ADB’s flagship annual economic publication, the Asian Development Outlook (ADO) 2019, says Tonga’s economy is set to grow by 2.1% in 2019, while growth will moderate slightly to 1.9% in 2020.
The ADB report says the contribution of tourism to Tonga’s gross domestic product (GDP) has grown steadily, albeit from a small base of only 7.0% of GDP in 2010, reaching 11.5% in 2017.
“Tonga, like other South Pacific countries, depends on tourism to drive the economy,” said ADB Chief Economist Yasuyuki Sawada. “Priorities should be given to policies that fully utilize infrastructure development to catalyze private sector investment and encourage industry diversification.”
Although diversification supports resilience in industry, the ADO says long-term sustainability across the South Pacific economies demands additional considerations, notably factoring disaster resilience into development and investment plans. Tourism was the second most affected industry by Cyclone Gita. The government intends to adopt the policy in its reconstruction and recovery plan to “build back better” with the emphasis on resilient physical infrastructure. The growing importance of tourism and its expanding scale mean that its environmental and social impacts should not be overlooked.
The ADO notes there is a need to improve infrastructure to ensure that the benefits of tourism are spread across the country. Second is to ensure that infrastructure for tourism is sufficiently resilient, and able to withstand the cyclones to which these economies are prone. And third is to keep tourism environmentally friendly and sustainable. Governments can consider enhancing legislation to better address issues that threaten the sustainability of the tourism industry and policies promoting sustainable tourism practices.
Tonga’s inflation rate was 5.3% in 2018, with food prices increasing substantially as a result of the damage and losses caused by Cyclone Gita. Contributing to inflation were higher prices for transportation and beverages, including kava.
ADB began working with Tonga since 1972 and, since then, has committed $70.2 million in loans, $121.2 million in grants, and $23.3 million in technical assistance. Since 2008, ADB has significantly scaled up both its financial and technical support to Tonga, committing $87.7 million in grants and concessional loans, mobilizing $44.9 million in cofinancing, and providing about $8 million in technical assistance.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members—49 from the region.