Financial Crime World

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Tonga’s Economy Heavily Reliant on Subsistence Agriculture and Donor Aid

Tonga’s economy has been found to be heavily reliant on subsistence agriculture and donor aid, according to a recent report by the Asian-Pacific Group (APG). The country’s agricultural sector provides a significant portion of its food supply, underpinning its economic stability.

Vulnerabilities in Tonga’s Economy

  • Fluctuations in international commodity prices
  • Changes in donor funding
  • High reliance on subsistence agriculture makes it vulnerable to climate-related events such as droughts and floods

The APG report also highlighted the country’s financial sector is still developing, with a lack of understanding among financial institutions about money laundering (ML) risks. The authorities are urged to improve their Anti-Money Laundering/Counter-Terrorist Financing (AML/CTF) framework to ensure compliance with international standards.

Donor Aid: A Double-Edged Sword

  • Plays a significant role in supporting Tonga’s economy, particularly in areas such as healthcare and education
  • However, this reliance on foreign assistance also poses risks to the country’s sovereignty and economic stability

The APG report called for Tonga’s authorities to prioritize the development of its agricultural sector, improve financial sector supervision, and increase transparency and accountability in the use of donor aid.

Tonga’s AML/CTF Framework Needs Improvement

  • The country’s National AML/CTF Policy 2018-2022 is unclear on the risk of Terrorism Financing (TF) and contradicts itself
  • Authorities are urged to improve their understanding of ML and TF risks and develop a more comprehensive risk-based approach

Tonga’s Private Sector Lacking Understanding of AML/CTF Risks

  • The private sector, including financial institutions and designated non-financial businesses and professions (DNFBPs), lacks understanding of ML and TF risks
  • Authorities are urged to provide training and awareness programs for the private sector to improve their knowledge of AML/CTF requirements

Overall, the APG report paints a picture of Tonga’s economy as vulnerable and in need of improvement in areas such as agricultural development, financial sector supervision, and transparency in donor aid use. The authorities are urged to take concrete steps to address these issues and ensure the country’s economic stability.