Bank Governor: Tongan Economy Continues To Weaken
By Mary Lyn Fonua
NUKUALOFA, Tonga (Matangi Tonga, Feb. 4, 2013) – Tonga's income is continuing to fall, the Governor of the National Reserve Bank of Tonga, Joyce Mafi, told the Tonga Chamber of Commerce and Industries on January 30, in a presentation on the state of Tonga's Economy.
Higher tourism receipts were insufficient to offset falls in exports and remittances, while other sectors were struggling.
As a result of the global financial crisis (GFC), she said there was a, "steep and continuous decline of private cash remittances" being sent to Tonga by families working overseas, mainly in New Zealand, Australia and the United States. Annual receipts had been falling since private cash remittances peaked in the 12 months up to February 2008 at TOP$212.6 million [US$123 million].
"The whole income of the country has continued to fall. We saw the remittances fall TOP$22.5 million [US$13 million] over the year - that's money out of people's pockets and the flow on effects from there. It is so unfortunate that when the GFC hit us we had no other alternative, because exports were already down," she said.
Annual remittances fell from TOP$132.2 million [US$76.5 million] to TOP$109.7 million [US$63.5 million] between November 2011 and November 2012.
"In Tonga, import substitution is not that strong, so we need to think about all these, because the remittances will not turn around, and the message put out at the economic dialogue last year is that we need to adjust to reality… So it will take some time because nothing will replace the remittances coming in immediately."
The impact of such an amount of money lost to the economy was enormous.
"We cannot deny that we are part of a global economy so the development in the international market and economies will definitely affect us here in Tonga, and we are still suffering from the spill-over effects from those economic developments internationally from the impact from the global finance crisis."
Joyce said that it was thought that the tourism sector would be the fastest sector to help Tonga's recovery, but that was not being realized at the moment. Visitor arrivals by air showed little changed between 2003-2012.
"Certain developments in the tourism sector are still affecting it, the airlines and the cruise ships."
The cruise ship schedule was set for a whole year, "so it will be another year before we see an increase in cruise ships coming through, and also how to attract those passengers to spend more while they are here. We all know those passengers in the cruise ships do not spend money. Let's just try, because you don't have that many eggs in the basket," she said.
Agriculture exports struggling
Tonga's agricultural exports are struggling and the sector faces the difficulties of market access.
"But the data is an issue," she said.
There were some big inconsistencies in the data from the three indicators (Trade agricultural exports, Overseas Exchange Transactions and Quarantine. "The Trade and Quarantine, unfortunately, are showing a declining trend in latest months, and that will not be supportive of the economy."
Joyce said they were working on getting better data, especially Customs data. "Particularly around remittances-in-kind, trying to explain the steep and continuous decline of cash remittances. They still could not tell us what personal imports [were], so we can see if it's going up and that our relatives are not sending money but sending goods."
She said the decline also reflected the data from banks showing that much of the proceeds from Tongan exports are not being sent through the banking system. "Funds could be coming in to the country through other ways and means such as containers full of goods, through foreign exchange dealers, or kept overseas, and we really don't have issue with that, because it saves money in foreign currency and reduces costs for business.
"But we believe that a reasonable amount of the proceeds of exports should at least come back to the country. So we will continue to work on that, and if we come to you for help and to share experience we will appreciate your sharing," she said.
Foreign exchange data
The Reserve Bank is trying to capture more data from ten licensed foreign exchange dealers. "We would just like them to do their recording properly and report to us as part of condition of their license.
"We are trying to improve our perception of what is really going on out there… and the importance of collecting good data from all departments will help all of us."
High liquidity sitting in banks
Business sentiment remains negative. Although there is high liquidity in the banks, it was not accessible at time when domestic demand was weak and there was a high level of non-performing loans.
"The painful part for the private sector is why is this liquidity out there and not working for us? Funds from development partners is all coming in and sitting in the banks, so this line we all want to turn around. But unfortunately, credit is still falling and is reflective of the general economy."
Business loans formed 70% of non-performing loans. "Until the economy really improves, I suspect it will stay like that. Business is taking the large impact of this negative development and larger share of loans.
Real GDP growth was projected to slow.
Joyce said that in spite of the outlook, there had been four years of positive growth in Tonga, which she believed was due to the capital formation through the big construction projects completed in past few years in Tonga.
"Without that normally growth would be expected to be a lot lower and that was the basis for the projections for 2011-12 and 2012-13," she said.
Foreign Reserves overstated
Foreign reserves are rising, supported by development partner's funds, but Joyce said she believed that Tonga's foreign reserves are currently overstated and will start to decline during 2013.
"The reserves level will start to decline when the Government starts paying off the China Loan, expected in September this year.
"The other issue is there are a lot of deferred payments, especially large companies, like oil. We have more than five months worth of oil imports received and used that has to be paid for and has not been paid for, so we can say the reserves are relatively overstated," Joyce said.
Public debt risen
Tonga's public debt has risen by TOP$172 million [US$99.5 million] in four years.
"Unfortunately, this is another difficult situation where the fiscal position is really tight and there is not much room for large short term economic stimulus from government, because of this, and then the flow-on effect through import tax, wharf and tax and sales tax is also affecting them.
"Our hands are quite tied up now with this [Chinese loan]," she said. "We all know of the impact on the economy and what it is doing to us."
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