Unlocking Tonga’s Economy: Why Finance, Skills and Infrastructure Hold the Key to Growth

Tonga must convert its heavy reliance on remittances, imports and external support into productive investment, stronger businesses and better jobs through reforms in finance, infrastructure, skills and tourism. Comprehensive reforms could lift long-term growth to around 3% and generate about 8,100 additional jobs by 2050, strengthening economic resilience and private-sector competitiveness.

Tonga is at a critical economic crossroads. The World Bank's Tonga Country Growth & Jobs Report: Shaping Tonga's Tomorrow—Mobilizing the Private Sector for Growth and Jobs finds that the Pacific island economy has remained resilient despite natural disasters and global shocks, but its dependence on remittances, imports, development assistance and public spending has not produced enough productive investment or quality jobs. For the government, development partners and businesses, the challenge is to convert the money already flowing into the economy into stronger enterprises, infrastructure, skills and employment.

Remittance Power, but a Weak Productive Engine

Tonga's per-capita economy grew by an average of about 2.4 percent annually during the 2010s, while labor productivity increased by only around 0.8 percent a year over the past two decades. Remittances reached approximately 38 percent of GDP in 2024 and have played an important role in protecting household living standards.

But remittances are predominantly supporting consumption rather than productive investment. Investment averaged about 26 percent of GDP between 2010 and 2024, compared with roughly 37 percent in Samoa. This means that higher household purchasing power frequently increases demand for imported goods without generating an equivalent expansion in domestic businesses and jobs.

The trade numbers underline the problem. Tonga's trade deficit widened from around 40 percent of GDP in 2014 to 53 percent in 2023, while merchandise exports accounted for only about 3 percent of GDP. Policymakers therefore have an opportunity to encourage investment in sectors capable of replacing imports and generating exports, including agriculture, fisheries processing and renewable energy.

Agriculture accounted for around 26.7 percent of GDP in 2023, but fewer than 10 percent of producers operate commercially. Better storage, processing, logistics and connections between farmers, hotels and markets could increase domestic value addition while creating rural employment.

Finance and Infrastructure Are Holding Businesses Back

Tonga has businesses capable of growing, but the environment around them remains difficult. Average firm sales increased by 32 percent during the post-pandemic recovery and productivity rose by 27 percent. However, the report cautions that these gains partly represent a rebound from the pandemic rather than lasting structural improvement.

Finance is one of the biggest constraints. Domestic private-sector credit stood at only about 41 percent of GDP in 2023, compared with 114 percent in Fiji. Around 87 percent of firms identified access to finance as their biggest obstacle, while only 12.8 percent had a line of credit. About one-third were fully credit constrained, forcing businesses to finance most investment internally.

For policymakers and development institutions, priorities include improving credit information, collateral systems, banking supervision, digital payments and financing options for micro, small and medium-sized enterprises. Remittance-backed investment products could also redirect some diaspora money toward businesses.

Infrastructure matters just as much. Around 86.5 percent of firms experience electricity outages, losing roughly 5 percent of sales as a result. The report estimates that reducing energy imports by 25 percent through renewable energy could improve the trade balance by roughly as much as doubling merchandise exports. Renewable power should therefore be viewed not only as climate investment but as a competitiveness and energy-security strategy.

Tourism and People Could Become Tonga's Growth Engines

Tourism represents one of Tonga's strongest opportunities for private-sector expansion. It generated around US$37.3 million in receipts in 2023, equivalent to 6.8 percent of GDP, and supported approximately 5,600 jobs, or 15 percent of total employment.

Yet Tonga attracted only 55,749 overnight international visitors in 2023, compared with 174,967 in Samoa. Average spending was about US$527 per visitor, against US$1,632 in Fiji, while only around 64 percent of tourist expenditure remained in Tonga.

Marine tourism, whale watching, eco-tourism, cultural experiences, accommodation and stronger domestic supply chains could help Tonga capture more value from each visitor rather than relying simply on increasing arrival numbers.

The labor market presents a parallel challenge. Labor-force participation stood at only 44.7 percent in 2023—51.1 percent for men and 39.2 percent for women, even though unemployment was just 2.2 percent. Youth represent 29 percent of the working-age population but employed youth account for only 6 percent.

Better vocational education, employer-led training, internships, childcare, early-childhood education and workplace protections could bring more people into employment. Development partners can help by linking training directly with demand in tourism, healthcare, education and other expanding services.

Four Reform Pillars Could Change the 2050 Outlook

The report proposes an integrated strategy built around four areas: productivity-enhancing infrastructure; higher labor participation and stronger skills; a better environment for private investment; and stronger financial intermediation.

For government, this means prioritizing energy, transport, logistics and digital infrastructure while improving taxation and public spending. Business registration, licensing, customs and procurement should become more efficient and predictable. Competition policy, investment regulation and access to commercial land also require improvement.

For development partners, financing should increasingly target projects that simultaneously improve resilience, productivity and private investment. For businesses, opportunities could emerge in renewable energy, tourism, agriculture, food processing, logistics, digital services and finance, although regulatory uncertainty, natural disasters, financing constraints and Tonga's small domestic market remain significant risks.

The potential payoff is substantial. Without major reforms, potential GDP growth could decline from around 2 percent in 2030 to approximately 1.2 percent by 2050. A comprehensive reform package could lift average potential growth to around 3 percent during 2027–2050, compared with roughly 1.7 percent under the baseline.

Employment could be around 20 percent higher by 2050, equivalent to approximately 8,100 additional jobs. Tonga's central policy challenge is therefore clear: transform remittances, development finance and human capital into productive investment. Success would gradually move the economy from dependence on external income toward a stronger private sector capable of creating competitive businesses, higher productivity and better-paying jobs at home.