Following a visit to Tonga, International Monetary Fund (IMF) staff have issued their preliminary findings on the country's economic situation. The mission was conducted as part of the regular Article IV consultations and included meetings with officials from the Ministry of Finance, the National Reserve Bank of Tonga, other government agencies, and private sector representatives.
The IMF notes that Tonga’s economy has shown steady recovery after facing two major shocks: the COVID-19 pandemic and the Hunga Tonga–Hunga Ha‘apai volcanic eruption and tsunami. According to IMF staff, this recovery is being driven by reconstruction activities, strong remittances from overseas Tongans, and a rebound in tourism. These factors have also contributed to improved fiscal and external positions for the country, largely due to significant grant inflows.
The report highlights emerging inflationary pressures fueled by increased demand. With recovery now firmly established, IMF staff recommend shifting policy priorities towards rebuilding fiscal buffers, addressing new risks, and enhancing economic resilience. The statement emphasizes that Tonga remains highly vulnerable to external shocks such as natural disasters and uncertainties in global trade policy. There are also concerns about potential reductions in concessional financing.
“GDP growth in FY2025 was revised upward to 2.7 percent on account of stronger-than-expected grant inflows, elevated remittances, a rebound in tourism, and fiscal support for reconstruction,” according to the statement. For FY2026, growth is projected to moderate slightly to 2.3 percent as domestic demand continues—driven mainly by large infrastructure projects. However, over the medium term potential growth is estimated at just 1.2 percent due to ongoing vulnerabilities like frequent natural disasters, continued outward migration of citizens seeking opportunities abroad, and challenges related to Tonga’s geographic isolation.
The IMF recommends that fiscal policy should pivot toward restraint in order to rebuild financial buffers for future shocks. In addition, strengthening monetary stability and promoting an inclusive financial system are seen as key goals for policymakers going forward.
The mission team expressed gratitude for “the warm hospitality and constructive discussions” provided by Tongan authorities during their visit.
A final report based on these preliminary findings will be prepared for review by IMF management before being presented to the Executive Board for discussion.