Tonga : Economy

Economy

GNI: 
US$479m
GNI PC: 
US$4,490
GDP Growth: 
2.2% p.a. 2009–13
Inflation: 
2.6% p.a. 2009–13

The economy is dominated by subsistence agriculture, and economic performance is heavily dependent on weather conditions and world commodity prices. However, the formal money economy has been growing as farmers have moved towards production of cash crops, some of which are exported, for example squash, which from the early 1990s was exported to Japan.

This very success, though, illustrates the vulnerability of small agricultural economies such as Tonga. In the early 1990s farmers rapidly switched to the new crop. By 1994, there was over-production, a collapse in local prices and unsold stocks. Drought in 1995 led to further falls in exports. Squash and, increasingly, fish products are, nonetheless, the most important exports, and squash remains more profitable than traditional crops such as copra and bananas.

The main source of foreign currency is the remittances of Tongans living abroad, followed by tourism. The government has recognised the need for economic reforms to expand the private sector and diversify the economy and has worked to gain public – and especially civil service – acceptance of the need.

From the late 1990s the economy continued to grow steadily (2.2 per cent p.a., 1997–2006), but slowed from the mid-2000s, facing the challenges of high debt, low private investment and the world economic downturn of 2008–09, when remittances fell and tourism was subdued. Growth of about three per cent p.a. resumed in 2009–11, moderating to 0.8 per cent in 2012, 0.5 per cent in 2013 and an estimated 2.4 per cent in 2014.