wage and hiring freeze policy put in place for the FY 2012/13 budget to be fully effective in restraining recurrent spending. Moreover the authorities intended to offset lower-than-expected project grants through comprehensive expenditure reassessment across line ministries.

16. The authorities agreed on the need for conservative assumptions about possible debt relief from China. They intend to include debt relief in the final budget only when any agreement is reached. Thus, while the FY2013/14 budget was being prepared using two scenarios—with and without debt relief—the authorities are currently focusing on the scenario without relief. The authorities are also reviewing the financial implications of the 2019 South Pacific Games, which they have committed to host.

17. The authorities expect inflation to remain stable below 6 percent, and international reserves to hold at more than 4 months of import in the next 6 to 12 months. Based on this, the authorities intend to maintain an accommodative monetary policy stance in the near term. However, the authorities agreed with the mission on the need to stand ready to mop up liquidity with the bottoming of the credit cycle. The authorities favored recommencing the issuance of NRBT notes and adjusting liquidity ratios, should the need arise. The authorities also agreed with the staff on the need for a proper due diligence assessment by the IFC of the plans for TDB.

18. The authorities shared the view that the current basket system has served the Tongan economy well. They noted that external shocks could be absorbed by the exchange rate flexibility (i.e., ±5 percent of monthly adjustment limit) if needed.

Strengthening the Macro Policy Framework

Tonga should continue to strengthen its overall macro policy framework. Focus should be on both expediting financial sector reform and enhancing fiscal policy effectiveness.

A. Background

19. Financial sector reform is an on-going process. Banks in Tonga have been fixing their balance sheets since late 2008. Shrinking the loan books and increasing holdings of reserve assets have prompted negative macro-financial linkages and reduced business confidence. In response, the NRBT has aggressively infused liquidity into the system and stepped up risk-based supervision. Progress in improving the regulatory and institutional infrastructure has also continued, including inauguration of a credit bureau.

20. Revenue reform has progressed gradually. Previously identified priorities include: (i) rationalizing tax exemptions; (ii) developing a natural resource taxation regime; and (iii) introducing a small business taxation system. The government has since established a Revenue Committee including to follow up on them.

21. Public Finance Management (PFM) reforms have moved ahead. The government is currently preparing its own PFM roadmap, and has agreed with development partners on a Joint Policy Action Matrix (in which PFM-related reforms comprise a main pillar) linked to donor budget supports.

B. Staff Views

22. A stronger macro policy framework is critically important in building buffers against future shocks. Banks’ painful efforts to clean up their balance sheets are expected to eventually lead to a more resilient banking system. Efforts should continue to expedite this process, and build a more robust regulatory and supervisory framework. The recent drawdown of fiscal space increases the importance of on-going PFM and revenue administration reforms.

Financial sector. The financial deleveraging cycle may have turned the corner, with recent data providing positive signals and banks positioning themselves to harness emerging opportunities. Staff strongly supports the authorities’ continued efforts to strengthen on-site supervision capacities. Staff also sees the need to further strengthen the collateral framework including by addressing legal impediments to collateralizing lease rights on allotted lands. The Receivership Bill should be enacted this year as planned. Efforts to promote interbank and bond market development should be reinvigorated with gradual reduction of excess reserves.
Revenue reform. Staff strongly supports the creation of a presumptive tax regime for SMEs and the natural resource tax regime. Revenue reform efforts should include streamlining and enhancing the transparency of tax exemptions. Given Tonga’s revenue challenges, and the loopholes generated by it, the staff recommends a freeze on new tax incentives. The recent inclusion of tax expenditure in the budget is welcome. Updating both the Revenue and Customs Management Systems is an important priority, as is the rationalization of tax penalties.
PFM. Major gains have been made in: (i) budget transparency; (ii) the establishment of a Treasury Single Account system; and (iii) better prioritization of the budget. Priorities going forward should include: (i) updating personnel/payroll systems; (ii) strengthening the procurement process; and (iii) on-going corporate planning reform and further advances in program budgeting. The formalization of the PFM reform roadmap should also be facilitated.

C. Authorities’ Views

23. The authorities welcomed the observed changes in banks’ attitudes to lend, and acknowledged the need for improving communication with banks—both to better understand their needs and to more closely share policy intentions. The authorities also asked for continued technical assistance on onsite supervision and review of relevant financial laws, including the Reserve Bank Act and Financial Institutions Act, with a view to strengthening the financial regulatory framework. The government indicated that ministries are developing corporate plans which will be integrated into the budget. The medium-term budget is also being developed.

24. While taking note of staff’s recommendation, the authorities informed staff that strategies about tax incentives are internally being debated. In fact, some line ministries are advocating an expansion of these incentives to support investment. Cabinet approved a proposed small business tax and a natural resource taxation framework in September 2012, which was prepared with technical assistance from PFTAC.

Reversing a Weakening of Trend Growth

Tonga’s efforts to develop the private sector are ongoing, and further efforts are needed to nurture the business environment to unshackle private investment.

A. Background

25. Tonga, like other PICs, faces significant challenges in raising job and economic growth. New international competition has eroded Tonga’s niche markets. At the same time, a catching up of income (to source countries) through remittance channels may have reached its limit. Given declining exports, a very high rate of emigration, and a low investment rate, there are concerns about the economy’s transition to permanently slow growth.

26. Tonga’s efforts to develop the private sector are ongoing. Tonga is facing difficult structural challenges, including its small size and remoteness. Addressing them in a way that improves growth prospects will require higher investment, in particular private ones. Improving the business environment will clearly facilitate this process, as will strengthening investor confidence. Vast marine resources, potential to grow niche tourism, and a well-educated and English speaking population are opportunities that can be explored, in particular if combined with well-targeted deepening of structural reforms.

B. Staff Views

27. Reforms should focus on policy coordination and judicious deregulation. Recent efforts to enhance intra-government coordination and dialogue with the private sector are welcome. The current framework (e.g., National Growth Committee) should be further strengthened, for example by establishing a high-level government position to coordinate and oversee inter-ministry efforts to address impediments to private sector growth. A tailored support mechanism could be put in place, focusing initially on strategically important foreign investors.

28. The business licensing reform has achieved an important milestone by abolishing the requirement for annual renewal of the headline trade license. The reform initiatives could now focus on easing ancillary licenses required by various regulatory agencies. Improving access to information needed by new investors is also important, as well as enhanced communication on key ongoing reforms, to help boost business confidence.

29. Staff supports the authorities’ intention to develop tourism as the key growth engine. An enabling business environment and foreign capital participation would be important to achieve this objective, as well as to revive growth in fishery and agriculture. Consistent and predictable conservation decisions (e.g., in fishery) are also important to promote investor confidence. The authorities’ plan to prepare a mining law is welcome given the need to prepare for a comprehensive framework for the emerging deep-sea extractive potential.

30. Continued efforts are needed to restructure distressed public enterprises. Identification of private partners for these companies would be buttressed by commitment to business enabling reforms. On a related issue, the tariff on electricity should be realigned to fuel costs, while targeted transfers could be used to protect the vulnerable. The financial positions of the public enterprises should be integrated into the national debt management framework, with a focus on fiscal contingent liabilities.

C. Authorities’ Views

31. The authorities agreed with staff on the need to further deepen structural reform to nurture business environment, including through strengthened policy coordination. The authorities in particular noted the need to create a full-time position within the government to oversee inter-line ministry coordination. The authorities noted that focus of the reform is shifting to land issues and immigration visa issues. The authorities also took note of the need for a tailored service for strategically important foreign investors.

32. The government’s highest priority is on the promotion of tourism, including through more aggressive destination marketing. Nonetheless, the authorities acknowledged the difficulty in determining target niches within the tourism industry. The authorities are working closely with the private sector to address agricultural market access issues, including through joint marketing trips, and noted that support should now focus on overcoming non-tariff barriers and on organizing suppliers. The authorities also noted that the recent establishment of an agricultural marketing fund will help mitigate difficulty in access to finance.

Staff Appraisal

33. The Tongan economy is expected to remain weak in FY 2012/13, following the completion of key public work projects. Beyond FY 2012/13, staff projects the economy to recover gradually, but to a slightly lower growth rate than the historical trend before the global financial crisis. Risks to the near-term outlook are tilted to the downside, reflecting external risks and weak business confidence.

34. The current macroeconomic policy mix, which combines fiscal consolidation and monetary accommodation, is appropriate. The overall fiscal deficit fell from 7.6 percent to 2.7 percent of GDP in FY 2011/12; and the FY 2012/13 budget aims to eliminate the remaining deficit. Monetary conditions have remained accommodative for the past three years.

35. In view of Tonga’s level of external debt—an important vulnerability despite the DSA rating upgrade—and the expected increase in debt repayments, fiscal consolidation should be sustained. The FY 2013/14 budget could aim to maintain a similar level of primary balance surplus as in FY 2012/13, to preserve cash buffers with the expected repayments on the external loans and limited borrowing options. A credible fiscal consolidation strategy should not factor in debt relief until it becomes certain, and the space that could result from debt relief should be prudently used.

36. The authorities need to start considering an unwinding of the accommodative monetary policy stance. In particular, the NRBT should stand ready to mop up excess liquidity with the bottoming out of the credit cycle. At the same time, other efforts to overcome obstacles to renewed credit growth should continue. In this context the government’s plan to further commercialize TDB has merits, but a thorough due diligence assessment is essential.

37. Staff strongly supports the creation of a presumptive tax regime for SMEs and the natural resource tax regime. Revenue reform efforts should include streamlining and enhancing the transparency of tax exemptions. Formalization of the PFM reform roadmap is important to demonstrate the authorities’ commitment to reform and to inform technical assistance from donors.

38. Tonga’s structural challenges to growth call for reforms to strengthen investor confidence. Reforms should focus on policy coordination and judicious deregulation. The current framework for coordination could be further strengthened, for example by establishing a high-level coordinator. A tailored support mechanism for foreign investors should also be put in place. The business licensing reform has achieved an important milestone, and could now focus on easing ancillary licenses.

39. It is recommended that the next Article IV consultation with Tonga be held on the 12-month consultation cycle in accordance with the decision on consultation cycles, Decision No. 14747-(10/96) (9/28/2010).

Box 1.

Fixing the Monetary Transmission Mechanism in Tonga

Tonga’s banking system, which is dominated by the local operations of two large foreign banks (ANZ and Westpac), has gone through a prolonged period of balance sheet repair since the third quarter of 2008.

During 2004–08, the stock of private credit doubled. The credit boom consisted of three phases. The first phase (2004Q3–05Q4) saw a 50 percent increase in private credit in five quarters, and was triggered by liquidity from the government’s severance payments and a subsequent housing boom. Then political instability, which culminated in a civil uprising, halted the credit expansion for about a year (2006Q1–07Q1). With the restoration of political stability, credit growth resumed at a brisk pace from the second quarter of 2007. Monetary easing aimed at post-civil uprising economic recovery, reconstruction investments, and a pocket of separate large projects provided the impetus during this time.

The credit boom abruptly ended in the third quarter of 2008 against a backdrop of sharply deteriorating debt servicing capacities and moderating asset prices in the wake of the global financial crisis. The remittance and tourism channels were particularly prevalent in transmitting initial impacts. The ensuing stress fully opened up a macro-financial feedback loop. During this process, Tongan banks displayed deep-rooted weaknesses in risk management and governance, despite foreign control and ownership.

Since then, Tongan banks have continued to fix their balance sheets. Despite aggressive liquidity injection by the NRBT, banks have continued to shrink their loan books and have piled up excess reserves (in order to reduce risk-weighted assets), prompting renewed attention on the need to strengthen Tonga’s monetary policy transmission mechanism, which has traditionally been weak. Fortunately, recent data indicate that the deleveraging may soon turn the corner, with the equity-to-asset ratio now reaching 20 percent, credit contraction stabilizing, and loan loss provisioning peaking off.

What can be done to raise the effectiveness of monetary policy?

The structural weaknesses stemming from financial underdevelopment will have to be addressed through enabling structural reforms: Tonga is making steadfast progress on this front.
The recent further deterioration of the transmission mechanism has a cyclical nature, stemming mainly from the credit boom-bust cycle; while it will correct itself with the turn of the cycle, policies should be open to various options for expediting the deleveraging (e.g., possible further mobilization of private capital)
Efforts to promote interbank and bond market development should be reinvigorated, as the excess reserve overhang, a key conjunctural impediment to the efficient functioning of interbank markets, is removed in time.
The authorities’ plan to broaden TDB’s business focus toward SMEs and public enterprises can provide much needed impetus to financial deepening and raise competition. A partnership with the private sector including IFIs will help limit fiscal and governance risks.
SME credit guarantee programs can also help in this regard, provided that appropriate TAs can be provided, leading to private partnership (especially from IFIs).
Interest rate controls should be avoided, as they are ineffective, leads to inefficient credit allocation, and do not address the fundamental problem of weak business confidence.

Box 2.

Exchange Rate and Competitiveness

Tonga’s real effective exchange rate remains broadly in line with its medium-term fundamentals. Other indicators do not indicate a significant loss of competitiveness but suggest room for improvement.

Exchange rate

Tonga’s real effective exchange rate (REER) remains broadly in line with its medium-term fundamentals. The macroeconomic balance approach suggests that the Tongan currency is below its long-run equilibrium level by about 3 percent, while the purchasing power parity approach indicates an overvaluation of around 8 percent.

Non-price measures and other indicators

Exports. Export growth is expected at around 8 percent in the medium term (compared to an average rate of 6.5 percent in the past decade), as the economy continues to recover, and programs to boost exports including in tourism yield results.
Costs of doing business. Tonga is matched only by Samoa and Fiji among Pacific island countries in its relatively favorable rating under the World Bank’s Doing Business 2013 report. However, overcoming Tonga’s locational disadvantage and small size will require an even stronger business environment. Judicious deregulation (e.g., easing ancillary licenses) and enhanced policy coordination to nurture a business-friendly environment will be important.

Table 1.

Tonga: Selected Economic Indicators, 2008/09–2013/14 ^1/

Nominal GDP (2011/12): US$471.6 million

GDP per capita (2011/12): US$4565.6

Major exports: fish, root crops, vanilla, squash

Quota: SDR 6.9 million

Sources: Tongan authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year beginning July.

^{^2/}Including preliminary data.

^{^3/}From the Banking Survey, which includes the Tonga Development Bank.

Table 1.

Tonga: Selected Economic Indicators, 2008/09–2013/14 ^1/

Nominal GDP (2011/12): US$471.6 million

GDP per capita (2011/12): US$4565.6

Major exports: fish, root crops, vanilla, squash

Quota: SDR 6.9 million

					Average				Prelim.	Projections
					2003-12	2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
					(Annual percent change)
Output and prices
	Real GDP ^2/				1.1	3.2	3.3	2.9	0.8	0.5	1.5
	Consumer prices (period average)				7.1	5.5	1.7	6.0	3.3	2.9	3.5
	Consumer prices (end of period)				6.9	1.2	2.7	7.1	2.3	3.0	4.0
	GDP deflator				6.2	-2.4	3.7	5.8	2.3	2.9	3.5
					(In percent of GDP)
Central government finance
	Total revenue and grants				26.6	34.3	27.0	26.3	28.0	23.9	24.2
			Total revenue		22.6	27.4	20.2	19.6	18.1	18.1	18.1
			Grants		4.0	6.8	6.8	6.7	9.9	5.8	6.1
	Total expenditure and net lending				28.2	34.4	32.3	34.0	30.6	23.7	24.3
		Of which:		Current expenditure	23.9	25.2	25.8	23.0	23.9	21.6	21.7
				Capital expenditure	2.6	2.7	2.6	9.4	5.6	2.0	2.5
	Overall balance				-1.6	-0.2	-5.3	-7.6	-2.7	0.2	-0.1
	Overall balance (excl. China’s EXIM Bank loans)				1.1	6.1	-0.2	1.6	3.2	1.2	-0.1
	External financing (net)				n.a.	-0.7	3.5	8.4	5.2	-0.7	-0.3
	Domestic financing (net)				n.a.	-5.2	1.9	-0.8	-2.5	0.5	0.4
					(Annual percent change)
Money and credit
	Total liquidity ^3/				7.9	-1.8	5.1	3.1	-1.7	8.2	7.0
		Of which: Broad money (M2)			8.2	-2.4	5.6	3.3	-1.8	8.4	7.2
	Domestic credit				5.3	-5.2	-11.5	-12.3	-8.7	-5.9	10.9
		Of which: Private sector credit			5.5	-3.7	-15.6	-9.9	-2.7	-6.9	8.1
	Interest rates (end of period)
			Average deposit rate		n.a.	5.3	3.8	3.4	3.5	…	…
			Base lending rate		n.a.	10.0	9.6	9.6	9.6	…	…
					(In millions of U.S. dollars)
Balance of payments
	Exports, f.o.b.				12.2	7.2	7.9	10.9	14.8	15.3	16.1
	Imports, f.o.b.				-123.0	-130.5	-130.4	-152.5	-179.3	-136.5	-142.0
	Services (net)				-8.7	-15.2	-8.5	3.5	-6.8	-4.2	-4.4
	Investment income (net)				4.8	6.4	4.0	9.0	11.2	12.7	13.3
	Current transfers (net)				99.6	104.0	109.0	117.5	129.0	85.3	94.0
			Of which: Remittances		89.9	84.0	82.0	87.5	66.8	70.1	73.6
	Current account balance				-15.1	-28.1	-17.9	-11.6	-31.1	-27.6	-23.0
			(In percent of GDP)		-4.3	-8.8	-4.9	-2.7	-6.6	-5.9	-4.7
	Overall balance				46.9	19.5	19.7	33.2	19.8	2.7	3.6
	Terms of trade (annual percent change)				0.1	-4.5	5.1	-4.4	0.0	-0.5	1.2
Gross official foreign reserves
	In millions of U.S. dollars				65.7	67.7	87.5	120.7	140.5	143.3	146.8
			(In months of next year’s goods and services		4.4	4.6	5.0	5.7	8.0	7.8	7.4
External debt (in percent of GDP)
	External debt				32.0	31.5	31.8	35.4	41.2	40.3	38.9
	Debt service ratio				1.2	0.7	1.2	1.2	1.3	1.6	2.5
Exchange rates
	Pa’anga per U.S. dollar (period average)				2.0	2.1	1.9	1.8	1.7	1.8	1.8
	Pa’anga per U.S. dollar (end of period)				1.9	2.0	1.9	1.7	1.8	1.8	1.8
	Nominal effective exchange rate (2005=100)				98.8	95.7	96.9	97.4	103.4	102.4	100.6
	Real effective exchange rate (2005=100)				102.6	107.5	108.3	111.5	118.4	118.4	118.4
Memorandum items:
	Remittances (in percent of GDP)				29.3	26.4	22.2	20.7	14.2	14.9	15.2
	Tourism (in percent of GDP)				6.3	8.7	7.0	7.9	7.7	8.5	8.8
	FDI (in percent of GDP)				5.2	12.0	2.0	1.5	1.1	2.3	2.4
	Nominal GDP (millions of T$)				623.8	664.3	712.2	775.0	799.3	826.3	868.1
	Population (thousands)				102.0	102.5	102.8	103.0	103.3	103.5	103.8

Sources: Tongan authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year beginning July.

^{^2/}Including preliminary data.

^{^3/}From the Banking Survey, which includes the Tonga Development Bank.

Table 1.

Tonga: Selected Economic Indicators, 2008/09–2013/14 ^1/

Nominal GDP (2011/12): US$471.6 million

GDP per capita (2011/12): US$4565.6

Major exports: fish, root crops, vanilla, squash

Quota: SDR 6.9 million

					Average				Prelim.	Projections
					2003-12	2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
					(Annual percent change)
Output and prices
	Real GDP ^2/				1.1	3.2	3.3	2.9	0.8	0.5	1.5
	Consumer prices (period average)				7.1	5.5	1.7	6.0	3.3	2.9	3.5
	Consumer prices (end of period)				6.9	1.2	2.7	7.1	2.3	3.0	4.0
	GDP deflator				6.2	-2.4	3.7	5.8	2.3	2.9	3.5
					(In percent of GDP)
Central government finance
	Total revenue and grants				26.6	34.3	27.0	26.3	28.0	23.9	24.2
			Total revenue		22.6	27.4	20.2	19.6	18.1	18.1	18.1
			Grants		4.0	6.8	6.8	6.7	9.9	5.8	6.1
	Total expenditure and net lending				28.2	34.4	32.3	34.0	30.6	23.7	24.3
		Of which:		Current expenditure	23.9	25.2	25.8	23.0	23.9	21.6	21.7
				Capital expenditure	2.6	2.7	2.6	9.4	5.6	2.0	2.5
	Overall balance				-1.6	-0.2	-5.3	-7.6	-2.7	0.2	-0.1
	Overall balance (excl. China’s EXIM Bank loans)				1.1	6.1	-0.2	1.6	3.2	1.2	-0.1
	External financing (net)				n.a.	-0.7	3.5	8.4	5.2	-0.7	-0.3
	Domestic financing (net)				n.a.	-5.2	1.9	-0.8	-2.5	0.5	0.4
					(Annual percent change)
Money and credit
	Total liquidity ^3/				7.9	-1.8	5.1	3.1	-1.7	8.2	7.0
		Of which: Broad money (M2)			8.2	-2.4	5.6	3.3	-1.8	8.4	7.2
	Domestic credit				5.3	-5.2	-11.5	-12.3	-8.7	-5.9	10.9
		Of which: Private sector credit			5.5	-3.7	-15.6	-9.9	-2.7	-6.9	8.1
	Interest rates (end of period)
			Average deposit rate		n.a.	5.3	3.8	3.4	3.5	…	…
			Base lending rate		n.a.	10.0	9.6	9.6	9.6	…	…
					(In millions of U.S. dollars)
Balance of payments
	Exports, f.o.b.				12.2	7.2	7.9	10.9	14.8	15.3	16.1
	Imports, f.o.b.				-123.0	-130.5	-130.4	-152.5	-179.3	-136.5	-142.0
	Services (net)				-8.7	-15.2	-8.5	3.5	-6.8	-4.2	-4.4
	Investment income (net)				4.8	6.4	4.0	9.0	11.2	12.7	13.3
	Current transfers (net)				99.6	104.0	109.0	117.5	129.0	85.3	94.0
			Of which: Remittances		89.9	84.0	82.0	87.5	66.8	70.1	73.6
	Current account balance				-15.1	-28.1	-17.9	-11.6	-31.1	-27.6	-23.0
			(In percent of GDP)		-4.3	-8.8	-4.9	-2.7	-6.6	-5.9	-4.7
	Overall balance				46.9	19.5	19.7	33.2	19.8	2.7	3.6
	Terms of trade (annual percent change)				0.1	-4.5	5.1	-4.4	0.0	-0.5	1.2
Gross official foreign reserves
	In millions of U.S. dollars				65.7	67.7	87.5	120.7	140.5	143.3	146.8
			(In months of next year’s goods and services		4.4	4.6	5.0	5.7	8.0	7.8	7.4
External debt (in percent of GDP)
	External debt				32.0	31.5	31.8	35.4	41.2	40.3	38.9
	Debt service ratio				1.2	0.7	1.2	1.2	1.3	1.6	2.5
Exchange rates
	Pa’anga per U.S. dollar (period average)				2.0	2.1	1.9	1.8	1.7	1.8	1.8
	Pa’anga per U.S. dollar (end of period)				1.9	2.0	1.9	1.7	1.8	1.8	1.8
	Nominal effective exchange rate (2005=100)				98.8	95.7	96.9	97.4	103.4	102.4	100.6
	Real effective exchange rate (2005=100)				102.6	107.5	108.3	111.5	118.4	118.4	118.4
Memorandum items:
	Remittances (in percent of GDP)				29.3	26.4	22.2	20.7	14.2	14.9	15.2
	Tourism (in percent of GDP)				6.3	8.7	7.0	7.9	7.7	8.5	8.8
	FDI (in percent of GDP)				5.2	12.0	2.0	1.5	1.1	2.3	2.4
	Nominal GDP (millions of T$)				623.8	664.3	712.2	775.0	799.3	826.3	868.1
	Population (thousands)				102.0	102.5	102.8	103.0	103.3	103.5	103.8

Sources: Tongan authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year beginning July.

^{^2/}Including preliminary data.

^{^3/}From the Banking Survey, which includes the Tonga Development Bank.

Table 2.

Tonga: Summary of Government Operations, 2008/09–2013/14

Sources: Tongan authorities; and IMF Staff estimates.

Table 2.

Tonga: Summary of Government Operations, 2008/09–2013/14

									Prov.	Budget	Projections
						2008/09	2009/10	2010/11	2011/12	2012/13	2012/13	2013/14
						(In millions of pa’anga)
Total revenue and grants						227.5	192.1	204.2	223.4	217.8	197.2	210.4
	Total revenue					182.0	143.6	152.0	144.4	149.3	149.6	157.2
		Current revenue				154.8	143.6	150.1	144.2	147.0	148.7	157.0
			Tax revenue			129.1	116.2	132.0	126.8	127.7	129.7	137.0
				Of which: Taxes on income/profits		40.3	28.1	38.3	25.3	21.3	26.4	28.4
					Sales tax and consumption tax	71.3	72.4	80.8	87.8	92.5	92.5	97.2
			Nontax revenue			25.7	27.3	18.1	17.4	19.3	19.0	20.0
		Capital revenue				27.2	0.0	1.9	0.2	2.3	0.9	0.2
	Grants (in cash)					45.5	48.6	52.2	79.0	68.5	47.6	53.2
		Project grants				45.5	35.2	30.7	41.9	46.0	33.0	29.7
		Budget support				0.0	13.4	21.5	37.1	22.5	14.6	23.5
Total expenditure and net lending						228.8	230.2	263.2	244.9	216.6	195.5	210.9
	Total expenditure					207.3	202.3	251.2	235.9	216.1	194.9	210.2
		Current expenditure				166.9	183.8	178.4	190.8	201.4	178.1	188.5
		Capital expenditure				17.8	18.4	72.8	45.1	14.7	16.9	21.7
			Of which : Funded by China EXIM Bank loans			27.5	28.2	60.4	38.2	0.5	8.1	0.0
	Total lending minus repayments					6.4	27.9	12.1	9.0	0.0	0.5	0.7
Current balance (excl. project grants)						19.8	-15.7	-7.0	-8.9	-54.4	-4.6	-31.5
Overall balance (incl. grants)						-1.3	-38.0	-59.1	-21.5	1.2	1.8	-0.6
Primary balance (incl. grants)						3.9	-32.5	-52.6	-15.0	8.2	10.2	8.0
Total financing						1.3	38.0	59.1	21.5	-1.2	-1.8	0.6
	External financing					-4.4	24.7	65.5	41.2	-1.2	-5.6	-2.9
	Domestic financing					-34.6	13.3	-6.4	-19.7	0.0	3.8	3.5
						(In percent of GDP)
Total revenue and grants						34.3	27.0	26.3	28.0	26.4	23.9	24.2
	Total revenue					27.4	20.2	19.6	18.1	18.1	18.1	18.1
		Current revenue				23.3	20.2	19.4	18.0	17.8	18.0	18.1
			Tax revenue			19.4	16.3	17.0	15.9	15.5	15.7	15.8
				Of which: Taxes on income/profits		6.1	3.9	4.9	3.2	2.6	3.2	3.3
					Sales tax and consumption tax	10.7	10.2	10.4	11.0	11.2	11.2	11.2
			Nontax revenue			3.9	3.8	2.3	2.2	2.3	2.3	2.3
		Capital revenue				4.1	0.0	0.3	0.0	0.3	0.1	0.0
	Grants (in cash)					6.8	6.8	6.7	9.9	8.3	5.8	6.1
		Project grants				6.8	4.9	4.0	5.2	5.6	4.0	3.4
		Budget support				0.0	1.9	2.8	4.6	2.7	1.8	2.7
Total expenditure and net lending						34.4	32.3	34.0	30.6	26.2	23.7	24.3
		Current expenditure				25.1	25.8	23.0	23.9	24.4	21.6	21.7
		Capital expenditure				2.7	2.6	9.4	5.6	1.8	2.0	2.5
			Of which : funded by China EXIM Bank loans			4.1	4.0	7.8	4.8	0.1	1.0	0.0
	Total lending minus repayments					1.0	3.9	1.6	1.1	0.0	0.1	0.1
Current balance (excl. project grants)						3.0	-2.2	-0.9	-1.1	-6.6	-0.6	-3.6
Overall balance (incl. grants)						-0.2	-5.3	-7.6	-2.7	0.1	0.2	-0.1
Primary balance (incl. grants)						0.6	-4.6	-6.8	-1.9	1.0	1.2	0.9
Total financing						0.2	5.3	7.6	2.7	-0.1	-0.2	0.1
	External financing					-0.7	3.5	8.4	5.2	-0.1	-0.7	-0.3
	Domestic financing					-5.2	1.9	-0.8	-2.5	0.0	0.5	0.4
Memorandum items:
	Nominal GDP (in millions of pa’anga)					664.3	712.2	775.0	799.3	826.3	826.3	868.1
	Total external public debt outstanding (in percent of GDP)					31.5	31.8	35.4	41.2		40.3	38.9

Sources: Tongan authorities; and IMF Staff estimates.

Table 2.

Tonga: Summary of Government Operations, 2008/09–2013/14

									Prov.	Budget	Projections
						2008/09	2009/10	2010/11	2011/12	2012/13	2012/13	2013/14
						(In millions of pa’anga)
Total revenue and grants						227.5	192.1	204.2	223.4	217.8	197.2	210.4
	Total revenue					182.0	143.6	152.0	144.4	149.3	149.6	157.2
		Current revenue				154.8	143.6	150.1	144.2	147.0	148.7	157.0
			Tax revenue			129.1	116.2	132.0	126.8	127.7	129.7	137.0
				Of which: Taxes on income/profits		40.3	28.1	38.3	25.3	21.3	26.4	28.4
					Sales tax and consumption tax	71.3	72.4	80.8	87.8	92.5	92.5	97.2
			Nontax revenue			25.7	27.3	18.1	17.4	19.3	19.0	20.0
		Capital revenue				27.2	0.0	1.9	0.2	2.3	0.9	0.2
	Grants (in cash)					45.5	48.6	52.2	79.0	68.5	47.6	53.2
		Project grants				45.5	35.2	30.7	41.9	46.0	33.0	29.7
		Budget support				0.0	13.4	21.5	37.1	22.5	14.6	23.5
Total expenditure and net lending						228.8	230.2	263.2	244.9	216.6	195.5	210.9
	Total expenditure					207.3	202.3	251.2	235.9	216.1	194.9	210.2
		Current expenditure				166.9	183.8	178.4	190.8	201.4	178.1	188.5
		Capital expenditure				17.8	18.4	72.8	45.1	14.7	16.9	21.7
			Of which : Funded by China EXIM Bank loans			27.5	28.2	60.4	38.2	0.5	8.1	0.0
	Total lending minus repayments					6.4	27.9	12.1	9.0	0.0	0.5	0.7
Current balance (excl. project grants)						19.8	-15.7	-7.0	-8.9	-54.4	-4.6	-31.5
Overall balance (incl. grants)						-1.3	-38.0	-59.1	-21.5	1.2	1.8	-0.6
Primary balance (incl. grants)						3.9	-32.5	-52.6	-15.0	8.2	10.2	8.0
Total financing						1.3	38.0	59.1	21.5	-1.2	-1.8	0.6
	External financing					-4.4	24.7	65.5	41.2	-1.2	-5.6	-2.9
	Domestic financing					-34.6	13.3	-6.4	-19.7	0.0	3.8	3.5
						(In percent of GDP)
Total revenue and grants						34.3	27.0	26.3	28.0	26.4	23.9	24.2
	Total revenue					27.4	20.2	19.6	18.1	18.1	18.1	18.1
		Current revenue				23.3	20.2	19.4	18.0	17.8	18.0	18.1
			Tax revenue			19.4	16.3	17.0	15.9	15.5	15.7	15.8
				Of which: Taxes on income/profits		6.1	3.9	4.9	3.2	2.6	3.2	3.3
					Sales tax and consumption tax	10.7	10.2	10.4	11.0	11.2	11.2	11.2
			Nontax revenue			3.9	3.8	2.3	2.2	2.3	2.3	2.3
		Capital revenue				4.1	0.0	0.3	0.0	0.3	0.1	0.0
	Grants (in cash)					6.8	6.8	6.7	9.9	8.3	5.8	6.1
		Project grants				6.8	4.9	4.0	5.2	5.6	4.0	3.4
		Budget support				0.0	1.9	2.8	4.6	2.7	1.8	2.7
Total expenditure and net lending						34.4	32.3	34.0	30.6	26.2	23.7	24.3
		Current expenditure				25.1	25.8	23.0	23.9	24.4	21.6	21.7
		Capital expenditure				2.7	2.6	9.4	5.6	1.8	2.0	2.5
			Of which : funded by China EXIM Bank loans			4.1	4.0	7.8	4.8	0.1	1.0	0.0
	Total lending minus repayments					1.0	3.9	1.6	1.1	0.0	0.1	0.1
Current balance (excl. project grants)						3.0	-2.2	-0.9	-1.1	-6.6	-0.6	-3.6
Overall balance (incl. grants)						-0.2	-5.3	-7.6	-2.7	0.1	0.2	-0.1
Primary balance (incl. grants)						0.6	-4.6	-6.8	-1.9	1.0	1.2	0.9
Total financing						0.2	5.3	7.6	2.7	-0.1	-0.2	0.1
	External financing					-0.7	3.5	8.4	5.2	-0.1	-0.7	-0.3
	Domestic financing					-5.2	1.9	-0.8	-2.5	0.0	0.5	0.4
Memorandum items:
	Nominal GDP (in millions of pa’anga)					664.3	712.2	775.0	799.3	826.3	826.3	868.1
	Total external public debt outstanding (in percent of GDP)					31.5	31.8	35.4	41.2		40.3	38.9

Sources: Tongan authorities; and IMF Staff estimates.

Table 3.

Tonga: Depository Corporations Survey, 2008/09–2013/14 ^1/

Sources: Tongan authorities; and IMF staff estimates.

^{^1/}Comprises the National Reserve Bank of Tonga (NRBT) and other depository corporations (ODCs), including the Tonga Development Bank (TDB).

^{^2/}Comprises bills and promissory notes issued by financial sector and held outside the sector.

Table 3.

Tonga: Depository Corporations Survey, 2008/09–2013/14 ^1/

								Projections
				2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
				(In millions of pa’anga; end of period)
Net foreign assets				118.1	143.1	195.9	222.3	231.4	231.5
	Claims on nonresidents			155.9	188.5	224.3	262.1	269.4	281.5
		NRBT		137.7	171.9	206.0	248.8	256.4	268.5
		Other depository corporations		18.3	16.6	18.3	13.3	13.0	13.0
	Liabilities to Nonresidents			-37.9	-45.4	-28.4	-39.8	-38.0	-50.0
		NRBT		-10.4	-29.5	-22.0	-24.8	-23.0	-30.0
		Other depository corporations		-27.5	-15.9	-6.4	-15.1	-15.0	-20.0
Net domestic assets				163.9	153.3	109.6	78.0	93.4	116.2
	Net domestic credit			313.9	277.7	243.7	222.6	209.4	232.2
			Net claims on government	-34.7	-28.1	-31.4	-45.9	-42.0	-38.6
			Claims on public nonfin. corps.	4.7	15.5	13.6	14.0	14.6	14.6
			Claims on private sector	343.9	290.3	261.5	254.4	236.9	256.2
	Other items, net			-149.9	-124.4	-134.1	-144.5	-116.0	-116.0
Total liquidity				282.0	296.4	305.4	300.3	324.8	347.6
	Broad money (M2)			269.2	284.4	293.7	288.4	312.6	335.1
		Narrow money		77.7	90.0	96.8	118.1	121.2	124.4
		Quasi money		191.6	194.4	196.9	170.2	191.4	210.7
	Securities other than shares ^2/			12.8	12.0	11.8	11.9	12.2	12.6
									0.0
				(Annual percentage change)
Net foreign assets				55.4	21.2	36.9	13.5	4.1	0.0
Net domestic assets				-22.4	-6.5	-28.5	-28.8	19.7	24.4
	Net domestic credit			-5.2	-11.5	-12.3	-8.7	-5.9	10.9
			Claims on private sector	-3.7	-15.6	-9.9	-2.7	-6.9	8.1
Total liquidity				-1.8	5.1	3.1	-1.7	8.2	7.0
	Broad money (M2)			-2.4	5.6	3.3	-1.8	8.4	7.2
				(In millions of U.S. dollars)
Net foreign assets				56.6	74.2	106.9	127.0	130.7	128.0
	Claims on nonresidents			74.8	97.7	122.4	149.7	152.2	155.6
		NRBT		66.0	89.1	112.4	142.2	144.9	148.4
		ODCs		8.8	8.6	10.0	7.6	7.3	7.2
	Liabilities to nonresidents			-18.2	-23.5	-15.5	-22.8	-21.5	-27.6
Memorandum items:
	Velocity (GDP/average M2)			2.5	2.5	2.6	2.8	2.6	2.6
	Pa’anga per U.S. dollar (end of period)			2.0	1.9	1.7	1.8	1.8	1.8

Sources: Tongan authorities; and IMF staff estimates.

^{^1/}Comprises the National Reserve Bank of Tonga (NRBT) and other depository corporations (ODCs), including the Tonga Development Bank (TDB).

^{^2/}Comprises bills and promissory notes issued by financial sector and held outside the sector.

Table 3.

Tonga: Depository Corporations Survey, 2008/09–2013/14 ^1/

								Projections
				2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
				(In millions of pa’anga; end of period)
Net foreign assets				118.1	143.1	195.9	222.3	231.4	231.5
	Claims on nonresidents			155.9	188.5	224.3	262.1	269.4	281.5
		NRBT		137.7	171.9	206.0	248.8	256.4	268.5
		Other depository corporations		18.3	16.6	18.3	13.3	13.0	13.0
	Liabilities to Nonresidents			-37.9	-45.4	-28.4	-39.8	-38.0	-50.0
		NRBT		-10.4	-29.5	-22.0	-24.8	-23.0	-30.0
		Other depository corporations		-27.5	-15.9	-6.4	-15.1	-15.0	-20.0
Net domestic assets				163.9	153.3	109.6	78.0	93.4	116.2
	Net domestic credit			313.9	277.7	243.7	222.6	209.4	232.2
			Net claims on government	-34.7	-28.1	-31.4	-45.9	-42.0	-38.6
			Claims on public nonfin. corps.	4.7	15.5	13.6	14.0	14.6	14.6
			Claims on private sector	343.9	290.3	261.5	254.4	236.9	256.2
	Other items, net			-149.9	-124.4	-134.1	-144.5	-116.0	-116.0
Total liquidity				282.0	296.4	305.4	300.3	324.8	347.6
	Broad money (M2)			269.2	284.4	293.7	288.4	312.6	335.1
		Narrow money		77.7	90.0	96.8	118.1	121.2	124.4
		Quasi money		191.6	194.4	196.9	170.2	191.4	210.7
	Securities other than shares ^2/			12.8	12.0	11.8	11.9	12.2	12.6
									0.0
				(Annual percentage change)
Net foreign assets				55.4	21.2	36.9	13.5	4.1	0.0
Net domestic assets				-22.4	-6.5	-28.5	-28.8	19.7	24.4
	Net domestic credit			-5.2	-11.5	-12.3	-8.7	-5.9	10.9
			Claims on private sector	-3.7	-15.6	-9.9	-2.7	-6.9	8.1
Total liquidity				-1.8	5.1	3.1	-1.7	8.2	7.0
	Broad money (M2)			-2.4	5.6	3.3	-1.8	8.4	7.2
				(In millions of U.S. dollars)
Net foreign assets				56.6	74.2	106.9	127.0	130.7	128.0
	Claims on nonresidents			74.8	97.7	122.4	149.7	152.2	155.6
		NRBT		66.0	89.1	112.4	142.2	144.9	148.4
		ODCs		8.8	8.6	10.0	7.6	7.3	7.2
	Liabilities to nonresidents			-18.2	-23.5	-15.5	-22.8	-21.5	-27.6
Memorandum items:
	Velocity (GDP/average M2)			2.5	2.5	2.6	2.8	2.6	2.6
	Pa’anga per U.S. dollar (end of period)			2.0	1.9	1.7	1.8	1.8	1.8

Sources: Tongan authorities; and IMF staff estimates.

^{^1/}Comprises the National Reserve Bank of Tonga (NRBT) and other depository corporations (ODCs), including the Tonga Development Bank (TDB).

^{^2/}Comprises bills and promissory notes issued by financial sector and held outside the sector.

Table 4.

Balance of Payments Summary, 2008/09–2013/14

(In millions of U.S. dollars, unless otherwise indicated)

Sources: Tongan authorities; and IMF staff estimates.

^{^1/}Includes all official grants excluding project funds related to capital formation.

^{^2/}Change in gross official foreign reserves.

Table 4.

Balance of Payments Summary, 2008/09–2013/14

(In millions of U.S. dollars, unless otherwise indicated)

						Prelim.	Projections
			2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
Trade balance			-123.3	-122.5	-141.6	-164.5	-121.3	-125.9
	Exports, f.o.b.		7.2	7.9	10.9	14.8	15.3	16.1
	Imports, f.o.b.		-130.5	-130.4	-152.5	-179.3	-136.5	-142.0
Services (net)			-15.2	-8.5	3.5	-6.8	-4.2	-4.4
	Receipts		35.0	39.1	60.5	66.4	69.6	73.0
	Payments		-50.2	-47.5	-57.0	-73.2	-73.8	-77.4
Investment income (net)			6.4	4.0	9.0	11.2	12.7	13.3
	Receipts		10.2	11.6	16.0	18.3	20.2	21.2
	Payments		-3.8	-7.7	-7.1	-7.1	-7.5	-7.9
Current transfers (net)			104.0	109.0	117.5	129.0	85.3	94.0
	Official transfers (net) ^1/		16.8	17.4	20.5	17.7	4.8	9.6
	Private transfers (net)		87.2	91.6	97.0	78.7	80.5	84.4
Current account balance			-28.1	-17.9	-11.6	-31.1	-27.6	-23.0
	(In percent of GDP)		-8.8	-4.9	-2.7	-6.6	-5.9	-4.7
Capital account balance			27.6	15.5	5.5	27.1	18.7	16.6
Financial account balance			19.9	22.2	39.3	23.8	11.5	9.9
	FDI (net)		38.3	7.6	6.4	5.0	11.0	11.6
	Other investment (net)		-18.4	14.6	33.0	18.8	0.5	-1.6
Overall balance ^2/			19.5	19.7	33.2	19.8	2.7	3.6
Memorandum items:
	Gross official foreign reserves		67.7	87.5	120.7	140.5	143.3	146.8
		In months of next year’s goods and services import	4.6	5.0	5.7	8.0	7.8	7.4
	Exchange rate
		Pa’anga per U.S. dollar (period average)	2.1	1.9	1.8	1.7	1.8	1.8
		Pa’anga per U.S. dollar (end of period)	2.0	1.9	1.7	1.8	1.8	1.8
	Nominal GDP (in millions of US$)		318.5	369.2	423.0	471.6	469.5	485.1
	Commodity price indexes (2005 = 100)
		Food	145.4	141.6	163.9	177.0	171.6	164.2
		Fuel	79.4	70.4	91.5	104.5	102.4	98.2

Sources: Tongan authorities; and IMF staff estimates.

^{^1/}Includes all official grants excluding project funds related to capital formation.

^{^2/}Change in gross official foreign reserves.

Table 4.

Balance of Payments Summary, 2008/09–2013/14

(In millions of U.S. dollars, unless otherwise indicated)

						Prelim.	Projections
			2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
Trade balance			-123.3	-122.5	-141.6	-164.5	-121.3	-125.9
	Exports, f.o.b.		7.2	7.9	10.9	14.8	15.3	16.1
	Imports, f.o.b.		-130.5	-130.4	-152.5	-179.3	-136.5	-142.0
Services (net)			-15.2	-8.5	3.5	-6.8	-4.2	-4.4
	Receipts		35.0	39.1	60.5	66.4	69.6	73.0
	Payments		-50.2	-47.5	-57.0	-73.2	-73.8	-77.4
Investment income (net)			6.4	4.0	9.0	11.2	12.7	13.3
	Receipts		10.2	11.6	16.0	18.3	20.2	21.2
	Payments		-3.8	-7.7	-7.1	-7.1	-7.5	-7.9
Current transfers (net)			104.0	109.0	117.5	129.0	85.3	94.0
	Official transfers (net) ^1/		16.8	17.4	20.5	17.7	4.8	9.6
	Private transfers (net)		87.2	91.6	97.0	78.7	80.5	84.4
Current account balance			-28.1	-17.9	-11.6	-31.1	-27.6	-23.0
	(In percent of GDP)		-8.8	-4.9	-2.7	-6.6	-5.9	-4.7
Capital account balance			27.6	15.5	5.5	27.1	18.7	16.6
Financial account balance			19.9	22.2	39.3	23.8	11.5	9.9
	FDI (net)		38.3	7.6	6.4	5.0	11.0	11.6
	Other investment (net)		-18.4	14.6	33.0	18.8	0.5	-1.6
Overall balance ^2/			19.5	19.7	33.2	19.8	2.7	3.6
Memorandum items:
	Gross official foreign reserves		67.7	87.5	120.7	140.5	143.3	146.8
		In months of next year’s goods and services import	4.6	5.0	5.7	8.0	7.8	7.4
	Exchange rate
		Pa’anga per U.S. dollar (period average)	2.1	1.9	1.8	1.7	1.8	1.8
		Pa’anga per U.S. dollar (end of period)	2.0	1.9	1.7	1.8	1.8	1.8
	Nominal GDP (in millions of US$)		318.5	369.2	423.0	471.6	469.5	485.1
	Commodity price indexes (2005 = 100)
		Food	145.4	141.6	163.9	177.0	171.6	164.2
		Fuel	79.4	70.4	91.5	104.5	102.4	98.2

Sources: Tongan authorities; and IMF staff estimates.

^{^1/}Includes all official grants excluding project funds related to capital formation.

^{^2/}Change in gross official foreign reserves.

Table 5.

Tonga: Medium-Term Scenario, 2009/10–2017/18 ^1/

Sources: Tongan authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year beginning July.

Table 5.

Tonga: Medium-Term Scenario, 2009/10–2017/18 ^1/

						Prelim.	Projections
				2009/10	2010/11	2011/12	2012/13	2013/14	2014/15	2015/16	2016/17	2017/18
				(Annual percentage change)
Output and prices
	Real GDP			3.3	2.9	0.8	0.5	1.5	1.7	1.7	1.7	1.7
	Consumer prices (end of period)			2.7	7.1	2.3	3.0	4.0	4.7	5.0	5.5	5.5
	Consumer prices (period average)			1.7	6.0	3.3	2.9	3.5	4.4	4.9	5.3	5.5
	GDP deflator			3.7	5.8	2.3	2.9	3.5	4.4	4.9	5.3	5.5
				(In percent of GDP)
Central government finance
	Total revenue and grants			27.0	26.3	28.0	23.9	24.2	23.8	23.7	23.7	23.5
		Total revenue		20.2	19.6	18.1	18.1	18.1	18.4	18.5	18.8	18.9
			Of which: tax revenue	16.3	17.0	15.9	15.7	15.8	15.9	16.1	16.3	16.4
		Grants		6.8	6.7	9.9	5.8	6.1	5.4	5.2	4.9	4.6
	Total expenditure and net lending			32.3	34.0	30.6	23.7	24.3	22.5	21.9	22.0	22.6
		Current expenditure		25.8	23.0	23.9	21.6	21.7	19.8	19.1	18.7	19.3
		Capital expenditure		2.6	9.4	5.6	2.0	2.5	2.6	2.7	3.2	3.4
		Net lending		3.9	1.6	1.1	0.1	0.1	0.1	0.1	0.0	-0.1
	Overall balance (incl. grants)			-5.3	-7.6	-2.7	0.2	-0.1	1.3	1.8	1.7	0.9
	External financing (net)			3.5	8.4	5.2	-0.7	-0.3	-0.6	-0.8	-0.7	-0.6
	Domestic financing (net)			1.9	-0.8	-2.5	0.5	0.4	-0.7	-1.0	-1.0	-0.3
	Primary balance (incl. grants)			-4.6	-6.8	-1.9	1.2	0.9	2.2	2.7	2.5	1.6
				(In millions of U.S. dollars)
Balance of payments
	Exports, f.o.b.			7.9	10.9	14.8	15.3	16.1	17.5	18.9	20.6	22.3
		(Annual percent change)		9.6	37.6	35.7	3.0	5.5	8.5	8.5	8.5	8.5
	Imports, f.o.b.			-130.4	-152.5	-179.3	-136.5	-142.0	-154.7	-166.3	-178.0	-188.7
		(Annual percent change)		-0.1	17.0	17.6	-23.9	4.0	9.0	7.5	7.0	6.0
	Services (net)			-8.5	3.5	-6.8	-4.2	-4.4	-5.5	-4.4	-2.5	0.6
	Investment income (net)			4.0	9.0	11.2	12.7	13.3	14.0	14.7	15.4	16.2
	Transfers (net)			109.0	117.5	129.0	85.3	94.0	110.2	120.6	129.4	134.3
		Of which: Remittances		82.0	87.5	66.8	70.1	73.6	75.5	84.5	92.6	97.2
	Current account balance			-17.9	-11.6	-31.1	-27.6	-23.0	-18.7	-16.5	-15.2	-15.3
		(In percent of GDP)		-4.9	-2.7	-6.6	-5.9	-4.7	-3.7	-3.2	-2.8	-2.7
	Capital account balance			15.5	5.5	27.1	18.7	16.6	0.0	0.0	0.0	0.0
	Financial account balance			22.2	39.3	23.8	11.5	9.9	9.2	8.7	9.5	10.8
		FDI (net)		7.6	6.4	5.0	11.0	11.6	12.1	12.7	13.4	14.0
		Other investment (net)		14.6	33.0	18.8	0.5	-1.6	-2.9	-4.1	-3.9	-3.3
	Overall balance			19.7	33.2	19.8	2.7	3.6	-9.5	-7.9	-5.7	-4.5
Gross international reserves (end of period)
	In millions of U.S. dollars			87.5	120.7	140.5	143.3	146.8	137.4	129.5	123.8	119.3
	In months of imports (goods and services)			5.0	5.7	8.0	7.8	7.4	6.4	5.6	5.1	4.7
External debt (in percent of GDP)
	Public sector external debt			31.8	35.4	41.2	40.3	38.9	37.1	35.1	33.2	31.3
	Debt service ratio			1.2	1.2	1.3	1.6	2.5	2.7	2.8	2.6	2.4
Memorandum items:
	Private transfers (net, in millions of U.S. dollars)			91.6	97.0	78.7	80.5	84.4	86.5	96.9	106.0	111.4
	(In percent of imports of goods and services)			51.5	46.3	31.2	38.3	38.5	36.2	37.7	38.6	38.2
	Nominal GDP (millions of pa’anga)			712.2	775.0	799.3	826.3	868.1	921.7	983.2	1052.9	1130.1

Sources: Tongan authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year beginning July.

Table 5.

Tonga: Medium-Term Scenario, 2009/10–2017/18 ^1/

						Prelim.	Projections
				2009/10	2010/11	2011/12	2012/13	2013/14	2014/15	2015/16	2016/17	2017/18
				(Annual percentage change)
Output and prices
	Real GDP			3.3	2.9	0.8	0.5	1.5	1.7	1.7	1.7	1.7
	Consumer prices (end of period)			2.7	7.1	2.3	3.0	4.0	4.7	5.0	5.5	5.5
	Consumer prices (period average)			1.7	6.0	3.3	2.9	3.5	4.4	4.9	5.3	5.5
	GDP deflator			3.7	5.8	2.3	2.9	3.5	4.4	4.9	5.3	5.5
				(In percent of GDP)
Central government finance
	Total revenue and grants			27.0	26.3	28.0	23.9	24.2	23.8	23.7	23.7	23.5
		Total revenue		20.2	19.6	18.1	18.1	18.1	18.4	18.5	18.8	18.9
			Of which: tax revenue	16.3	17.0	15.9	15.7	15.8	15.9	16.1	16.3	16.4
		Grants		6.8	6.7	9.9	5.8	6.1	5.4	5.2	4.9	4.6
	Total expenditure and net lending			32.3	34.0	30.6	23.7	24.3	22.5	21.9	22.0	22.6
		Current expenditure		25.8	23.0	23.9	21.6	21.7	19.8	19.1	18.7	19.3
		Capital expenditure		2.6	9.4	5.6	2.0	2.5	2.6	2.7	3.2	3.4
		Net lending		3.9	1.6	1.1	0.1	0.1	0.1	0.1	0.0	-0.1
	Overall balance (incl. grants)			-5.3	-7.6	-2.7	0.2	-0.1	1.3	1.8	1.7	0.9
	External financing (net)			3.5	8.4	5.2	-0.7	-0.3	-0.6	-0.8	-0.7	-0.6
	Domestic financing (net)			1.9	-0.8	-2.5	0.5	0.4	-0.7	-1.0	-1.0	-0.3
	Primary balance (incl. grants)			-4.6	-6.8	-1.9	1.2	0.9	2.2	2.7	2.5	1.6
				(In millions of U.S. dollars)
Balance of payments
	Exports, f.o.b.			7.9	10.9	14.8	15.3	16.1	17.5	18.9	20.6	22.3
		(Annual percent change)		9.6	37.6	35.7	3.0	5.5	8.5	8.5	8.5	8.5
	Imports, f.o.b.			-130.4	-152.5	-179.3	-136.5	-142.0	-154.7	-166.3	-178.0	-188.7
		(Annual percent change)		-0.1	17.0	17.6	-23.9	4.0	9.0	7.5	7.0	6.0
	Services (net)			-8.5	3.5	-6.8	-4.2	-4.4	-5.5	-4.4	-2.5	0.6
	Investment income (net)			4.0	9.0	11.2	12.7	13.3	14.0	14.7	15.4	16.2
	Transfers (net)			109.0	117.5	129.0	85.3	94.0	110.2	120.6	129.4	134.3
		Of which: Remittances		82.0	87.5	66.8	70.1	73.6	75.5	84.5	92.6	97.2
	Current account balance			-17.9	-11.6	-31.1	-27.6	-23.0	-18.7	-16.5	-15.2	-15.3
		(In percent of GDP)		-4.9	-2.7	-6.6	-5.9	-4.7	-3.7	-3.2	-2.8	-2.7
	Capital account balance			15.5	5.5	27.1	18.7	16.6	0.0	0.0	0.0	0.0
	Financial account balance			22.2	39.3	23.8	11.5	9.9	9.2	8.7	9.5	10.8
		FDI (net)		7.6	6.4	5.0	11.0	11.6	12.1	12.7	13.4	14.0
		Other investment (net)		14.6	33.0	18.8	0.5	-1.6	-2.9	-4.1	-3.9	-3.3
	Overall balance			19.7	33.2	19.8	2.7	3.6	-9.5	-7.9	-5.7	-4.5
Gross international reserves (end of period)
	In millions of U.S. dollars			87.5	120.7	140.5	143.3	146.8	137.4	129.5	123.8	119.3
	In months of imports (goods and services)			5.0	5.7	8.0	7.8	7.4	6.4	5.6	5.1	4.7
External debt (in percent of GDP)
	Public sector external debt			31.8	35.4	41.2	40.3	38.9	37.1	35.1	33.2	31.3
	Debt service ratio			1.2	1.2	1.3	1.6	2.5	2.7	2.8	2.6	2.4
Memorandum items:
	Private transfers (net, in millions of U.S. dollars)			91.6	97.0	78.7	80.5	84.4	86.5	96.9	106.0	111.4
	(In percent of imports of goods and services)			51.5	46.3	31.2	38.3	38.5	36.2	37.7	38.6	38.2
	Nominal GDP (millions of pa’anga)			712.2	775.0	799.3	826.3	868.1	921.7	983.2	1052.9	1130.1

Sources: Tongan authorities; and IMF staff estimates and projections.

^{^1/}Fiscal year beginning July.

Table 6.

Tonga: Financial Soundness Indicators, 2007/08–2011/12 ^1/

Sources: National Reserve Bank of Tonga and IMF IFS database.

^{^1/}Data as of end of fiscal years.

Table 6.

Tonga: Financial Soundness Indicators, 2007/08–2011/12 ^1/

		2007/08	2008/09	2009/10	2010/11	2011/12
		(In percent)
Financial sector
Total loans/GDP		54.9	52.5	42.9	35.5	33.6
	Other depository corporations	54.9	52.5	42.9	35.5	33.6
Banks
Net domestic credit		(Year-on-year percent change)
	Public non-financial corporations	27.6	-1.1	229.0	-12.0	3.1
	Private sector	17.1	-3.7	-15.6	-9.9	-2.7
		(In percent)
	Risk-weighted capital adequacy ratio	21.4	21.8	17.2	21.7	28.1
	Net interest income to average assets	5.8	4.9	4.2	4.1	3.9
Non-performing loans		9.5	20.5	15.3	15.2	15.7
Loan loss reserves to gross loans		4.7	13.3	14.8	15.0	6.4

Sources: National Reserve Bank of Tonga and IMF IFS database.

^{^1/}Data as of end of fiscal years.

Table 6.

Tonga: Financial Soundness Indicators, 2007/08–2011/12 ^1/

		2007/08	2008/09	2009/10	2010/11	2011/12
		(In percent)
Financial sector
Total loans/GDP		54.9	52.5	42.9	35.5	33.6
	Other depository corporations	54.9	52.5	42.9	35.5	33.6
Banks
Net domestic credit		(Year-on-year percent change)
	Public non-financial corporations	27.6	-1.1	229.0	-12.0	3.1
	Private sector	17.1	-3.7	-15.6	-9.9	-2.7
		(In percent)
	Risk-weighted capital adequacy ratio	21.4	21.8	17.2	21.7	28.1
	Net interest income to average assets	5.8	4.9	4.2	4.1	3.9
Non-performing loans		9.5	20.5	15.3	15.2	15.7
Loan loss reserves to gross loans		4.7	13.3	14.8	15.0	6.4

Sources: National Reserve Bank of Tonga and IMF IFS database.

^{^1/}Data as of end of fiscal years.

Table 7.

Tonga: Millennium Development Goals, 1990–2011

Source: World Bank, World Development Indicators database.

Table 7.

Tonga: Millennium Development Goals, 1990–2011

		1990	1995	2000	2005	2008	2009	2010	2011
Goal 1: Eradicate extreme poverty and hunger
	Employment to population ratio, 15+, total (%)	..	..	..	..	..	..	..	..
	Employment to population ratio, ages 15-24, total (%)	..	..	..	..	..	..	..	..
	GDP per person employed (constant 1990 PPP $)	..	..	..	..	..	..	..	..
	Income share held by lowest 20%	..	..	..	..	..	..	..	..
	Malnutrition prevalence, weight for age (% of children under 5)	..	..	..	..	..	..	..	..
	Poverty gap at $1.25 a day (PPP) (%)	..	..	..	..	..	..	..	..
	Poverty headcount ratio at $1.25 a day (PPP) (% of population)	..	..	..	..	..	..	..	..
	Prevalence of undernourishment (% of population)	..	..	..	..	..	..	..	..
	Vulnerable employment, total (% of total employment)	..	..	..	..	..	..	..	..
Goal 2: Achieve universal primary education
	Literacy rate, youth female (% of females ages 15-24)	99	..	..	..	..	..	..	99
	Literacy rate, youth male (% of males ages 15-24)	99	..	..	..	..	..	..	99
	Persistence to last grade of primary, total (% of cohort)	..	..	95	91	..	..	..	..
	Primary completion rate, total (% of relevant age group)	..	..	..	..	..	..	..	..
	Total enrollment, primary (% net)	92	..	89	..	93	..	..	99
Goal 3: Promote gender equality and empower women
	Proportion of seats held by women in national parliaments (%)	3	..	6	..	..	..	..	4
	Ratio of female to male enrollments in tertiary education (%)	..	67	69	99	..	..	..	..
	Ratio of female to male primary enrollment (%)	..	..	..	..	88	..	..	90
	Ratio of female to male secondary enrollment (%)	..	97	99	..	97	..	..	89
	Share of women employed in the nonagricultural sector (% of total nonagricultural employment)	..	35.7	..	38.6	..	..	..	..
Goal 4: Reduce child mortality
	Immunization, measles (% of children ages 12-23 months)	86	94	95	99	99	99	99	..
	Mortality rate, infant (per 1,000 live births)	..	..	13	..	16	15	22	..
	Mortality rate, under-5 (per 1,000)	27	..	..	..	26	22	..	..
Goal 5: Improve maternal health
	Adolescent fertility rate (births per 1,000 women ages 15-19)	…	23	25	24	20	..	..	..
	Births attended by skilled health staff (% of total)	92	..	95	98	..	98	99	..
	Contraceptive prevalence (% of women ages 15-49)	33	41	31	..	27	..	..	..
	Maternal mortality ratio (national estimate, per 100,000 live births)	..	205	81	..	76	114	37	..
	Pregnant women receiving prenatal care (%)	..	..	..	..	..	..	..	..
	Unmet need for contraception (% of married women ages 15-49)	..	..	..	..	..	..	..	..
Goal 6: Combat HIV/AIDS, malaria, and other diseases									..
	Children with fever receiving antimalarial drugs (% of children under age 5 with fever)	..	..	..	..	..	..	..	..
	Incidence of tuberculosis (per 100,000 people)	38	..	28	..	..	..	17	..
	Prevalence of HIV, female (% ages 15-24)	..	..	..	..	..	..	..	..
	Prevalence of HIV, male (% ages 15-24)	..	..	..	..	..	..	..	..
	Prevalence of HIV, total (% of population ages 15-49)	..	..	..	..	..	..	..	..
	Tuberculosis case detection rate (%, all forms)	64	..	88	..	..	..	63	..
Goal 7: Ensure environmental sustainability
	CO2 emissions (kg per PPP $ of GDP)	0.3	..	0.3	..	0.4	..	..	..
	CO2 emissions (metric tons per capita)	0.8	..	1.2	..	1.7	..	..	..
	Forest area (% of land area)	12.5	..	12.5	..	5.3	..	13	..
	Improved sanitation facilities (% of population with access)	96	..	..	..	..	..	99	..
	Improved water source (% of population with access)	100	..	..	99.9	99.9	99.9	99	..
	Marine protected areas, (% of territorial water)	..	2.5	2.5	2.5	2.5	2.5	..	..
Goal 8: Develop a global partnership for development
	Debt service (PPG and IMF only, % of exports, excluding workers’ remittances)	3.5	..	..	..	..	5.6	9.8	6.9
	Internet users (per 100 people)	0.0	..	2.4	4.9	8.1	10.0	12.0	..
	Mobile cellular subscriptions (per 100 people)	0.0	..	0.2	29.6	49.0	51.2	52.2	..
	Telephone lines (per 100 people)	4.6	..	9.9	..	21.0	..	29.8	..
Other
	Fertility rate, total (births per woman)	4.6	4.4	4.3	4.1	4.0	4.0	..	..
	GNI per capita, Atlas method (current US$)	1,220	2,010	2,030	2,470	3,290	3,280	3,280	..
	GNI, Atlas method (current US$) (billions)	0.1	0.2	0.2	0.2	0.3	0.3	0.3	..
	Gross capital formation (% of GDP)	18	26	22	22	26	27	29	..
	Life expectancy at birth, total (years)	70	70	71	71	72	72	..	..
	Literacy rate, adult total (% of people ages 15 and above)	99	..	..	..	..	..	..	99
	Population, total (millions)	0.1	0.1	0.1	0.1	0.1	0.1	0.1	..
	Trade (% of GDP)	99	73	62	76	71	77	73	..

Source: World Bank, World Development Indicators database.

Table 7.

Tonga: Millennium Development Goals, 1990–2011

		1990	1995	2000	2005	2008	2009	2010	2011
Goal 1: Eradicate extreme poverty and hunger
	Employment to population ratio, 15+, total (%)	..	..	..	..	..	..	..	..
	Employment to population ratio, ages 15-24, total (%)	..	..	..	..	..	..	..	..
	GDP per person employed (constant 1990 PPP $)	..	..	..	..	..	..	..	..
	Income share held by lowest 20%	..	..	..	..	..	..	..	..
	Malnutrition prevalence, weight for age (% of children under 5)	..	..	..	..	..	..	..	..
	Poverty gap at $1.25 a day (PPP) (%)	..	..	..	..	..	..	..	..
	Poverty headcount ratio at $1.25 a day (PPP) (% of population)	..	..	..	..	..	..	..	..
	Prevalence of undernourishment (% of population)	..	..	..	..	..	..	..	..
	Vulnerable employment, total (% of total employment)	..	..	..	..	..	..	..	..
Goal 2: Achieve universal primary education
	Literacy rate, youth female (% of females ages 15-24)	99	..	..	..	..	..	..	99
	Literacy rate, youth male (% of males ages 15-24)	99	..	..	..	..	..	..	99
	Persistence to last grade of primary, total (% of cohort)	..	..	95	91	..	..	..	..
	Primary completion rate, total (% of relevant age group)	..	..	..	..	..	..	..	..
	Total enrollment, primary (% net)	92	..	89	..	93	..	..	99
Goal 3: Promote gender equality and empower women
	Proportion of seats held by women in national parliaments (%)	3	..	6	..	..	..	..	4
	Ratio of female to male enrollments in tertiary education (%)	..	67	69	99	..	..	..	..
	Ratio of female to male primary enrollment (%)	..	..	..	..	88	..	..	90
	Ratio of female to male secondary enrollment (%)	..	97	99	..	97	..	..	89
	Share of women employed in the nonagricultural sector (% of total nonagricultural employment)	..	35.7	..	38.6	..	..	..	..
Goal 4: Reduce child mortality
	Immunization, measles (% of children ages 12-23 months)	86	94	95	99	99	99	99	..
	Mortality rate, infant (per 1,000 live births)	..	..	13	..	16	15	22	..
	Mortality rate, under-5 (per 1,000)	27	..	..	..	26	22	..	..
Goal 5: Improve maternal health
	Adolescent fertility rate (births per 1,000 women ages 15-19)	…	23	25	24	20	..	..	..
	Births attended by skilled health staff (% of total)	92	..	95	98	..	98	99	..
	Contraceptive prevalence (% of women ages 15-49)	33	41	31	..	27	..	..	..
	Maternal mortality ratio (national estimate, per 100,000 live births)	..	205	81	..	76	114	37	..
	Pregnant women receiving prenatal care (%)	..	..	..	..	..	..	..	..
	Unmet need for contraception (% of married women ages 15-49)	..	..	..	..	..	..	..	..
Goal 6: Combat HIV/AIDS, malaria, and other diseases									..
	Children with fever receiving antimalarial drugs (% of children under age 5 with fever)	..	..	..	..	..	..	..	..
	Incidence of tuberculosis (per 100,000 people)	38	..	28	..	..	..	17	..
	Prevalence of HIV, female (% ages 15-24)	..	..	..	..	..	..	..	..
	Prevalence of HIV, male (% ages 15-24)	..	..	..	..	..	..	..	..
	Prevalence of HIV, total (% of population ages 15-49)	..	..	..	..	..	..	..	..
	Tuberculosis case detection rate (%, all forms)	64	..	88	..	..	..	63	..
Goal 7: Ensure environmental sustainability
	CO2 emissions (kg per PPP $ of GDP)	0.3	..	0.3	..	0.4	..	..	..
	CO2 emissions (metric tons per capita)	0.8	..	1.2	..	1.7	..	..	..
	Forest area (% of land area)	12.5	..	12.5	..	5.3	..	13	..
	Improved sanitation facilities (% of population with access)	96	..	..	..	..	..	99	..
	Improved water source (% of population with access)	100	..	..	99.9	99.9	99.9	99	..
	Marine protected areas, (% of territorial water)	..	2.5	2.5	2.5	2.5	2.5	..	..
Goal 8: Develop a global partnership for development
	Debt service (PPG and IMF only, % of exports, excluding workers’ remittances)	3.5	..	..	..	..	5.6	9.8	6.9
	Internet users (per 100 people)	0.0	..	2.4	4.9	8.1	10.0	12.0	..
	Mobile cellular subscriptions (per 100 people)	0.0	..	0.2	29.6	49.0	51.2	52.2	..
	Telephone lines (per 100 people)	4.6	..	9.9	..	21.0	..	29.8	..
Other
	Fertility rate, total (births per woman)	4.6	4.4	4.3	4.1	4.0	4.0	..	..
	GNI per capita, Atlas method (current US$)	1,220	2,010	2,030	2,470	3,290	3,280	3,280	..
	GNI, Atlas method (current US$) (billions)	0.1	0.2	0.2	0.2	0.3	0.3	0.3	..
	Gross capital formation (% of GDP)	18	26	22	22	26	27	29	..
	Life expectancy at birth, total (years)	70	70	71	71	72	72	..	..
	Literacy rate, adult total (% of people ages 15 and above)	99	..	..	..	..	..	..	99
	Population, total (millions)	0.1	0.1	0.1	0.1	0.1	0.1	0.1	..
	Trade (% of GDP)	99	73	62	76	71	77	73	..

Source: World Bank, World Development Indicators database.

Appendix I. Tonga—Transition To GFSM 2001

The presentation of central government operations in the main text of the staff report follows the GFSM 1986 format (on a cash basis). To promote international comparability of government operations, data in GFSM 2001 format is presented in this Appendix. The authorities have been informed about the new reporting format.

Table I. 1.

Tonga: Summary of Central Government Operations, 2008/09-2013/14 ^1/

Sources: Data provided by the Tongan authorities; and Fund staff estimates.

^{^1/}Table reports central government operations in the GFSM 2001 format.

Table I. 1.

Tonga: Summary of Central Government Operations, 2008/09-2013/14 ^1/

									Proj.
					2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
					(In percent of GDP)
Revenue					34.3	27.0	26.3	28.0	23.9	24.2
	Taxes				19.4	16.3	17.0	15.9	15.7	15.8
		Of which:		Taxes on income/profits	6.1	3.9	4.9	3.2	3.2	3.3
				Sales tax and consumption tax	10.7	10.2	10.4	11.0	11.2	11.2
				Trade taxes	2.4	2.1	1.6	1.7	1.3	1.3
	Social contributions				…	…	…	…	…	…
	Grants (in cash)				6.8	6.8	6.7	9.9	5.8	6.1
		Project grants			6.8	4.9	4.0	5.2	4.0	3.4
		Budget support			0.0	1.9	2.8	4.6	1.8	2.7
	Other revenue				3.9	3.8	2.3	2.2	2.3	2.3
Expenditure					34.4	32.3	34.0	30.6	23.7	24.3
	Expense				25.3	25.9	23.1	23.9	21.6	21.7
		Compensation of employees			12.3	12.6	11.8	11.8	11.2	11.0
		Use of goods and services			9.3	9.7	7.1	8.5	7.4	7.7
		Consumption of fixed capital			…	…	…	…	…	…
		Interest			0.8	0.8	0.8	0.8	1.0	1.0
			Of which: To nonresidents		0.6	0.5	0.6	0.6	0.8	0.7
		Subsidies			0.3	0.2	1.1	0.9	0.7	0.7
		Grants			0.1	0.2	0.3	0.2	0.2	0.2
		Social benefits			1.2	1.4	0.9	0.8	0.6	0.6
		Other expense			1.3	0.9	1.1	0.9	0.6	0.6
	Net acquisition of nonfinancial assets				-1.6	2.6	9.1	5.6	1.9	2.5
		Acquisitions of nonfinancial assets			2.5	2.6	9.3	5.6	2.0	2.5
			Of which : Financed by China EXIM Bank loans		4.1	4.0	7.8	4.8	1.0	0.0
		Disposals of nonfinancial assets			4.1	0.0	0.3	0.0	0.1	0.0
		Consumption of fixed capital			…	…	…	…	…	…
Gross operating balance					9.0	1.1	3.3	4.1	2.3	2.5
Net lending (+)/borrowing (–)					-0.2	-5.3	-7.6	-2.7	0.2	-0.1
	Net acquisition of financial assets				1.0	3.9	1.6	1.1	-0.4	-0.3
			Domestic net lending		1.0	3.9	1.6	1.1	0.1	0.1
			Change in cash balances (+ = increase)		0.0	0.0	0.0	0.0	-0.5	-0.4
	Net incurrence of financial liabilities				0.2	5.3	7.6	2.7	-0.7	-0.3
			Of which : China EXIM Bank loans		6.3	5.1	9.1	5.6	0.8	-1.0
Memorandum items:
	Nominal GDP (in millions of pa’anga)				664.3	712.2	775.0	799.3	826.3	868.1
	Total external public debt outstanding (in percent of GDP)				31.5	31.8	35.4	41.2	40.3	38.9

Sources: Data provided by the Tongan authorities; and Fund staff estimates.

^{^1/}Table reports central government operations in the GFSM 2001 format.

Table I. 1.

Tonga: Summary of Central Government Operations, 2008/09-2013/14 ^1/

									Proj.
					2008/09	2009/10	2010/11	2011/12	2012/13	2013/14
					(In percent of GDP)
Revenue					34.3	27.0	26.3	28.0	23.9	24.2
	Taxes				19.4	16.3	17.0	15.9	15.7	15.8
		Of which:		Taxes on income/profits	6.1	3.9	4.9	3.2	3.2	3.3
				Sales tax and consumption tax	10.7	10.2	10.4	11.0	11.2	11.2
				Trade taxes	2.4	2.1	1.6	1.7	1.3	1.3
	Social contributions				…	…	…	…	…	…
	Grants (in cash)				6.8	6.8	6.7	9.9	5.8	6.1
		Project grants			6.8	4.9	4.0	5.2	4.0	3.4
		Budget support			0.0	1.9	2.8	4.6	1.8	2.7
	Other revenue				3.9	3.8	2.3	2.2	2.3	2.3
Expenditure					34.4	32.3	34.0	30.6	23.7	24.3
	Expense				25.3	25.9	23.1	23.9	21.6	21.7
		Compensation of employees			12.3	12.6	11.8	11.8	11.2	11.0
		Use of goods and services			9.3	9.7	7.1	8.5	7.4	7.7
		Consumption of fixed capital			…	…	…	…	…	…
		Interest			0.8	0.8	0.8	0.8	1.0	1.0
			Of which: To nonresidents		0.6	0.5	0.6	0.6	0.8	0.7
		Subsidies			0.3	0.2	1.1	0.9	0.7	0.7
		Grants			0.1	0.2	0.3	0.2	0.2	0.2
		Social benefits			1.2	1.4	0.9	0.8	0.6	0.6
		Other expense			1.3	0.9	1.1	0.9	0.6	0.6
	Net acquisition of nonfinancial assets				-1.6	2.6	9.1	5.6	1.9	2.5
		Acquisitions of nonfinancial assets			2.5	2.6	9.3	5.6	2.0	2.5
			Of which : Financed by China EXIM Bank loans		4.1	4.0	7.8	4.8	1.0	0.0
		Disposals of nonfinancial assets			4.1	0.0	0.3	0.0	0.1	0.0
		Consumption of fixed capital			…	…	…	…	…	…
Gross operating balance					9.0	1.1	3.3	4.1	2.3	2.5
Net lending (+)/borrowing (–)					-0.2	-5.3	-7.6	-2.7	0.2	-0.1
	Net acquisition of financial assets				1.0	3.9	1.6	1.1	-0.4	-0.3
			Domestic net lending		1.0	3.9	1.6	1.1	0.1	0.1
			Change in cash balances (+ = increase)		0.0	0.0	0.0	0.0	-0.5	-0.4
	Net incurrence of financial liabilities				0.2	5.3	7.6	2.7	-0.7	-0.3
			Of which : China EXIM Bank loans		6.3	5.1	9.1	5.6	0.8	-1.0
Memorandum items:
	Nominal GDP (in millions of pa’anga)				664.3	712.2	775.0	799.3	826.3	868.1
	Total external public debt outstanding (in percent of GDP)				31.5	31.8	35.4	41.2	40.3	38.9

Sources: Data provided by the Tongan authorities; and Fund staff estimates.

^{^1/}Table reports central government operations in the GFSM 2001 format.

Appendix II. Tonga—Risk Assessment Matrix

Nature/Source of Main Threats		Overall Level of Concern
Nature/Source of Main Threats		Likelihood of Severe Realization of Threat in the Next one–three Years (high, medium or low)	Expected Impact if Threat is Realized (high, medium or low)
		Low	Medium
1.	Fiscal policy shock in the U.S. (global)	Failure to raise the debt ceiling could negatively affect the economic recovery.	In the event of a U.S. economic slowdown, Tonga would be significantly affected mainly via remittances.
		Medium	Medium
2.	Stalled or incomplete delivery of Euro area policy commitments (global)	Financial stress could escalate and bank-sovereign-real economy links re-intensify.	Tonga would be indirectly affected by the impact of the shock to global economy.
		Medium	Medium
3.	Deeper than expected slowdown in EMs	Synchronized growth shock triggered by financial sector stresses or setbacks in fiscal and structural reforms.	Tonga would be indirectly affected by spillover through its key trade partners, in particular Australia.
		Medium	High
4.	Natural disasters (regional)	Natural disasters similar to the latest cyclone could cause significant human and economic tolls.	Such an event could have far reaching multifaceted effects, such as damages on infrastructure and production base, and an increase in fiscal financing gap, which can potentially be very large.
		Medium	Medium
5.	Continued weakness in banking intermediation (country-specific)	Continued pressures on bank deleveraging and delays in critical reforms (e.g. collateral framework) can prevent a bottoming out of the credit cycle.	Prolonged weakness in credit supply will exert a significant drag on growth.
		Low	High
6.	Slippages in delivering on policy reform commitments (country-specific)	Weakening of stakeholder supports, capacity constraints, and slippages in the reform process could derail critical reforms agreed with development partners.	Such an outcome could significant affect budget support flows, leading to a significantly large gross financing gap.

Nature/Source of Main Threats		Overall Level of Concern
Nature/Source of Main Threats		Likelihood of Severe Realization of Threat in the Next one–three Years (high, medium or low)	Expected Impact if Threat is Realized (high, medium or low)
		Low	Medium
1.	Fiscal policy shock in the U.S. (global)	Failure to raise the debt ceiling could negatively affect the economic recovery.	In the event of a U.S. economic slowdown, Tonga would be significantly affected mainly via remittances.
		Medium	Medium
2.	Stalled or incomplete delivery of Euro area policy commitments (global)	Financial stress could escalate and bank-sovereign-real economy links re-intensify.	Tonga would be indirectly affected by the impact of the shock to global economy.
		Medium	Medium
3.	Deeper than expected slowdown in EMs	Synchronized growth shock triggered by financial sector stresses or setbacks in fiscal and structural reforms.	Tonga would be indirectly affected by spillover through its key trade partners, in particular Australia.
		Medium	High
4.	Natural disasters (regional)	Natural disasters similar to the latest cyclone could cause significant human and economic tolls.	Such an event could have far reaching multifaceted effects, such as damages on infrastructure and production base, and an increase in fiscal financing gap, which can potentially be very large.
		Medium	Medium
5.	Continued weakness in banking intermediation (country-specific)	Continued pressures on bank deleveraging and delays in critical reforms (e.g. collateral framework) can prevent a bottoming out of the credit cycle.	Prolonged weakness in credit supply will exert a significant drag on growth.
		Low	High
6.	Slippages in delivering on policy reform commitments (country-specific)	Weakening of stakeholder supports, capacity constraints, and slippages in the reform process could derail critical reforms agreed with development partners.	Such an outcome could significant affect budget support flows, leading to a significantly large gross financing gap.

See accompanying Joint IMF/World Bank Debt Sustainability Analysis 2013.

Management of currency risks posed by the external debt would also benefit from improvements in hedging.

If the reduction in WB and AsDB grant financing is delayed until 2014/15, the government is advised to target a larger primary fiscal surplus in 2013/14, corresponding to the higher baseline for grant inflows.

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Tonga: 2013 Article IV Consultation

Author:

International Monetary Fund. Asia and Pacific Dept

Volume/Issue:: Volume 2013: Issue 234

Publisher:: International Monetary Fund

ISBN:: 9781475537628

ISSN:: 1934-7685

Pages:: 61

DOI:: https://doi.org/10.5089/9781475537628.002

Keywords
The Macroeconomic Situation
- A. Authorities’ Views
Rebuilding Policy Space to Better Manage Risks to Growth
Strengthening the Macro Policy Framework
Reversing a Weakening of Trend Growth
Staff Appraisal
- Appendix I. Tonga—Transition To GFSM 2001
- Appendix II. Tonga—Risk Assessment Matrix

View raw image

Tonga Banks: Key Balance Sheet Indicators

(In Millions of Pa’anga)

View raw image

Effective Exchange Rates

(Index 2005=100)

View raw image

Ease of Doing Business, 2013

(rank out of 185 economies)

View raw image

Tonga: Doing Business, 2013

(rank out of 185 economies)

View raw image

Figure 1.

Tonga: Stylized Facts

View raw image

Figure 2.

Tonga: Economic Development

View raw image

Figure 3.

Tonga: Exchange Rate and Fiscal Policy Development

View raw image

Figure 4.

Tonga: Monetary Policy and Financial Sector Developments

Foresee

Nature/Source of Main Threats		Overall Level of Concern
Nature/Source of Main Threats		Likelihood of Severe Realization of Threat in the Next one–three Years (high, medium or low)	Expected Impact if Threat is Realized (high, medium or low)
		Low	Medium
1.	Fiscal policy shock in the U.S. (global)	Failure to raise the debt ceiling could negatively affect the economic recovery.	In the event of a U.S. economic slowdown, Tonga would be significantly affected mainly via remittances.
		Medium	Medium
2.	Stalled or incomplete delivery of Euro area policy commitments (global)	Financial stress could escalate and bank-sovereign-real economy links re-intensify.	Tonga would be indirectly affected by the impact of the shock to global economy.
		Medium	Medium
3.	Deeper than expected slowdown in EMs	Synchronized growth shock triggered by financial sector stresses or setbacks in fiscal and structural reforms.	Tonga would be indirectly affected by spillover through its key trade partners, in particular Australia.
		Medium	High
4.	Natural disasters (regional)	Natural disasters similar to the latest cyclone could cause significant human and economic tolls.	Such an event could have far reaching multifaceted effects, such as damages on infrastructure and production base, and an increase in fiscal financing gap, which can potentially be very large.
		Medium	Medium
5.	Continued weakness in banking intermediation (country-specific)	Continued pressures on bank deleveraging and delays in critical reforms (e.g. collateral framework) can prevent a bottoming out of the credit cycle.	Prolonged weakness in credit supply will exert a significant drag on growth.
		Low	High
6.	Slippages in delivering on policy reform commitments (country-specific)	Weakening of stakeholder supports, capacity constraints, and slippages in the reform process could derail critical reforms agreed with development partners.	Such an outcome could significant affect budget support flows, leading to a significantly large gross financing gap.

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Abstract

The Macroeconomic Situation

A. Authorities’ Views

Rebuilding Policy Space to Better Manage Risks to Growth

A. Background

B. Staff Views

C. Authorities’ Views

Strengthening the Macro Policy Framework

A. Background

B. Staff Views

C. Authorities’ Views

Reversing a Weakening of Trend Growth

A. Background

B. Staff Views

C. Authorities’ Views

Staff Appraisal

Appendix I. Tonga—Transition To GFSM 2001

Appendix II. Tonga—Risk Assessment Matrix

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