Resilience and Growth in the Small States of the Pacific
Chapter

Appendix 7. Samoa

Author(s):
Hoe Khor, Roger Kronenberg, and Patrizia Tumbarello
Published Date:
August 2016
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Samoa’s 193,000 people live on four islands in the South Pacific about halfway between Hawaii and New Zealand and northeast of Fiji. The capital, Apia, is in Upolu, the most populous and developed of the country’s islands, which also include five uninhabited ones. GDP per capita is about US$4,300. Natural disasters pose a significant risk.

As the first Pacific island country to achieve independence (from New Zealand in 1962), Samoa celebrated its fiftieth anniversary on June 1, 2012. The 49 members of the Fono, the legislative assembly, elect the head of state for a five-year term. Fono members are elected by universal suffrage, also for five-year terms. Samoa’s cabinet consists of the prime minister and 12 ministers appointed by the head of state on the prime minister’s advice.

Sources of Growth and Economic Profile

Main sources of growth. The economy has traditionally depended on development aid, remittances, agriculture, and fishing. Construction, commerce, and public administration have been the main sectors contributing to growth in recent years.

Production, employment, exports, and imports. Production growth has been led by sectors that are highly dependent on government spending, such as construction. Growth in labor-intensive sectors such as agriculture has been weak and unemployment remains widespread, with a high share of the labor force in the informal sector. The manufacturing sector mainly processes agricultural products. Tourism is expanding and accounts for about 18 percent of GDP. However, an earthquake and the resulting tsunami in September 2009 caused severe damage and losses equivalent to 25 percent of GDP, and disrupted transportation and power generation. In December 2012 tropical Cyclone Evan caused damage and losses of 30 percent of GDP.

External income. Remittances are the major source of external income, mainly from New Zealand, and account for 20 percent of GDP. Australia and the United States are the next biggest source of remittances.

Development aid. Samoa depends largely on financial aid from multilateral and bilateral development partners, with aid directed to a variety of sectors including education, health, water, and energy. Two-thirds of external funding for reconstruction and rehabilitation after tropical Cyclone Evan came from grants and a third as concessional loans. The IMF provided financing under its Rapid Credit Facility of SDR 5.8 million in May 2013 (about 1.3 percent of GDP). Technical assistance is provided in a number of areas, including public financial management, financial sector supervision, and external sector statistics.

Public finances. Government current expenditure accounts for about 25 percent of GDP and grew at about 9 percent over 2006–11. Prior to the cyclone, Samoa had begun to consolidate its fiscal position after several years of high deficits to finance post-tsunami reconstruction, based on its medium-term fiscal framework. The cyclone’s effects will delay this consolidation until reconstruction is completed. The government introduced a supplementary budget in January 2013 that raised expenditure by 0.8 percent of GDP to meet the immediate needs of postcyclone recovery. The government undertook additional rehabilitation using donor funds, costing 2.4 percent of GDP in 2012/13. For the medium term, the government is targeting a public-debt-to-GDP ratio of 50 percent by 2020. The medium-term fiscal plan in the 2015/16 budget maintains recent revenue efforts and contains current expenditure and the wage bill.

Financial sector. Four major commercial banks—ANZ, Bank South Pacific, National Bank of Samoa, and Samoa Commercial Bank—make up the banking sector in Samoa. The newly established Unit Trust of Samoa is attracting deposits away from commercial banks by offering higher interest rates. Along with the Development Bank of Samoa, a housing corporation, and a provident fund, there are a number of licensed money transfer/foreign exchange services. Banks remain well capitalized even though nonperforming loans rose after the cyclone and amid the slowdown in economic activity.

Investment and business climate. The World Bank’s Doing Business 2016 report ranks Samoa at 96th out of 189 countries, above the average for the Asia and Pacific region (119th). Nevertheless, the country needs to address various structural impediments. The use of customary land as collateral for bank loans is a major constraint to lending, discouraging private investment and restricting the country’s growth potential. The key task ahead is to build consensus on a legal framework and acceptable commercial practices and processes that would open up investment.

Exchange rate and competitiveness. The tala, which is pegged to a basket of industrial-country currencies, is not significantly overvalued, according to the current IMF staff assessment. Nevertheless, a gradual realignment of the exchange rate could help improve competitiveness and bolster reserves. Foreign reserves remain adequate (four months of prospective imports of goods and services) amid generous donor support, but the slow recovery in tourism and agriculture could put medium-term pressure on reserves. Enhancing infrastructure and bolstering the business climate will be crucial to improving competitiveness.

Growth Challenges, Vulnerabilities, and Spillovers

Main growth challenges. Samoa needs to improve external competitiveness and restore strong growth through structural reforms. Together with fiscal consolidation, this would help enhance fiscal and external sustainability and lay the foundation for higher growth in the long term. Enhancing resilience to natural disasters will also be essential to lift potential growth.

Main vulnerabilities. Possible delays in fiscal consolidation to restore debt sustainability and delays in structural reforms could represent a vulnerability. Samoa is also susceptible to natural disasters, which requires the country to maintain fiscal buffers.

Global and regional economic spillovers. Australia and New Zealand have a significant impact on the Samoan economy through aid and tourism, and because they provide opportunities to Samoans to work abroad. Derisking by global banks could reduce access to banking services, increase costs, and ultimately affect the flow of remittances, which currently amount to 20 percent of GDP.

Appendix Table 7.1Samoa: Selected Economic Indicators, 2010–15
Nominal GDP (FY2015): US$838.0 millionGDP per capita (FY2015): US$4,334
Main export products: Tourism, FishPopulation (2015): 193,337 million
Remoteness (GDP-weighted distance): 8,994 km
Sources: Samoa authorities; and IMF, World Economic Outlook database (April 2016).Note: … = data not available; RGDP = real GDP; SWF = sovereign wealth fund.

Current balance excludes grants and development (capital expenditure).

Index, 2005 = 100.

Share in total loans; not including small loan scheme.

World Bank, Doing Business reports.

United Nations Development Programme.

1991–20002001–092010–152015
AverageAverageAverage20102011201220132014Estimate
GDP, GDP growth, employment, and prices
Real GDP (percent change)3.03.10.9−1.45.40.4−1.91.21.7
Real GDP per capita (percent change)2.62.40.1−2.14.6−0.3−2.70.40.9
Unemployment (percent)
Consumer prices (percent change, average)3.36.41.70.82.96.2−0.2−1.21.9
Shares in GDP (percent)
Largest sector (commerce)25.730.828.329.630.532.132.232.4
Second largest sector (construction)8.510.69.611.411.110.511.69.7
Third largest sector (transport)9.78.511.09.67.97.36.98.2
Tourism16.018.721.319.019.017.117.818.1
Agriculture9.37.28.57.17.17.36.96.4
Contributions to real GDP growth (percent)
Commerce1.30.8−1.32.91.10.80.40.9
Construction0.80.1−1.12.40.1−0.81.3−1.4
Transport0.5−0.20.7−0.8−1.4−0.6−0.41.2
Agriculture−0.3−0.10.2−0.2−0.70.20.9−1.0
Share in GDP (percent)
Private consumption
Private investment
Public consumption
Public investment
Exports minus imports−22.2−24.5−27.5−24.2−27.9−20.3−25.3−22.1
Contributions to GDP growth (percent)
Private consumption
Private investment
Public consumption
Public investment
Exports minus imports−2.5−1.6−4.7−2.0−6.76.8−5.52.6
Sources: Samoa authorities; and IMF, World Economic Outlook database (April 2016).Note: … = data not available; RGDP = real GDP; SWF = sovereign wealth fund.

Current balance excludes grants and development (capital expenditure).

Index, 2005 = 100.

Share in total loans; not including small loan scheme.

World Bank, Doing Business reports.

United Nations Development Programme.

Public finances
Central government finance (percent of GDP)
Revenue and grants44.728.733.834.030.830.233.838.135.9
Total domestic revenue32.621.924.224.622.622.624.125.426.1
Grants12.16.89.59.48.17.69.712.69.8
Expenditure and net lending35.429.738.939.836.037.337.643.339.2
Current24.119.726.526.625.924.826.128.427.3
Of which: wages and salaries
Development (capital)11.38.712.413.210.212.511.515.011.9
Current balance1−8.52.2−2.3−2.1−3.3−2.2−2.0−3.0−1.2
Overall balance−5.8−1.1−5.1−5.8−5.3−7.2−3.8−5.3−3.3
Financing
Assets (SWF, trust fund)
Debt
Of which: external4.70.74.98.85.57.33.52.81.8
Of which: concessional4.70.74.98.85.57.33.52.81.8
Domestic financing1.00.40.2−2.9−0.2−0.10.32.41.6
Central government debt to GDP ratio (percent)38.751.645.249.152.153.554.455.5
Balance of payments (percent of GDP, unless otherwise indicated)
Current account including official transfers−7.7−5.5−7.8−5.3−8.6−0.2−7.6−4.0
Current account excluding official transfers−8.2−5.8−7.8−5.3−8.6−0.9−7.9−4.2
Overall balance−1.1−5.1−5.8−5.3−7.2−3.8−5.3−3.3
External debt service (percent of exports of goods and services)6.75.62.43.84.56.77.78.6
Foreign direct investment1.12.27.10.21.20.91.32.7
External debt49.341.646.649.951.651.854.4
Main sources of external income (total)29.840.844.341.841.839.838.138.9
Private transfers18.822.123.122.922.822.720.420.8
Tourism earnings16.518.721.319.019.017.117.818.1
Contributions to external income growth (percent)
External income growth11.95.45.615.111.0−1.4−2.24.6
Private transfers5.73.33.810.95.91.6−4.72.5
Tourism earnings6.22.11.84.25.1−3.02.52.1
Sources: Samoa authorities; and IMF, World Economic Outlook database (April 2016).Note: … = data not available; RGDP = real GDP; SWF = sovereign wealth fund.

Current balance excludes grants and development (capital expenditure).

Index, 2005 = 100.

Share in total loans; not including small loan scheme.

World Bank, Doing Business reports.

United Nations Development Programme.

Exchange rate (tala to U.S. dollar period average)2.92.42.52.42.32.32.32.4
Real effective exchange rate (period average)282.1101.7100.3100.099.3103.6103.6103.5
(percent change)1.42.713.3−0.3−0.74.30.0−0.1
Money, credit, and financial sector
Broad money (percent change)11.32.96.4−6.1−1.66.49.6
Credit to private sector (percent of GDP)25.030.528.328.527.627.637.134.0
(percent change)12.36.9−0.79.51.4−0.536.4−4.4
Nonperforming loan ratio8.46.26.14.44.77.58.3
Foreign bank market share (percent)3
Business climate indicators
Business environment rankings4
Doing business (overall)65434749609296
Construction permits56343839429293
Getting electricity2916.01819214952
Enforcing contracts79787677837979
Getting credit12498106108128150152
Human development index50.70.70.70.70.7
Memorandum:
Nominal GDP (Tala million)1,317.11,813.91,632.21,765.11,843.41,838.91,866.41,946.3
Nominal GDP (US$ million)455.7748.7570.3695.5772.1799.2816.9838.0
Sources: Samoa authorities; and IMF, World Economic Outlook database (April 2016).Note: … = data not available; RGDP = real GDP; SWF = sovereign wealth fund.

Current balance excludes grants and development (capital expenditure).

Index, 2005 = 100.

Share in total loans; not including small loan scheme.

World Bank, Doing Business reports.

United Nations Development Programme.

Sources: Samoa authorities; and IMF, World Economic Outlook database (April 2016).Note: … = data not available; RGDP = real GDP; SWF = sovereign wealth fund.

Current balance excludes grants and development (capital expenditure).

Index, 2005 = 100.

Share in total loans; not including small loan scheme.

World Bank, Doing Business reports.

United Nations Development Programme.

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