It was a day none of us ever want to go through again, says ANZ’s Country Head in Tonga. “We remain strong and committed and pray the worst is over.”

Tonga experienced an extreme natural event on 15 January when the Hunga-Tonga-Hunga-Ha’apai undersea volcano, some 65 kilometres north of the capital Nuku’alofa, erupted, triggering a tsunami.

The ash fall and the tsunami-affected 84 per cent of the Tongan population with the latter felt as far away as Alaska, Japan and South America. Damages are being assessed through aerial surveys of Tonga and so far extensive destruction to the nation’s communications, infrastructure, utilities, buildings and inter-island shipping vessels have been reported. Sadly, three people have also died as a result of the tsunami.

Tonga’s economy has had to deal with a spate of shocks in recent years, including Tropical Cyclone Gita in 2018, the COVID-19 pandemic and Cyclone Harold in April 2020. Prior to the volcanic eruption, gross domestic product (GDP) was forecast to increase by 3.7 percent, driven by new government spending and record remittances. The government passed a TOP584 million (US$257 million) budget for 2021-22, up 21.5 percent on the 2020-21 budget. Remittances, at around TOP400 million (US$176 million), approached 40 percent of GDP.

However, ANZ Research now estimates GDP will fall by 7.4 percent in 2021-22 due to disruptions in production caused by the tsunami.  An International Monetary Fund (IMF) study estimated such a natural disaster impacting all of Tonga’s population will result in a 28.2 per cent decline in GDP over a 12-month period. ANZ Research used a pro-rata percentage to calculate this rough estimate of the decline in GDP over the remaining months of the financial year ending in June.

“Like an apocalyptic movie”

“It was deafening and very scary,” says ANZ’s Country Head in Tonga David Dudley, who was in the capital Nuku’alofa at the time of the eruption. “It was a day none of us ever want to go through again. It was like an apocalyptic movie – the ash fall was intense and it’s everywhere.”

With the volcano still active, Tonga remains on high alert, its 170-odd islands vulnerable to further eruptions and possible tsunamis.

“The smaller outer islands close to the volcano were badly affected and we are hearing harrowing stories of survival,” David says. “Unfortunately there has been some loss of life but thankfully we do know how to prepare for tsunamis and this saved a lot of lives.”

The islands lie 2000 kilometres northeast of New Zealand and on what’s known as the Pacific Rim of Fire for its prolific earthquakes and volcanic activity. Tonga now faces water and electricity outages and, with communications still down, it is difficult to assess the full damage.

“The western part of Tongatapu was the worst affected with all the resorts, homes and villages on the coast completely destroyed by waves as high as 5-10 metres.”

ANZ staff and their immediate family in Tonga were safe and unharmed although ash continues to be a major challenge.

“It has been an exhausting week but I have never been more proud to work with a team that is so dedicated – to still turn up to the office to serve customers, even when their own property has been damaged,” David says. “It has been very windy with ash everywhere, so staff are wearing masks and gloves, and keeping hydrated. It will be a massive clean-up but we are taking it one day at a time.”

Despite the scale of the disruption, and significant damage to the Southern Cross communications cable, ANZ’s branches have been able to re-open after an extensive cleaning effort.

“Many of our customers will need assistance and I have assured them we are here to support,” says David. “We have either visited or made contact with all our customers, with the exception of the outer islands, where communications are still down.”

“We remain strong and committed, and pray the worst is over,” says David.

ANZ is donating AU$50,000 to the Red Cross to support Tonga’s rebuild.

Working together to rebuild

On the plus side, there will be new government expenditure to rebuild damaged buildings and infrastructure. Thankfully, the international community has been quick to help with Tonga’s recovery and reconstruction efforts. Quick-disbursing funds from the World Bank (US$8 million) and Asian Development Bank (US$10 million) have been approved. Financial support from Australia (AUD$1 million(US$703,000), Japan (US$1 million), the European Union (EUR200,000) and initial assistance from the People’s Republic of China (US$100,000) have been committed as well.

In addition, the private sector will need to rebuild damaged homes, commercial and industrial buildings and resort and hotel accommodation. Consumer spending will provide a partial offset as household income will continue to be supported by private money transfers from abroad. All in all, the rebuilding phase will extend beyond calendar year 2022 and it will be several years before Tonga can return to its recent peak GDP of TOP885 million achieved in 2018-19.

That said, the immediate priority for Tonga is to restore essential services and help affected communities back on their feet. However, this is a difficult task because Tonga is COVID-free, making incoming support logistics very challenging. So far, all humanitarian support has been delivered on a contactless basis, with strict COVID-prevention protocols.

Managing COVID in recovery

Beyond the restoration and recovery, the time may be right for Tonga to reconsider its COVID strategy to get the broader post-pandemic economic recovery underway. While a closed border kept the original virus and its variants out of the community, the emergence of the highly transmissible but less severe Omicron has brought about a global rethink in managing the health risks associated with COVID. More and more countries are choosing to live alongside the virus, subject to building a sufficient immunity wall. For a country like Tonga with no immunity from prior infections, vaccination is the only route out of the pandemic and to recouping the lost output due to recent economic shocks.

So far, Tonga has done well with its vaccination rollout. To date, 96 percent of the adult population has received a single dose with 84 percent double-dosed. With adequate protection of its population, especially the vulnerable, Tonga could recover faster from the latest setback and make the transition to a post-pandemic world.

This feature was produced by Kishti Sen (International Pacific Economist ) and Tom Kenny (Senior International Economist at ANZ), originally published at ANZ on 28 January 2022, reposted via PACNEWS.