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- GDP (PPP):
- $0.8 billion
- 1.0% growth
- 2.0% 5-year compound annual growth
- $8,168 per capita
- Inflation (CPI):
- FDI Inflow:
Tonga’s economic freedom score is 59.3, making its economy the 95th freest in the 2015 Index. Its score is 1.1 points better than last year, with improvements in investment freedom, the control of government spending, and monetary freedom outweighing declines in trade freedom and business freedom. Tonga is ranked 18th out of 42 countries in the Asia–Pacific region, and its score is below the world average.
Tonga is relatively well developed compared to some of its South Pacific island neighbors. Underpinned by a relatively open trading environment, it has cultivated agricultural exports to boost incomes and lower poverty. These improvements are reflected in Tonga’s overall economic freedom score, which has advanced by 3.5 points since 2011. Gains in half of the 10 factors have been led by large improvements in trade and investment freedom. In the 2015 Index, Tonga has recorded its highest score ever.
Despite these gains, however, Tonga’s economic framework is still weak, and the government relies heavily on foreign aid to balance the books. While the judicial system is based on British common law and relatively independent, judicial procedures are inefficient. Corruption is pervasive, and nepotism and favoritism benefit the elite and royals. Investment is limited and screened by the government, limiting non-aid–based financial flows.
The island Kingdom of Tonga, the South Pacific’s last Polynesian monarchy, has been independent since 1970. The royal family, hereditary nobles, and a few other landholders control politics. Tonga held its first elections in November 2010 under its newly formed constitutional monarchy. The Friendly Islands Democratic Party won a plurality in parliament, and Lord Siale’ataonga Tu’ivakano became Tonga’s first elected prime minister. Tonga boasts a 99 percent literacy rate, although more than half of the population lives abroad, mostly in New Zealand. Agriculture is the principal productive sector of the economy, and remittances from abroad are the primary source of income.
Corruption is widespread, with royals, nobles, and their top associates allegedly having used state assets for personal benefit, and transparency and accountability are lacking. An Anti-Corruption Commission established in 2007 lacks power and resources to operate. The judiciary is generally independent, but a shortage of judges has caused long case backlogs. Property rights are uncertain, and enforcement is weak.
The top individual income tax rate is 20 percent, and the top corporate tax rate is 25 percent. Other taxes include a sales tax and a tax on interest. The total tax burden amounts to 15.9 percent of domestic production. Government expenditures equal 26.4 percent of domestic output, and public debt is equivalent to 40.8 percent of gross domestic product.
Launching a company takes four procedures, and no minimum capital is required. The regulatory framework generally supports entrepreneurial activity, but application of the commercial codes is not always straightforward. A well-functioning modern labor market is not fully developed. The government influences prices through subsidies for electricity and to loss-making state-owned enterprises.
Tonga’s average tariff rate is 5.8 percent. Foreign investment in some sectors of the economy is prohibited. The government screens new foreign investment. In the absence of a modern and efficient financial system, much of the population has no access to financial services. Nonperforming loans remain a problem in the banking system. Capital markets are almost nonexistent.