Impact at IFC
Impact at IFC
A New Financial Lifeline for Tongans
For the last seven years, Viliami Lautaha has been sending money he earns picking fruit in Australia home to Tonga, helping his family pay for food, power, medicine and other essentials. It can be back-breaking work. He seldom sees his wife ‘Ana and his children.
“I come to Australia to do this work to support my family,” he said. “I do it so they can have a future.”
Viliami is one of thousands of Pacific Islanders who’ve worked seasonal jobs in Australia. The money they send home—known as remittances—is a vital conduit that supports families, helping some start small businesses. For many in the Pacific and far beyond, income from remittances offers a path out of poverty, with flows to low and middle-income countries having reached a record $US554 billion in 2019.
In relative terms, Tonga, a nationof 172 islands scattered across the international date line, received more income from remittances last year than any other country in the world, with the total value equivalent to about 37% of GDP. Four out of five Tongan households receive remittances from abroad, providing a major source of income, equivalent to about 30 percent of household consumption.
“Remittances not only help families, but also provide a boost to the economy with the money often being used to start a small business, helping to create jobs,” said Tonga Prime Minister Pohiva Tu’i’onetoa.
The Prime Minister has lauded the launch of a digital remittance service in Australia that will help Tongans ensure more of the money they send home reaches their families, at a time when it’s most needed.
With remittances such a key source of income for Tongan families, the launch of the online cashless remittance product, ‘Ave Pa’anga Pau comes at a crucial time, as the tiny Pacific nation reels from the economic fallout caused by the COVID-19 pandemic.
‘Ofa Taufa sends remittances to her niece, Mele Fifita Siu. ‘Ofa runs a courier business delivering medicines to hospitals in Sydney. Photo: Michael Power/IFC
Developed by IFC and the Tonga Development Bank (TDB) with support of the World Bank, and the governments of Australia and New Zealand, it will enable Tongans to send money to their homeland in a quick and secure way, and at a significantly lower cost than other services.
“Australia understands that even a small change to the fees charged to those remitting can make a significant difference,” Australian Foreign Minister Marise Payne said. “We know the difference the flow of remittances can make to hard working Tongan workers and their families,” the minister said.
The fees Tongans pay for sending money home are be among the highest in the world. At the same time, the number of money transfer services operating in the Pacific has fallen significantly, eroding competition in the sector and leaving Pacific Islanders with fewer options and facing higher prices.
The ‘Ave Pa’anga Pau remittance product attracts a much lower fee of 5 percent, about half the cost of the market average and significantly less than some service providers.
“Remittances are of great importance to the economy of Tonga and ‘Ave Pa’anga Pau is an important cog in helping lift prosperity for our people,” said the Prime Minister.
‘Ave Pa’anga Pau was first launched in New Zealand in 2017 and has since been taken up widely there, having an additional benefit of encouraging Tongans to save more money and open bank accounts in Tonga, often for the first time. Almost 2,000 bank accounts have been opened in Tonga, as a direct result of ‘Ave Pa’anga Pau.
More than 95% of Tongan seasonal workers now use the product in New Zealand.
And since its New Zealand debut, there have been more than more than 50,000 transactions and more than 3,000 customers have signed up and used the service.
The outbreak of COVID-19 saw use of the remittance product surge in New Zealand, Tonga Development Bank CEO Leta Kami said. “We had not expected the significant level of increase,” Kami said.
“It was evident that people were looking for an online solution since they were in lockdown during the sudden unprecedented measures to contain COVID-19.”
Amid the pandemic, the global outlook for remittances is bleak. The amount of money migrant workers send home is projected toto decline 14 percent by 2021 compared to pre-COVID levels in 2019. As COVID-19 weighs on the world economy, causing job losses and severely curtailing labor mobility, it also means a service that significantly lowers the fees remittances attract is now even more important.
Tourism, the life blood of many economies across the Pacific, remains at a standstill. In Tonga, tourism last year accounted for 20 percent of GDP. With this vital income stream from tourism now bone dry, the launch of ‘Ave Paanga Pau in Australia is timely for Tongans in the country wanting to send money back home.
“In a world that’s more interconnected than ever, the impact of COVID-19 has brought with it a pandemic of growing inequality with people in the poorest countries likely to suffer the most and the longest,” said Alfonso Garcia Mora, IFC’s Vice President for Asia and the Pacific.
“It’s also forced upon many people a new tyranny of distance with the closure of borders and travel restrictions leaving people cut off from family and their communities, making remittances all that more vital in a time of crisis.”
He said the positive impact on the lives of the people of Tonga through the use of ‘Ave Pa’anga Pau could serve as a blueprint that can be adopted by other Pacific nations and in regions around the world.
The money Viliami earns and sends home will now go much further. “We have to be wise with the money that they are able to send home from abroad,” said his wife ‘Ana. “Money that we receive, we should use it in ways that let it build and support the family,” she said.
And it’s also peace of mind. “He’s not going to crowded places, rather he can just stay at home. I believe this is safest for him.”
Published in November 2020