Abstract
IMF Country Report No. 23/110
Copyright Page
IMF Country Report No. 23/110
SAMOA
2023 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SAMOA
March 2023
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 2023 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 March 8, 2023, 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 March 8, 2023, following discussions that ended on January 27, 2023, 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 February 21, 2023.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by IMF and World Bank Staff.
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.
© 2023 International Monetary Fund
Press Release
PR23/84
IMF Executive Board Concludes 2023 Article IV Consultation with Samoa
FOR IMMEDIATE RELEASE
Washington, DC – March 20, 2023: On March 8 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Samoa.
The Samoan economy has begun recovering after a three-year recession driven by the Covid-19 pandemic. A rebound in economic activity has followed the lifting of domestic Covid-19 restrictions in July and the pickup in visitor inflows when borders reopened in August. This has also been supported by rising remittances and increased public investment. As a result, real GDP grew by 4.7 percent y/y in Q3-2022 and is projected to increase by 5.0 percent in FY2023.2 However, there are downside risks from uncertainties to the global outlook, which could stifle the recovery in tourism and economic activity.
Inflation was driven to over 15 percent y/y in August-September 2022, mainly due to a surge in import prices. However, lower food and energy prices in recent months have brought down inflation to 7.5 percent y/y in December, and inflation is projected to ease further in 2023.
Economic growth is projected to remain above trend in FY2024 and FY2025 as tourism inflows and the domestic economy normalize. Higher tourism receipts and resilient remittances are also projected to narrow the current account deficit. Reserve coverage, which was over 8 months of imports in FY2022, is projected to remain above adequate levels in the medium term, with coverage of about 7 months of imports.
The central government has maintained surpluses despite the pandemic, helped by buoyant tax revenue—including due to improvements in tax administration—and grant inflows. However, under- execution of public investment was a headwind to growth. In FY2022 the central government run a surplus of 5.4 percent of GDP and lowered public debt to 43.7 percent of GDP.
Credit growth has slowed after accelerating early in the pandemic, with lending to businesses declining and modest growth in household borrowing driven by the lending of public financial institutions. Private sector leverage has increased in recent years, with financial system credit to the private sector reaching 94.6 percent of GDP. While the economic downturn has raised non-performing loans, they remain within historical averages. Furthermore, high provisioning levels have been maintained and capital ratios remain well above prudential norms.
Executive Board Assessment3
Executive Directors commended the authorities for Samoa’s resilience to the COVID-19 pandemic, and after a three-year recession, welcomed the ongoing economic recovery supported by the reopening of tourism. Looking ahead, Directors noted the elevated risks from potentially slower global growth or higher commodity prices, as well as the country’s vulnerability to natural disasters. In this context, they emphasized the importance of close coordination between fiscal and monetary policies, strengthening the financial sector, and advancing structural reforms to promote inclusive growth.
Directors agreed that an expansionary fiscal policy focused on growth-enhancing expenditure would help support the recovery. They encouraged vigilant monitoring of the new District Development Program to ensure high expenditure quality and growth impact. While acknowledging that utility tariff reductions buffered the impact on households of recent macroeconomic shocks, Directors encouraged steps to begin restoring tariffs to cost recovery levels. They also encouraged the authorities to build on recent efforts to improve revenue administration and policies governing the finances of state-owned enterprises. Over the medium term, Directors agreed that a revenue-driven fiscal consolidation would contribute to fiscal sustainability and provide space to raise spending on social needs and climate-resilient infrastructure.
Directors encouraged the authorities to begin normalizing monetary policy immediately, given the high levels of private sector credit and inflation, and the tightening domestic labor market. They viewed that a gradual removal of accommodation based on the pace of the recovery would likely be sufficient to contain private leverage and prevent high inflation from becoming entrenched.
Directors were encouraged by the resilience of Samoa’s financial system. They noted the increased systemic risks brought by the pandemic and emphasized the need to strengthen the emergency liquidity assistance framework and bank resolution regime. Directors welcomed efforts to reinforce the financial position of the Development Bank of Samoa and limit risks from public financial institutions, while pointing to the need to review prudential regulations governing these institutions. They emphasized the need for continued efforts to deepen financial development, assess AML/CFT risks, which would help mitigate correspondent banking relationship pressures, as well as implement previous FSAP recommendations. Directors supported the authorities’ efforts to foster diverse, inclusive growth. They encouraged reforms to improve the quality of education and expand access to training programs to enhance human capital and domestic labor opportunities, strengthen the business environment, and enhance climate resilience.
Samoa: Selected Economic and Financial Indicators 1/
Fiscal years July-June.
Incorporates August 2021 SDR allocation.
Increase signifies appreciation.
Samoa: Selected Economic and Financial Indicators 1/
| Projections | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2019/20 | 2020/21 | 2021/22 | 2022/23 | 2023/24 | 2024/25 | 2025/26 | 2026/27 | 2027/28 | |
| Output and Inflation | (12-month percent change) | ||||||||
| Real GDP | -3.1 | -7.1 | -6.0 | 5.0 | 3.6 | 3.4 | 3.0 | 2.6 | 2.3 |
| Nominal GDP | -2.1 | -7.3 | 0.0 | 13.4 | 6.7 | 7.0 | 6.1 | 5.7 | 5.3 |
| Consumer price index (end of period) | -3.3 | 4.1 | 10.9 | 5.5 | 4.5 | 3.0 | 3.0 | 3.0 | 3.0 |
| Consumer price index (period average) | 1.5 | -3.0 | 8.7 | 10.0 | 5.0 | 4.0 | 3.0 | 3.0 | 3.0 |
| Central Government Finances | (In percent of GDP) | ||||||||
| Revenue and grants | 36.0 | 36.5 | 38.5 | 34.6 | 34.4 | 34.4 | 34.6 | 34.6 | 34.6 |
| Of which : Grants | 8.7 | 6.8 | 9.4 | 5.9 | 5.9 | 6.0 | 6.0 | 6.0 | 6.0 |
| Expenditure | 30.6 | 34.7 | 33.1 | 36.7 | 36.8 | 36.8 | 37.1 | 37.1 | 37.1 |
| Of which : Expense | 27.3 | 31.3 | 32.3 | 33.3 | 31.3 | 31.3 | 31.1 | 31.1 | 31.1 |
| Of which : Net acquisition of non-financial assets | 3.3 | 3.4 | 0.9 | 3.4 | 5.5 | 5.5 | 6.0 | 6.0 | 6.0 |
| Overall balance | 5.4 | 1.7 | 5.4 | -2.0 | -2.4 | -2.5 | -2.5 | -2.5 | -2.5 |
| Gross debt outstanding | 43.3 | 46.3 | 43.7 | 38.5 | 39.3 | 39.7 | 40.2 | 40.8 | 41.2 |
| Money and Credit Aggregates | (12-month percent change) | ||||||||
| Broad money (M2) | -0.9 | 8.1 | 2.2 | 12.0 | 7.5 | 6.5 | 6.0 | 6.0 | 6.0 |
| Private sector credit, commercial banks | 5.9 | 1.5 | 0.2 | 3.0 | 5.0 | 5.0 | 5.0 | 5.0 | 5.0 |
| Private sector credit, other financial corporations | 9.9 | -0.9 | 4.9 | … | … | … | … | … | … |
| Private sector credit, total financial system | 7.5 | 0.4 | 2.2 | … | … | … | … | … | … |
| Private Sector Credit | (In percent of GDP) | ||||||||
| Commercial banks | 48.5 | 53.1 | 53.2 | … | … | … | … | … | … |
| Total financial system | 85.5 | 92.6 | 94.6 | … | … | … | … | … | … |
| Bank Financial Soundness | |||||||||
| Regulatory capital to risk-weighted assets, ratio | 28.7 | 28.1 | 28.8 | … | … | … | … | … | … |
| Non-performing loans to total gross loans, ratio | 2.9 | 3.7 | 4.6 | … | … | … | … | … | … |
| Balance of Payments | (In percent of GDP) | ||||||||
| Current account balance | 0.2 | -14.6 | -11.6 | -3.3 | -4.0 | -3.8 | -3.4 | -2.3 | -1.2 |
| Merchandise exports, f.o.b. | 5.2 | 4.1 | 3.8 | 4.7 | 4.6 | 4.6 | 4.5 | 4.5 | 4.5 |
| Merchandise imports, f.o.b. | 36.5 | 37.8 | 41.4 | 45.3 | 44.4 | 43.3 | 42.6 | 41.8 | 41.0 |
| Services (net) | 13.2 | -3.9 | -2.9 | 8.4 | 8.6 | 10.4 | 12.2 | 13.1 | 14.1 |
| Of which : Tourism receipts | 16.0 | 0.0 | 0.0 | 10.8 | 11.5 | 14.0 | 16.1 | 17.0 | 18.0 |
| Income (net) | -3.5 | -1.8 | -2.9 | -3.0 | -2.8 | -2.8 | -2.8 | -2.8 | -2.7 |
| Current transfers (net) | 21.8 | 24.8 | 31.8 | 31.9 | 29.9 | 27.4 | 25.3 | 24.8 | 24.0 |
| External Reserves and Debt | |||||||||
| Gross official reserves (million U.S. dollars) 2/ | 222.3 | 288.5 | 303.2 | 323.2 | 320.3 | 317.8 | 311.1 | 315.8 | 333.6 |
| (in months of next year’s imports) | 6.4 | 7.9 | 7.2 | 7.4 | 7.1 | 6.8 | 6.4 | 6.3 | 6.3 |
| External debt (in percent of GDP) | 42.9 | 46.1 | 43.7 | 36.4 | 37.4 | 38.0 | 386 | 39.4 | 40.0 |
| Exchange Rates | |||||||||
| Market rate (tala/U.S. dollar, period average) | 2.70 | 2.57 | 2.61 | … | … | … | … | … | … |
| Real effective exchange rate | -4.1 | -1.0 | 3.7 | … | … | … | … | … | … |
| (12-month percent change) 3/ | |||||||||
| Memorandum items: | |||||||||
| Nominal GDP (million tala) | 2.340 | 2.169 | 2.169 | 2.460 | 2.625 | 2.810 | 2.981 | 3.151 | 3.318 |
| GDP per capita (U.S. dollars) | 4.372 | 4.225 | 4.140 | 4.437 | 4.602 | 4.823 | 5.050 | 5.266 | 5.517 |
Fiscal years July-June.
Incorporates August 2021 SDR allocation.
Increase signifies appreciation.
Samoa: Selected Economic and Financial Indicators 1/
| Projections | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2019/20 | 2020/21 | 2021/22 | 2022/23 | 2023/24 | 2024/25 | 2025/26 | 2026/27 | 2027/28 | |
| Output and Inflation | (12-month percent change) | ||||||||
| Real GDP | -3.1 | -7.1 | -6.0 | 5.0 | 3.6 | 3.4 | 3.0 | 2.6 | 2.3 |
| Nominal GDP | -2.1 | -7.3 | 0.0 | 13.4 | 6.7 | 7.0 | 6.1 | 5.7 | 5.3 |
| Consumer price index (end of period) | -3.3 | 4.1 | 10.9 | 5.5 | 4.5 | 3.0 | 3.0 | 3.0 | 3.0 |
| Consumer price index (period average) | 1.5 | -3.0 | 8.7 | 10.0 | 5.0 | 4.0 | 3.0 | 3.0 | 3.0 |
| Central Government Finances | (In percent of GDP) | ||||||||
| Revenue and grants | 36.0 | 36.5 | 38.5 | 34.6 | 34.4 | 34.4 | 34.6 | 34.6 | 34.6 |
| Of which : Grants | 8.7 | 6.8 | 9.4 | 5.9 | 5.9 | 6.0 | 6.0 | 6.0 | 6.0 |
| Expenditure | 30.6 | 34.7 | 33.1 | 36.7 | 36.8 | 36.8 | 37.1 | 37.1 | 37.1 |
| Of which : Expense | 27.3 | 31.3 | 32.3 | 33.3 | 31.3 | 31.3 | 31.1 | 31.1 | 31.1 |
| Of which : Net acquisition of non-financial assets | 3.3 | 3.4 | 0.9 | 3.4 | 5.5 | 5.5 | 6.0 | 6.0 | 6.0 |
| Overall balance | 5.4 | 1.7 | 5.4 | -2.0 | -2.4 | -2.5 | -2.5 | -2.5 | -2.5 |
| Gross debt outstanding | 43.3 | 46.3 | 43.7 | 38.5 | 39.3 | 39.7 | 40.2 | 40.8 | 41.2 |
| Money and Credit Aggregates | (12-month percent change) | ||||||||
| Broad money (M2) | -0.9 | 8.1 | 2.2 | 12.0 | 7.5 | 6.5 | 6.0 | 6.0 | 6.0 |
| Private sector credit, commercial banks | 5.9 | 1.5 | 0.2 | 3.0 | 5.0 | 5.0 | 5.0 | 5.0 | 5.0 |
| Private sector credit, other financial corporations | 9.9 | -0.9 | 4.9 | … | … | … | … | … | … |
| Private sector credit, total financial system | 7.5 | 0.4 | 2.2 | … | … | … | … | … | … |
| Private Sector Credit | (In percent of GDP) | ||||||||
| Commercial banks | 48.5 | 53.1 | 53.2 | … | … | … | … | … | … |
| Total financial system | 85.5 | 92.6 | 94.6 | … | … | … | … | … | … |
| Bank Financial Soundness | |||||||||
| Regulatory capital to risk-weighted assets, ratio | 28.7 | 28.1 | 28.8 | … | … | … | … | … | … |
| Non-performing loans to total gross loans, ratio | 2.9 | 3.7 | 4.6 | … | … | … | … | … | … |
| Balance of Payments | (In percent of GDP) | ||||||||
| Current account balance | 0.2 | -14.6 | -11.6 | -3.3 | -4.0 | -3.8 | -3.4 | -2.3 | -1.2 |
| Merchandise exports, f.o.b. | 5.2 | 4.1 | 3.8 | 4.7 | 4.6 | 4.6 | 4.5 | 4.5 | 4.5 |
| Merchandise imports, f.o.b. | 36.5 | 37.8 | 41.4 | 45.3 | 44.4 | 43.3 | 42.6 | 41.8 | 41.0 |
| Services (net) | 13.2 | -3.9 | -2.9 | 8.4 | 8.6 | 10.4 | 12.2 | 13.1 | 14.1 |
| Of which : Tourism receipts | 16.0 | 0.0 | 0.0 | 10.8 | 11.5 | 14.0 | 16.1 | 17.0 | 18.0 |
| Income (net) | -3.5 | -1.8 | -2.9 | -3.0 | -2.8 | -2.8 | -2.8 | -2.8 | -2.7 |
| Current transfers (net) | 21.8 | 24.8 | 31.8 | 31.9 | 29.9 | 27.4 | 25.3 | 24.8 | 24.0 |
| External Reserves and Debt | |||||||||
| Gross official reserves (million U.S. dollars) 2/ | 222.3 | 288.5 | 303.2 | 323.2 | 320.3 | 317.8 | 311.1 | 315.8 | 333.6 |
| (in months of next year’s imports) | 6.4 | 7.9 | 7.2 | 7.4 | 7.1 | 6.8 | 6.4 | 6.3 | 6.3 |
| External debt (in percent of GDP) | 42.9 | 46.1 | 43.7 | 36.4 | 37.4 | 38.0 | 386 | 39.4 | 40.0 |
| Exchange Rates | |||||||||
| Market rate (tala/U.S. dollar, period average) | 2.70 | 2.57 | 2.61 | … | … | … | … | … | … |
| Real effective exchange rate | -4.1 | -1.0 | 3.7 | … | … | … | … | … | … |
| (12-month percent change) 3/ | |||||||||
| Memorandum items: | |||||||||
| Nominal GDP (million tala) | 2.340 | 2.169 | 2.169 | 2.460 | 2.625 | 2.810 | 2.981 | 3.151 | 3.318 |
| GDP per capita (U.S. dollars) | 4.372 | 4.225 | 4.140 | 4.437 | 4.602 | 4.823 | 5.050 | 5.266 | 5.517 |
Fiscal years July-June.
Incorporates August 2021 SDR allocation.
Increase signifies appreciation.
Title page
SAMOA
STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION
February 21, 2023
KEY ISSUES
Context: After a three-year recession triggered by the COVID-19 pandemic, the economy is recovering, boosted by the reopening of tourism. However, higher global commodity prices briefly raised inflation to double-digit rates. Disciplined fiscal policies, buoyant revenue and remittances, and donor support have contributed to fiscal and external stability. The banking system has remained resilient to the economic downturn, although there has been some deterioration in asset quality. Pressures on correspondent banking relationships continue. With the pandemic-driven decline in investment, as well as rising numbers of seasonal workers abroad, output is projected to remain well below pre-pandemic trends.
Main policy recommendations: After two years of under-spending, an expansionary fiscal stance is needed to support the recovery and avoid long-term scarring through increased public investment and other growth-enhancing expenditure. Given high inflation, this can be partially counterbalanced by the Central Bank of Samoa immediately but gradually unwinding the accommodative monetary stance. If the economic recovery stalls—including if the fiscal expansion doesn’t materialize as planned—monetary tightening could proceed at a slower pace. Support to households provided by state-owned enterprises (SOEs) via low utility tariffs should be channeled through the budget to make the costs transparent and preserve their capacity to make needed investments. Sustainable growth and diversification can be complemented by ramping up training programs to build a pipeline of skilled labor and improving the broader business environment to take greater advantage of regional trade and economic integration agreements.
With long-term risks of debt distress remaining high, gradual fiscal consolidation is appropriate. This should be through raising revenue, which would also create space for the needed strengthening of social safety nets and higher investment in climate resilience. Recent efforts to contain fiscal risks at SOEs are welcome and should be continued. For public financial institutions, their mandates need to be reviewed, and regulation and supervision should be stepped up. Financial sector reforms are advancing—including the national digital ID, credit registry, and Know-Your Customer utility—and their prompt implementation would help facilitate credit intermediation, increase financial inclusion, and sustain access to the international payments system.
Approved By
Cheng Hoon Lim and Geremia Palomba
Discussions took place in Apia during January 16-27, 2023. The closing meeting was held virtually on February 1. The IMF team comprised Andrew Swiston (head), Arpitha Bykere (both APD), Daniela Alcantara (SEC), and Jonathan Pampolina (LEG), was joined by Igam Moaniba (OED), and was supported by Shikha Rao and Stella Tam (both APD). The report also reflects contributions from previous team members Munesh Deo and Kazuhide Ishiwaka.
Contents
CONTEXT
RECENT DEVELOPMENTS, OUTLOOK, AND RISKS
A. Recent Developments
B. Outlook and Risks
NEAR-TERM POLICIES
A. Fiscal Policy
B. Monetary and Exchange Rate Policies
C. Financial Sector Risks, Vulnerabilities and Policies
MEDIUM-TERM POLICIES
A. Higher, More Inclusive Growth
B. Fiscal Sustainability, Climate Resilience, and Social Safety Net
C. Financial Development and International Payments Systems
STAFF APPRAISAL
FIGURES
1. Economic Activity and Employment
2. Inflation Developments
3. Fiscal Sector Developments
4. Monetary Sector Developments
5. Financial Sector Developments
6. External Sector Developments
7. The Role of Remittances
TABLES
1. Selected Economic and Financial Indicators
2. Balance of Payments
3a. Budgetary Central Government Operations (In millions of Tala)
3b. Budgetary Central Government Operations (In percentage of GDP)
4. Central Bank and Commercial Bank Balance Sheets
5. Financial System Balance Sheet
6. Commercial Bank Financial Soundness Indicators
7. Integration Matrix of Surveillance and Capacity Building
ANNEXES
I. Implementation of Previous IMF Recommendations
II. Revenue Mobilization Performance and Options
III. Impact of Global Commodity Price Shocks on Samoa’s Inflation
IV. External Sector Assessment
V. Tourism Re-opening Experience
VI. Risk Assessment Matrix
VII. Key 2022 CMAP Recommendations
VIII. Key 2015 FSAP Recommendations
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
Samoa’s fiscal years end in June.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
