Samoa
2010 Article IV Consultation: Staff Report; Joint World Bank/IMF Debt Sustainability Analysis; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Samoa

Samoa has suffered severe social and economic shocks. The outlook is challenging and subject to considerable uncertainty. Because of the tsunami’s potentially severe impact on tourism, real GDP is likely to contract this financial year. The fiscal strategy to shoulder the rebuilding costs, minimize capacity risks, and ensure fiscal sustainability is appropriate. Prudent management of monetary policy and the basket peg will be critical. The Samoan economy will have to rely on the private sector for growth. Executive Directors welcome the commitment to structural reform.

Abstract

Samoa has suffered severe social and economic shocks. The outlook is challenging and subject to considerable uncertainty. Because of the tsunami’s potentially severe impact on tourism, real GDP is likely to contract this financial year. The fiscal strategy to shoulder the rebuilding costs, minimize capacity risks, and ensure fiscal sustainability is appropriate. Prudent management of monetary policy and the basket peg will be critical. The Samoan economy will have to rely on the private sector for growth. Executive Directors welcome the commitment to structural reform.

I. Staff Appraisal and Summary

1. Samoa has suffered severe social and economic shocks. The September 2009 tsunami undercut prospects for a quick recovery from the global recession and saddled Samoa with massive private and public sector rebuilding costs. The authorities responded swiftly, adopted a fully-costed rehabilitation plan, and made quick progress in securing concessional financing. The Fund has played a catalytic role in securing donor support and provided emergency assistance under the ESF/RAC of SDR5.8 million (50 percent of quota).

2. The outlook is challenging and subject to considerable uncertainty. Because of the tsunami’s potentially severe impact on tourism, real GDP is likely to contract this financial year while faltering export earnings and reconstruction-related imports could result in a significant widening of the current account deficit. The unprecedented scale of the disaster, a still fragile global recovery, and weaknesses in Samoa’s national accounts data mean that the timing and strength of the eventual recovery are difficult to predict. Moreover, Samoa remains exposed to severe natural disaster risks.

3. The fiscal strategy to shoulder the rebuilding costs, minimize capacity risks, and ensure fiscal sustainability remains appropriate. In line with commitments supporting the authorities’ request for emergency financial assistance (IMF Country Report No. 10/46), Samoa has made significant progress in securing concessional donor support and prioritizing reconstruction spending. However, further efforts along these lines will be needed to address the remaining tsunami-related fiscal financing gap. Moreover, it will be important to return to the public deficit target once reconstruction is completed to safeguard Samoa’s favorable debt outlook and fiscal space to deal with future shocks. Effective and timely implementation of the government’s public financial management reform plan will help underpin this strategy.

4. Prudent management of monetary policy and the basket peg will be more critical than usual. In spite of severe shocks, the basket peg has remained credible, while the tala exchange rate does not appear out of line with economic fundamentals. However, in order to avoid undue fiscal tightening during the reconstruction period, the Central Bank of Samoa (CBS) will need to be vigilant in detecting early signs of balance of payment pressures and should make adjustments if necessary. While the current historically low policy rates are appropriate, the CBS should in time adopt a more neutral stance as the domestic recovery gains traction and regional central banks withdraw stimulus.

5. Eventually, the Samoan economy will need to rely more on a vibrant private sector for growth. The staff welcomes the authorities’ commitment to wide-ranging structural reform. In particular, efforts to increase access to and economic use of customary land, and state-owned enterprise reform will be important to attract more private investment (both foreign and domestic) and improve overall economic efficiency.

II. Background: Weathering the Global Recession and 2009 Tsunami

6. After more than a decade of strong economic performance, the global recession and the 2009 tsunami dealt Samoa major setbacks (Table 1 and Figure 1).

  • Real per-capita income growth since the mid-1990s has been significantly higher than for most comparator countries. Prudent fiscal and monetary policies and structural reforms underpinned this performance.

  • However, the global recession hit parts of the economy severely, notably manufacturing with the downsizing of a plant for automotive parts. In addition, construction also recorded a significant decline in FY 2008/09, in part reflecting the unwinding of activity related to the South Pacific Games, while agriculture and fishing suffered from poor harvests. As a result, real GDP fell 5 percent in FY 2008/09, recording the worst slump in two decades. Estimates for the first quarter of FY 2009/10 point to continued economic weakness with GDP recording a further decline of 2.3 percent (y/y).

  • Nevertheless, Samoa’s external position remained comfortable. The current account deficit narrowed in FY 2008/09 (on provisional data) as remittances and tourism receipts, Samoa’s main foreign exchange earners, continued to grow. Official reserves remained stable, well above the central bank’s target.

  • The tsunami in September 2009 caused human suffering and damage to physical infrastructure, including tourism, of an unprecedented scale. Beyond the human cost, the physical damage is estimated by the UNDP and the World Bank at US$60 million (over 10 percent of GDP), but the cost of infrastructure rehabilitation, strengthening social safety nets, and investing in disaster protection, including resettlement, is expected to be significantly higher.

Table 1.

Samoa: Selected Economic and Financial Indicators, 2004/05–2010/11 1/

Population (2008): 0.18 million

Main Exports: Tourism, Fish

GDP per capita (2007/08): US$ 2,802

Quota: SDR 11.6 million

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

Fiscal year beginning July 1.

IMF, Information Notice System (calendar year). For 2009, latest as of June quarter.

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Tourism and Remittances

(In percent of GDP)

Citation: IMF Staff Country Reports 2010, 214; 10.5089/9781455202881.002.A001

Sources: Samoan authorities; and Fund staff estimates.

7. The government responded swiftly to both shocks, supported by foreign aid and Samoan communities.

  • The authorities responded early in the global recession with monetary and fiscal stimulus. The Central Bank of Samoa (CBS) has lowered policy rates (CBS securities overall rate) by nearly 500bps since mid 2008 to ¼ percent, broadly in line with Australia and New Zealand. However, the pass-through to commercial lending rates has been limited as banks tightened risk management and built excess liquidity. As part of an economic stimulus package in the wake of the global recession, the government started to increase development spending in 2008. The deficit was budgeted to double to over 10 percent of GDP in FY 2009/10, largely financed by grants and concessional loans.

  • A massive humanitarian relief effort was mounted within days after the 2009 tsunami and attention is now shifting toward implementing a recovery framework that focuses on maintaining access to basic health and education services, infrastructure rehabilitation, resettlement, and investments in disaster risk reduction. Given the poverty implications of the disaster, the framework is integrated with the Strategy for the Development of Samoa (SDS) 2008–12, Samoa’s blue-print for poverty reduction and growth.

  • A strong initial response from private overseas remittances and donor support, including the Fund’s emergency assistance, have helped offset balance of payments pressures so far, with official reserves rising by about US$16 million between October 2009 and February 2010 to US$130 million (4 months of prospective import cover).

Figure 1.
Figure 1.

Samoa and Its Peers During the Global Recession

Citation: IMF Staff Country Reports 2010, 214; 10.5089/9781455202881.002.A001

III. Outlook and Risks

8. As a result of the tsunami, real GDP is expected to contract about 3 percent this financial year and the current account deficit is set to widen substantially.

  • The tourism sector, including small beach fales (typical for Samoa), has been severely hit. Based on cross-country recovery experience and Samoa-specific patterns of tourism demand, staff estimates that about 1½–3½ percent of GDP could be lost in the first year after the tsunami.1 Beyond tourism, the widespread damage to physical infrastructure implies that other key sectors such as commerce, transport, and communication are also directly hit.

  • However, with economic activity returning to normal and infrastructure rehabilitation spending providing a further boost, growth could increase significantly in 2010/11 before converging to potential (Table 2).

  • Shortfalls in tourism receipts and a sharp increase in capital goods and other imports related to infrastructure rehabilitation would result in a widening of the current account deficit to about 20 percent of GDP in 2009/10 and 2010/11 (Table 3).

  • Headline CPI inflation is expected to decline further and likely to remain close to zero for the remainder of FY2009/10 on base effects from lower global food and commodity prices and unusually strong local food supply. The large share of underemployed in the labor force and the high import content of reconstruction inputs are expected to mute undue inflation pressures from tsunami-related public and private spending.

Table 2.

Samoa: Illustrative Medium-Term Baseline Scenario, 2005/06–2013/14

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Sources: Data provided by the Samoan authorities and Fund staff projections.

Total credit growth (including credit extended by nonbank financial institutions).

In percent of GNFS exports.

Table 3:

Samoa: Balance of Payments, 2004/05–2010/11

(In million of U.S. dollars, unless otherwise indicated)

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Sources: Data provided by the Samoan authorities and Fund staff estimates.1/ Based on the government’s recovery framework with a total cost for rebuilding and resettlement borne by public and private sectors of US$120 million to be phased over four years with import content of about two-thirds.
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CPI Inflation

(Year-on-year percentage change)

Citation: IMF Staff Country Reports 2010, 214; 10.5089/9781455202881.002.A001

Source: Samoan authorities.

9. This outlook is subject to considerable uncertainty.

  • First, this relates to the unprecedented scale of the damage. At this early stage of reconstruction, unanticipated bottlenecks or adverse spillovers between different sectors (e.g., infrastructure rehabilitation and tourism) may emerge, making it difficult to predict the recovery path.

  • Moreover, Samoa’s image as a safe tourist destination may have suffered, and it remains exposed to natural disasters.

  • While the global recovery remains fragile, a stronger-than-anticipated recovery of regional economies and a favorable response to upcoming international rugby and other sporting events in Samoa could, however, result in stronger-than-anticipated remittances and tourism revenue.

  • Moreover, the uncertainty surrounding this outlook is compounded by weaknesses in Samoa’s national accounts. These may result in a potential for underestimating the contribution of the tourism sector and an overstatement of manufacturing.2

IV. Policy Discussions: Returning to Sustained Growth

10. Policy discussions focused on the need for strong and coordinated efforts at every policy level to return Samoa to sustained growth: (1) the central role of fiscal management in supporting the rebuilding effort while also maintaining public debt sustainability; (2) prudent monetary and exchange-rate management to underpin a sound macroeconomic framework; and (3) structural reform to make the private sector the engine of growth.

A. Fiscal Management: From Rebuilding to Maintaining Sustainability

11. The fiscal challenges from emergency relief and rehabilitation are daunting. The government has adopted an economic recovery framework for four years through 2012/13 with a fiscal cost of about US$100 million (18 percent of GDP). This not only includes resettlement to safer areas and repair of infrastructure to allow access to basic social services, but also provides for social safety nets, and investments in disaster risk reduction.

12. The government is committed to minimize the fiscal burden and capacity risks arising from rehabilitation and maintain fiscal sustainability. Samoa has a good track record in prudently managing public debt, almost all of which is external. The team and the authorities agreed that the government’s fiscal strategy as laid out in its letter of intent supporting the November 2009 request for emergency financial assistance from the IMF continues to be appropriate (IMF Country Report No. 10/46). The key policies in the face of the current challenges include:

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External Public Sector Debt, 2000/01–2009/10

(In percent of GDP)

Citation: IMF Staff Country Reports 2010, 214; 10.5089/9781455202881.002.A001

Source: Samoan authorities; and Fund staff calculations.
  • Securing concessional donor support and prioritizing spending plans. The government has already identified 60 percent of the funding needs for the four-year recovery framework in new grants and concessional financing. It has adopted a supplementary budget for FY 2009/10, which covers a quarter of the recovery framework, is fully funded by grants and concessional loans, and focuses on infrastructure that is key to resuscitate growth, such as utilities and tourism, as well as basic social needs.

  • Returning to the public deficit target. A widening of the fiscal deficit to 10 percent of GDP in FY 2009/10 and an average of 7 percent of GDP the following 3 years of reconstruction is unavoidable (Table 4). However, in line with their debt strategy, the authorities intend to reduce the fiscal deficit to less than 3 percent of GDP once tsunami-related reconstruction is completed in 2013. This would stabilize the net present value of public debt at about 40 percent of GDP—a comfortable level, providing room to absorb future shocks (Supplement 1: Joint IMF/World Bank Debt Sustainability Analysis 2010).

Table 4.

Samoa: Financial Operations of the Central Government, 2005/06–2010/11

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

Based on the government’s recovery framework with a fiscal cost of US$100 million.

13. Despite indications of a favorable budget outturn, fiscal risks remain that will require strong efforts to underpin the government’s commitment.

  • A better than initially budgeted outturn for the first half of FY 2009/10 will likely curtail tsunami-related fiscal pressures in the near-term. Revenue performance has been on target as tsunami-related import-duty exemptions were kept at a minimum and car imports boomed after the road switch (from right to left in 2009). Development spending under the initial budget has been delayed, reflecting capacity constraints and a reprioritization of spending execution towards reconstruction under the supplementary budget.

  • However, the remaining tsunami-related fiscal financing gap is substantial, about 7 percent of GDP, and will need to be filled from the 2010/11 budget onwards. The team and the authorities agreed that every effort should be made to secure more grants and concessional loans in filling this gap. If the gap were to be filled on non-concessional terms, the net present value of Samoa’s public debt could increase by 5 percent of GDP over the current baseline. This would reduce Samoa’s ability to absorb future shocks without risking an unsustainable debt burden.

Samoa: Fiscal cost of tsunami and financing

(In percent of GDP)

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Source: Samoan authorities; Fund staff estimates.

After carry over from 2009/10

14. The authorities concurred with staff advice that existing medium-term development spending plans should also be reviewed. In consultation with key donors, redirecting to the extent possible funds to rehabilitation would not only help close the financing gap in outer years, but also mitigate capacity constraints in government administration. Delays are becoming evident in the slow implementation of projects under the initial 2009/10 budget. The staff emphasized that restraint on recurrent non-priority expenditure and on any general public wage increase is also required.

15. The authorities and staff agreed on the need to implement the government’s public financial management reform plan. The team welcomed the recent improvements in tax administration with revenue collection slightly better than budgeted and called for a quick resolution of remaining income tax arrears. Likewise, timely application of the new procurement guidelines designed with donor technical assistance will allow Samoa to adopt international best practice and reduce the potential for wasteful spending.

B. Monetary and Exchange Rate Policy: Managing a Sound Framework

16. The team supported the government’s commitment to the currency basket peg.

  • The basket peg regime remains credible. In spite of the severe shocks from the global recession and tsunami, official reserves continued to increase and CPI inflation has returned to low levels. At the same time, the tala exchange rate does not appear to be out of line with fundamentals; although, in recent years, it has appreciated markedly in real effective terms as the nominal effective rate has remained stable (Figure 2 and Box 1).

  • Against this background, the mission welcomed the practice of the Central Bank of Samoa (CBS) to regularly assess the weights in the basket and the level of the exchange rate with a view to maintaining external competitiveness. The team and the authorities agreed that the CBS should use the discretion it is afforded by law to make exchange-rate adjustments in response to future terms of trade shocks or if the impact of the tsunami on tourism turns out to be more severe and long lasting.3 This flexibility would help avoid the need for undue fiscal tightening during the reconstruction period.

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Reserves

Citation: IMF Staff Country Reports 2010, 214; 10.5089/9781455202881.002.A001

Sources: Central Bank of Samoa and Fund staff calculations.

17. The current monetary stance with historically low policy interest rates is appropriate, given the need to support the economic recovery. However, as the global recovery gains traction and regional central banks withdraw monetary stimulus, the CBS agreed with the team’s advice that it should in time move to a more neutral stance. A careful balance will need to be struck between avoiding pressures on foreign exchange reserves from negative interest-rate differentials and providing continued support to the economic recovery. Although capital controls afford the CBS some influence over monetary conditions, the benefits are limited. The mission noted that the pass-through of the CBS’ policy rate cuts since August 2008 to commercial lending rates has been low by international standards owing to structural impediments amplifying risk aversion of banks in the downturn (Figure 2).4

C. Structural Reform: Promoting Private-Sector Led Growth

18. Over the past two decades, structural reforms have helped make Samoa a more attractive place to do business. The team welcomed recent reforms to simplify company formation and business registration processes that have lowered the overall cost of starting a new business by three quarters. However, further reforms to foster private-sector led economic growth - a key goal of the Strategy for Development of Samoa - are needed to help ensure sustainable economic growth.

Figure 2.
Figure 2.

Selected Exchange Rate and Financial Indicators

Citation: IMF Staff Country Reports 2010, 214; 10.5089/9781455202881.002.A001

19. The team and the authorities broadly agreed that reforms to facilitate the economic use of customary land and reduce the role of state-owned enterprises (SOEs) in the economy would contribute significantly to a more vibrant private sector. However, the authorities cautioned that any reform must be equitable and in keeping with Samoa’s social and traditional values.

  • Use of customary land. The lack of clear legal title to customary land, which accounts for about 80 percent of all land in Samoa and an inability to transfer ownership inhibit its economic use (Box 2). The government has appropriately focused on reforms to ease land registration. The passage of legislation to allow banks to use capital improvements on leased customary land as collateral is also a step in the right direction to improve investors’ access to credit. Continued community outreach will be necessary to realize the full benefits of these reforms. However, the team noted that legislation to cap the rise in the market value of freehold land, which reflects its scarcity value, should be avoided. The authorities broadly agreed with the need to pursue further land-use reforms, but emphasized that they need to be carefully calibrated with maintaining Samoa’s cultural heritage and social traditions.

  • SOE reform. SOEs are placing a significant strain on the Samoan economy and the government’s budget (Box 3). The team welcomed the Prime Minister’s effort to reinvigorate the reform agenda. In particular, further efforts need to be made to enforce hard budget constraints and implement existing corporate governance legislation including through more clearly defined community services obligations (CSO) met by SOEs. The mission welcomed progress made in bringing selected SOEs to privatization, including SamoaTel. The authorities agreed that, given that existing public debt is on concessional terms, proceeds from the sale of SOEs should go towards deficit reduction and filling the remaining tsunami-related fiscal financing gap.

20. A vibrant private sector will also require a deeper and sound financial system. As the ratio of nonperforming loans has risen from 6 percent at end-2008 to over 8 percent at end-2009, risk aversion of banks has been amplified by structural weaknesses that have hampered credit intermediation and effective risk management (Table 5). Chief among them are lingering uncertainties in the enforcement of land-related collateral and the lack of a credit bureau. Given the urgency caused by the tsunami in improving access to credit, the team supported the government’s subsidized loan program for small operators in the tourism sector.5 However, the team emphasized and the authorities concurred that such schemes should be strictly limited to avoid undue budgetary risks or distortions that hamper longer-term growth prospects. In addition, there was agreement that as the financial system evolves, it will be important to further strengthen financial system supervision and regulation to better gauge vulnerabilities of banks and nonbank financial institutions.

Table 5.

Samoa: Financial Soundness Indicators, 2004–09 1/

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Source: Central Bank of Samoa.

For commercial banks.

21. Building on improvements in compilation and dissemination of key economic statistics will serve to enhance policy credibility and reduce uncertainty for the private sector. Samoa is the only Pacific island that disseminates monthly and quarterly economic statistics through government websites. Yet data are subject to frequent revisions, owing to weaknesses in compilation and coverage, complicating economic analysis. The team welcomed the government’s use of technical assistance, including through PFTAC, and noted that improvements to national accounts and the coverage of BOP data are priorities.

Samoa: Exchange Rate Assessment

Excluding the impact of the tsunami, the current account deficit appears to be in line with Samoa’s structural savings-investment norm. Once the tsunami-related recovery is completed, Samoa’s current account deficit is projected to decline to about 9 percent of GDP in 2013/14. While sensitive to assumptions on key variables, such as population growth, staff estimates based on a sample of 55 low-income countries suggest a savings-investment norm of about 6–10 percent of GDP for Samoa.

uA01fig05

Current Account Deficit

(In percent of GDP)

Citation: IMF Staff Country Reports 2010, 214; 10.5089/9781455202881.002.A001

Sources: Central Bank of Samoa and Fund staff calculations.

Other indicators of a deviation of the exchange rate from medium-term fundamentals do not point to a misalignment:

  • Foreign reserves rose steadily in recent years and are now about double their level just four years ago. Staff project reserves to remain around 3½–4 months of imports of goods and services at the end of this fiscal year.

  • Tourism receipts have risen at double-digit rates over the last several years in part due to the introduction of new airline flights. They have become Samoa’s most important commercial foreign exchange earner (equivalent to about 20 percent of GDP). Indeed, Samoa has gained market share in the main tourist markets from 2004–2008 vis-à-vis other Pacific island countries and its real per-capita income growth over 1993–2008 has been higher than for other tourism-based economies (3½ percent compared with less than 1 percent for other Pacific islands, and about 2 percent for the Caribbean).

  • The decline in fish exports (nearly 20 percent between 2007 and 2009) mainly reflects supply-side factors. Moreover, although fish exports are the second most important commercial activity, they are only equivalent to 4 percent of tourism earnings.

  • Remittances, which account for about 25 percent of GDP, have performed strongly over the last several years, reaching an all time high in 2007/08. Importantly, remittances have remained stable during the global financial crisis, and increased in the immediate aftermath of the September 2009 tsunami, underscoring the role of remittances as a shock absorber.

uA01fig06

Market Share

(In percent of visitors to South Pacific Islands)

Citation: IMF Staff Country Reports 2010, 214; 10.5089/9781455202881.002.A001

Sources: South Pacific Tourism Organization and Fund staff calculations.

Samoa: Tapping the Economic Potential of Customary Land

The nature of land ownership in Samoa inhibits economic development. Customary land, which is owned by extended families represented by their chiefs, accounts for around 80 percent of Samoan land.1 The chiefs direct the use of the land, giving entitlements to access land, although customary ownership rights flow from a mix of titles and ancestral transfers. The land cannot be transferred outside a village or turned into free hold land. As is the case in other Pacific island countries, establishing clear title to the land is costly and time consuming. Leases are legally possible2, but are time consuming and expensive to arrange.

The government recognizes that increasing access to customary land for development is important and has undertaken legal and policy reforms to this end.3 In conjunction with a public outreach campaign, recent reforms have focused on facilitating land registration. In addition, legislation passed in the last couple of years allows banks to use leasehold improvements on customary land as collateral; however, no bank has done so, largely because of the uncertainty associated with contract enforcement.

Moreover, a new land registration system was introduced in March 2009, but less than 10 percent of the land has been registered so far. This reflects the difficulty and cost, in terms of time and money, in establishing title to land, which requires land owners to advertise notice of intent to title property for three months and survey the land. Disputes over land titling are handled through the Land and Titles Court and can take years to resolve.

The pace of reform is likely to remain slow and deliberate. The government’s reform effort is tempered by a desire to foster balanced and equitable growth and a respect for Samoa’s traditional values and culture. In addition, the government’s commitment to address a key impediment - the inalienable nature of customary land - is unclear. Looking ahead, practical and likely politically feasible reforms the government could consider are establishing a “one stop shop” for customary land matters, developing a database of leased and leasable land and continuing its outreach efforts and encouragement of land registration.

1 The government owns 11 percent of the land through the several agencies, including the Samoa Land Corporation, the Samoa Trust Estate Corporation, and the Land Board. The government seeks to increase access to this land through issuing leases. The remaining 9 percent of the land is freehold.2 Customary land can be leased for a 30 year period with an option to renew for another 30 years for hotel development and a 20 year period with the option to renew for another 20 years for all other purposes. The Ministry of Nature Resources and Environment (MNRE) assists landowners and potential investors in the development of customary land, including the drafting of customary land leases.3 The Asian Development Bank, through a Japanese trust fund, has recently supported technical assistance in this area.

Samoa: State-Owned Enterprise Reform1

State-owned enterprises (SOEs) account for 10 percent of formal employment, but constitute a drag on economic growth and the government’s budget. For the non-strategic SOEs that are available for privatization, the return on equity was just 3.3 percent for FY2007/08, compared with the government’s own target of 7 percent. In addition to the direct costs to the economy, SOEs divert potential private and public investment away from priority sectors. Ongoing SOE investment and foregone earnings were equivalent to almost 60 percent of health and education expenditure during 2002–06.

Despite previous achievements, Samoa’s SOE reform program has slowed since 2007. Privatization is continuing, albeit slowing with the removal of Agricultural Stores Corporation from the privatization pipeline after it had received initial privatization preparation support and the delays associated with the sale of Samoa Shipping Services. The privatization of SamoaTel is currently targeted to be completed before the end of 2010. The combined book value of companies slated for privatization is about T70 million (FY2007/08) or 4½ percent of GDP.

Regardless of ownership, the key to successful SOE reform in Samoa will be placing SOEs on a fully commercial footing, with independence from political directives, hard budget constraints, exposure to competition, and full accountability. A functioning Community Service Obligation (CSO) framework is vital for the commercialization of SOEs. However, the nature and magnitude of CSOs are not clearly and transparently defined. The Public Bodies (Performance and Accountability) Act enables SOEs to claim reimbursement from the Government for the cost of providing CSOs approved under the provisions of the Act and Regulations. Those provisions, however, are not enforced, resulting in conflicting interpretations of what constitutes a CSO. This contributes to poor CSO management that depresses SOE profitability and reduces their efficiency. SOEs do not currently have the capacity to prepare, or the Government to effectively monitor, CSO contracts.

Existing corporate governance legislation is based on international good practice, but implementation has been challenging. Only the reporting and disclosure requirements are being fully met by the SOEs. Of the other regulations, as of end FY2009, 121 out of the 270 positions available on SOE boards were held by public servants and members of parliament, even though they are prohibited from serving as directors of SOEs in line with good international practice. The implementation of governance and accountability mechanisms will be key to putting SOEs on a commercial footing and improving overall economic efficiency.

1 This box summarizes the main findings of the Selected Issues Paper “State-Owned Enterprise Reform in Samoa”.
1

See Selected Issues Paper, “Samoa: The Impact of the 2009 Tsunami on Tourism and the Economy”.

2

One important factor is that the 2000 benchmark surveys for the production-based national accounts are likely outdated, resulting in underweight for those sectors that grew rapidly in recent years, such as tourism.

3

The CBS undertakes the review of the currency basket once a year, and there are no statutory requirements as to the composition and the weights of the basket. The CBS can make single discretionary exchange-rate adjustments of up to +/−2 percent against the currency basket without cabinet approval. While there is no formal limit on the frequency of such adjustments, it is understood that the CBS would request cabinet approval for larger ad-hoc adjustments.

4

See Selected Issues Paper “Samoa: Impediments to Bank Intermediation and Monetary Transmission”.

5

The program amounts to T5 million (½ percent of GDP). For further details see Selected Issues Paper “Samoa: Impediments to Bank Intermediation and Monetary Transmission”.

Samoa: 2010 Article IV Consultation: Staff Report; Joint World Bank/IMF Debt Sustainability Analysis; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Samoa
Author: International Monetary Fund