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- GDP (PPP):
- $0.8 billion
- 1.4% growth
- 1.2% 5-year compound annual growth
- $7,548 per capita
- Inflation (CPI):
- FDI Inflow:
Tonga’s economic freedom score is 58.2, making its economy the 104th freest in the 2014 Index. Its score is 2.2 points higher than last year, reflecting substantial improvements in the control of government spending, labor freedom, investment freedom, and trade freedom. Tonga is ranked 22nd out of 42 countries in the Asia–Pacific region, and its score is below the world average.
Tonga’s economic freedom was first assessed in the 2009 Index, and its score has advanced since then by about 4 points. Improvements in half of the 10 economic freedoms, notably in trade freedom, the management of public spending, and freedom from corruption, have been undermined by declines in investment freedom and overall regulatory efficiency, and Tonga remains “mostly unfree,” but the country has achieved its highest economic freedom score ever in the 2014 Index,.
The Tongan economy remains heavily dependent on foreign aid and overseas workers. The public sector’s dominance has contributed to a low level of economic dynamism despite a well-educated workforce. More dynamic entrepreneurial investment is stifled by a largely opaque regulatory environment. Property rights are weakly enforced, and a high level of perceived corruption hampers private-sector growth.
The island Kingdom of Tonga is the South Pacific’s last Polynesian monarchy. Tonga has been independent since 1970, and its political life is dominated by the royal family, hereditary nobles, and a few other landholders. Tonga held its first elections in November 2010 in its drive to become a 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, and royals, nobles, and their top associates allegedly have used state assets for personal benefit. Transparency and accountability are lacking. The judicial system is based on British common law and is generally independent, although a shortage of judges has created serious case backlogs. Property rights are uncertain, and enforcement of them is weak.
The top individual income tax rate is 20 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and an interest tax. The overall tax burden equals 17.5 percent of gross domestic income. Foreign aid donations cover 55 percent of government expenditures, which make up about 29 percent of GDP. Public debt equaled 43 percent of the domestic economy in the most recent year.
Regulatory codes are relatively sound, but implementation remains ineffective. There is no minimum capital requirement for establishing a business, which takes more than two weeks on average. Although labor codes are favorable to labor market flexibility, an efficient labor market has not been developed and informal labor activity remains substantial. The government influences prices through subsidies for electricity and to loss-making state-owned enterprises.
Tonga’s average tariff rate is 5.3 percent. Foreign investment is screened by the government, and investment in some sectors of the economy is restricted. The underdeveloped legal system and infrastructure continue to impede the development of a modern financial sector. There are no capital markets. Much of the population operates financially outside of the formal banking sector.