Financial year 2022 marked another year of uncertainty for Tonga’s economic management stemming from the global pandemic’s community transmission for the first time and the unprecedented Hunga Tonga Hunga Ha’apai volcano eruption, resulting in the loss of 3 months of operations during the financial year.

The impact on the financial sector slowed down private financing of economic activities and recovery from prior cyclones, but the combination of a supply bottlenecks and some constraints in the labour market led to higher consumer and broader price pressures reaching over 9 percent headline inflation in January 2022.

During this difficult time, the economy deteriorated further in FY2022 where the overall sectoral performance weakened by the negative impacts of COVID restriction to tourism, implementation of development projects and primary sector productions (agricultural and fisheries) for both local produce and export. The Government promptly supported financial relief to businesses and employees affected and maintained expansionary fiscal policy to support recovery and mitigate the worst risks to the economy and financial system. As such, the monetary policy remained accommodative to the fiscal policy at the time, to support faster economic recovery with a focus to maintain macroeconomic stability.

Headline inflation remained above the 5% reference rate due to supply-side disruptions, and the increase in global oil prices as well as the soaring freight rates, have caused higher imported inflation, which has passed through to domestic energy prices and production costs. The core inflation (excluding imported food and energy prices) trended below the headline, at an annual average of 4.7% in the year to June 2022.

The official foreign reserves increased to $871.2 Million at the end of June 2022, equivalent to 14.4 months of import cover, from $715.2 millions (11.8 months equivalent) in FY2021. The significant increase in foreign reserves was attributed mainly to receipts of remittances, Government budget support, volcanic eruption and tsunami recovery assistance, project funds, and other capital receipts.

The impact of these catastrophic hazards tested the resilience of the financial system in terms of activating business contingency planning to ensure continuity of access to financial services. The Reserve Bank continued to provide daily exchange rates to the banks and provided essential services, met the public demand for Tongan pa’anga currency, and settled local payments for Government and the banks. The increase in demand for cash was reflected in the increase in currency in circulation by over 19 percent compared to the previous year.

Although some Reserve Bank staff succumbed to covid-19 and overseas maintenance services were delayed due to the national lock-down, NRBT team continued to ensure a safe and secure working environment for essential staff, the tenants as well as facilitated a hybrid work from home arrangement.

Our financial performance improved in 2022 with a net profit of TOP$ 0.5 million slightly higher than the T$0.2 million in 2021 reflecting the uncertainty and challenges to maintain stability during the year.

The Reserve Bank welcomed the new Chairman Lord Sevele ‘o Vailahi during the year, and take this opportunity to acknowledge the leadership and commitments of the new Chairman and the Board of Directors. I join all staff to acknowledge the services of the outgoing Governor Dr. Sione Ngongo Kioa who, over the last ten years took on the tasks of making Tonga’s financial system better, more simple, more efficient, and more transparent.

Governor Tatafu Moeaki