Tonga’s Economy: Reserve Bank report for February 2025
Tonga’s economy enjoyed a festive lift during the 2024 Christmas season, with businesses buzzing and overseas family support flowing in — but global pressures and domestic challenges still pose a mixed outlook as we move through 2025.
Christmas Season Sparks Local Economic Activity
The service sector lit up in December 2024, with weddings, reunions, and tourists helping push up spending across accommodation, retail, and transport. Travel receipts surged by nearly 30%, while car registrations and electricity use also jumped thanks to community events and new housing completions.
Remittances – money sent by Tongans abroad – rose sharply to over $50 million in December, a 16% increase from the previous month. These transfers helped families cope with the rising cost of living and supported holiday spending.
Primary Sector Struggles Amid Weather & High Costs
Unfortunately, the good cheer didn’t spread to Tonga’s farming exports. Agricultural shipments fell by 10%, mostly due to a drop in squash and cassava exports. Bad weather and higher farming costs held farmers back, while more produce stayed in Tonga to meet local demand.
In contrast, marine exports bounced back thanks to the return of tuna exports, and aquarium exports jumped over 500%, giving a small boost to the fisheries sector.
New Jobs
Job opportunities picked up in January 2025, with 81 vacancies advertised – nearly triple the previous month. Most of the openings came from the public sector, especially police recruitment, as well as hotels, restaurants, and business services.
Despite the strong start to the year, job vacancies are still lower than they were this time last year.
Prices on the Rise, but Still Below 2023 Highs
Tonga’s inflation – the general rise in prices – ticked up to 1.2% in December 2024. This is still far below the 6.7% rate from a year ago but shows that prices are climbing again, particularly for food and fuel.
Airfare costs rose significantly due to holiday travel demand, pushing up imported prices. However, cheaper local food and electricity helped ease some of the pressure.
The Reserve Bank expects inflation to rise slowly in the coming months but remain manageable. A review of how inflation is calculated may change the numbers slightly in future reports.
Tongan Paʻanga Loses Ground – Except Against the US Dollar
In January 2025, Tonga’s currency lost value against most major trading partners, which made imports more expensive. However, the Paʻanga did strengthen over the past year, especially against currencies like the Euro and Japanese Yen, helping keep some imported prices stable.
Foreign Reserves Dipping – But Still Strong
Tonga’s foreign currency reserves dropped to $878 million in January, mainly due to more money being spent on imports. But the reserves still cover 10 months’ worth of imports, well above the international safety minimum of 7.5 months.
More Loans, More Deposits – Banks Stay Strong
Tongan banks finished 2024 on a high note, with loans reaching a record $589.8 million – up over 10% for the year. People borrowed more for houses and vehicles, while businesses accessed credit for services, manufacturing, and tourism.
Deposits also grew to nearly $1 billion, driven by stronger savings from businesses, government, and retirement funds.
Interest Rates Dip Slightly
Borrowing became slightly cheaper in December, as banks lowered interest rates for housing, vehicle, and business loans. At the same time, deposit interest rates also declined. The gap between what banks charge for loans and pay on savings (known as the interest rate spread) narrowed slightly to 6.13%.
Looking Ahead: Growth Needs a Push
Despite the Christmas bump, the economy’s foundation – agriculture and industry – remains fragile. The Reserve Bank says Tonga needs to unlock more local production and encourage private sector investment to build a stronger future.
The Reserve Bank is also modernising how it manages the economy, working with government partners to tackle inflation and bring down the cost of living.
Foreign reserves are expected to stay strong for now, but pressures from rising imports and debt repayments remain. Meanwhile, the financial sector remains solid, and banks have enough capital and cash to support further lending in 2025.
Bottom Line
Tonga’s economy got a welcome boost from Christmas spending and overseas support, but deeper challenges in farming, exports, and inflation remain. The Reserve Bank is keeping a close watch — and updating its strategies — to support stability, growth, and affordable living for all Tongans.
