National Reserve Bank of Tonga

Audited Financial Statements

Audited Financial Statement for Financial Year 2023/2024

 

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* Prior to Financial Year 2022/23, the Audited Financial Statements are incorporated into their respective Annual Reports.


Asia: Sailing in Turbulent Times

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Category: Publications

Asian economies are sailing in choppy waters, facing severe headwinds from an uncertain and challenging global environment. First, the global recovery has been uneven and weaker than expected. On top of that, global trade has been sluggish and financial conditions have been volatile. The rise of China as a global economic superpower has also created challenges of its own ...

IMF Article IV Consultations

IMF or The International Monetary Fund is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Extracted from the IMF official website. Find out more about the IMF by clicking here.

STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION | Released on 26 May 2016

Key Issues

Outlook and risks. Since FY2013, Tonga has been on a growth path supported by the reconstruction in the aftermath of the 2014 Cyclone Ian, tourism, and remittances, and benefiting from low global fuel prices. In the medium term, growth is projected to be driven by economic activity in preparation to the Sixteenth South Pacific Games (the SPG) in 2019, while inflation is expected to remain low. International reserves are expected to remain at a comfortable level, supported by strong donor inflows, high remittances, and low costs of fuel imports. After weakening in FY2016 as a result of strong wage growth, the fiscal position is projected to improve gradually in the medium-term. Main risks to the outlook stem from a protracted period of slower growth in advanced and emerging economies, natural disasters, and fiscal pressure to raise government wages or as a result of cost overruns for the SPG and shortfalls in donor aid.

Challenges. The main challenge for Tonga in the medium term is to improve its growth potential and to create jobs for the young population, which would require expanding opportunities for private sector development. Given Tonga’s vulnerabilities stemming from its small size, remoteness, narrow export base, dependence on fuel imports, and exposure to natural disasters, ensuring macroeconomic and financial stability will remain a key challenge.

Key policy advice Tonga needs to improve resilience to shocks by building buffers and to undertake structural reforms to support private sector development and economic diversification. The key policy recommendations are: (i) contain wage growth and build sound fiscal position by gradually increasing the primary balance to ensure fiscal sustainability; (ii) maintain gross reserves at the current level to bolster resilience to shocks; (iii) lower the current inflation reference rate; (iv) strengthen monetary policy framework, including by introducing a policy interest rate and associated instruments, and develop macroprudential tools to better manage liquidity and credit cycle; and (v) enhance business-enabling structural reforms and improve efficiency of the public sector to raise growth potential.

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IMF Article IV Archives

Monetary Policy Statement

To comply with the NRBT Act s50A, the Bank is to publish a Monetary Policy Statement at least every six months.  Each statement is a review of economic developments and the conduct of monetary policy in the period since the previous statement.  This statement indicates how the Bank intends to conduct monetary policy over the coming six months to achieve its objectives of maintaining sufficient foreign reserves and promoting price stability.

Monetary Policy Statement
February 2025

Inflation has eased moderately, but cost of living in Tonga remains elevated, higher than our neighbouring countries. Headline inflation has moderated to 1.2 percent in December 2024, down from 5.4 percent in June 2024. Imported inflation has eased due to lower energy prices, while domestic prices have declined due to improved agricultural harvests and lower electricity tariffs. Meanwhile, accumulated high inflation from previous years has solidified into domestic cost structures, lifting the overall cost of living higher. Tonga’s accumulated inflation is much higher compared to Fiji and Samoa in the past 8 years by 25 percent and 15 percent, respectively. Over the past 4 years leading to 2024, domestic inflation outpaced imported inflation by 3 percent. This trend and elevated costs of living highlight the urgent need for supply-side fiscal intervention aimed at reducing base costs and increasing supply.

Headline inflation is expected to remain below the 5 percent reference rate in the near term, but risks to inflation remain high, including risks of another surge in domestic inflation. Global policy uncertainties and vulnerability to natural disasters may reignite inflationary pressure in the near term. The Reserve Bank will continue to monitor these risks and adjust monetary policy accordingly to ensure price stability.

Foreign reserves are currently above benchmark levels, but is on a declining trend. To deepen economic stability, it is essential to mobilize additional foreign reserve receipts. Foreign reserves remained at adequate levels, $878.0 million in January 2025, and is expected to remain above the recommended level of 7.5 months of imports in the near term. However, the expected increasing import expenditures and debt servicing will put pressure on the level of foreign reserves.

Financial stability is maintained, however, vulnerabilities to asset quality warrants stronger oversight. Non-performing loans have increased above the 10 percent threshold, but the NRBT is implementing enhanced risk-based tools to ensure further risks to banks’ asset quality are mitigated. Though credit growth has improved, Tonga’s interest rate spread have remained relatively wide at 6 to 7 percentage points for years. This is also indicative of market inefficiencies with lending interest rates driven more by external factors such as cost of doing business and country risk factors, while deposit rates remain low with the persistent excess liquidity.

Tonga’s economic recovery is weak and volatile. The NRBT estimate remains at 2.6 percent growth for the Tongan economy in FY2024-25, stronger than the estimated 1.6 percent growth for FY2023-24. However, the outlook for FY2025-26 projects a slower growth of 2.0 percent.

Monetary policy transmission mechanism in Tonga has been weak. The persistent excess liquidity has largely limited the impact of monetary policy, coupled with an under-developed domestic financial market. Part of the excess liquidity is contributed by the Government. The inflationary trends were driven mainly by supply-side constraints, beyond the Reserve Bank’s control.

The Reserve Bank looks to enhance its monetary policy tools so that it can have a greater influence on inflation in order to achieve its price stability mandate in the future. Coordination with fiscal policy is also needed to achieve this goal, in addition to more effective communication of the monetary policy to guide the market’s expectations.

The Reserve Bank further considers that an accommodative monetary policy stance is appropriate for the next six months to support economic recovery while macroeconomic conditions are favourable. As inflation is expected to stay below the reference rate (assuming no external shocks), and with a comfortable outlook on foreign reserves, the Reserve Bank has the flexibility to adopt a more accommodative stance to support economic growth. However, achieving sustained growth and macro-economic stability requires addressing complex challenges through comprehensive strategies, and measures. These include reforms, financial sector development, prudent external sector management, vigilant inflation control, and proactive risk mitigation. Effective coordination with fiscal policy is essential to the success of these efforts.

Monetary Policy Statement Releases

Demand Side Survey

Released on 16 August 2017 | Download the complete report| pdfIcon 1.8 MB

This report describes the level of financial access in Tonga — the fourth Pacific Islands Regional Initiative (PIRI )1 country to move forward with a financial inclusion demand side survey (DSS) effort. DSS surveys were previously completed in Samoa, Fiji and the Solomon Islands. The survey was conducted in the first quarter of 2016 and includes indicators from the 2014 World Bank Global Findex surveys as well as the Global Partnership for Financial Inclusion (GPFI) indicators.

A long process led to the completion of the DSS in the Pacific region: In 2013 the members of PIRI jointly undertook a review of available data and measurement exercises with which they could design and evaluate their national financial inclusion strategies and their Maya Declaration commitments under the Alliance for Financial Inclusion (AFI). As part of this exercise, PIRI members agreed to adopt not only the core set of AFI financial inclusion indicators but to expand that set, as well. The members further committed to carrying out a DSS to capture those indicators.

In general, the Tonga DSS, like the surveys in the other PIRI countries, was designed to capture financial inclusion indicators that would be comparable across the region and globally. Importantly, these were the first such surveys in each country.

The National Reserve Bank of Tonga (NR BT) and its PIRI partners understand that “financial inclusion” incorporates not only individuals’ access to and usage of formal financial services, but also how those services fit into individuals’ lives — the quality that those services deliver. More attention and research needs to be devoted to this quality dimension in Tonga and the other PIRI partners — more than could be achieved in this first round of surveys. Still, this report presents valuable evidence of how Tongans use financial services, alone and in combination. This is information that is impossible to learn from supply-side sources alone.

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