KINGDOM OF TONGA - SPREP

Strategic Development Plan 8 2006/07-2008/09
The currency depreciation in 2000-2003 was forced by continued pressure
on foreign exchange reserves associated with increased government spending in
support of several public enterprises and the public service. Reserves increased
substantially in 2003/04 as a result of higher remittances and external borrowing,
particularly by a major private sector enterprise, and remained relatively high in
the following two years (Figure 1.5). Squash exports also grew in 2003/04, but
subsequently fell while fish exports stagnated.
Money supply growth during the period to end December 2005 generally
was driven by domestic credit expansion, except in 2003/04 (Figure 1.6). In the
latter year, net domestic credit fell because the private sector external borrowing
referred to in the previous paragraph was used in part to settle obligations to the
domestic banking sector, and because Government’s net credit position with the
banking system improved as a result of receiving the second tranche of the Asian
Development Bank (ADB) loan for the Economic and Public Sector Reform Program.
Credit to the private sector grew at a double-digit rate during the period, with loans
for housing the fastest growing major category. In December 2005, private sector
credit was 33% above the December 2004 level and more than double the December
2000 level. Early in 2006, the National Reserve Bank of Tonga imposed credit
ceilings on the banks in order to restrain credit growth and thus protect foreign
reserves.
%
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
3.2
7.3
Figure 1.4: Inflation
10.0
10.7
1999/2000 2000/2001 2001/2002 2002/2003 2003/2004 2004/2005 2005/2006
Source: Statistics Department; Ministry of Finance and Planning estimate.
11.8
10.0
Looking to the Future, Building on the Past 14
8.0