The economy is largely agricultural and still contains a substantial non-monetary sector. The principal cash crops are squash, fish, copra and coconut products, vanilla bean extract and bananas. One third to one half of export earnings come from the sale of squash to Japan, though the main source of foreign exchange is tourism. A proportion of food is imported and the economy remains dependent on external aid and remittances from expatriate Tongalese (including an estimated 46,000 in the United States) to offset its chronic trade deficit. As of 2002, it is estimated that there are more expatriates (over 102,000) than current citizens. Real GDP growth, which had peaked at 6.5% in fiscal year 1999/2000, fell to 0.5% in 2000/01, attributable to the global slowdown, and, in particular, its impact on tourism. The IMF reports net services for Tonga in 2000/01 as -$8.7 million, down from positive balances of $4.5 million and $1.9 million in the previous two fiscal years.
In 2002, the year was ushered in by Tonga's worst cyclone since 1961, Cyclone Waka, which tore through the northern islands of Niuafo'ou and Vava'u on 30–31 December 2001, destroying an estimated 90% of the crops. About 350 homes were destroyed, with another 750 homes, 23 schools, and numerous hospitals, churches, and other structures seriously damaged. Water supply, electricity, and communications were also severely disrupted, with total damage estimated at $50 million. Donor countries—principally New Zealand, Australia, French Polynesia, and the United States—responded with food aid and emergency assistance, as did several missions and charities. The government lifted import duties on construction materials. The net result was a slight uptick in real GDP growth in 2001/2001 to 1.5% despite the cyclone damage due to the stimulus given the construction industry as well as record high prices for squash and vanilla beans.
Tonga's overall balance of payments was also helped by a sharp increase in private transfers, which were an estimated $65.2 million in 2001/02, up 21.6% from the year before, and up 62.2% from 1998/99. Inflation, however, increased from to 10.4% from 6.9% because of expanded credit.
Another economic shock in 2002 was the discovery of the loss of most of the assets (about $26.5 million) from the Tonga Trust Fund (TTF) through failed investments and, perhaps, simple fraud, while under management by American businessmen. The assests came primarily from selling Tongan passports to nervous residents of Hong Kong before its reversion to Chinese rule in 1997.