Asia Regional Integration Center

The economy contracted by 3.0% in FY2021 (ended 30 June 2021) as all inbound travel was suspended, upending the tourism industry. Delayed border re-openings, competition for returning tourists, and disaster-related losses from the offshore Hunga Tonga–Hunga Ha’apai volcanic eruption are likely to slow any recovery in tourism. In FY2022, GDP is forecast to slide further by 1.2%, but GDP should rise by 2.9% in FY2023 as the economy recovers. Inflation was forecast to accelerate from 1.4% in FY2021 to 7.6% in FY2022. The fiscal deficit was 1.0% of GDP in FY2021 as revenue fell, but increased expenditures in response to COVID-19 will expand it to 2.8% in FY2022. External debt is expected to ease from 41.5% of GDP in FY2021 to 38.4% in FY2022. Increased imports will leave the current account with a 1.8% deficit in FY2022, despite the large official transfers from development partners in the immediate aftermath of the volcanic eruption.