IMF Executive Board Completes the 2021 Article IV Consultation with Samoa
March 19, 2021
Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Samoa and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis. [2]
Samoa has shown resilience to past economic shocks, underpinned by the authorities’ strong commitment to support the economy, and financial assistance provided by the international community. Samoa was among the first countries in the world to secure its border to protect its citizens from COVID-19. The authorities’ quick response to the measles outbreak in 2019 and the global pandemic has identified the policy priorities well. The international community also responded quickly, including the IMF disbursement under the Rapid Credit Facility in April 2020 which helped unlock record budget support grants by the Asian Development Bank and the World Bank. The authorities strengthened the health care system and provided support to the private sector, with efforts to target assistance to vulnerable businesses and households to safeguard livelihoods.
Nevertheless, the prolonged effects of the global pandemic have heightened the economic challenges, and continued to adversely impact the wellbeing of Samoans. The compounding effects of the two consecutive health shocks pushed the 2020 September quarter real GDP to its 2014 level, with growth projected to contract by 7.8 percent in FY2021 (ending June 2021), and spawned setbacks on sustainable development goals, creating scarring effects. Resilient remittances and the government’s commitment to maintaining expansionary fiscal policies in the near term will likely turn the economy around for a gradual recovery starting in FY2022, with growth reaching 1.7 percent.
The recovery may face a bumpy road ahead with unprecedented uncertainty,
and risks to the outlook remain tilted to the downside. Under-execution and
premature withdrawal of economic stimulus could impede the pace and
durability of the economic recovery and strain financial stability. The
recovery path also depends on the pace of vaccination and resumption of
private sector activities. High vulnerability to natural disasters
continues to threaten the economy. AML/CFT concerns could adversely impact
correspondent banking relationships and remittances. Strong efforts to
implement needed policy and push through reforms with capacity building
support provided by the international community will help turn adversity
into opportunity for an inclusive, sustained recovery.
Executive Board Assessment
In concluding the 2021 Article IV consultation with the Samoa, Executive Directors endorsed the staff appraisal, as follows:
The Samoan economy is projected to bottom in FY2021, with an economic recovery to follow. The border closure and restrictions under the State of Emergency protected citizens from a domestic outbreak of the pandemic. However, the economy experienced a deep contraction. Bold and swift actions by the government, support from the international community, and resilient remittances helped moderate the impacts of the crisis. Strong commitment by the government to stimulate the economy will help steer a gradual economic recovery.
The recovery may face a bumpy road ahead with unprecedented uncertainty, and risks to the outlook remain tilted to the downside. The recovery critically depends on the execution of economic stimulus measures, procurement and rollout of vaccines, and resumption of private sector activities. Premature opening of the border poses a threat of a domestic outbreak of COVID-19. AML/CFT shortcomings and high vulnerability to natural disasters continue to threaten the economy.
Fiscal policy needs to remain sufficiently accommodative in the near term, with strong commitment to medium-term consolidation to ensure debt sustainability. The authorities need to maintain stimulus measures until a sustained economic recovery is attained. Over the medium term, the authorities need to gradually withdraw stimulus, coupled with revenue mobilization, strengthening PFM, and sound governance.
Samoa’s debt is sustainable, but remains at high risk of distress, when the country’s vulnerability to natural disasters is considered. The authorities need to secure adequate financing early on to stimulate the economy and ensure debt sustainability. The annual Unforeseen budget (i.e., reserve fund) provides some financial buffer to the government for self-insurance against losses from natural disasters. Allocating adequate budget to forge climate resilience can provide long-term benefits to the economy.
Monetary policy remains appropriately accommodative, and efforts must continue to improve monetary transmission. A deposit rate cap, recently implemented by the commercial banks, should be time-bound, and complemented by SOE/PFI reforms to improve monetary transmission. The CBS, the banks, and other stakeholders would need to work together to address bottlenecks to credit intermediation, including through implementation of financial inclusion and PFI reforms.
Samoa’s external position is assessed to be moderately stronger than fundamentals and desirable policy settings. The assessment reflected the impacts of the domestic measles outbreak and the global COVID-19 pandemic, which created substantial import compression. Resilient remittance inflows and sizeable foreign grants also contributed. The CBS accumulated adequate foreign exchange reserves during the period, according to the ARA metric for credit‑constrained economies. However, the underlying economic recovery is projected to stimulate import demand, deteriorate the current account balance, and lower the reserves over the medium‑term. When Samoa’s vulnerability to natural disasters is considered, the authorities need to build reserve buffers to at least 5 months of prospective imports. Given weak monetary policy transmission, Samoa’s pegged exchange rate system provides a welcome nominal anchor.
Strengthening the effectiveness of the AML/CFT framework is needed to safeguard remittances and financial stability. The authorities should continue strengthening risk-based AML/CFT supervision and enhancing compliance with customer due diligence and suspicious transaction reporting obligations by banks and MTOs. Implementing a national digital identity should facilitate customer identification, and contribute to addressing money laundering and corruption risks. Mitigating the risks of TCSP’s reliance on third party intermediaries for customer due diligence and securing resources for the effective operation of the FIU are paramount to enhancing AML/CFT effectiveness. Continued international engagement is needed to address AML/CFT shortcomings, as well as concerns raised by the EU on Samoa as a non-cooperative tax jurisdiction.
Financial sector policies need to focus on reinforcing financial stability, with continued efforts to implement the 2015 FSAP recommendations. Overall financial stability remains sound. However, effects of the pandemic on the financial institutions vary, depending on the profit and customer bases. The authorities need to monitor financial institutions, ensure their compliance with prudential regulations, and be ready to take actions as needed. The appropriate pace and sequence of reforms must be well formulated to bring non-bank financial institutions under the CBS oversight, and avoid overstretching its supervisory capacity. The policy should also focus on improving the balance sheet of the DBS, while implementing the National Financial Inclusion Strategy to reduce inequality.
Structural reforms should support SDGs to limit scarring. Promoting agriculture, fishery, and MSMEs for economic diversification should lead to job creation. Upskilling and reskilling of the labor force, and boosting human capital can reduce skill mismatch and help increase female and youth labor force participation. Realizing the potential benefits of PACER-Plus can provide additional support to the economic recovery. Enhancing climate resilience, including by upgrading physical infrastructure and mainstreaming climate resilience into all sector plans, remains crucial.
Strengthening capacity will facilitate evidenced-based policy making and its implementation. Priority should be given to reforms to improve tax administration and PFM systems, strengthen banking sector supervision, and mitigate CBR pressures. Enhancing statistical capacity will support evidence-based policy making. The IMF stands ready to support the government’s reform efforts through capacity development to help turn adversity into opportunity.
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Table 1. Samoa: Selected Economic and Financial Indicators, 2016/17-2025/26 1/ |
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|
Estimate |
Projection |
|||||||||
|
2016/17 |
2017/18 |
2018/19 |
2019/20 |
2020/21 |
2021/22 |
2022/23 |
2023/24 |
2024/25 |
2025/26 |
|
|
(12-month percent change) |
||||||||||
|
Output and inflation |
||||||||||
|
Real GDP growth |
1.0 |
-2.1 |
3.6 |
-3.2 |
-7.8 |
1.7 |
3.0 |
3.5 |
2.5 |
2.1 |
|
Nominal GDP |
1.0 |
-0.1 |
5.8 |
-2.8 |
-10.0 |
4.4 |
5.1 |
5.9 |
5.2 |
4.8 |
|
Consumer price index (end of period) |
1.0 |
5.8 |
-0.1 |
-3.3 |
3.1 |
1.9 |
2.4 |
2.4 |
2.6 |
2.6 |
|
Consumer price index (period average) |
1.3 |
3.7 |
2.2 |
1.5 |
-2.5 |
2.7 |
2.1 |
2.4 |
2.6 |
2.6 |
|
(In percent of GDP) |
||||||||||
|
Central government budget |
||||||||||
|
Revenue and grants |
30.7 |
32.1 |
35.7 |
38.5 |
37.0 |
32.3 |
33.9 |
35.5 |
35.9 |
36.0 |
|
Of which: grants |
3.4 |
4.4 |
6.0 |
9.4 |
11.2 |
5.5 |
5.6 |
5.6 |
5.6 |
5.6 |
|
Expenditure |
32.8 |
32.1 |
32.9 |
32.3 |
40.4 |
39.0 |
39.1 |
38.2 |
38.1 |
38.0 |
|
Of which: Expense |
23.2 |
24.5 |
25.8 |
28.8 |
36.4 |
32.7 |
31.7 |
30.5 |
30.0 |
29.7 |
|
Of which: Net acquisition of non-financial assets |
9.7 |
7.6 |
7.1 |
3.5 |
4.0 |
6.3 |
7.4 |
7.7 |
8.1 |
8.3 |
|
Gross operating balance |
7.5 |
7.7 |
9.8 |
9.7 |
0.6 |
-0.4 |
2.2 |
5.0 |
5.8 |
6.3 |
|
Overall fiscal balance |
-2.1 |
0.1 |
2.7 |
6.2 |
-3.4 |
-6.7 |
-5.2 |
-2.7 |
-2.2 |
-2.0 |
|
Overall fiscal balance excl. grants |
-5.5 |
-4.3 |
-3.3 |
-3.2 |
-14.6 |
-12.2 |
-10.8 |
-8.3 |
-7.9 |
-7.6 |
|
(12-month percent change) |
||||||||||
|
Macrofinancial variables |
||||||||||
|
Broad money (M2) |
7.8 |
16.5 |
9.9 |
-0.9 |
1.8 |
6.7 |
6.0 |
5.9 |
4.9 |
4.8 |
|
Net domestic assets |
4.5 |
-2.8 |
2.1 |
-5.5 |
… |
… |
… |
… |
… |
… |
|
Private sector credit, Commercial banks |
6.9 |
1.6 |
6.1 |
5.8 |
3.5 |
5.6 |
6.0 |
5.4 |
5.3 |
5.2 |
|
Total loan growth, Commercial banks |
6.6 |
1.7 |
5.8 |
3.9 |
… |
… |
… |
… |
… |
… |
|
Total loan growth, Public financial institutions |
12.8 |
6.0 |
17.2 |
9.0 |
… |
… |
… |
… |
… |
… |
|
(Ratio) |
||||||||||
|
Private credit to GDP, Commercial banks |
48.2 |
47.9 |
48.1 |
52.4 |
.. |
… |
… |
… |
… |
… |
|
Private credit to GDP, Public financial institutions |
27.6 |
29.3 |
32.5 |
36.4 |
… |
… |
… |
… |
… |
… |
|
Total capital to risk-weighted exposures |
25.1 |
27.3 |
27.5 |
27.5 |
… |
… |
… |
… |
… |
… |
|
Non-performing loans |
4.1 |
4.3 |
3.9 |
3.9 |
… |
… |
… |
… |
… |
… |
|
(In millions of U.S. dollars) |
||||||||||
|
Balance of payments |
||||||||||
|
Current account balance |
-15.9 |
7.2 |
25.9 |
9.3 |
-49.0 |
-84.6 |
-44.7 |
-25.2 |
-17.9 |
-19.1 |
|
(In percent of GDP) |
-1.9 |
0.9 |
3.0 |
1.2 |
-6.5 |
-10.9 |
-5.5 |
-2.9 |
-2.0 |
-2.0 |
|
Merchandise exports, f.o.b. 2/ |
38.0 |
36.3 |
50.0 |
46.3 |
41.2 |
40.1 |
40.4 |
41.6 |
43.1 |
45.0 |
|
Merchandise imports, f.o.b. |
308.6 |
328.9 |
349.4 |
316.3 |
290.3 |
304.0 |
316.9 |
344.7 |
387.1 |
425.2 |
|
Services (net) |
140.6 |
158.4 |
179.8 |
113.9 |
-26.4 |
18.2 |
62.0 |
107.1 |
137.7 |
168.3 |
|
Income (net) |
-25.9 |
-29.7 |
-35.8 |
-23.5 |
-17.5 |
-15.4 |
-16.5 |
-17.9 |
-19.8 |
-23.3 |
|
Current transfers (net) |
140.0 |
171.1 |
181.3 |
188.9 |
244.0 |
176.5 |
186.3 |
188.7 |
208.3 |
216.0 |
|
External reserves and debt |
||||||||||
|
Gross official reserves 3/ |
115.0 |
155.6 |
185.3 |
222.3 |
214.7 |
168.7 |
164.9 |
179.4 |
190.1 |
184.4 |
|
(In months of next year's imports of GNFS) |
3.3 |
4.2 |
5.4 |
7.0 |
6.5 |
4.9 |
4.4 |
4.3 |
4.2 |
4.0 |
|
Public debt (in millions of tala) 4/ |
1,047.4 |
1,113.8 |
1,058.6 |
1,012.3 |
956.1 |
1,102.5 |
1,215.7 |
1,278.9 |
1,335.3 |
1,389.8 |
|
(In percent of GDP) |
49.6 |
52.8 |
47.4 |
46.7 |
49.0 |
54.1 |
56.8 |
56.4 |
56.0 |
55.6 |
|
External debt (in percent of GDP) |
48.2 |
51.9 |
46.8 |
46.3 |
48.7 |
53.9 |
56.6 |
56.3 |
55.9 |
55.6 |
|
Exchange rates |
||||||||||
|
Market rate (tala/U.S. dollar, period average) 5/ |
2.54 |
2.52 |
2.62 |
2.67 |
… |
… |
… |
… |
… |
… |
|
Market rate (tala/U.S. dollar, end period) 5/ |
2.51 |
2.60 |
2.63 |
2.70 |
… |
… |
… |
… |
… |
… |
|
Nominal effective exchange rate (2010 = 100) 5/ |
110.1 |
106.3 |
109.1 |
109.3 |
… |
… |
… |
… |
… |
… |
|
Real effective exchange rate (2010 = 100) 5/ |
104.3 |
102.4 |
105.2 |
106.3 |
… |
… |
… |
… |
… |
… |
|
Memorandum items: |
||||||||||
|
Nominal GDP (in millions of tala) |
2,110 |
2,108 |
2,231 |
2,168 |
1,952 |
2,038 |
2,142 |
2,268 |
2,386 |
2,499 |
|
GDP per capita (U.S. dollars) |
4,212 |
4,198 |
4,238 |
3,961 |
3,672 |
3,764 |
3,913 |
4,099 |
4,261 |
4,407 |
|
Sources: Data provided by the Samoan authorities; and IMF staff estimates and projections. |
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1/ Fiscal year beginning July. |
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2/ Include re-export of fuel after 2009/10. |
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3/ Includes the IMF disbursement of SDR16.2 million (100 percent of quota) under the Rapid Credit Facility (RCF) and external financial assistance by |
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4/ Includes domestic and external public debt. |
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5/ IMF, Information Notice System. |
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[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
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