Balancing Progress and Vulnerability: Tonga’s Fight Against Poverty Amid Natural Disasters

The Tonga Poverty and Equity Assessment 2024 highlights significant poverty reduction from 2015 to 2021, driven mainly by remittances, despite natural disasters and economic challenges. However, Tonga remains vulnerable due to reliance on remittances and exposure to natural hazards, necessitating stronger social protection and human capital development.

The Tonga Poverty and Equity Assessment 2024, published by the World Bank, examines the country’s progress in poverty reduction amidst significant challenges such as natural disasters and the economic impact of the COVID-19 pandemic. The report, developed with input from the Tonga Statistics Department (TSD) and other international contributors, highlights that between 2015 and 2021, Tonga’s poverty rate decreased from 27.4% to 20.6%. During the same period, inequality also declined. This progress, however, did not come without difficulties. Tonga, a small Pacific Island nation, faced several shocks, including tropical cyclones, a volcanic eruption, and border restrictions due to the pandemic, which severely impacted its economy and could have reversed previous welfare gains. Despite these challenges, various factors helped sustain the country's progress, notably the crucial role of remittances sent by Tongans working abroad, which significantly supported household consumption and lifted many people out of poverty.

Remittances: A Lifeline for Households

The analysis in the report suggests that the decline in poverty was primarily driven by remittances, rather than domestic employment or government social assistance programs. Tonga’s labor force participation remains low, and skills mismatches in the domestic labor market continue to hinder growth. Many Tongans work overseas in temporary labor schemes, particularly in Australia and New Zealand, and remittances from these workers have become a critical source of income for many households. By 2021, nearly 90% of households received remittances, with close to 40% of them relying on these funds as their primary income source. This marked a significant increase compared to 2015, when a smaller percentage of households depended on remittances. The economic contribution of remittances also rose significantly, from 30% of GDP in 2015 to 45% in 2021. Without these cash inflows, the report estimates that the poverty rate could have been as high as 40%.

Limited Impact of Government Social Assistance Programs

Government social assistance programs, while helpful, had a limited impact on the overall poverty rate. The Social Welfare Scheme (SWS), Disability Welfare Scheme (DWS), and Conditional Cash Transfer (CCT) programs, for instance, were not large enough to make a substantial difference. The SWS, which targets individuals aged 70 and older, contributed to a modest reduction in poverty among its beneficiaries. However, expanding the coverage and increasing the benefit sizes of these programs could potentially reduce poverty more effectively. The report emphasizes that a stronger social protection system, including adaptive social protection measures that can respond to economic shocks and natural disasters, would be key to supporting vulnerable populations in Tonga.

Vulnerability to Natural Hazards

The report also sheds light on Tonga’s vulnerability to natural hazards. The country is highly exposed to tropical cyclones, volcanic eruptions, earthquakes, and floods, which frequently cause significant economic damage. For instance, Cyclone Gita in 2018 and Cyclone Harold in 2020 resulted in damages equivalent to 38% and 23% of GDP, respectively. Additionally, the Hunga Tonga-Hunga Ha’apai volcanic eruption in 2022 caused widespread destruction, with economic losses estimated at 36% of GDP. Such disasters not only destroy infrastructure and disrupt livelihoods but also push many people into poverty, particularly in rural areas where households are more vulnerable. The report notes that Tonga’s economy is highly dependent on agriculture and tourism, sectors that are particularly sensitive to natural hazards. Many Tongan households, especially those in rural areas, engage in subsistence agriculture, making them highly vulnerable to weather-related shocks like cyclones and floods.

Risks of Over-reliance on Remittances

While remittances played a crucial role in reducing poverty during this period, they also present risks. Tonga’s heavy reliance on remittances makes it vulnerable to external shocks, such as changes in global economic conditions and labor market policies in host countries like Australia and New Zealand. If the number of Tongans working abroad were to decrease or if remittances were reduced due to external factors, many households could fall back into poverty. Furthermore, there are concerns about the social costs of labor migration, such as the impact on family structures and the risk of over-recruitment from certain rural communities, which could deplete the domestic labor supply and create additional challenges for the local economy.

Building a Sustainable Future

Looking ahead, the report calls for a more sustainable approach to poverty reduction in Tonga. Strengthening social protection systems, particularly by making them more adaptive and responsive to shocks, is essential. This would help protect vulnerable populations from the immediate impacts of natural disasters and economic downturns. The report also stresses the importance of human capital development, including improving educational outcomes and aligning skills with the demands of the labor market. Investing in quality education and vocational training can help equip Tongans with the skills needed for employment both domestically and abroad, supporting long-term economic growth. Moreover, promoting digital literacy and development could open new avenues for economic diversification and enhance productivity in various sectors.

While Tonga has made notable strides in reducing poverty, its progress remains fragile due to its vulnerability to natural disasters and its heavy reliance on remittances. To ensure sustained poverty reduction, the country must build a more resilient economy by diversifying income sources, strengthening social protection systems, and enhancing human capital. These efforts would not only help mitigate the impacts of future shocks but also ensure that all Tongans can benefit from the country’s development in the years to come.