• Tonga:
• Economy

Tonga - Economy

Overview: The economy is dominated by subsistence agriculture, and economic performance is heavily dependent on weather conditions and world commodity prices. However, the formal money economy has been growing as farmers have moved towards production of cash crops, some of which are exported – for example, squash, a relatively recent introduction, which has been a great success as an export to Japan.

This very success, though, illustrates the vulnerability of small agricultural economies such as Tonga. In the early 1990s farmers rapidly switched to the new crop. By 1994, there was over-production, a collapse in local prices and unsold stocks. Drought in 1995 led to further falls in exports. Squash and, increasingly, fish products are, nonetheless, the most important exports, and squash remains more profitable than traditional crops such as copra and bananas.

The main source of foreign currency is the remittances of Tongans working abroad, followed by tourism. The government recognises the need for economic reforms to expand the private sector and diversify the economy, and is working to gain public – and especially civil service – acceptance of the need. Nonetheless, from the late 1990s the economy continued to grow steadily (2.2% p.a., 1997–2006), albeit with the problem of high inflation which eventually fell to single digits in 2005 (9.7%) and further in 2006 (6.8%).

Trade: Main exports are squash, fish products, vegetables and vanilla. Main imports are food, manufactured goods, machinery, vehicles and fuels. Main trading partners are Japan (33%), the USA and New Zealand for exports; and New Zealand (37%), Fiji Islands, Australia and the USA for imports.