The first quarter of FY2023 saw Tonga experience its highest inflation in two decades. In response, we issued a tightening signal to reduce inflation as our top priority, aiming to contain inflation within the 5% reference rate, which was successfully achieved during FY2024 despite the weak impact of monetary policies on the interest rate channel. Alongside this, NRBT committed to supporting economic recovery from the COVID-19 pandemic and the 2022 volcanic eruption.

The banking sector remains well-capitalized with ample liquidity, although risks have increased. As of June 2024, the non-performing loans to total loans ratio rose to 11.2%, despite maintaining strong profitability. In response, enhanced supervision of banks was carried out as we rolled out new reforms in 2024 to address risks to financial stability. These reforms include establishing a new Financial Stability Unit and working to establish an in-house electronic credit registry with ADB PSDI’s assistance. With the IMF’s assistance we are reviewing the NRBT Act mainly to strengthen central bank governance, and considering options to better utilise the long-standing excess liquidity in the financial system to be more helpful to the country’s economic development and also improve the effectiveness of monetary policy transmission. This includes exploring developing a domestic capital market and other financial instruments aimed at enhancing resilience to climate and other external shocks. Additionally, we sought the World Bank’s assistance to develop a new National Payment System and bolstered our supervisory role in combating financial crimes, including AML/CFT measures, to preserve the integrity of the financial sector. We also welcome the efforts by licensed banks and non-bank financial institutions to introduce new financial products and technologies to advance the financial sector.

Our management of the foreign reserves and daily monitoring of the pegged exchange rate have supported macroeconomic stability. Notably, the value of the Tongan pa’anga, measured by the nominal effective exchange rate (NEER), strengthened over the year. Our monetary policy stance remained unchanged in 2024, following last year’s tightening measures aimed at reducing inflation, which eased to 5.4% by June 2024.

A financial inclusion strategy was launched to drive the work on promoting access to financial services. Our focus towards the end of FY2024 shifted toward increasing access to affordable credit, particularly for under-served sectors such as agriculture, fisheries, handicrafts, and tourism.

Internally, we have strengthened internal control through the new Internal Audit function, embraced technology, addressed a four-year currency backlog, and improved management processes. Upgrades to our ICT systems and the digitization of HR management, including staff work plans and performance evaluations, have also been implemented. In response to a security incident during the year, we enhanced our security equipment and protocols.

Looking ahead, the Bank’s first 5-year Strategic Plan (2024-2028) was approved by the Board in FY2024, aimed at fostering inclusive, sustainable, and resilient development for Tonga. This plan focuses on five pillars to enhance the Bank’s impact on price stability, financial stability, and economic growth. The FY2025 Corporate Plan was also approved to guide the implementation of this Strategic Plan. Key policies on Enterprise Risk Management, Procurement, and Cybersecurity were also approved during the year.

We extend our gratitude to the Minister for Finance, the Government of Tonga, our banking partners, development organizations such as ADB, MFAT, DFAT, WBG, and our Pacific central bank counterparts.

As we celebrate our 35th anniversary, along with the Board, I commend our staff for their dedication in advancing the Bank’s mission, fostering financial stability, and strengthening the banking sector through sound monetary policies and technological innovation.

Governor Tatafu Moeaki