Headline inflation has rebounded above the 5% reference rate as local food CPI hit its highest level on record and core inflation is still high. Global oil prices have seen declines recently after surging on the back of supply cuts by OPEC and oil producing countries. The continual uncertainties surrounding the Israel-Hamas war and geopolitical tensions in the Middle East are threatening to disrupt oil supplies from the region putting pressures on petroleum prices. The El Nino weather conditions affecting local food supply coupled with an expected rebound in demand and consumption during the holiday season are also anticipated to put further upward pressure on prices. GDP growth for the current financial year is anticipated to be moderate while domestic production is estimated to be still below potential thus allowing ample policy space for the Reserve Bank to support stronger economic growth without causing major inflationary pressure to the economy. Foreign reserves, are still at comfortable levels and is projected to remain above the IMF’s prescribed level of 7.5 months of imports cover in the near to medium term. The financial system continues to remain stable with ample liquidity and banks are also well capitalized to absorb further shocks. The Reserve Bank will continue to closely monitor inflation movements and at the same time support economic recovery.

The primary sector trended favourably in August 2023. Activities in the industrial sector remained vibrant over the month given the ongoing public and private projects. The tertiary sector slowed in August 2023 after the celebrations and festivals in prior months.

The primary sector show mixed outcomes over the month. Credit to the industrial sector showed active performances in July 2023. Indicators in the services sector remained highly favourable, given the ongoing festivals in July 2023. 

The primary sector demonstrated mixed performances over the month. Lending to the secondary sector generally slowed down over the month, and the services sector remained upbeat over the month.

The primary sector was buoyed by higher agricultural exports during the month. Agricultural exports increased by 28.8 tonnes (4.1%), stemming from higher exports of cassava, squash (off-season export), and coconut.

Agricultural exports increased over the month of April 2023 by 21.1% (123.5 tonnes) indicating a lively primary sector. Indicators in the industrial sector mostly showed active performances over the month. The service sector remained vibrant over the month.

The primary sector was largely buoyed by more exporting activities in the agricultural sector in March 2023. Loans by sector indicated mixed outcomes within the industrial sector. Favourable developments were observed in the tertiary sector during the month.

Activities in the primary sector took an upturn in February 2023. The secondary sector continued to show positive signs with increase in credit to the industrial sector and infrastructure funded projects, while in the tertiary sector however continued to trend downward over the month.

The Reserve Bank continues to expect the Tongan economy to recover in the FY2022/23 whilst most of the world economies are slowing down. Imports are projected to increase in line with the economic recovery, while remittance receipts and inflows from donor funds return to pre-pandemic levels. To sustain the ongoing economic recovery, prudent macroeconomic management and effective implementation of structural reforms will be critical. Meanwhile, foreign reserves is expected to remain comfortable above the optimal level of 7.3 months of imports cover, supported by inflows of development assistance for the HTHH reconstruction and the implementation of donor projects back on track. The financial system remains stable with available liquidity as credit growth improves and banks are also well capitalized to absorb further shocks. Inflation is expected to have peaked in 2022 and is expected to continue declining in the near to medium term. However, uncertainties in the movements of global oil and commodity prices, as well as domestic food supply pose a risk to this outlook. The Reserve Bank’s fight against inflation remains the priority and has started to implement some of its monetary policy measures indicated in the February 2023 Monetary Policy Statement and will continue to monitor the movements in global commodity prices to address the underlying inflation concerns to rein in inflation below its 5% reference rate in 2023. Separate measures to assit credit easing in liason with the Government to address supply shortages and accelerate recovery in agriculture, fisheries, tourism and manufacturing are crucial to avoid unnecessary economic slowdown.

The Reserve Bank continues to expect the Tongan economy to recover in the FY2022/23. Imports are projected to increase in line with the economic recovery, while remittance receipts and inflows from donor funds return to pre-pandemic levels. To sustain the ongoing economic recovery, prudent macroeconomic management and effective implementation of structural reforms including supply side measures will be critical. Meanwhile, foreign reserves is expected to remain comfortable above the optimal level of 7.3 months of imports cover, supported by inflows of development assistance for the HTHH reconstruction and implementation of donor projects back on track. Inflation is expected to have peaked in 2022 and is expected to continue declining in the near to medium term. However, uncertainties in the movements of global oil and commodity prices, as well as domestic food supply pose a risk to this outlook. The Reserve Bank February 2023 Monetary Policy Statement prioritized reducing core inflation through monetary policy measures and monitor the movements in global commodity prices to address the underlying inflation concerns to rein in inflation below its 5% reference rate in 2023. The financial system remains stable with available liquidity as credit growth improves. Banks are also well capitalized to absorb further shocks.