Inflation in Tonga slowed to 4.6% in FY2012 from 6.1% in FY2011 as
infrastructure projects wound down and weak domestic activity relieved
pressure on domestic prices (Figure 3.37.6). These factors off...
in international food and fuel prices recorded in calendar year 2011,
which made accelerated inflation the rule elsewhere in the South Pacific. In the Cook Islands, higher transport and utility costs worsened inflation
to 2.8% during the period from 0.6%. Higher food prices in early 2012
drove up inflation in Samoa to 6.2% from 2.9% in FY2011, and in Vanuatu
to 1.3% from 0.8%. However, lower international price rises for food and
fuel in the latter part of calendar year 2012 caused consumer prices to
trend lower in the Cook Islands, Vanuatu, and Samoa, the last of which
Public expenditures over FY2012 caused fiscal deficits across the
South Pacific, though fiscal consolidation has narrowed budget gaps
in some economies. In the Cook Islands, infrastructure spending
resulted in a fiscal deficit, but at 2.2% of GDP it was well within the
3.0% government target. As of September 2012, Vanuatu had incurred a
deficit of 1.7% of GDP, compared with a 2.3% deficit for the whole of 2011.
Election-related spending in Vanuatu and the introduction of subsidies
to copra farmers fueled expenditure growth in the face of flat tax
revenue collections and declining grants.
Fiscal consolidation has helped improve the fiscal positions of Samoa
and Tonga. Although Samoa’s FY2012 deficit of 4.5% of GDP exceeded
government targets, it was an improvement over the 5.3% deficit incurred
in FY2011. During the same period, Tonga’s budget deficit narrowed to
2.9% of GDP from 7.4% a year earlier, mainly reflecting lower personnel
costs and capital expenditure.
Monetary policy across the South Pacific has remained accommodative.
Despite excess liquidity in the banking sector, the central banks of Samoa,
Tonga, and Vanuatu have kept interest rates stable and low in a bid to
stimulate credit growth. In addition, the National Reserve Bank of Tonga
stopped requiring banks to pay interest on their exchange settlement
accounts to encourage lending to the private sector. The Cook Islands has
no central bank and uses the New Zealand dollar as its official currency.
Most South Pacific economies have continued to run current account
deficits. Tonga’s current account deficit widened to 17.9% of GDP in
FY2012 from 11.1% in FY2011, as imports of goods and services grew
more quickly than exports. Samoa’s current account deficit also widened,
to 10.8% in FY2012 from 9.2% in the previous fiscal year. In contrast,
Vanuatu’s current account deficit narrowed slightly to 6.0% of GDP in
2012 from 6.3% in 2011.
: Cook Islands Statistics Office; ( http://www.mfem.gov.ck/ ) ; Samoa Bureau of Statistics ( http://www.sbs.gov.ws/ ) ; Tonga Department of Statistics (
http://www.spc.int/prism/tonga/ ) ; and Reserve Bank of Vanuatu ( http://www.rbv.gov.vu ).
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