Front Matter Page
IMF Country Report No. 19/138
SAMOA
2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; STAFF STATEMENT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SAMOA
May 2019
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2019 Article IV consultation with Samoa, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its May 8, 2019 consideration of the staff report that concluded the Article IV consultation with Samoa.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on May 8, 2019, following discussions that ended on March 5, 2019, with the officials of Samoa on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on March 27, 2019.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
A Staff Statement updating information on recent developments.
A Statement by the Executive Director for Samoa.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623–7430 • Fax: (202) 623–7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
© 2019 International Monetary Fund
Front Matter Page
SAMOA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION
March 26, 2019
Key Issues
Outlook and Risks. Samoa faces several economic challenges but continues to show resilience and a high level of engagement with the Fund. Growth is expected to rebound after reaching a five-year low. Price pressures driven by temporary factors are receding and inflation is projected to return to below the authorities’ target of 3 percent. One-off factors implied a marginally positive fiscal balance in 2017/18, but the fiscal position is projected to loosen, and Samoa remains at high risk of debt distress. Samoa remains vulnerable to natural disasters and correspondent banking relationship (CBR) pressures. The authorities have made progress in implementing measures to mitigate these risks.
Main Policy Recommendations
Policies should focus on tightening fiscal policy to ensure sustainability while achieving progress towards development goals; mitigating risks from CBR pressures; improving the monetary policy transmission mechanism; and implementing structural reforms to boost potential growth and make it more inclusive. Priority actions are:
Tighten fiscal policy compared to the baseline. Embark on a comprehensive fiscal strategy, including strengthening tax administration and public financial management, and lowering the long-term public debt-to-GDP target from 50 to 40 percent by implementing a one percent of GDP deficit rule in normal years.
Continue efforts to mitigate risks from CBR pressures including enhancing the effectiveness of the AML/CFT regime; establishing IT solutions for better customer identification; and reducing the risk profile of the offshore center.
Improve the monetary policy transmission mechanism and continue to implement Financial Sector Assessment Program (FSAP) recommendations.
Focus structural reforms on building resilience to natural disasters, enhancing the business environment, encouraging female labor participation, and improving the trade facilitation framework.
Approved By
Paul Cashin (APD) and Yan Sun (SPR)
Discussions were held in Apia during February 20 – March 5, 2019. The staff team comprised Giovanni Ganelli (head – APD), Sonja Davidovic (KMU), Magali Pinat (ICD), Jonathan Pampolina (LEG), and Leni Hunter (Resident Representative – Fiji). Gemma Preston (OED) joined the discussions. Nigel Ray (Executive Director for Samoa) joined the concluding meeting. The mission met with Minister of Finance Sili Epa Tuioti, Chief Executive Officer of the Ministry of Finance Leasiosiofaasisina Galumalemana Oscar Malielegaoi, the Governor of the Central Bank of Samoa Maiava Atalina Ainuu-Enari, senior government officials, representatives of the private sector, trade unions, employers’ associations, and academics. Chau Nguyen (APD) and Nadine Dubost (APD) provided able assistance from Headquarters.
Contents
CONTEXT
RECENT DEVELOPMENTS, OUTLOOK AND RISKS
MACROECONOMIC AND FINANCIAL POLICIES
A. Financing Development Needs While Ensuring Fiscal Sustainability
B. Monetary and Exchange Rate Policies
C. Financial Sector, Crypto-Assets and Fintech
WITHDRAWAL OF CORRESPONDENT BANKING RELATIONSHIPS
STRUCTURAL REFORMS
CAPACITY BUILDING AND STATISTICAL ISSUES
STAFF APPRAISAL
BOXES
1. Technology-Enabled Financial Access Solutions
2. Lessons from Samoa’s Experience With Risk of CBR Withdrawal
FIGURES
1. Real Sector Developments
2. External Sector Developments
3. Fiscal Sector Developments
4. Monetary and Financial Sector Developments
5. The Role of Remittances
TABLES
1. Selected Economic and Financial Indicators, 2015/16 – 2023/24
2. Balance of Payments, 2015/16 – 2023/24
3. Financial Operations of the Central Government, 2015/16 – 2023/24
4. Monetary Developments, 2012/13 – December 2018
5. Financial Soundness Indicators, 2013/14 – 2017/18
6. Strategy for the Development of Samoa and Sustainable Development Goals
ANNEXES
I. Risk Assessment Matrix
II. A Possible Fiscal Path for Samoa
III. External Sector Assessment
IV. Key 2015 FSAP Recommendations
V. Enhancing Customer Identification of MTOs
VI. The Minimum Wage in Samoa
Front Matter Page
SAMOA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
March 26, 2019
Prepared By
Asia and Pacific Department (In consultation with other departments)
Contents
FUND RELATIONS
RELATIONS WITH OTHER INTERNATIONAL FINANCIAL INSTITUTIONS
STATISTICAL ISSUES
Front Matter Page
SAMOA
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS
March 26, 2019
Approved By
Paul Cashin (IMF) and Lalita Moorty (IDA)
Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA)1
| Risk of external debt distress | High |
| Overall risk of debt distress | High |
| Granularity in the risk rating | Sustainable |
| Application of judgment | Yes: high probability of a large and persistent breach of the threshold from 2034 |
| Risk of external debt distress | High |
| Overall risk of debt distress | High |
| Granularity in the risk rating | Sustainable |
| Application of judgment | Yes: high probability of a large and persistent breach of the threshold from 2034 |
Samoa remains at high-risk of external debt distress under the revised Debt Sustainability Framework (DSF) introduced in July 2018. Consistent with previous analyses, the average long-term costs of natural disasters and climate change are incorporated into the baseline scenario to consider their impact on economic growth, the fiscal position and current account balance. The result is a breach of the threshold under the baseline scenario for the present value of the external public-and publicly guaranteed (PPG) debt-to-GDP ratio from 2036. Stress tests confirm the vulnerability of the debt position to plausible shocks. A tailored natural disaster shock, similar in scale to the median impact of natural disasters in Samoa’s history, causes a large and significant deterioration in debt sustainability in the aftermath of the event. A contingent liability shock would also worsen debt sustainability. Given Samoa’s vulnerability to natural disasters, strategies to strengthen Samoa’s resilience to economic shocks should continue to be implemented. A ‘mechanical’ application of the new DSF would imply that the risk of debt distress in Samoa is moderate.2 However, staff judgement has been applied to arrive at a high-risk assessment as there is a high probability the threshold will be largely and persistently breached in the long-run due to Samoa’s exposure to climate change despite government efforts to mitigate its impacts. While domestic debt remains small, domestic guaranteed debt accounts for 7 percent of GDP in 2017/18.
Contents
PUBLIC DEBT COVERAGE
BACKGROUND ON DEBT
METHODOLOGY AND ASSUMPTIONS
COUNTRY CLASSIFICATION
DETERMINATION OF SCENARIO STRESS TESTS
DEBT SUSTAINABILITY
A. External Debt Sustainability Analysis
B. Public Sector Debt Sustainability Analysis
RISK RATING AND VULNERABILITIES
AUTHORITIES’ VIEWS
TABLE
1. Samoa: External Debt Sustainability Framework, Baseline Scenario, 2016-39
2. Samoa: Public Sector Debt Sustainability Framework, Baseline Scenario, 2016-39
3. Samoa: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2019-39
4. Samoa: Sensitivity Analysis for Key Indicators of Public Debt, 2019-39
FIGURES
1. Samoa: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2019-39
2. Samoa: Indicators of Public Debt under Alternative Scenarios, 2019-39
3. Samoa: Drivers of Debt Dynamics – Baseline Scenario External Debt
4. Samoa: Realism Tools
Front Matter Page
Press Release No. 19/171
FOR IMMEDIATE RELEASE
May 17, 2019
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202–623–7100
Fax 202–623–6772
