Journal Issue


International Monetary Fund
Published Date:
May 1994
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I. Background and Summary

Western Samoa is a small island in the South Pacific whose growth and economic development are constrained by its size (population 162,000) and distant location from major markets. Economic activity is largely based on agriculture (mainly coconuts, taro, bananas, and subsistence crops). The small manufacturing sector is primarily oriented toward the processing of agricultural products, although in recent years, the opening of an export-oriented automotive wiring assembly plant has resulted in some output diversification. The vast majority of the working age population is engaged in agriculture, mainly in the informal subsistence area. About one third of formal employment is in the government sector.

Limited training and employment opportunities have encouraged steady emigration to New Zealand, where special entry rights are granted to Western Samoans, and, to a lesser extent, to Australia and the United States. While emigration has reduced the size of the skilled labor force, remittances from Western Samoans abroad have become an important source of income for families in Western Samoa. Together with foreign aid, remittances have helped to prevent drastic drops in the living standards of the population at times when natural disasters have had major adverse consequences on output.

With a very limited resource base, shortages of skilled labor, low rates of productivity growth, and a conservative attitude toward changes that might affect its distinctive culture, real GDP growth during the 1980s averaged just over 2 percent per annum. Because exports of goods and nonfactor services amounted to only a fraction of imports, the overall balance of payments remained highly dependent on foreign grants, concessional loans, and private sector remittances.

In the late 1980s, in an effort to eliminate some of the supply side constraints to economic growth, die authorities initiated policy actions in the agricultural and agro-industrial sectors to improve the management of public sector ventures and liberalize marketing procedures for agricultural goods. This reform program, which was supported by a two-year agricultural development loan from the Asian Development Bank (AsDB), included the reform, and, in some cases, privatization of public sector enterprises.

The reform efforts were, however, set back by two devastating cyclones that hit Western Samoa in February 1990 (cyclone Oft) and in December 1991 (cyclone Val). The cyclones left the coconut, cocoa, timber, and fishing industries and virtually all of the economic infrastructure extensively damaged, and resulted in a cumulative decline in real GDP of about 12 ½ percent in 1990-92. During this period, financial policies were relaxed in order to facilitate reconstruction. The disruption in food production, coupled with the looser financial policies, led to sharp, albeit temporary, increases in domestic prices in the period immediately after each of the cyclones. Largely on account of a sharp increase in development and current expenditure, the fiscal position turned from modest surpluses during 1986-89 to a substantial deficit of 17 ½ percent of GDP in 1991/92. 1/ Credit to the private sector also increased rapidly during 1990-92. The reconstruction efforts were supported by an increased inflow of private remittances and disbursement of external loans. However, despite these inflows, the overall balance of payments deteriorated sharply.

Economic growth resumed in 1993, led by a strong recovery in agriculture during the first half of the year and a rebound in tourism. With the recovery in domestic food production, the rate of inflation declined in 1993. However, although infrastructure repairs were largely completed, financial policies remained relaxed: the budget deficit widened further to 22 percent of GDP in the 1992/93 fiscal year and credit to the private sector continued to expand rapidly. As a result, the external position continued to deteriorate with international reserves providing only 4 ½ months of import cover, down from 8 ¾ months in 1990.

II. Developments in the Domestic Economy

1. Output performance and domestic demand

The two devastating cyclones that struck Western Samoa in the early 1990s led to a cumulative decline in real GDP of 12 ½ percent during 1990-92. Commercial agricultural production was severely affected by the cyclones, with output declining by about 36 percent over the period. Extensive damage was also sustained by the country’s infrastructure, resulting in a sharp rise in construction activities as major rehabilitation efforts were undertaken.

Real GDP recovered strongly in 1993, growing by an estimated 5 ¼ percent (Table 1 and Chart 1). The increase in output was largely due to a rise in agricultural production, particularly taro, in the first half of the year. Output in the commercial agricultural sector (including forestry and fishing) increased by 17 ½ percent, while subsistence agriculture rose by about 8 percent. Electricity production also rose sharply, reflecting the coming on stream of a major new hydroelectric facility (the Afulilo Dam). Manufacturing output, however, fell by 3 ½ percent, as a result of continuing shortages of coconuts and copra for processing and the difficulties in restructuring some major public enterprises. Notwithstanding continued strength in residential construction, overall construction activity is estimated to have declined by 18 ¾ percent, reflecting the completion of the Afulilo Dam, a new government office complex, and major infrastructure repairs. With the slowing down of reconstruction activity, real domestic demand was virtually flat in 1993. As in the period 1991-92, about 60 percent of real domestic demand was satisfied by imports of goods and services in 1993.

Table 1.Western Samoa: Gross Domestic Product by Sector in Constant 1982 Prices, 1989-93 1/
(In millions of tala)
Primary sector72.960.158.852.758.8
Agriculture, forestry, fishing31.524.022.521.124.8
Secondary sector26.225.022.927.226.3
Tertiary sector32.332.132.532.733.7
Distribution, restaurants13.813.111.811.212.1
Other services12.412.713.413.713.7
Real GDP147.3133.5130.9129.2136.2
Exports of goods and nonfactor services54.354.142.446.242.9
Imports of goods and nonfactor services90.497.9120.3142.5132.7
Real domestic demand183.5177.2208.8225.6225.9
(Annual percentage change)
Primary sector8.8−17.5−2.3−10.411.7
Secondary sector−18.4−4.5−8.518.9−3.4
Tertiary sector7.6−
Real GDP1.9−9.4−1.9−1.35.3
Domestic demand−3.4−3.417.88.00.2
Source: Staff estimates.

There are no official national income accounts for Western Samoa. The estimates presented here and in previous Fund reports are staff estimates based on partial data provided by the authorities. The real GDP estimates are derived using available data for agricultural production, industrial production, central government expenditure, and information on the construction and services sectors.

Chart 1.Western Samoa: GDP and Its Components, 1989-93

Sources: Data providtd by tht Western Samoan authorities; and staff estimates.

2. Agriculture, livestock, and fishing industries

The two cyclones inflicted extensive damage on the stock of coconut and cocoa trees. Between 1990 and 1992, both copra and cocoa output virtually ceased (Appendix Table 8). Because of the nature of the trees, most will need to be replanted and full recovery is likely to take several years. In the case of coconuts, trees have been largely replanted under the Bonus Planting Scheme, which provided farmers with free extension services and low-cost planting materials and awarded cash bonuses based on the number of new plantings. Although the scheme was terminated in 1993, coconut production is expected to increase substantially by the end of 1995 as the trees planted in 1992 reach maturity. The volume of coconuts supplied to the local market is estimated to have increased by 32 percent between April 1993 and April 1994, and average retail prices declined by 5 percent. Despite the steady increase in the coconut supply, copra output remained essentially unchanged between 1992 and 1993. The slow recovery of copra production suggests that farmers may find it more profitable to sell coconuts directly to consumers, rather than to manufacturers, for processing into dried coconut meat.

Taro plants made a rapid recovery after the cyclones. In 1993, taro output exceeded its 1989 level by 6 ½ percent, and taro had developed into a significant export crop. However, in the latter half of 1993, the taro leaves were infected by a fungus (phytophaera esculanteae) which destroyed many taro plants. Market survey data suggest that taro availability virtually ceased between November 1993 and May 1994. With little prospect for a rapid recovery, the taro blight is likely to have an appreciable impact on the overall level of real GDP in 1994. While the need to diversify agricultural production had frequently been emphasized by the Government, the taro leaf blight highlighted the value of diversification and the risks to the population of relying on the earnings of a single crop. Consequently, attention has shifted to finding alternatives to taro cultivation. Banana has been promoted as an attractive alternative but has also proven to be vulnerable to adverse weather.

The livestock industry in Western Samoa consists mainly of cattle raising and is geared toward import substitution. Beef production has risen steadily since the late 1980s despite the inefficient management of the cattle development program by the Western Samoa Trust Estate Corporation (WSTEC). The complementary nature of cattle raising and coconut farming (the cattle graze the large undergrowth found in coconut plantations, facilitating the collection of nuts) enhances the prospects for the cattle development program. As part of government policy to boost the existing stock, 1,400 cattle were recently imported from Australia and sold to qualified farmers at a subsidized price. As an incentive to maintain and expand the stock, the Government required these farmers to deposit 20 percent of the purchase price of the cattle in an escrow account. The deposit will be returned to the farmers after a two-year period if the cattle have not been slaughtered or sold.

The volume of fish output declined sharply in the second half of the 1980s. This was primarily due to overfishing of inshore fishing grounds. Moreover, as cyclone Ofa destroyed almost half of die more than 100 fishing boats active at the time, fish output reached a record low in 1991. Since then, fish output has begun to recover owing to improved resource management and the rebuilding of the fishing boat fleet. Financial assistance from the Economic Development Fund (EDF) under the U.S. Fisheries Treaty enabled a relatively quick recovery of deepwater fishing by providing IS new fishing boats and repairing 17 more boats. By 1992, fish output had regained 64 percent of its pre-cyclone level. Fish output increased by a further 16 percent in 1993. Current government policies are directed at the commercial exploitation of Western Samoa’s tuna resources. The Government has also recently initiated a pilot fish farming project at the Afulilo Dam.

3. Manufacturing and construction

The manufacturing sector is mainly engaged in the processing of agricultural products, including the production of coconut oil, copra meal, coconut cream, and corned beef. Consequently, the main developments in this sector largely parallel those of the agricultural sector. In 1993, total manufacturing output declined by about 3 ½ percent, reflecting shortages of locally grown coconut and copra for processing. The coconut oil factory, which has been leased to the private sector, has been idle since 1992 owing to a lack of financing and insufficient supply of copra. Coconut cream production fell by 22 percent in 1993 partly as a result of the closure of one of the three factories (Appendix Table 9). Imported copra is currently being used in coconut cream production. Nevertheless, as the coconut trees gradually reach maturity, the proportion of copra provided locally for coconut cream production is expected to rise. The performance of other industries has been mixed. In 1992, beer and cigarette production rose by 29 ½ percent and 4 ¾ percent, respectively, but they fell by 7 ½ percent and 12 ½ percent, respectively, in 1993. Corned beef production, however, has been declining since 1989.

Manufacturing value added was boosted by the opening of a large automotive wiring assembly plant in 1992.1/ The plant increased output rapidly and in 1993 accounted for an estimated 18 ½ percent of total manufacturing production value, or nearly 3 ½ percent of GDP. A new factory extension next to the existing site is currently being constructed. The new factory will produce wire harnesses to be used as inputs in the current operation, hence dispensing with the need to import them from the parent company in Australia.

Both electricity production and consumption increased by about 14 percent in 1993 (Appendix Table 10). Most of the increase in production stems from the extension of distribution networks through the rural electrification program initiated in 1988, and from the large increase in generating capacity through the completion of the Afulilo Dam, a project largely financed by the AsDB with cofinancing from IDA and the European Investment Bank.

Following a sharp increase in 1991-92, construction activity declined by 18 ¾ percent in 1993 because of the winding down of reconstruction programs and the completion of several large building projects. The number of building permits issued fell by 1 ½ percent (Appendix Table 11), with declines being recorded in all categories except residential construction (which increased by 15 ¼ percent). Although the reduction in duties on the imports of building materials introduced in December 1991 was terminated in early 1993, the lags involved in the construction of houses kept residential building activity buoyant.

4. Tourism

The number of tourist arrivals in Western Samoa in 1992 was 32 ½ percent below the level prior to the cyclones. However, arrivals rebounded in 1993, increasing by almost 24 percent. Gross earnings from tourism were WS$35 ¾ million in die first nine months of 1993, a 27 ¼ percent increase over the same period of 1992. Although the Government is now fully committed to the development of the tourism sector, the potential for tourism is currently constrained by the shortage of accommodation suitable for the requirements of the major tourist markets.

Two main obstacles exist to developing suitable accommodation facilities: the lack of financing and the customary land system. There are currently 15 project proposals for tourist development, 1/ but only two appear likely to commence. To help address the land use problems, the Government intends to lease land from customary owners for onleasing to investors.

5. Prices

Inflation performance in recent years has been strongly influenced by the impact of supply shocks on the economy. Following cyclone Ofa, domestic food shortages and a relaxation of financial policies caused inflation to increase sharply to 15 percent in 1990 (Table 2 and Chart 2). With the subsequent recovery in food supplies and tightening of financial policies, the CPI declined by 1 ¼ percent in 1991. A similar pattern followed cyclone Val with inflation rising to 8 ½ percent in 1992, before easing to 1 ¾ percent in 1993 as domestic food prices declined. Inflation began to pick up once again in late 1993, largely on account of the taro leaf blight and the continued loose stance of financial policies. These factors, along with the introduction of a 10 percent value-added goods and services tax (VAGST) on January 1, 1994 and increases in the prices of a number of price-controlled items, resulted in a rise in the CPI index of 16 ½ percent in the 12 months to March 1994. However, the CPI index stabilized during the second quarter of 1994 as the impact of the VAGST on domestic prices eased.

Table 2.Western Samoa: Consumer Prices, 1989-94

(1980 = 100: period average)
Clothing and footwear268.2283.5292.5299.1305.5
Household operations253.9279.5309.5310.5329.7
Transportation and communications209.0227.5264.3279.6293.3
Of which:
Imported goods251.2269.4278.9286.2298.5332.7
Domestic goods266.6327.1309.5352.7351.1416.2
(Annual average percentage change)
Clothing and footwear7.
Household operations6.
Transportation and communications24.98.916.25.84.9
Of which:
Imported goods10.
Domestic goods3.322.7−5.414.0−0.416.0
(Distribution of weights) 1/
Clothing and footwear4.24.2
Household operations7.54.512.0
Transportation and communications1.47.69.0
Source: Department of Statistics.

Derived from Household Expenditure Survey, 1976-77.

Chart 2.Western Samoa: Consumer Prices, 1987-94

Source: Data provided by tht Western Samoan authorities.

The number of domestic and imported items subject to price controls administered under the General Price Order remains extensive. The authorities believe that the limited number of importers and retailers in Western Samoa makes price controls necessary to protect consumers from potential collusion. The price control system covers numerous food items (rice, flour, sugar, etc.); dairy products (milk, butter, etc.); beverages (tea, coffee, beer, etc.); household products (toothpaste, detergent, soap, etc.); cigarettes and tobacco; canned food (tuna, etc.); and automobiles. Under the present system, the retail prices of imported commodities are determined by a sequence of markup pricing. The wholesale price of the items concerned are derived by adding a constant 10 percent markup on their respective landed costs. The retail price (before the VAGST) is then set by adding a 15 percent markup on the wholesale price. Finally, VAGST is included in the retail price. However, because the wholesale prices of these imported commodities may change with each shipment, retailers can request permission from the Commerce Board to adjust their prices accordingly.

6. Wages and employment

Wage developments in Western Samoa are strongly influenced by public sector activities. Public sector wages increased by 7 percent and 7 ½ percent in 1990 and 1991, respectively. No increase in public sector wages was awarded in 1992 but a 10 percent increase was granted in 1993. The public sector minimum wage is currently WS$1.10 per hour, while that in the private sector has remained at WSS1.00 per hour since 1991 (although this is expected to be reviewed by the Cabinet in late 1994). Nevertheless, about 80 percent of private sector employers pay a rate higher than the statutory minimum wage. In accordance with the general wage increase in the public sector, a 6 percent increase in the average weekly wage for the private sector was recorded in 1993. A committee comprising four members appointed by the Cabinet has been established to study the potential impact of the recendy introduced VAGST on incomes and, in turn, to determine whether there is a need to adjust wages to compensate for the impact of the tax.

Total formal sector employment was estimated at 22,000 in 1992, of which 16,000 were employed in the private sector, and 6,000 in the public sector. While the largest private sector employer employs some 1,400 workers, a large majority of private firms employ fewer than 20 workers. It is estimated that, of the total private sector labor force, 6 percent are employed in the primary sector, 37 percent in the secondary sector, and 57 percent in the tertiary sector.

III. Public Finance

1. Structure of the public sector

The public sector in Western Samoa consists of the central government, which is made up of 26 administrative departments, and some 15 public enterprises and statutory corporations. Some government departments conduct activities of a commercial nature, including post and telecommunication services, radio broadcasting, Treasury store, and printing. The major public enterprises receive funds from the Government through the budget, including capital transfers for development projects, and the Government has also acted to guarantee some commercial loans raised by public enterprises.

2. Central government operations, 1991/92-1992/93

Following surpluses averaging 4 percent of GDP over the period 1986-89, fiscal policy was loosened following cyclone Ofa in February 1990, and budget deficits of 4 ¾ percent of GDP in 1990 and 2 ¼ percent of GDP in the first half of 1991 were recorded (Table 3 and Chart 3). Both development and current expenditure rose sharply over this period. However, these deficits were more than fully financed by disbursements of external loans, and government deposits with the banking system continued to increase. Cyclone Val, which struck the country in December 1991, necessitated further emergency spending. This was provided in three supplementary budgets that raised the deficit to 17 ½ percent of GDP in 1991/92. For the first time since the mid-1980s, the deficit was partly financed from domestic sources, mostly through the drawing down of government deposits with commercial banks. The deficit rose further to 22 percent of GDP in 1992/93 owing mainly to another sharp increase in development expenditure, and domestic financing rose to 7 percent of GDP.

Table 3.Western Samoa: Financial Operations of Central Government, 1989-1994/95
Half 1/BudgetBudget
(In thousands of tala)
Total revenue and grants151,693169,89683,995185,235208,134189,540200,353241,069
Total revenue111,801125,57372,355147,055156,271155,303166,116178,949
External granta39,89244,32311,64038,18051,86334,23734,23762,120
Expenditure and net lending154,602182,51987.117235.060274.078206.404236.923250.669
Current expenditure55,29367,20737,90486,91589,74891,11699,783108,603
Development expenditure67,980108,33048,947135,629164,148105,888121,697124,376
Net lending 2/22,3296,98226712,51620,1829,40015,44317,690
Overall surplus/decifit (-)6,090−12,623−3,121−49,825−65,944−16,864−36,570−9,600
External financing (net)3.56130.50630.33033.43144.78519.39731.07411.900
Domeatic financing (net) 3/−9.651−17.883−27.20916.39521.159−2.5335.496−2.300
(In percent of GDP)
Memorandum items:
Total revenue and granta57.464.961.665.669.060.263.770.2
Of which:
Tax and nontax revenue42.347.953.052.151.849.352.852.1
Expenditure and net lending55.169.763.983.290.965.675.373.0
Of which:
Current expenditure20.925.727.830.829.829.031.731.6
Development expenditure25.741.435.948.054.433.638.736.2
Overall balance2.3−4.8−2.3−17.6−21.9−5.4−11.6−2.8
External financing (net)1.311.622.211.814.
Domeatic financing (net)−3.7−6.8−−0.81.7−0.7
Sources: Treasury Department; and staff estimates.

The transitional budget covers a period of six months from January 1 to June 30, 1991. The traditional fiscal year ended in 1990 and the first new fiscal year covered the period from July 1, 1991 to June 30, 1992.

Includes loans and advances to public enterprises, capital subscriptions, and land purchases.

A residual item.

Chart 3.WESTERN SAMOA Fiscal Developments, 1988-94

(In percent of GDP)

Sources: Data provided by the Western Samoan authorities; and staff estimates.

1/ The bars show the components of the deficit financed from foreign and domestic sources. An inflow of financing is expressed as a negative number.

a. Revenue and grants

Total revenue and grants grew by 9 percent in 1991/92 compared with 1990 (Appendix Table 12). Tax revenue increased by 31 ¼ percent owing to a sharp increase in import duties paid on development projects, a 47 ½ percent increase in revenue from income taxes (as collection procedures were improved), and a near doubling of receipts from the goods and services tax resulting from the widening of the tax base to include professional services. However, the increase in tax revenue was partly offset by a large decline in nontax revenue (which had been boosted in 1990 by the sale of the Government’s 50 percent stake in the Bank of Western Samoa to ANZ Banking Group) and external grants.

In 1992/93, total revenue and grants rose by a further 12 ¼ percent. Tax revenue increased by 5 ½ percent, with income tax receipts and revenues from the goods and services tax again growing strongly (by 20 ¼ percent and 44 percent, respectively). Import duties remained at their 1991/92 level as imports for cyclone reconstruction continued at a high level. Nontax revenue increased by 10 ¼ percent as a result of significantly higher net revenue from department enterprises (net receipts from the post office rose strongly and revenue from public works also increased) and an increase in fees, services, and charges. External grants rose by 35 ¾ percent as drawings on commodity grants (mostly STABEX and Japanese aid) increased sharply and projects which had been interrupted owing to the time needed to repair and redesign them on account of cyclone damage were resumed.

b. Expenditure and net lending

Total expenditure rose by 28 ¾ percent in 1991/92 following growth of 25 ¼ percent in 1990 (Appendix Table 13). As a percent of GDP, total expenditure increased to 83 ¼ percent in 1991/92 from 55 percent in 1989. Development expenditure increased by 25 ¼ percent in 1991/92, owing mainly to the cyclone reconstruction work. This additional expenditure was largely financed by concessionary borrowing from foreign donors. With reconstruction work continuing, development expenditure rose by a further 21 percent in 1992/93. Again, the increase was mainly financed by concessionary foreign borrowing. A number of large development projects, including the Afulilo hydroelectric scheme, which were started in the late 1980s, put additional upward pressure on development expenditure over this period.

Current expenditure increased from 21 percent of GDP in 1989 to 30 ¾ percent of GDP in 1991/92. This was partly due to higher spending on the maintenance and rehabilitation of roads, which is included in the current budget (Appendix Table 14). However, the introduction of a universal, noncontributory, old-age benefit in November 1990, an increase in the number of government departments, and a sharp increase in expenditure on public sector wages and salaries added significantly to the upward pressure. The wage and salary bill increased by 15 percent between 1990 and 1991/92 but declined as a percent of current expenditure because of the large increases in other expenditure items. Current expenditure rose modestly in nominal terms in 1992/93, but declined as a proportion of GDP to 29 ¾ percent. Government expenditures on goods and services increased by 3 ½ percent and wages and salaries by 6 ½ percent, but these increases were partly offset by interest payments on public debt, which, despite the large fiscal deficit, declined (the deficit was financed by a rundown in government deposits with the banking system and concessional external financing).

Net lending nearly doubled between 1990 and 1991/92 because of substantial capital injections to the Electric Power Corporation (EPC) for the rural electrification program and the Afulilo hydroelectric project. Further advances to the EPC for the completion of the Afulilo scheme and capital injections to Western Samoan Breweries and Polynesian Airlines (see sub section 6) led to a further increase in net lending in 1992/93.

3. The 1993/94 budget

The 1993/94 budget anticipated that steep spending cuts would reduce the deficit to 5 ½ percent of GDP. This was to be entirely financed from concessional external borrowing. Total revenue and grants were budgeted to decline by 9 percent, taking the ratio of revenue and grants to GDP from 69 percent in 1992/93 to 60 ¼ percent. Tax revenue was anticipated to decline slightly as a result of the tax changes implemented on January 1, 1994, as the additional revenue from the VAGST was not expected to fully offset the reductions in personal and corporate income taxes (see sub section 5). Nontax revenue was expected to increase by 6 ¾ percent owing mainly to higher rents and royalties (in particular a rise in interest on investments) and higher net revenue from government departments (particularly the post office, where improved collection procedures were expected to result in a reduction in die stock of outstanding arrears). External grants were expected to decline sharply following the completion of several major development projects and in the absence of the commodity grants that had been received in 1992/93.

Total expenditure was anticipated to fall by 24 ¾ percent in 1993/94 with development expenditure declining by 35 ½ percent, taking the ratio of total expenditure to GDP to 65 ½ percent from 91 percent in 1992/93. The decline in development expenditure would reflect both the winding down of cyclone rehabilitation expenditure and the absence of major development projects. Current expenditure was budgeted to increase by 1 ½ percent as lower expenditure on goods and services offset increases in wages and salaries. Measures taken to control staff recruitment meant that growth in public sector wages and salaries was expected to be below the 10 percent general salary increase. Wages and salaries were expected to account for 49 percent of current expenditure in 1993/94 compared with 45 ¾ percent in 1992/93. Net lending was expected to be less than half its 1992/93 level owing to a reduction in funding for the EPC and the belief that the capital injection made to Polynesian Airlines in late 1992/93 would be sufficient to meet the company’s financing needs.

The estimated budget outcome for 1993/94 reveals significant slippage from the budget target. The estimated deficit is 11 ½ percent of GDP, double the budgeted amount. Financing of the deficit required the Government to draw on its bank deposits for the third consecutive year. The slippage was entirely on the expenditure side with spending 14 ¾ percent above budget. During the year, three supplementary budgets were passed by Parliament to validate higher-than-expected expenditure on current goods and services (including spending to contain the spread of the taro blight and overruns in the areas of health and education), a significant rise in development expenditure (owing almost entirely to an increase in projects financed from concessional loans), and higher net lending (owing to the continuing financial difficulties of Polynesian Airlines and a further WS$5 million capital injection to the company during the financial year). The second supplementary budget also contained reductions in some import duties, but despite these, total revenue and grants are estimated to have been 5 ¾ percent higher than originally budgeted, owing mainly to die very conservative forecasts for income tax revenue in the original budget and an underbudgeting of revenue from the VAGST.

4. The 1994/95 budget

The 1994/95 budget envisages that the deficit will be reduced to 2 ¾ percent of GDP. Total revenue and grants are expected to increase sharply with a near doubling in external grants. 1/ Total expenditure and net lending is expected to decline from 75 ¼ percent of GDP in 1993/94 to 73 percent in 1994/95. Despite a decline in foreign concessional financing, the envisaged deficit reduction would be sufficient to allow some buildup in the Government’s deposits with the domestic banking system.

While there were some initial problems with the implementation of the VAGST, these appear to have now been resolved, and the tax is expected to yield about WS$27 million in 1994/95, excluding payments of the tax by the Government on its own purchases of goods and services. However, the additional revenue from the first full year of the VAGST is expected to be partly offset by a decline in income tax receipts and import duties, reflecting the full year impact of the tax changes made in the first half of 1994, as well as the impact of the decline in economic activity on personal incomes and imports. Nontax revenue is expected to decline slightly, mainly due to movements in miscellaneous items, and total domestic revenue is expected to fall as a percent of GDP from 52 ¾ percent to 52 percent.

Development expenditure is expected to decline from 38 ¾ percent of GDP in 1993/94 to 36 ¼ percent of GDP in 1994/95, with the mix of funding switching toward external grants and away from foreign concessional loans and domestic revenue. Current expenditure is expected to remain constant at about 31 ¾ percent of GDP (although if the VAGST paid on the Government’s own purchases were excluded, this ratio would decline). The Government is aiming to keep tight control on the public sector wage bill and has made no provision for a general wage increase in the budget. Growth in wages and salaries is budgeted to be only 1 ½ percent, and the ratio of wages to total current expenditure is anticipated to decline from 45 percent in 1993/94 to 42 percent in 1994/95. Net lending is expected to increase slightly following a large capital injection to the newly formed Water Authority and a further injection of WS$1 ½ million to Polynesian Airlines.

5. Tax reform

The 1993/94 budget announced a major reform in the structure of the tax system in Western Samoa. Effective from January 1, 1994, a VAGST was introduced at a flat rate of 10 percent while income taxes (personal and corporate) were reduced for all taxpayers (Annex). Items exempt from the VAGST are financial services, locally produced unprocessed food, and bus and taxi fares. Exports and the supply of hospital and educational services are zero-rated. The former goods and services tax had only covered professional services and tourism-related activities.

Concurrent with the introduction of the VAGST, the maximum marginal personal income tax rate was reduced from 45 to 35 percent, the three intermediate marginal rates (20 percent, 30 percent, and 40 percent) were lowered and collapsed into two rates (10 percent and 20 percent), and a personal tax allowance of WS$5,200 was introduced that eliminated the tax liability of about half of the people who were paying income tax under the previous system. Corporate income tax rates were reduced from 48 percent for foreign companies and 39 percent for local companies to a single rate of 35 percent. In the 1993/94 Second Supplementary Budget, import duties were reduced on a number of items to offset some of the impact of the VAGST. These reductions are estimated to result in an annual revenue loss of about WS$4 ½ million.

6. Public enterprises

Since 1987, 20 state-owned enterprises and government departments have been privatized or rationalized. These sales have raised approximately WS$13 ¾ million in revenue and eliminated about WS$4 ¾ million in annual subsidies. However, the Government has usually viewed privatization as a means of divesting loss-making industries. Thus, while budgetary savings have been made, revenues to the Government might have been greater if the companies had been fully restructured prior to privatization.

During 1991-93, three state-owned enterprises were privatized via long-term leases (Coolstore at Apia wharf, Samoa Coconut Products, and Samoa Forest Products). The Government expects to receive annual income of about WS$250,000 from these leases, although at present it has received nothing from the coconut mill which has not been in operation since its sale. New Samoa Industries was privatized via the sale of shares for which the Government received WS$75,000. The Government Superannuation Fund (GSF) was merged with the National Provident Fund (NPF) effective from July 1993. The Government has also begun the process of privatizing the Post Office Savings Bank, which is expected to result in the establishment of a third commercial bank. Offers are also being considered from private sector investors for the Government’s shares in Western Samoa Breweries and Hellaby Samoa. The land disputes between WSTEC, the Government-owned agricultural enterprise, and Samoa Land Corporation (SLC) have now been resolved, and approximately 34,000 acres of former WSTEC land have been transferred to the SLC for lease or sale to the private sector. The details of these and other actions are given in Table 4.

Table 4.Western Samoa: Progress in Privatization of Public Enterprises, 1990-94
EnterpriseStatus of Privatization
Bank of Western SamoaThe Government sold half of its total shareholding in the bank to a foreign bank (ANZ) in October 1990. The Government intends to divest the remaining 25 percent it holds to local investors.
Cocoa BoardLiquidated in October 1990.
Copra BoardLiquidated in October 1990.
Produce Marketing BoardLiquidated in October 1990.
Coconut Woods ProductsThe operation has been closed since 1990.
Coolstote ComplexThe assets were leased to a local operator in 1991 who has repaired the equipment at bis own cost.
Samoa Forest Products (SFP)The SFP’s assets were leased to a new joint venture, Samoa Forest Corporation, in 1990. The shareholdings of SFC are 60 percent by a private sector operator and 40 percent by the Government. Annual rents to the Government are estimated at WS$300,000. The Government does not provide any financial guarantees.
New Samoa IndustryThe Government sold its 50 percent stake in NSI to a local company in 1991.
BoatcraftThe assets were leased to a local company to maintain Boatcraft as a going concern in 1990. However, the company has since become insolvent and the Government has received no lease peyments. The assets of Boatcraft are now worthless.
Western Samoa Trust Estates Corporation (WSTEC)Most of the plantation land of WSTEC was transferred to Samoa Land Corporation (SLC) in 1991. WSTEC continues to operate one plantation and some other assets in Weatera Samoa. SLC is prohibited from managing or participating in the active development of the land. It is restricted to administering leases or sales of land under its control to the private acctor. A WSTEC property in New Zealand was sold to the NPF in 1993 for WS$800,000.
Samoa Coconut Products limitedThe operating assets of the company were leased to a consortium of domestic and U.S. investors in May 1993. However, the mill has not been in operation since the lease and the Government has received no lease payments to date.
Post Office Savings BankOffers are being considered from the private sector.
Western Samoa Breweries LimitedThe Government is considering offers for its 74 percent stake in the company.
Hellaby Samoa LimitedThe Government is considering offers for its 9 percent stake in the company.
Source: Treasury Department.

The financial performance of the remaining state-owned enterprises (SOEs) has been mixed. The position of Polynesian Airlines has deteriorated sharply since mid-1993, and the company has become a major drain on the budget. In mid-1992, Ansett Airlines, which had provided technical and management services for Polynesian Airlines, terminated the agreement because of the losses it was sustaining in the venture. Following this, Polynesian Airlines embarked on a rapid expansion that included the leasing of a large aircraft to inaugurate service to the United States. Its financial situation has since deteriorated rapidly, requiring the Government to make unanticipated capital injections of WS$4 million in 1992/93 and WS$5 million in 1993/94 (Appendix Table 15). An injection of a further WS$1 ½ million was made in the 1994/95 budget. The Government also faces large contingent liabilities as it has guaranteed the majority of Polynesian Airlines’ nonoperating debt arising from the leases. The financial position of the EPC is also weak, although recently there have been some signs of improvement. The company has a good collection record, but the Government is reluctant to allow it to increase its prices to a level where it could cover costs.

IV. Monetary Policy

1. Structure of the financial system

The financial system in Western Samoa consists of the Central Bank of Samoa, two commercial banks, and seven government-owned nonbank financial institutions. There is also an offshore financial center. The two commercial banks are the Bank of Western Samoa (BWS) and the Pacific Commercial Bank (PCB). The ANZ Banking Group owns 75 percent of BWS shares and the Government the remaining 25 percent. The PCB is owned by Westpac and the Bank of Hawaii (43 percent each), with minority shares held by the NPF and local commercial interests. The two main nonbank financial institutions are the Development Bank of Western Samoa (DBWS) and the NPF. The DBWS channels concessional funding from foreign donors, mainly to the agricultural and industrial sectors. The NPF is an obligatory, contractual savings institution that provides superannuation cover for most paid employees. The funds are mainly invested domestically in government securities, commercial bank deposits, and in lending to the private sector and public enterprises. The Central Bank supervises the operations of the commercial banks but not those of the nonbank financial institutions. The nonbank financial institutions accounted for 63 ¾ percent of total financial system credit in December 1993 (Appendix Table 16).

Monetary policy in Western Samoa is based on direct controls on credit outstanding, via a deposit-linked credit expansion formula and controls on interest rates (which set maximum lending and minimum deposit rates). Commercial banks are also required to hold a minimum proportion of deposits in the form of liquid assets (notes and coins, government securities, and net claims on the Central Bank). The shorter the maturity of a deposit, the higher the proportion of liquid assets that must be held against it. Currently the required ratios of liquid assets to deposits are: 30 percent for demand, saving, and time deposits of less than three months’ maturity; 25 percent for time deposits of between 3 and 12 months’ maturity; and 20 percent for time deposits in excess of 12 months’ maturity. A further constraint is that 25 percent of a bank’s minimum required liquid assets must be held in noninterest-bearing deposits with the Central Bank (the Statutory Reserve Requirement (SSR)).

Under the deposit-linked credit expansion formula, a bank’s ability to increase its lending is dependent on an increase in deposits or a lengthening in the maturity structure of the deposit base. If deposits decline, or the term structure shortens, a bank’s ability to lend contracts. Under the current formula (the last change in the formula was made in September 1993), the amount of additional lending permissible for an increase in savings deposits is 20 percent; for term deposits of less than three months, 35 percent; for 3-6 month deposits, 50 percent; for 6-12 month deposits, 65 percent; and 80 percent for deposits of 12 months or longer. No increase in lending is permitted for an increase in demand deposits. To enforce the requirements of the formula, penalties have recently been introduced that make breaches unprofitable.

2. Monetary developments, 1991-94

a. Overview

After averaging growth of 18 percent per annum between 1988 and 1990, broad money has remained in a narrow range over the past three years and in December 1993 was some 1 ¾ percent below its level at end 1990 (Table 5 and Chart 4). Between 1988 and 1990, strong growth in net foreign assets and in lending to the private sector was partly offset by the continued buildup of government deposits with the banking system.

Table 5.Western Samoa: Monetary Survey, 1989-94

Net foreign assets121.0158.6161.9141.7121.0111.1
Central Bank82.7103.3103.976.160.256.0
Commercial banks10.511.
Net domestic assets−19.6−37.6−43.2−22.1−2.26.2
Domestic credit−3.4−4.6−14.3−4.611.615.2
Government (net)−50.0−66.5−80.5−78.7−67.9−67.0
Public enterprises3.
Nonmonetary financial
Claims on private sector42.659.363.871.678.778.1
Other items (net)−16.2−33.0−28.9−17.5−13.8−9.0
Broad money101.5121.0118.7119.6118.8117.2
Narrow money33.247.342.938.142.734.5
(Twelve-month change as
(a percentage of the stock of broad money)
Net foreign assets37.537.02.7−17.1−17.3−8.4
Domestic credit−17.5−1.2−
Of which: Net bank lending to Government−17.7−16.2−
Claims on private sector2.816.
Broad money (percent chenge)16.719.2−1.90.8−0.7−3.0
Source: Central Bank of Samoa.

Chart 4.WESTERN SAMOA Money and Credit, and Inflation, 1988-94

(Percent change) Inflation and Broad Money

Sources: Data provided by the Western Samoan authorities; and staff estimates.

In the wake of cyclone Of a, all credit restrictions were lifted, and the maximum lending rate was reduced by 5 percentage points to 12 percent. Bank credit to the private sector grew strongly but resulted in an increase in inflationary pressures. In March 1991, the Central Bank reimposed credit restrictions. To encourage the mobilization of longer-term deposits, the Central Bank reintroduced its deposit-linked credit expansion formula in September 1991. The reimposition of controls saw private sector credit growth slow to 7 ½ percent in 1991 from 39 ¼ percent in 1990. Following cyclone Val in December 1991, measures were introduced to allow for lending for reconstruction purposes outside of the credit expansion formula but subject to the condition that outstanding credit at end April 1992 was no more than 12 percent above its end November 1991 level. These exemptions were terminated on schedule at end April 1992. Private credit expanded at an annualized rate of 21 ¾ percent in the first four months of 1992 but then slowed, and growth during the year was 12 ¼ percent. In 1993, private credit growth declined to 10 percent. As the Government relaxed fiscal policy in the wake of the cyclones and resorted to domestic financing of the budget deficit, government deposits with the banking system declined sharply, falling by 32 ½ percent between their peak in mid-1991 and end 1993.

The expansion of credit to the private sector and the decline in government deposits with the banking system (together with an increase in other items, net) resulted in growth in domestic assets (as a percent of broad money) of 17 ¾ percent in 1992 and 16 ¾ percent in 1993. Given the lack of growth in broad money, this increase in net domestic assets was broadly matched by a decline in net foreign assets. Growth in domestic assets continued in the first half of 1994 owing mainly to an increase in other items, net. With the broad money supply (M2) declining slighdy, net foreign assets fell by a further 8 ¼ percent over the six months to June 1994.

b. Interest rates

The current structure of commercial bank interest rates has prevailed since August 1992, when deposit and lending rates were reduced by 1 ½ percentage points. The rate on savings deposits was reduced by a further 1 percentage point (to 3 percent) in September 1993 (Appendix Table 17). Time deposit rates are now 3 percentage points and savings deposit rates 4 percentage points lower than at end 1990. However, because of their desire to attract longer-term deposits, the commercial banks have begun to compete to attract time deposits, and this has recently resulted in the rates on six- and twelve-month deposits rising above the minimum. The lending rate charged by the NPF has remained unchanged at 10 percent for members since the mid-1980s, while that for nonmembers was reduced from 17 percent to 12 percent in late 1990.

To set the stage for an eventual reduction in the use of direct monetary controls, treasury bills and Central Bank securities were introduced in the early 1990s. Six- and twelve-month treasury bills were first offered in late 1990, and significant amounts were initially taken up. However, the Government currently has no treasury bills and very few bonds on issue. Central Bank securities have been issued to commercial banks since 1991. The Central Bank of Samoa Act was amended in January 1994 to allow their sale to the nonbanks as well. In September 1993, the interest paid on Central Bank securities was reduced by 3 percentage points to 2 ½ percent for three-month securities and 3 ½ percent for six-month securities (previously the rate had been set at the same level as bank time deposits of the respective maturity); this reduction aimed to give the Central Bank a margin between the rate it was earning on its foreign exchange holdings and the rate it was paying on Central Bank securities. However, this reduction has made Central Bank securities unattractive to nonbanks. The rate the Central Bank pays on call deposits was also reduced by 1 percentage point to 2 ½ percent in September 1993. The margin between six-month Central Bank securities and call deposits at the Central Bank consequently declined from 3 percentage points to 1 percentage point, making Central Bank securities relatively less attractive to the commercial banks.

c. Commercial banks

The growth in commercial bank lending in the past two years has been focused in the building, construction, and installation sector (associated with cyclone reconstruction) and the transportation, storage, and communication sector (Appendix Table 18). Lending for trade purposes has fallen slightly, following a request from the Central Bank that loans be made for “productive purposes’. Both of the commercial banks have made advances, guaranteed by the Government, to Polynesian Airlines. Deposits have declined since 1991 as a slight increase in term deposits has been more than offset by a decline in demand deposits. Within term deposits, deposits with a maturity in excess of 12 months have risen at die expense of deposits with a shorter maturity. This lengthening of the maturity profile of deposits has allowed the commercial banks to increase their lending under the credit expansion formula.

After they have met the Central Bank’s liquidity requirements and undertaken the lending they are entitled to under the credit expansion formula, banks can invest their “free” liquidity in Central Bank securities, call deposits with the Central Bank, and holdings of foreign exchange (up to predetermined limits). Bank liquidity peaked in early 1992, and has since declined as lending has continued to grow at a time when deposit inflows have declined. Because of the relatively attractive rates initially offered on Central Bank securities, the banks increased their holdings as their free liquidity increased. However, as the spread between Central Bank securities and call deposits with the Central Bank has narrowed, banks have reduced their liquidity mainly through reducing their holdings of Central Bank securities (Appendix Table 19).

The profitability of the two commercial banks has been strong over the past two years. In 1992, the after-tax return on shareholders9 funds was 24 percent and this increased to 29 ½ percent in 1993. Because they are subject to high liquidity ratios, lending restrictions, and interest rate ceilings, the banks have sought alternative sources of profits. They earn nearly one half of their gross income from nonlending activities (mainly foreign exchange commission, service charges, and fees). Foreign exchange, in particular, is an important source of income given the significant capital flows in the economy. Foreign currency deposit accounts were introduced in February 1994 for residents who earn foreign exchange in the normal course of their business. This will allow them to avoid the costs of currency conversion (both from the commercial banks and the 1 percent government levy). Both banks are offering these accounts. Central Bank approval is required before an account can be opened, and there are minimum and maximum balances.

d. Nonbank financial institutions

Lending by the nonbank financial institutions has grown rapidly in recent years, mainly owing to the operations of the NPF (Appendix Table 20). Lending to the private sector by nonbanks rose by 32 ½ percent in 1992, and by a further 17 ¼ percent in 1993. The NPF accounted for over 80 percent of the increase in lending over this period.

The NPF operates under its own Act of Parliament and its activities are controlled by its Board of Directors, of which the Financial Secretary is die Chairman, although the Government can issue directives to the board. All employers and employees are required to contribute 5 percent of the employees’ gross earnings to the NPF, and members are guaranteed a 2 ½ percent return on their contributions. The interest rate charged on loans is set by the Government in consultation with the Central Bank. Under the Act, all loans must be secured, and a maximum of 70 percent of the value of a project can be lent.

Because the nonbank financial institutions are not subject to the Central Bank’s credit expansion formula and because the credit restrictions on the commercial banks were not completely removed following the second cyclone, the NPF has been able to rapidly expand its lending activities over the past two years to help finance reconstruction activity. The increase in the spread between the commercial bank deposit rate and the NPF lending rate has encouraged a shift in the composition of assets held by the NPF away from bank deposits toward lending activities. In early 1992, the NPF revised its lending policies and temporarily increased the percentage of a member’s accumulated balances that can be borrowed from 45 percent to 70 percent. It has also rapidly increased its construction-related lending to nonmembers in recent years (Appendix Table 21). As well as the rapid increase in lending for construction, the NPF has also made an advance, guaranteed by the Government, of WS$5 ½ million to Polynesian Airlines.

The activities of the DBWS have been affected by the weakness of its balance sheet which has been caused mainly by problem loans to the agricultural sector (Appendix Tables 22 and 23). However, its funding will increase with the recent completion of an ECU 1 ½ million line of credit from the EIB. In the 1993/94 budget, the Government announced a range of assistance measures for farmers who are clients of the DBWS. These included: (a) a grace period for payment of interest on current loans for the period 1990-92 when most crops were destroyed by the cyclones (interest payments already received by the DBWS are to be allocated for principal repayment); (b) the waiving of arrears on agricultural loans; (c) the possible extension of repayment periods; and (d) consideration of a grace period of up to a year on principal repayments. The DBWS has also been instructed to set aside all foreclosure actions made in 1990, 1991, and 1992 in die agricultural and fisheries area. The Government is to fully compensate the DBWS for any losses incurred as a result of the decision.

3. The Financial Institutions Bill

The Financial Institutions Bill, which was first tabled in Parliament in June 1990, is currently under discussion between the Central Bank and the Treasury. Although its final form is still uncertain, the Bill, if enacted, will allow the Central Bank some control over the lending activities and interest rates offered and charged by nonbank financial institutions. In its current form, the Bill contains provisions regarding the prudential supervision of both banks and certain nonbank financial institutions. The legislation contained in the Central Bank of Samoa Act (1984) does not make explicit provisions relating to the Central Bank’s requirements regarding the prudent conduct of financial institutions. Because it is not clear whether nonbank financial institutions are covered by the legislation, Central Bank supervision is currently limited to the commercial banks.

V. External Sector

1. Overview

Following the devastating effects of the cyclones and the resulting relaxation in financial policies, the external position deteriorated sharply during 1991-92. During this period, traditional exports fell drastically and tourism activities were severely affected. Coupled with increased imports associated with emergency food and reconstruction projects, the current account balance (including official grants) moved from a surplus of 11 ¾ percent of GDP in 1990 to a deficit of 20 ¾ percent of GDP in 1992, despite a large increase in private sector remittances (Table 6 and Chart 5). Concessional loan disbursements also increased significantly during the cyclone period, enabling the overall balance of payments to remain in surplus through 1991. However, with a reduction in recorded capital inflows, the overall balance moved sharply into deficit in 1992.

Table 6.Western Samoa: Balance of Payments, 1989-93(In millions of U.S. dollars)
Current account15.113.4−29.9−24.7−33.9
Trade balance−62.6−71.7−87.5−104.2−96.3
Exports, f.o.b.
Imports, c.i.f.−75.5−80.6−94.0−110.0−102.7
Services, net22.826.517.316.912.7
Of which: Travel20.220.615.815.719.0
Of which: Investment income−2.4−1.5−2.4−2.6−4.4
Private transfers (net)38.239.831.043.431.3
Government transfers, net16.718.89.319.218.3
Project grants15.416.39.414.418.6
Cash and commodity grants2.
Other 1/−0.8−1.1−1.3−1.3−1.4
Capital account−0.72.931.316.425.9
Official capital, net1.212.520.617.716.2
Overall balance14.416.31.4−8.2−8.1
Monetary movements−14.4−16.2−
Foreign assets (increase -)−12.3−14.9−
Foreign liabilities−2.0−
Of which: Use of Fund
resources (net)−1.8−0.8−0.3−0.1
Memorandum items:
Current account balance
(in percent of GDP)13.011.8−26.3−20.8−28.0
Gross international reserves55.269.067.957.648.9
(in months of imports)
Sources: Data provided by the Central Bank of Samoa; and staff estimates.

Contributions to international organizations.

Chart 5.WESTERN SAMOA External Sector Developments, 1989-93

Sources: Data provided by the Western Samoan authoritities; and staff estimates.

Despite a partial recovery of exports and revenues from tourism, financial policies remained relaxed during 1993 and the current account deficit widened further to a new high of 28 percent of GDP. This deterioration reflected the sustained high level of imports and a reduction in private transfers. With reconstruction projects largely completed, disbursements of concessional loans also declined. As a result of these developments, gross international reserves at the end of 1993 were enough to cover only 4 ½ months of imports, about half the level at end 1990 (Appendix Table 24).

2. Exports

Despite some recovery in 1993, Western Samoa’s exports were still only half the level recorded in the pre-cyclone years. Several traditional exports (mainly coconut products, copra, and cocoa) were virtually eliminated by the cyclones. These exports, which in 1989 accounted for 62 percent of total exports, fell to US$1 ¼ million in 1993 or 21 percent of total exports (Appendix Table 25).

Taro, which had been a major export product during the 1980s and accounted for 20 percent of total exports in 1989, was subject to export restrictions following the cyclones in order to maintain domestic food supplies. After the ban on taro exports was lifted in July 1992, these exports increased rapidly in early 1993. In spite of a taro leaf blight later in the year, taro exports reached US$3.7 million for the whole of 1993, representing nearly two thirds of total exports. As a result of the severity of the taro leaf blight, however, no taro was exported in the first half of 1994.

Exports of coconut cream, the second largest source of export earnings, continued to decline in 1993. At about US$1 ½ million, these exports were only about half the average value of 1989-90. Exports of coconut oil, which amounted to about US$3 million in the late 1980s, were eliminated by the cyclones and have yet to recommence. During the first half of 1994, the production of coconuts appeared to be recovering from the effects of the cyclones. Although increasing competition from abroad may continue to discourage the export of coconut cream, the recovery of coconut trees gives scope for a possible renewal of the export of coconut oil. After a sharp increase during the period 1988-92, the value of beer exports (largely directed to American Samoa) declined by 26 percent in 1993. The value of other merchandise exports, including cigarettes, also declined in 1993; earnings from exports of fish, kava, footwear, and handicrafts are still below pre-cyclone levels.

Most of Western Samoa’s exports are directed to countries in the Pacific region. In 1993, New Zealand accounted for 51 ½ percent of exports, and Australia and American Samoa combined accounted for almost 30 percent (Appendix Table 26). Exports to Europe, which represented 28 percent of total exports in 1989, declined sharply in 1990-91 and were negligible in 1992-93. In contrast, exports to the United States increased from 9 percent of total exports in 1989 to 12 ½ percent in 1993.

3. Imports

Merchandise imports rose to exceptionally high levels during 1991-92 owing mainly to reconstruction needs and infrastructure projects. In spite of the winding down of reconstruction, imports declined only slightly in 1993 to US$103 million from a record high of US$110 million in 1992 and remained well above their pre-cyclone levels. In part, the high level of imports can be explained by the increased demand for consumption goods in the second half of the year to build up stocks in anticipation of the introduction of the VAGST. The relatively loose stance of financial policies also contributed to the high level of imports. Consumption goods accounted for 28 percent of total imports in 1993, compared to an average of 23 ½ percent during 1991-92 (Appendix Table 27). As in previous years, in 1993, most of Western Samoa’s imports came primarily from New Zealand and Australia (39 percent and 16 ½ percent, respectively). The United States accounted for 11½ percent of total imports and Japan for 10 ¾ percent (Appendix Table 28).

4. Services and private transfers

Traditionally, Western Samoa’s services account has been in surplus, largely on account of tourism receipts. Between 1990 and 1992, however, this surplus fell by 36 ¼ percent as tourism activities declined significantly in the wake of the cyclones (Appendix Table 29). Although tourism recovered substantially in 1993, the services account surplus continued to fall, reaching just US$13 million, as receipts associated with the reconstruction projects declined. With the number of tourists increasing by 24 percent, net travel receipts grew by a similar proportion in 1993. Increased servicing by Polynesian Airlines (including charters to Japan) and the completion of reconstruction efforts contributed to the pickup in tourism activity.

Since the beginning of its operations in late 1991, the Yazaki wiring harness factory has made an important contribution to the overall level of service receipts. By 1993, its net value added amounted to US$4 million, a 58 percent increase from its 1992 value. 1/ The increase in service receipts from travel and export processing activities was more than offset by the decline in receipts from insurance payments related to cyclone damage. In addition, reflecting the reduced stock of international reserves and the decline in foreign interest rates, interest receipts fell during 1993.

Total services account payments also increased during 1993; these included increased transportation payments by Polynesian Airlines, resulting from the expansion of operations to the United States, and increased outflows of repatriated dividends and payments for overseas contractors.

Remittances from Western Samoans abroad have become an important source of income for families and communities in Western Samoa in recent years. In spite of the recession in New Zealand, the most important source country of private remittances, inflows remained high in 1990 following cyclone Ofa. Inflows declined in 1991, but rose sharply in 1992 following cyclone Val. Remittances again declined in 1993.

5. Official grants and loans and external debt

Over the last few years, the flow of official grants has followed a similar pattern to that of private transfers; they increased significantly after each cyclone and slowed down in the subsequent period. Notwithstanding these fluctuations, project grants have remained a major source of development finance for Western Samoa. During 1993, net official transfers (including contributions to international organizations) declined slightly to US$18 million as an increase in project grants was more than offset by a decline in cash and commodity grants. After averaging US$2.6 million per year during 1991-92, grants from Japan rose sharply to US$7.5 million in 1993, as some projects that had to be delayed during the cyclone years were reactivated (Appendix Table 30). Australia and New Zealand were the other main sources of grants.

After averaging US$4 ¼ million per annum during 1988-89, disbursements of concessional loans increased sharply to an average of US$20 million per annum during 1990-93 (Appendix Table 31). The AsDB is the most important source of loans for Western Samoa; by the end of 1993 AsDB loans accounted for about half of the total outstanding public debt of the country (Appendix Table 32). In recent years, in addition to loans for rehabilitation of cyclone-damaged rural roads, the AsDB has provided funding for the reform of the agricultural and agro-industrial sectors as well as the reform of public enterprises. In 1993, additional funding for the Afulilo hydroelectric project was approved. Since 1990, most new loans from IDA have been for road rehabilitation. Loans from China have also contributed to the financing of large public sector projects. 1/

With new loan disbursements substantially exceeding amortization payments, the stock of gross official and officially guaranteed debt rose from 66 ¼ percent of GDP at end 1989 to 118 percent of GDP at end 1993. 2/ However, because most of the debt was acquired on concessional terms, the debt-service ratio remained low at 5 ¼ percent (Appendix Table 33).

VI. Developments in the Exchange and Trade System 3/

1. Exchange rate

Since March 1, 1985 the exchange rate of the tala has been set in terms of a trade-weighted basket of the currencies of Western Samoa’s main trading partners. The currencies in the basket are those of New Zealand, the United States, Australia, Japan, and Germany, but the precise weights are confidential. The Central Bank has the authority to adjust the tala in terms of this basket by up to 2 percentage points without prior Cabinet approval. Exchange rate policy in Western Samoa aims at maintaining the international competitiveness of the tala. The tala was adjusted three times in 1992 and six times in 1993. As a result of these adjustments, between the end of 1991 and the end of 1993, the tala depreciated by 4 percent against the basket and 6 percent against the U.S. dollar (Appendix Table 34 and Chart 6). Following the domestic price increases associated with the cyclones, the real effective exchange rate appreciated in the first half of 1990 and between the second half of 1991 and the first half of 1992, but depreciated sharply between mid-1990 and mid-1991. 4/ With domestic prices stabilizing in the first half of 1993, the real effective exchange rate remained relatively stable during the year. Following the introduction of the VAGST and shortages of taro, the CPI rose rapidly during the first half of 1994; as a result, the real effective exchange rate appreciated by 17 ½ percent between December 1993 and June 1994.

Chart 6WESTERN SAMOA Exchange Rate Indices, 1985-94


Sources: IMF, Information Notice System Index, and international Financial statistics (various Issues).

2. Exchange and trade system

The exchange and trade system in Western Samoa is relatively free of restrictions. There are no restrictions on payments or transfers for current international transactions. Commercial banks are authorized to approve payments for certain invisible transactions (such as foreign travel, medical expenses, and remittances for dependents living abroad), up to specified limits. Above these limits, approval requirements by the Central Bank are in place, but only to verify that requests for foreign exchange are actually for the purpose stated and do not involve capital transactions. For example, approval for remittances in excess of US$2,000 for dependents living abroad requires supporting evidence indicating the living expenses of the dependents. Similarly, overseas travelers for private purposes are entitled to a foreign currency allowance (WS$200 per person per day for personal travel and WS$300 per person per day for business travel, for up to 15 days per trip), but supplementary allocations will be granted against evidence that foreign exchange is used for approved purposes. 1/ Capital repatriation and profit remittances on foreign capital need to be approved by the Central Bank; this approval is granted when the appropriate documentation is provided.

Some residual trade restrictions remain. All exports require licenses issued by the Customs Department mainly for the purpose of monitoring the surrender of foreign exchange; export proceeds from goods shipped to American Samoa are required to be surrendered to the commercial banks within one month of the date of shipment; proceeds from exports to other countries have to be surrendered within three months of the date of shipment. However, starting February 9, 1994 residents are eligible to open foreign currency accounts if they earn foreign exchange in the normal course of their business; prior to this approval, only nonresidents were allowed to open foreign currency accounts. Approval for opening foreign currency accounts must be obtained from the Central Bank. Such an approval will specify the foreign currency in which the account will be denominated and the minimum and maximum balances for the account.

Under some special circumstances, such as those that followed the cyclones, exports of certain goods may be prohibited to alleviate domestic shortages. For example, a ban on taro exports was in place from January 1 to July 16, 1992. With the exception of used cars, which require prior approval by the Central Bank, there are no import licensing requirements. However, the importation of a few products is prohibited for security or health reasons. Imports of beer and cigarettes were banned for the six-month period ending January 15, 1992. To assist the private sector’s rebuilding efforts, import duties on building materials were reduced in December 1991 from 30-40 percent to 5 percent. As scheduled, this temporary reduction in tariffs was eliminated in early 1993. As a measure to partially offset the impact of the VAGST on consumers, in early 1994 customs tariffs on some 30 selected consumer goods (mostly food items) were reduced.

The Government of Western Samoa encourages foreign direct investment in specified activities and offers an extensive range of incentives. In recent years, the Government has promoted the development of a low-wage export processing sector with the purpose of diversifying the production base, generating sources of foreign exchange as an alternative to those from the agricultural sector, and promoting the employment and training of Western Samoans in areas other than agriculture and the public sector. Under the Enterprise Incentive Act, enterprises engaged in certain activities (such as manufacturers of import substitutes and exports, tourist facilities, and the processing of agricultural, fishery, and forestry products) are granted some relief from income and profit taxes and business license fees; incentives available for export-oriented activities are more generous than those available for domestically-oriented production activities. Total incentives depend on the local value added, employment creation, foreign exchange earnings or savings, and the level of commitment by shareholders. Since 1991, Yazaki Samoa Limited has taken advantage of incentives to foreign investors. By the end of 1993, this corporation was the largest nongovernment source of employment.

Table 7.Western Samoa: Gross Domestic Product by Sector at Current Prices, 1989-93 1/
(In millions of tala)
Primary sector133.1121.4127.7127.3133.4
Agriculture, forestry, fishing65.349.756.660.359.3
Secondary sector46.946.548.561.666.9
Tertiary sector53.260.359.363.365.8
Distribution, restaurants, hotels24.925.923.023.525.8
Other services22.426.527.530.330.9
Nominal GDP264.2261.9272.8292.3311.0
Exports of goods and nonfactor services101.2102.991.0107.1109.3
Imports of goods and nonfactor services196.1219.3269.2328.8322.8
Nominal domestic demand359.1379.3451.0514.0524.5
Memorandum item:
Implicit GDP deflator
(Index 1982 = 100)179.3196.2208.4226.2228.4
(Annual percentage change)
Primary sector12.6−8.85.2−0.34.8
Secondary sector−14.8−
Tertiary sector12.213.5−
Nominal GDP6.3−
Domestic demand6.95.319.214.02.0
GDP deflator3.
Source: Staff estimates.

There are no official national income accounts for Western Samoa. The estimates presented here and in previous Fund reports are staff estimates based on partial data provided by the authorities. The real GDP estimates are derived using available data for agricultural production, industrial production, central government expenditure, and information on the construction and services sectors. The deflators are estimated on the basis of available data on consumer prices and unit values of exports and imports.

Table 8.Western Samoa: Indices of Agricultural Production, 1989-93(1982 = 100)
Passion fruit280.0140.051.1
Weighted index of agricultural production108.084.074.373.378.7
Source: Central Bank of Samoa.
Table 9.Western Samoa: Indices of Industrial Production, 1989-93 1/(1982 = 100)
Coconut oil81.
Copra meal78.
Coconut cream427.1449.0495.8351.3273.8
Corned beef438.0425.0255.3233.9200.5
Soft drinks186.0195.9145.5178.9166.0
Weighted index of industrial production127.3116.4103.8102.596.5
Source: Central Bank of Samoa.

Excludes manufacturing value added by Yazaki Samoa Limited.

Table 10.Western Samoa: Energy Statistics, 1989-93
(In kilowatts)
Electricity 1/
Generating capacity20.92024.44524.44573.12476.264
(In million kilowatt hours)
Transmission and distribution losses5.
Auxiliaries 2/
(In millions of gallons)
Petroleum imports12.8
Electricity generation1.
(In tala per unit; end of period)
Energy prices (domestic)
Petroleum (gallon)
Kerosene (gallon)
Electricity (kilowatt hr.)
Sources: Electric Power Corporation; and Treasury Department.

Figures relate only to government-owned electric power schemes. Village lighting schemes and other private plants are not included.

Auxiliaries refer to power used in electricity production.

Table 11.Western Samoa: Building Permits Issued, 1989-93
(Number of units)
Other 1/50214310382
(In thousands of tala)
Other 1/1,8421971,3202,2011,488
Source: Treasury Department.

Includes extensions and alterations.

Table 12.Westarn Samoa: Ravanua and Grants of tha Cantral Govarnmant, 1989-1994/95(In thousands of tala)
198919901991 First Half 1/1991/921992/931993/94 Original Budget1993/94 Estimate1994/95 Original Budget
Tax revenue82.24492.39951.638121.352127.915125.040136.092150.741
Income tax20,30021,87414,10832,28138,83626,00034.80028,600
Excise tax14,07815,1668,19316,65315,42216,30014.61015,700
Domestic axcisas11,55512,1366,89313,00513,68012,50012,50013,500
Import excise2,5233,0301,3003,6481,7423,8002.1102,200
Taxes on international
Import duties42,97549,70926,63565,07564,91166,50063.50061,000
Export levy5996754
Foreign exchange levy1,8162,2481,3152,7232,7432,8002.8003,000
Other taxes2,4762,7271,3874,6166,00313,44020.38242,441
Business licences273271228462465450450480
Petroleum levy6617042711,4281.6901,6501.6501,650
Goods and services tax1,2881,3307312,2283.20911,00017.64239,541
Gift duties3821923101010
Hotel lavy303060
Stamp duty216401157489616300600700
Nontax ravanua29.55733.17420.71725.70328.35630.26330.02428.208
Fees, service charges etc.4,9674,5722,8005,6726.4656,2286,0805,554
Departmantal antarprlsas9,7187,3164,0969,90312,02913,47414.29613,750
Rents, royalties,
international investments12,18510,62911,0686,8055,7397,1065.0317,525
Sales of government supplies241202106374331240302332
Total revenue111.801125.57372.355147.055156.271155.303166.116178.949
Total grants39.89244.32311.64038.18051.86334.23734.23762.120
Cash and commodity4,8926,7231402206,663
Commodity grants1401,805
US/PIC fish treaty231
Other/disaster relief1,392558
Japanese commodity402003,300
Project and grants35,00037,60011,50037,96045,20034.23734,23762,120
Total revenue and grants151.693169.89683.995185.235208.134189.540200.353241.069
Sources: Treasury Department; and staff estimates.

The transitional budget covers a period of six months from January 1 to June 30, 1991. The traditional fiscal year ended in 1990 and the first new fiscal year covered the period from July 1, 1991 to June 30, 1992.

Table 13.Western Samoa: Cantral Governmant Expenditure, 1989-1994/95(In thousands of tala)
198919901991 First Half 1/1991/921992/931993/94 Original Budget1993/94 Estimate1994/95 Original Budget
Total expenditure145.602182.51987.117235.060274.078206.404236.923250.669
Current expenditure55,29367,20737,90486,91589,74891,11699,783108,603
Salaries and wages30,95633,58516,95038,60141,08744,74344,83845,471
Statutory salaries1,1371,1924841,1851,4171,6831,7821,759
Interest payments5,5575,6772,7076,0404,9554,7064,7064,612
Other 2/18,78127,94418,24642,27443,70641,66750,23958,520
Development expenditure67,980108,33048,947135,629164,148105,888121,697124,376
Net lending 3/22,3296,98226712,51620,1829,40015,44317,690
Memorendum ltems:
Current salaries and wages
Annual pareantaga changa10.88.514.
As percent of current
Sources: Treasury Department; and staff estimates.

The transitional budget covers a period of six months from January 1 to June 30, 1991. The traditional fiscal year ended in 1990 and the first new fiscal year covered the period from July 1, 1991 to June 30, 1992.

Derived as residuals.

Includes loans and advances to public enterprises, capital subscriptions, and land purchases.

Table 14.Western Samoa: Current Expenditure Classified by Function, 1989-1994/95(In thousands of tala)
198919901991 Firat Half 1/1991/921992/931993/94 Original Budget1993/94 Estimate1994/95 Original Budget
General services17,79720,99011,96327,12428,36228,69031,85242,358
General administration13,8501,68969,48421,19722,15522,53925,28735,173
Law and order3,947.4,0952,4795,9286,2076,1516,5657,185
Social services21,30523,17312,72427,79629,78128,83131,19832,047
Economic services10,58012,4528,12421,24522,03624,58927,51723,837
Public works6,1437,1665,10311,66212,54314,76715,96111,989
Land survey1,0971,6719223,7633,8853,9134,2794,932
Land and titles5044853237597638821,0631,062
Other expenditure 2/5,61110,5925,09210,7509,5699,0069,21610,361
Total current expenditure55.29367.20737.90486.91589.74891.11699.783108.603
Sources: Treasury Department; and staff estimates.

The transitional budget covers a period of six months from January 1 to June 30, 1991. The traditional fiacal year ended in 1990 and the first new fiscal yaar covered the period from July 1, 1991 to June 30, 1992.

A residual item, including interest payments on public debt.

Table 15.Western Samoa: Public Enteiprises and Statutory Authorities
Government’s EquityLoans and Capital Injections 1992/93-1994/95Overdrafts Guaranteed by Government
(as share of total)(in thousands of tala)
Nonfinancial public enterprises 1/
Agriculture Store Corporation100
Airport Authority100
Computer Services Limited60
Electric Power Corporation (EPC)10019,0005,445
Polynesian Airlines (Holdings) Limited10010,50042,400
Poet Office and Telecom (Government department)100
Rothman’s Samoa Limited40
Samoa Forest Corporation40
Samoa Land Corporation100
Special Projects Development Corporation (construction and civil engineering)100
Telecom (Government departmeat)100
Televise Samoa1003,350
Water Authority1007,200
Western Samoa Breweries Corporation742,452
Western Samoa Shipping Corporation100
Samoa Shipping Services Limited100
Western Samoa Trust Estates Corporation (WSTBC)100450
Other government equity participation 2/
Brugger Industries Limited20
Hellaby Samoa Limited9
Pacific Forum Line (interisland shipping)10
Samoa Iron and Steel Fabrication Limited11
Samoa Industrial Gas Limited17
Public financial institutions
Central Bank of Samoa100
Bank of Western Samoa (commercial bank)25
Development Bank of Western Samoa1005,490
Housing Corporation (home loans)1001,500
National Pacific Insurance Corporation100
National Provident Fund (“including the Government department)100
Poet Office Savings Bank100
Public Trust Office1001,500
Western Samoa Life Assurance Corporation100
Source: Treasury Department.

Enterprices with more than 25 percent government shareholding.

Less than 25 percent shareholding

Table 16.Western Samoa: Structure of the Financial System, 1989-93(In millions of tale: end of period)
Balance sheet totals358.8470.4473.0453.6457.3
Central Bank of Samoa94.2140.7136.4110.797.3
Commercial banks127.8176.3167.5155.3162.1
Bank of Western Samoa102.7134.6130.1119.0122.7
Pacific Commercial Bank25.141.637.436.339.3
Nonbank financial institutions136.9153.4169.1187.6197.9
National Provident Fund63.971.380.391.199.0
Development Bank of Western Samoa45.049.148.550.852.7
Western Samoa Life Assurance
Public Trust Office4.
Post Office Savings Bank3.
National Pacific Insurance
Housing Corporation1.
Total domestic lending and investment139.8166. 6178.0203.7227.1
Central Bank of Samoa 1/
Commercial banks 1/50.765.169.376.482.2
Bank of Western Samoa35.650.151.355.556.7
Pacific Commercial Bank15.
Nonbank financial institutions 2/89.1101.5108.7127.3144.9
National Provident Fund34.939.046.057.370.4
Development Bank of Western Samoa43.147.142.445.647.1
Western Samoa Life Assurance
Public Trust Office3.
Post Office Savings Bank2.
National Pacific Insurance
Housing Corporation1.
Source: Central Bank of Samoa.

Net of loans to Public Trust Office and Development Bank of Western Samoa.

Net of Government deposits.

Table 17.Westerm Samoa: Interest Rates, 1989-94(In percent per annum: end of period)
198919901991199219931994 June
Commercial banks
Deposit ratee
Savings deposits7.
Time deposits
3 months10.
6 months12.
12 monthsNegotiable10.
24 monthsNegotiable10.
Lending rates 1/14.0-
Development Bank of Western Samoa
Lending rates
Industrial and other8.0-12.08.0-12.08.0-12.012.0-14.012.0-14.012.0-14.0
National Provident Fund minimum
rate of return on contributions2.
Lending rates10.0-17.010.0-12.010.0-12.010.0-12.010.0-12.010.0-12.0
Public Trust Office and Western Samoa
Life Assurance Corporation
Mortgage rates9.5-11.09.5-16.09.0-15.09.0-13.09.0-13.09.0-13.0
Post Office Savings Bank
Statutory notice7.
Long-term notice12.512.512.
Rates on government securities
3 years10.00
5 years10.75 2/
10 years11.50 3/
Treasury bills
3 months7.18.5
6 months8.29.58.0
12 months11.010.59.0
Central Bank securities8.5-9.55,5-6.52.5-3.52.5-3.5
Source: Data provided by the Western Semoan authorities.

Includes lending to Government, public enterprises, private businesses, and individuals.

On loans of six years’ maturity.

On loans of eight years’ maturity.

Table 18.Western Samoa: Commercial Bank Deposits and Loans, 1989-93(In millions of tala: end of period)
Commercial bank deposits89.0108.7107.1107.3103.8
Demand deposits 1/20.734.429.025.827.7
Savings deposits14.917.618.618.918.0
Term deposits 2/53.456.759.562.658.1
Commercial bank loans50.765.269.076.482.2
Advances to Government
Government stock held by banks4.
Public enterprises4.
Private sector42.358.863.270.977.8
Building, construction, and installation4.67.110.315.416.5
Transportation, storage, and communication1.
Professional and business services5.
Source: Central Bank of Samoa.

Excludes deposits of the Government, the Central Bank, and commercial banks.

Maturities ranging from 30 days to 24 months.

Table 19.Western Samoa: Balance Sheet of the Commercial Banks, 1989-93


(In millions of tala: end of period)

Balances withCentral BankClaims on
End ofCash onCentral Bankof Samoa SecuritiesForeignGovern-PriveteOther
March 19932.366.7227.4715.347.002.9972.122.6916.43153.12
June 19932.266.9527.7811.776.802.0675.892.8117.72154.04
September 19932.217.5231.1115.666.912.0680.561.1518.06165.24
Table 19a.
Demand DepositsTime DepositsCapital
End of PeriodGovernmentCentral BankPrivate sectorOther 1/Savings DepositsGovernmentPrivate sectorOther 1/Capital and Reserves 2/Foraign LiabilitiasOtherTotal
March 19933.387.7820.502.692.6918.850.5538.0625.0321.282.3612.64153.12
June 19932.202.6921.893.923.9218.870.0528.2937.9121.283.3113.63154.04
September 19932.2110.3223.383.743.7421.5238.5222.7421.285.3616.17165.24
December 19933.015.9923.564.144.1418.0237.5120.5626.053.8419.39162.07
Source: Central Bank of Samoa.

Nonfinancial public enterprises and nonmonetary financial institutions.

Excludes provisions for specific purposes.

Table 20.Western Samoa: Lending of Nonbank Financial Institutions, 1989-93
(In millions of tala: end of period)
Total lending89.12101.54108.67127.29144.91
Claims on Government15.3514.9622.5117.1916.77
National Provident Fund11.5511.2515.7013.597.40
Development Bank of
Western Samoa2.015.81
Western Samoa Life
Assurance Corporation1.641.561.360.980.94
Public Trust Office0.
Post Office Savings Bank2.012.003.332.522.52
National Pacific Insurance
Claims on public enterprises6.317.574.922.391.97
National Provident Fund 1/2.233.404.921.060.79
Development Bank of
Western Samoa4.084.17
Western Samoa Life
Assurance Corporation1.331.18
Claims on private sector67.4679.0O81.24107.71126.17
National Provident Fund21.1224.4125.3542.6962.21
Development Bank of
Western Samoa39.0142.9440.4445.5841.30
Western Samoa Life
Assurance Corporation2.794.074.004.966.44
Public Trust Office3.
National Pacific
Insurance Corporation1.512.493.524.883.23
Housing Corporation 2/1.874.706.167.89
(In percent of total lending)
Claims on Government17.2314.7320.7113.5011.57
Claims on public enterprises7.087.454.531.881.36
Claims on private sector75.6977.8174.7684.6287.07
Source: Central Bank of Samoa.

Net of loans to Public Trust Office and Development Bank of Western Samoa.

The Housing Corporation effected business operations in May 1990.

Table 21.Western Samoa: Assets of the National Provident Fund, 1989-93 1/(In thousands of tala: end of period)
Total assets63.90071.30080.30086.31698.988
Claims on Government11,55511,25515,69413,5917,405
Claims on other public sector2,2323,3984,9221,046787
Claims on private sector21.11725.41125.35239.08962.208
Services 2/4234236695,98412,534
Other assets28,99631,23634,33232,59028,588
Source: National Provident Fund.

Data for 1989-91 relate to the end of the NPF’s financial year, which starts in April of the year shown. Data for 1992 and 1993 relate to September of that year.

Includes other activities.

Table 22.Western Samoa: Development Bank of Western Samoa Loan Operations, 1989-93(In thousands of tala: financial year ending September)
Value of loans approved8.5789.4535.86110.0886.912
Mixed farming7951,5124531,133696
Livestock and poultry129253675123
Group lending3641.9694262.5181.676
Group projects357174332
Manufacturing and
Trucking and heavy
construction equipment334122529851
Transportation and
Wholesale, retail,
and hotels1,239843134173420
Professional services6739931,1611,0401,292
Value of loans outstanding37,17944,42739,40944,73340,282
Group projects1,8431,1651,9845,2853,981
Source: Development Bank of Western Samoa.
Table 23.Western Samoa: Loans Approved by the Development Bank of Western Samoa. 1989-93(Financial year ending September)
Number of loans approved8311.3908281.494908
Mixed farming145412135306184
Group lending927162934
Group projects15453
Manufacturing and processing191162215
Trucking and heavy
construction equipment13242
Transportation and
Wholesale, retail, and hotels2420282315
Professional services1721194619
Source: Development Bank of Western Samoa.
Table 24.Western Samoa: International Liquidity, 1989-94(In millions of U.S. dollars: end of period)
198919901991199219931994 March
Official reserves43.5156.6056.3444.0034.5329.94
Treasury foreign assets7.0112.1013.6113.8211.3011.27
Of which: SDR holdings0.904.183.753.513.603.71
Central Bank of Samoa36.5044.5142.7330.1823.2318.67
Other foreign assets11.7312.4011.4913.6414.3813.73
Sinking Fund6.706.908.699.1710.30
Commercial banks5.035.502.794.474.08
Net IMF position1.490.240.180.910.91
Trust Fund loans0.09
Central Bank of Samoa0.380.230.290.410.15
Commercial banks0.430.571.220.931.47
Net foreign assets52.8567.9566.1455.3946.3840.88
Memorandum items:
Import commitments6.887.559.785.291.61
Gross reserves in months of
imports 1/
Gross reserves adjusted 2/48.5462.1059.1448.4738.6133.31
Source: Central Bank of Samoa

Imports of goods and nonfactor services.

Excludes Sinking Fund.

Table 25.Western Samoa: Exports by Commodity, 1989-93(In thousands of U.S. dollars)
Volume (long tons) 1/5,8502,400
Unit value (Tala/ton)244199
Coconut oil
Volume (metric tons)6,2925,18835837
Unit value (Tala/ton)490348262338
Copra meal
Volume (metric tons)3,0582,21536
Unit value (Tala/ton)947390
Coconut cream
Volume (metric tons)1,4991,5761,5571,295960
Unit value (Tala/ton)1,4971,5321,4131,5201,405
Volume (long tons) 1/5952202
Unit value (Tala/ton)1,5879881,245
Volume (‘000 cases)264128212107202
Unit value (Tala/case)1012141818
Other exports (value)1,7271,8241,1671,6501,373
Fruit juice338
Other 2/1,0091,181520573546
Total exports (value)12.2948.4176.2475.8096.425
Total exports, including re-exports12,8738,8746,4715,8196,429
Sources: Data provided by the Western Samoan authorities; and staff estimates.

One long ton (2,240 lbs.) = 1.016 metric tons.

Includes fish, kava, footwear, and handicrafts.

Table 26.Western Samoa: Destination of Exports, 1989-93 1/(In percent of total)
New Zealand34.533.552.344.851.6
American Samoa9.521.314.625.617.4
United States9.
Germany 2/
Total exports100.0100.0100.0100.0100.0
Sources: Customs Department; and Central Bank of Samoa.

Includes re-exports.

Data prior to 1991 refer to the former Federal Republic of Germany only.

Table 27.Western Samoa: Imports Classified by Broad Economic Category, 1991-93(In percent of total)
Capital goods23.216.215.6
Transportation equipment6.64.24.6
Intermediate goods53.659.956.5
Food and beverages5.37.26.0
Industrial supplies30.934.732.3
Of which: Base metals8.69.27.0
Fuels and lubricants11.310.810.8
Parts and accessories
of capital goods6.17.27.4
Consumption goods23.223.927.9
Food and beverages13.514.417.4
Transportation equipment0.60.50.5
Consumer goods, n.e.s.
Source: Central Bank of Samoa.
Table 28.Western Samoa: Origin of Imports, 1987-93 1/(In percent of total)
New Zealand41.238.138.638.9
United States5.610.78.111.5
Germany 2/
United Kingdom5.
Hong Kong 3/
Middle East, Africa,
and Latin America1.00.50.3
Total imports100.0100.0100.0100.0
Source: Central Bank of Samoa.

Data for 1987 were derived from IMF, Direction of Trade Statistics. Data for 1988-90 are not available. Starting in 1991, data were compiled by the Central Bank from import entries.

Data for 1987 were for the former Federal Republic of Germany only.

As used in this table, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

Table 29.Western Samoa: Services Account, 1989-93(In millions of U.S. dollars)
Service receipts36.242.438.042.840.2
Transportation 1/
Export processing 2/
Other nonfactor7.59.810.115.911.2
Investment income4.
Service payments−13.4−15.9−20.7−25.9−27.4
Transportation 1/−2.8−2.2−2.6−3.6−5.8
Other nonfactor−6.5−10.2−13.9−17.8−14.8
Investment income−2.4−1.5−2.4−2.6−4.4
Government debt−1.0−1.0−1.2−1.2−1.1
IMF charges−0.4−0.2−0.2−0.1−0.1
Private and other
Services, net22.826.517.317.012.8
Sources: Central Bank of Samoa; and staff estimates.

Includes freight and insurance.

Assembly of automotive wiring harnesses.

Table 30.Western Samoa: External Grants by Donors, 1989-93(In millions of U.S. dollars)
New Zealand2.
European Development Fund0.
Germany 1/
United Nations Development
Of which: Expenditure abroad 2/−2.5−1.5−2.0−2.0−2.2
Net total13.014.87.412.416.4
Cash and commodities2.
Total grants17.519.910.620.519.6
Source: Treasury Department.

Data prior to 1991 refer to the former Federal Republic of Germany only.

Expenditure abroad by donors, for example, on overseas training of Western Samoans.

Table 31.Western Samoa: External Debt Disbursements, 1989-93(In millions of U.S. dollars)
198919901991Est. 19921993
Total loan disbursements4.68.615.621.819.2
Government debt4.68.415.621.519.2
New Zealand
IDA 1/
AsDB Agriculture
Program Loan7.88.3
Eurodollar loans
Saudi Fund0.80.2
Government-guaranteed debt0.20.2
Sources: Data provided by the Western Samoan authorities; and staff estimates.

International Development Association.

European Union and European Investment Bank.

Table 32.Western Samoa: External Debt Outstanding, 1989-93(In millions of U.S. dollars: end of period)
1989199019911992Est. 1993
Total external debt 1/76.4792.79112.70127.00140.79
Government debt70.6187.82109.03124.19138.39
New Zealand0.440.410.350.300.30
Germany 2/1.921.571.040.590.18
IDA 3/14.4118.2325.4731.7939.63
IMF Trust Fund0.090.11
EC/EIB 4/4.379.3010.7011.8612.40
AsDB Agriculture Program Loan7.7115.5416.4816.19
New Zealand money market1.351.351.250.770.56
Eurodollar loans
Saudi Fund4.
Government-guaranteed debt4.414.243.472.812.40
IMF credit outstanding1.440.730.20
Sources: Treasury Department; and Central Bank of Samoa.

Excludes private debt, which is believed to be negligible.

Data prior to 1991 relate to the former Federal Republic of Germany only.

International Development Association.

European Union and European Investment Bank.

International Fund for Agricultural Development.

Table 33.Western Samoa: Debt-Service Payments, 1989-93
(In millions of U.S. dollars)
Debt-service payments6.
Amortization 1/
IMF repurchases1.
Interest payments1.
Government debt1.
Government-guaranteed debt0.
IMF charges0.
(In percent of exports of goods and non-factor services and private remittances)
Debt-service payments
Excluding IMF5.
Including IMF7.
Sources: Treasury Department; and staff estimates.

Includes repayments on government and government-guaranteed debt, and IMF repurchases.

Table 34.Western Samoa: Exchange Rates, 1989-94

New Zealand





Index 1/
Nominal Effective Exchange

Rate Index 2/
Real Effective Exchange

Rate Index 2/
(Foreign currency per tala) 3/1980 = 100) 4/
Sources: Central Bank of Samoa; IMF, Information Notice System, and International Financial Statistics.

Trade-weighted index compiled by the Central Bank of Samoa comprising the five currencies shown in the table.

As calculated under the IMF Information Notice System.

End-of-period data from IMF, International Financial Statistics.

Period average.

Western Samoa: Summary of Tax System, July 1994
TaxNature of TaxExemptions and DeductionsRates
1. Taxes on net income and/or profits 1.1 Taxes on companies, corporations or enterprisesAnnual tax on the global taxable income of resident companies, as well as intercorporate dividends. Nonresident companies having assets or business in Western Samoa are taxed on income from sources within Western Samoa only. No distinction is made for income tax purposes between private and public companies. Insurance companies are taxed on a different basis, and at different rates. No special provisions exist for extractive industries. Income tax is assessed on the preceding year’s income, and companies pay an estimated provisional tax based on the previous year’s taxable income. Losses can be carried forward indefinitely, but are not deductible against salary and wage income. Companies are required to withhold tax on dividends and other payments made to resident and nonresident shareholders.Deductions include all reasonable expenses necessarily incurred in gaining or producing income, and accumulated losses. Depreciation allowances are granted for “fair” wear and tear of plant, machinery, and equipment as prescribed by the Commissioner of Inland Revenue. Most plant and machinery is depreciated at 20 percent of written-down value. Special depreciation allowances may also be granted in respect of any asset by the Minister of Finance for the purpose of encouraging economic development. Exemptions include income exempted under special enterprise incentive provisions and income derived by the producer of primary production from the sale and disposal of primary production. Primary production includes farming, handicrafts, and fishing. Clergy’s incomes from donations have been exempted beginning January 1, 1988. Other incomes exempted from the tax include income of the National Provident Fund, income derived by a nonresident from government securities, and income derived by sports associations, charitable organizations, etc.Company tax

Resident companies: 35 percent on global taxable income.
Nonresident companies: 35 percent on taxable income derived from the Western Samoan source.
Insurance companies
Resident companies:
(a) 2.5 percent of reinsurance premiums

derived from outside Western Samoa; and
(b) 10 percent of investment income from life

insurance funds.
Nonresident companies:
(a) 7.5 percent of life assurance premiums;

(b) 15 percent of general insurance premiums; and

(c) 7.5 percent of reinsurance premiums.
Shipping/film rental companies
15 percent of gross income
Withholdinc taxes
(a)Dividend payments:15 percent
(b) Interest payments to Residents:10 percent
Nonresidents:15 percent
(c) Commissions:10 percent
(d) Director’s fees:30 percent
(e) Royalties:15 percent
1.2 Individual income taxThe tax is payable by all individuals on their taxable income. A resident is taxed on world-wide income, while a nonresident is taxed only on income derived from Western Samoa. Nonresident individuals are not entitled to any exemptions or rebates. Partnerships are not subject to income tax as a separate entity; assessments are issued on each of the partners, and not on the partnership. A trustee is subject to a flat SO percent tax rate on taxable income without the benefit of personal and other exemptions and rebates. Taxable income is defined as gross income, minus deductions permitted by law, minus personal and other exemptions. Benefits-in-kind are included in income. Tax on wages and salaries is withheld at source under Pay-as-You-Earn (PAYE) and is a final assessment of tax liability, i.e., PAYE taxpayers are not required to lodge returns.Exemptions include incomes from primary production, capital gains on assets held for mote than three years (other than business assets), the first WSJ50 of interest income earned by a resident, and all dividends received from enterprises enjoying income tax holiday. Personal exemptions:Resident and nonresidents are subject to the same tax rate schedule.
Taxable IncomeMarainal Rates
Below WS$5,2O0zero percent
WS$5,201-10,40010 percent
SelfWSS520WS$10,401-I5,60020 percent
SpouseWSS520WS$15,601 and above35 percent
Other exemptions:

Life insurance premiums, including

National Provident Fund
Withholdine taxes
contributionsWS$400Commissions10 percent
Charitable donationsWSS104Director’s fees30 percent
School fees and schoolInterest15 percent
donationsWSS104Royalties15 percent
Resident10 percent
Nonresidents15 percent
2. Social security contributionsSocial security contributions, instituted in 1972, finance the National Provident Fund, an autonomous body under the Ministry of Finance. The contributions are based on the amount of monthly wages, including overtime pay, allowances, bonuses, etc. paid by an employer. The employer is required to withhold all employees’ contributions and along with his own contributions, is required to submit the necessary amount to the NPF within seven days of paying wages to his employees. Benefits provided by the NPF to contributing wage earners are old age, widows’, widowers’, children, and invalid pensions.Exemptions include persons under 15 years of age and nonresidents employed by nonresident companies. The Minister of Finance may exempt any other person or class of persons.Employers: 5 percent of wage (zero in the case of wage earners earning less than WS$20 a month).

Employees: 5 percent of wage (zero in the case of wage earners earning less than WS$20 a month).
3. Payroll taxesNone
4. Taxes on property
Real estate taxNone
Personal net wealth taxNone
Corporate net wealth taxNone
Death and gift taxesNone
5. Taxes on goods and services
a. Excise dutySelective excises are imposed on a wide range of locally produced goods and imports, with high rates on tobacco products, alcoholic beverages (beer, wine, and spirits), and soft drinks.Exemptions are given to diplomatic corps.The main excise rates are:
Tobacco products130 percent
Beer45 percent
Soft drinks20 percent
Whisky60 percent
Gems and precious
metals45 percent
Motor vehicles70 percent
b. Departure taxThe departure tax is collected by the Airport Authority as revenue of the Authority from all international travelers departing from the airport.Exemptions include aircraft crew, children under two years of age, and transit passengers.ResidentsWS$5
c. Business licensesAnnual fees charged for licenses issued by the Department of Inland Revenue. Several businesses take out multiple licenses to cover various aspects of trading.NoneUnincorporated business:WS$200 a year
Incorporated business:WS$200 a year
Late filing fee:WS$100
Special daily license:WS$15
d. Goods and servicesValue Added Goods and Services Tax Act, 1992/93. A comprehensive goods and services tax was introduced from January 1, 1994 and replaces the former Goods and Services Tax Act 1986.Exemptions are made for the supply of locally produced raw and unprocessed fish and agricultural produce, supply of financial services, supply by a nonprofit body of any donated goods and services, bus and taxi fares, water and electricity rates, and international departure taxes. Zero rating is applied to exports, supply of hospital and educational services, supplies to and for the Head of State, temporary imports, and sale of a taxable activity as a going concern.10 percent paid by consumers for goods and services.
6. Taxes on international trade and transactions
a. Import dutiesSingle column, nondiscriminatory tariff. All rates are ad valorem. Valuation is on a cost, insurance, and freight (c.i.f.) basis.Full or partial exemptions exist for the following categories:

a. Full exemption applies to approved materials for educational, cultural, scientific, and religious purposes; materials for socioeconomic development received under grants from the United Nations, or foreign governments by Western Samoan organizations for relief; supplies for diplomatic and consular services; and passengers’ baggage within certain limits.

b. Full or partial exemptions apply to building materials, plants, machinery, motor vehicles, and equipment required for die establishment or expansion of enterprises approved under the Enterprise Incentives Act, 1965, Enterprise Incentives (Amendment) Act, 1984, and Enterprise Incentives (Amendment) Act, 1986, and for raw materials for use in these enterprises.
The predominant rate throughout the tariff is 35 percent. A few articles are zero rated;
machinery and agricultural inputs are generally charged at 20 percent or below, and passenger cars carry rates of 50 percent; in addition an excise tax is paid on top of the import duties.
a. Zero rates: Holy Bible, fertilizer. insecticides and weed killers. Textbooks, stationery, equipment, and other similar items used by educational institutions that are approved by the Minister of Finance.
b. Rated below 35 percent: Generally, raw materials and building materials are subject to low rates of duty. The rate on machinery, live animals, and certain foodstuffs is 20 percent; preserved fish, rice and sugar, 5 percent.
b. Export dutieiNonec. Rates over 35 percent: 1/ Some nonessential and luxury foodstuffs. Examples: fresh fruits, vegetables, and coffee extract (60); bread and pastries (50); lemonade, beer, and wine (60); prepared vegetables and fruits (60); sugar confectionery, chocolate, and fruit juices (50); soap and washing preparations (50); knitted stockings, undergarments, outer garments, and textile apparel (50-60); footwear and head gear (60); casks, drums, cans, boxes of base metals, and needles and pins (50); pickup trucks, passenger cars (50).
c. Foreign exchange levyPaid on every sale of foreign currency by commercial banks in Western SamoaNone1 percent of the tala value of the foreign currency sold by commercial banks.
7. Other taxesStamp duties are levied on selected documents at varying rates. Documents must be presented to the Treasury for stamping within one month of the date on the document, otherwise penalties are levied.Documents involving government and charitable trusts are exempted.The following rates are illustrative:
Memorandum of associationWS$10
Articles of associationWS$5
Deed of conveyance1 percent of value
Loan agreementsWS$5
Power of attorneyWS$10
Deed of covenantWS$5
Lease documents0.4 percent of annual rental
Partitions1 percent of value
Transfer of shares0.5 percent of value
Bills of exchangeWSW.50
8. Accident comoensationThe Accident Compensation Board established by the Accident Compensation Act, 1978, administers two schemes. One scheme provides for compensation to workers injured at work. The other scheme provides for those injured by motor vehicle accidents. Both schemes provide for rehabilitation assistance to accident victims, and in the event of death, compensation to dependents is provided for.NoneEmployers’ contribution c workers’ compensation1 percent of wages
Contribution for motor vehicle accidents5 sene per gallon on all imported motor fuel
Source: Information supplied by the Treasury Department of Western Samoa.

The fiscal year was changed from January to December to July to June in 1991.

Note that, while the manufacturing output shown in Table 1 and referred to in the text includes value added by the automotive wiring plant, the weighted index of industrial production reported by die Central Bank of Samoa and presented in Appendix Table 9 does not include the contribution of die automotive wiring plant.

Only eight of the proposed accommodation establishments will have 15 or more rooms and only one will have 100 rooms.

The main projects being financed by external grants are in the areas of education, rural telecommunication, the Apia sewerage and drainage system, and the continuation of rural electrification.

Because Yazaki’s large size of gross exports and imports affects the interpretation of the data and summary indicators, and because of die relatively simple transformation, only the net value added is shown in the balance of payments. This presentation conforms to the recommendations in the IMF, Balance of Payments Manual, third edition.

For example, the Government Office Complex, which cost about US$9 million, was financed by interest-free loans from China.

Private sector debt is believed to be very small.

A detailed description of the exchange and trade system is contained in the 1993 Annual Report on Exchange Arrangements and Exchange Restrictions.

As measured by the Fund’s Information Notice System index.

Nonresidents may repatriate their net earnings. Expatriate workers with local contracts that are over one year are considered residents and need Central Bank approval if they wish to repatriate funds in excess of 80 percent of their net earnings. The 80 percent rule, however, is only a guideline; the only proviso is that funds repatriated cannot exceed earnings.

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