MIDDLE East tensions could cost Tonga’s national budget between TOP$40 million and TOP$50 million, as higher fuel prices and possible supply disruptions put fresh pressure on the economy.
The warning is contained in the National Budget Statement FY2027, which says rising fuel prices, temporary fuel management measures and possible supply disruptions are expected to affect activity across several sectors, particularly transport and other fuel-dependent industries.
In more severe scenarios, a prolonged disruption could cut economic output sharply, with Tonga’s GDP projected to contract by around 4.0%.
The budget says that would be deeper than the decline recorded during the COVID-19 period.
“The indicative fiscal envelope for the energy crisis is estimated to range from approximately TOP$11.0 million to near or over TOP$120.0 million depending on the severity and duration of the disruption, based on the latest GDP projections,” the budget stated.
Fuel prices have climbed sharply since April, squeezing household budgets and adding pressure to government finances.
Supply conditions also remain uncertain as geopolitical developments continue around the Strait of Hormuz.
Tonga’s domestic onshore fuel storage capacity is estimated to cover about two weeks of demand, while offshore reserves in Fiji provide an additional buffer of up to two months.
Revenue loss
Excise tax collections are also expected to fall after two consecutive fuel price increases in April and May reduced demand. For FY2027, the central scenario estimates a full-year impact equivalent to a 10.0% decline in excise revenue compared with normal conditions.
In a worst-case scenario, the fall in excise tax collections could push the domestic revenue-to-GDP ratio close to, or potentially below, the benchmark level of 22.0%.
The energy crisis is also expected to cause an estimated TOP$14 million decline in government revenue in the 2026/2027 financial year, bringing the total cost to the national budget to between TOP$40 million and TOP$50 million.
To manage the pressure, government may need to draw on development partner support, domestic borrowing, cash reserves and potentially a Supplementary Budget.
Emergency response
Government has allocated TOP$31.8 million in targeted FY2027 funding measures to support its emergency response to fuel disruptions and other unforeseen events.
The measures include:
- TOP$18 million in electricity subsidies;
- TOP$1 million in contingency funding to respond to worsening or prolonged impacts;
- TOP$5 million to fund a 3.0% Cost-of-Living Allowance for all civil servants in response to increased living costs resulting from the energy crisis;
- TOP$3.2 million in subsidies for domestic airline Lulutai;
- TOP$3.7 million in subsidies for domestic shipping vessels; and
- TOP$0.9 million for a one-off top-up payment for elderly and disability welfare recipients.
FY2027 carries a budget deficit of TOP$38.1 million. It will be financed through TOP$35 million in new domestic bond issuance and a TOP$3.1 million drawdown from government cash reserves.
The 2026/2027 Government Budget was passed by the Legislative Assembly of Tonga on 18 June. The total budget stands at TOP$949.4 million, comprising TOP$735.2 million in cash and TOP$214.2 million in in-kind contributions committed by development partners.
Source: Matangi Tonga
