The conservative Australian think tank, the Centre for Independent Studies, says Tonga could enjoy tremendous economic growth if it modernised its economy.
The CIS says despite years of generous aid and high spending in education and health, Tonga's economy is going backwards.
In a report called 'Time for a change in Tonga: from monarchy to modernity', the centre says the potential of the economy has been wasted by the Royal family and the nobility.
Author Gaurav Sodhi says Tonga has major opportunities in tourism and agriculture but the government needs a new approach, such as reducing the regulatory barriers or encouraging long term leases.
"The short term duration of leases does not create the right incentives for investment to take place, and I think, particularly for tourism, investment badly needs to happen because the current infrastructure is clearly inadequate to get the sort of tourist numbers that are needed."