- GDP (PPP):
- $0.6 billion
- -0.1% growth
- 2.4% 5-year compound annual growth
- $6,940 per capita
- Inflation (CPI):
- FDI Inflow:
Tonga’s economic freedom score is 57.5, making its economy the 115th freest in the 2021 Index. Its overall score has decreased by 1.3 points, primarily because of a decline in property rights. Tonga is ranked 23rd among 40 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.
The Tonganese economy remains in the ranks of the mostly unfree for the third year in a row. Given the country’s exposure to natural disasters and the loss of workers to emigration, the government is struggling to promote economic development. To help achieve that goal, it should promote economic freedom by strengthening the rule of law and making business-friendly improvements in the investment code and financial services sector.
IMPACT OF COVID-19: As of December 1, 2020, no deaths had been attributed to the pandemic in Tonga, but the economy was forecast to contract by 2.5 percent for the year.
The archipelagos of the Friendly Islands were united in 1845. The Kingdom of Tonga, the South Pacific’s last Polynesian monarchy, withdrew from British protection and became fully independent in 1970. The royal family of King Tupou VI, hereditary nobles, and a few other landholders control politics. Tonga held its first elections in 2010 under a newly formed constitutional monarchy. The Democratic Party of the Friendly Islands (DPFI) won a plurality in parliament and retained power in elections held in 2014 and 2017. After his death, the late Prime Minister ’Akilisi Pohiva was replaced by Pohiva Tu’i’onetoa. Tonga’s economy depends on such agricultural products as squash, vanilla beans, and yams as well as on tourism and exports of fish. Emigrants’ remittances account for nearly one-third of GDP.
Technically, all land belongs to the king. Property rights are ill-defined in law, and their enforcement is weak. The judiciary is generally independent but poorly resourced and slow. Corruption and abuse of office are serious problems. Although government officials and leaders of state-owned companies are sometimes held to account for bribery and other malfeasance, anticorruption mechanisms are generally weak and lacking in resources.
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. The overall tax burden equals 22.3 percent of total domestic income. Government spending has amounted to 39.3 percent of total output (GDP) over the past three years, and budget surpluses have averaged 2.4 percent of GDP. In 2017, public debt was equivalent to 48.0 percent of GDP.
The construction permitting process has become less transparent. The presence of an English-speaking, well-educated workforce eases companies’ participation in the global economy. The government is dependent on foreign aid and remains under pressure from international donors to scale back subsidies for electricity and loss-making state-owned enterprises.
Tonga has two preferential trade agreements in force. The trade-weighted average tariff rate is 5.8 percent, but layers of nontariff barriers continue to impede trade flows. The overall investment framework lacks transparency, and foreign investment in several sectors of the economy is restricted. The underdeveloped financial sector’s limited ability to offer affordable credit undermines the development of a dynamic entrepreneurial sector.