Tonga: 2023 Article IV Consultation-Press Release; and Staff Report

The Tongan economy is performing strongly, underpinned by resilient remittance inflows and major reconstruction activities following the Hunga Tonga–Hunga Haʻapai (HTHH) volcanic eruption in January 2022. However, supply-side constraints resulting from severe labor shortages and damaged tourism facilities are impeding the recovery and have intensified inflation pressures. In this context, the authorities are confronting a challenging tradeoff between supporting reconstruction and managing inflation in the short term. In the long term, Tonga's high vulnerability to natural disasters complicates its efforts to create the fiscal space necessary to finance development spending.