Summary:Tonga is a small remote open economy in the South Pacific with a narrow production base and low connectivity, resulting in high transportation costs, limited economies of scale, and high fixed costs (Figure 1).1 As a result of the large number of workers abroad, Tonga is one of the highest-level recipients of remittances as a share of GDP among all developing countries. Tonga’s high dependence on remittances, foreign aid, tourism, and energy imports pose challenges to its development, which is also affected by a protracted period of slower growth in advanced and emerging market countries, particularly in Australia and New Zealand, as well as natural disasters2 and El Niño-related weather events. With limited resources, the government’s recent challenges have been to support reconstruction in the aftermath of Cyclone Ian in 2014, which caused damages estimated at 11 percent of GDP, and to secure sufficient funding for the South Pacific Games (SPG) planned for 2019.
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