Warning Signs for Tonga’s Economy: NRBT Flags Key Weaknesses
Nukuʻalofa, May 2025 — Tonga’s economic outlook is becoming increasingly uncertain, as new data points to weakening trends in remittances, foreign reserves, and tourism-related income. These developments raise concerns about the country’s financial stability in the second half of 2025.
According to the National Reserve Bank of Tonga’s (NRBT) April 2025 Monthly Economic Update, the domestic economy shows mixed signals—there’s ongoing strength from donor-funded infrastructure projects, but fragility is emerging in key sectors such as remittances, tourism, and the country’s external reserves.
Remittances Decline—A Growing Concern
Remittances—Tonga’s largest source of foreign exchange and a crucial support for many families—fell by $1.7 million (4.2%) in February 2025, continuing a downward trend. The NRBT attributes this drop to rising unemployment in Australia and weaker earnings in New Zealand, Tonga’s two main remitting partners.
Economists warn this could reduce household spending and hurt local businesses.
“Remittances are not just a financial inflow—they’re a social stabiliser,” said a regional economist. “If this continues, the pressure on families will grow and inequality could worsen.”
Foreign Reserves Continue to Shrink
The NRBT also reported that Tonga’s foreign reserves have dropped by nearly $50 million since November 2024, standing at $842.5 million in March 2025, down from over $890 million five months earlier. Though this still covers 9.7 months of imports, the steady decline is a concern.
The reduction is mainly due to government loan repayments, dividends being sent overseas, and continued import spending—all pointing to growing financial commitments that could strain the economy if not carefully managed.
Tourism and Trade Sectors Lose Momentum
The services sector—especially tourism and trade—is showing clear signs of slowing. Travel-related earnings dropped by nearly 34%, while container registrations, vehicle imports, and retail imports also declined sharply.
Even with cruise ship visits in February, spending remains low. Analysts say that high living costs and short tourist stays are limiting the impact on jobs and local business activity.
Infrastructure Spending Offers a Temporary Lift
Despite these challenges, infrastructure continues to prop up the economy. Projects like school upgrades, museum construction, and road works under the Tonga Climate Resilient Transport Project are driving growth in the construction and industrial sectors.
Lending for housing and construction has also increased, contributing to 12.0% year-on-year growth in credit as of February.
Inflation: Surface Cooling, Core Still Rising
Headline inflation has eased to 4.0%, down from 6.9% a year earlier, mainly due to falling local food prices. But core inflation—which excludes food and fuel—has climbed to 8.0%, driven by rising costs for kava, alcohol, education, and personal care goods.
This suggests that while some prices are falling, everyday costs are still increasing in areas that matter most to households.
Outlook: A Delicate Balancing Act Ahead
Looking forward, the NRBT expects foreign reserves to remain adequate in the short term. However, with remittances falling and external financial pressures rising, the risks to economic stability are growing.
The central bank says it will continue adjusting policy to keep the economy on track.
“There’s no crisis yet,” noted one economic observer, “but the warning lights are flashing amber. The focus now must be on supporting domestic production, retaining skilled workers, and diversifying Tonga’s economy.”
What This Means for Everyday Tongans
While the figures may seem abstract, the trends highlighted by the NRBT have real-world consequences.
For families, falling remittances mean less money for school fees, food, and utilities. At the same time, the rising cost of essential items like education supplies, meals, and basic goods is putting more pressure on already stretched household budgets.
For small businesses, the slowdown is also taking a toll. As consumer spending drops and import costs rise, retailers, transport services, and local suppliers are feeling the squeeze. While banks are still lending, tighter economic conditions could make it harder to access credit in the coming months.
This isn’t a crisis yet—but it is a warning. With global uncertainty rising and Tonga’s financial safety nets thinning, decisive, coordinated action is needed to avoid a deeper downturn. The government’s response in the months ahead will be crucial to keeping the economy resilient and protecting the livelihoods of its people.
Editorial Note:
This article is based on data from the National Reserve Bank of Tonga’s Monthly Economic Update – April 2025, combined with expert commentary and analysis of key economic trends and sector performance.
