The Asian Development Bank has predicted that inflation will rise in Tonga during 2019 because of lingering effects from Cyclone Gita and higher fuel prices.
Overall economic activity was expected to pick up in the first half of the 2019 fiscal year.
Recovery would be driven primarily by government-led cyclone reconstruction and supported by strong growth in private credit, which will spur activity in various sectors of the economy.
However, government reconstruction and rehabilitation projects would shrink the budget surplus in 2019.
The higher volume of imports needed for the projects would increase the budget deficit.
Government finances would also be affected by its intention to start repaying a large loan from China.
The Asian Development Outlook 2018 Update said Government revenue increased only slightly from the 2017 fiscal year as a substantial contraction in grants offset higher tax revenue.
Increased spending driven by higher public sector wages, initial reconstruction expenses, and the maintenance of existing infrastructure is estimated to have narrowed the budget surplus.
Despite this, Tonga’s current account was estimated to have recorded a small surprise surplus derived from higher than expected tourism income and emergency assistance following Cyclone Gita.
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