Economic outlook still strong, but inflation rate and import costs rise

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Governor of the National Reserve Bank of Tonga Dr Sione Ngongo Kioa

Tonga’s Reserve Bank says the outlook for economic growth is still robust.

In its latest statement on economic policy, the bank said predictions for economic growth had been revised upward to 3.7%.

This followed stronger growth of 3.7% and 3.4% for 2014/15 and 2015/16 respectively.

The projected growth for 2016/17 was mainly driven by anticipated stronger growths in construction, utilities, fisheries and mining and quarrying.

A number of events scheduled for 2016/17 supported the growth in tourism and trade sectors. Higher real GDP growth of 4.8% was projected by the Reserve Bank for 2017/18, up from last year’s estimate of 4.7%.

Growth was expected to be driven by construction, as Government continues the construction of sports facilities. Transport and communication, trade, fishing and tourism sectors were also expected to contribute to growth.

The overall balance of Overseas Exchange Transactions for the six months to February 2017 showed a surplus of $11.4 million.

This contributed to an increase in the gross official foreign reserves to $377.7 million in February 2017, compared with $366.3 million in August 2016.

This was sufficient to cover imports of merchandise goods and services for seven months, well above the Reserve Bank’s minimum range of three to four months of imports.

The level of foreign reserves was expected to remain at comfortable levels supported by expected higher receipts of remittances, higher export receipts, anticipated government receipt of budget support and grant funds from development partners.

However, this would be partially offset by the projected rise in import payments.

The Reserve Bank also noted that inflation continued to rise in February 2017.

There was a significant rise in the headline inflation rate of 8.9% in February 2017, compared with a 5.1% rise in August 2016.

The Reserve Bank said it expected inflationary pressure to continue due to the increased custom duty and excise tax effective in July 2016.

The annual headline inflation was forecast to gradually decline below the reference rate of 5% per annum after August 2017.

The main points

  • Tonga’s Reserve Bank says the outlook for economic growth is still robust.
  • In its latest statement on economic policy, the bank said predictions for economic growth had been revised upward to 3.7%.
  • However, the Reserve Bank also noted that inflation continued to rise in February 2017.
  • The bank said it expected inflationary pressure to continue due to increased custom duty and excise tax effective in July 2016.

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