Tonga: Staff Report for the 2014 Article IV Consultation
IMF Staff Country Reports, August 6, 2014
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Bibliographic details
- Published: August 6, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498388870.002
Key issues — Context and outlook
- Tonga’s economy is rebounding, partially owing to a recovery in agricultural exports.
- The outlook for tourism is improving.
- Reconstruction from a recent cyclone is expected to lead to both a temporary boost to growth and additional financing needs.
- Risks to the inflation outlook and the external position are low.
Fiscal policy — findings and recommendations
- Finding: The projected fiscal cost relating to the cyclone will be largely met by confirmed funding mainly from donor agencies.
- Near-term recommendation: Authorities should focus on reconstruction activities.
- Medium-term recommendation: Adopt a fiscal strategy to gradually stabilize and then reduce the debt-to-GDP ratio to improve Tonga’s moderate risk of debt distress.
- Implementation risk: Careful execution of investments related to the 2019 South Pacific Games is required to avoid worsening the debt outlook.
Monetary policy — findings and recommendations
- Finding: The deleveraging cycle of the Tongan banks appears to be ending.
- Recommendation: National Reserve Bank of Tonga should prepare to gradually withdraw liquidity and tighten monetary conditions once current signs of a recovery of credit growth are confirmed.
- Authorities’ plan: Lower the cost of credit through supportive credit policies, including by commercializing the Tonga Development Bank.
- Safeguards required: Successful implementation requires sound safeguards, including a robust governance structure and firm risk management and accountability frameworks.
Structural policy — findings and recommendations
- Finding: Structural reforms to facilitate the functioning of credit markets need to be implemented with renewed vigor.
- Tax policy recommendation: Authorities’ intention to gradually phase out existing ad hoc tax incentives is well placed.
- FDI promotion recommendation: Focus promotion of foreign direct investment on business-enabling structural reforms; minimize and narrowly target the use of tax incentives.
Subjects, keywords, and metadata (exact figures preserved)
- Subject: Banking, Central banks, External debt, International reserves, Public and publicly-guaranteed external debt, Public debt, Public financial management (PFM)
- Keywords: Asia and Pacific, Australia and New Zealand, CR, Global, government regulation, headline consumer price index, headline inflation, inflation outlook, International reserves, ISCR, Pacific Islands, Public and publicly-guaranteed external debt, reference range, Tonga, Tongan authorities
- Publication date: August 6, 2014
- Pages: 67
- Volume: 2014
- Issue: 240
- Series: Country Report No. 2014/240
- DOI: https://doi.org/10.5089/9781498388870.002
- Stock No: 1TONEA2014001
- ISBN: 9781498388870
- ISSN: 1934-7685
Source: Tonga: Staff Report for the 2014 Article IV Consultation (IMF Staff Country Reports 2014/240, August 6, 2014).