Samoa: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Samoa

International Monetary Fund. Asia and Pacific Dept

doi:10.5089/9798400236938.002.A001

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International Monetary Fund. Asia and Pacific Dept

International Monetary Fund. Asia and Pacific Dept
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Publication Date:: 15 Mar 2023

eISBN:: 9798400236938

ISBN:: 9798400236938

Language:: English

Keywords:: U.S. dollar; IMF staff calculation; net credit; headline inflation; rate of return; Commercial banks; Inflation; Global

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1. The Samoan economy experienced a pandemic-driven three-year recession. During fiscal years 2020-2022, real GDP endured a cumulative 15 percent decline, leaving standards of living over 20 percent behind pre-pandemic projections.1 This was triggered by the border closure and loss of tourism receipts (which accounted for over 20 percent of GDP pre-pandemic), which spilled over to other sectors of the economy. In 2022, a domestic COVID-19 outbreak and associated lockdowns prompted another decline in activity. With the outbreak abating and the border reopened to travelers, a recovery is underway.

Abstract

Context

1. The Samoan economy experienced a pandemic-driven three-year recession. During fiscal years 2020-2022, real GDP endured a cumulative 15 percent decline, leaving standards of living over 20 percent behind pre-pandemic projections.¹ This was triggered by the border closure and loss of tourism receipts (which accounted for over 20 percent of GDP pre-pandemic), which spilled over to other sectors of the economy. In 2022, a domestic COVID-19 outbreak and associated lockdowns prompted another decline in activity. With the outbreak abating and the border reopened to travelers, a recovery is underway.

2. Policies have been largely in line with past IMF advice, contributing to macroeconomic and financial stability (Annex I). Samoa has made strides in revenue mobilization and public financial management (Annex II)—including with the benefit of substantial IMF capacity development (CD)—while progress on growth-enhancing structural reforms has been slower. In response to the pandemic, Samoa accessed Rapid Credit Facility (RCF) financing in April 2020 for 100 percent of quota (about US$22 million). Several stimulus measures were implemented to buffer the pandemic’s economic impact, but their temporary nature, along with under-execution of spending—especially for public investment— helped contain the effects on the underlying fiscal position. Similarly, the RCF and donor financing helped buffer the pandemic’s impact and sustain international reserves. The current administration, which is from the FAST party, won elections in 2021 and remains in office until 2026, and emphasizes community participation and local development.

3. Structural vulnerabilities continue to pose challenges. Samoa’s small size and remoteness limit its potential for economic diversification and integration into global value chains, and there is a sizable diaspora that has pursued economic opportunities abroad. The economy thus depends heavily on tourism, official aid, and remittances. As elsewhere in the region, it has experienced pressures on correspondent banking relationships (CBRs) which are vital for remittance inflows. It is also highly exposed to natural disasters, accessing RCFs after an earthquake and tsunami in 2009 and a cyclone in 2012.

Recent Developments, Outlook, and Risks

A. Recent Developments

4. The reopening is lifting economic activity after a sharp decline in FY2022. The continued border closure and domestic COVID-19-related restrictions weighed on activity, resulting in GDP contracting 6.0 percent in FY2022 (Figure 1). Private consumption moderated following strong growth in recent years, while gross fixed capital formation declined sharply. However, the economy is recovering in FY2023, aided by the lifting of COVID-19 restrictions in July and the pickup in tourism upon reopening of borders in August 2022.

5. Inflation spiked mainly due to a surge in import prices, with a smaller contribution from domestic products. Headline inflation reached 7.5 percent y/y in December, as prices in Samoa quickly reflected both higher global energy and food prices driven by Russia’s war in Ukraine in early 2022 and their subsequent moderation (Figure 2; Annex III). Local inflation has risen as domestic food prices have increased and energy prices have passed through to transportation costs, even as utility tariffs were reduced.² However, underlying domestic inflation (excluding food and transport) has remained contained at 5.5 percent y/y. Moreover, there are signs of easing inflationary pressures, as prices experienced outright declines during October-December.

6. Fiscal policy was a headwind to growth, as the central government remained in surplus in FY2022. Tax revenue was buoyant, sustained by resilient consumption and formal sector wages, as well as higher import prices (Figure 3). Grants also remained above pre-pandemic levels. Primary current expenditure increased due to the response to the local COVID-19 outbreak, but overall expenditure declined, driven by a sharp drop in capital expenditure. As a result, the central government surplus was 5.4 percent of GDP, compared to a budgeted deficit of 2.5 percent of GDP. This reduced gross debt to 43.7 percent of GDP.

7. Overall credit growth remains modest, with corporate borrowing declining and household borrowing rising. Lending to businesses declined in FY2022, given weak loan demand, and high credit risk and indebtedness among businesses (Figure 4). However, commercial bank and Public Financial Institution (PFI) lending to households continued increasing amidst ample bank liquidity and rising PFI assets under management. This contributed to higher leverage, with financial system credit to the private sector reaching 94.6 percent of GDP. Deposit rates leveled off in 2022 after declining steadily during 2021 following the implementation of deposit rate caps, while lending rates have continued to edge down.³

8. Financial soundness indicators have been resilient. The downturn has raised non-performing loans (NPLs)—especially among the tourism and construction sectors—though they remain near historical averages and high provisioning levels have been maintained (Figure 5). During the pandemic, banks assisted borrowers through postponing repayments and restructuring loans. While these policies have been normalized since the reopening, they could have masked weaknesses in repayment capacity among some borrowers and deterioration in asset quality. The banking system remains liquid (though with liquidity distributed unevenly), with capital ratios well above prudential norms.

9. Despite the absence of tourism, the current account deficit narrowed and reserves remained ample. The current account balance narrowed to -11.6 percent of GDP in FY2022 (-14.6 percent in FY2021), principally because of surging remittances, which were partially offset by higher imports. Samoa’s external position in FY2022 is assessed as moderately stronger than medium-term fundamentals and desirable policy settings, though there is a wide confidence interval given the volatility of Samoa’s external accounts and uncertainty surrounding the medium-term path of tourism and remittances (Annex IV). Gross international reserves remained more than adequate, at 8.3 months of imports, with contributions from higher grants and the August 2021 SDR allocation, which has been held in reserves and used to repay IMF credit.

10. Tourism is recovering rapidly and remittances continue to grow. Visitor arrivals already exceed half of pre-pandemic levels, driven by some one-off events and pent-up demand (Annex V). However, some facilities have been unable to reopen due to investment needs and some skilled workers have moved to other sectors or abroad, limiting capacity. Tourism receipts are thus projected at 10.8 percent of GDP in FY2023. Remittances are growing rapidly driven by rising numbers of seasonal workers abroad, though some normalization in the medium term is expected from recent exceptional levels (Figure 7). The tourism recovery and remittances growth, along with still-high commodity prices, are expected to sustain high imports. The tala weakened by 3.5 percent year-over-year against the U.S. dollar in December 2022, owing to the dollar’s strength against the other currencies in the basket (Australian dollar, euro, and New Zealand dollar), but has appreciated by 4 percent in nominal effective terms and 5 percent in real effective terms.⁴ Overall, the current account deficit is forecast to narrow to 3.3 percent of GDP in FY2023.

B. Outlook and Risks

11. The ongoing recovery should translate to above-trend GDP growth. Real GDP rebounded by 4.7 percent in Q1-FY2023 and is projected to grow by 5.0 percent in FY2023, with the reopening of tourism spilling over to other sectors, household consumption supported by strong remittances, the large increase in public investment, and the border reopening reviving other construction activity. These factors are expected to continue supporting the economy in FY2024 and FY2025, keeping GDP growth over 3 percent. Inflation is projected to average 10.0 percent during FY2023 and gradually ease to 5.5 percent by fiscal year-end given the moderation in global commodity prices, partly counterbalanced by tight labor market conditions—in part due to the outflow of seasonal workers (Annex III). As in previous global supply shocks, the currency basket regime provides a credible nominal anchor in the context of a closed capital account. This framework should help inflation gradually converge to around 3 percent, the Central Bank of Samoa’s (CBS) indicative target, as inflation in trading partners moderates.⁵

12. Global developments continue to pose downside risks. Several factors could potentially generate weaker-than-expected global growth and stifle Samoa’s recovery in tourism and economic activity (Annex VI). Continued under-execution of fiscal spending could also lead to weaker-than-expected growth. Commodity prices pose another key downside risk, and could contribute to inflation persistence, weighing on household purchasing power and local production costs. These price pressures together with domestic labor shortages and reduced capacity could also hurt tourism sector competitiveness. To the extent any of these risks materialized, they could raise the current account deficit and reduce reserves. However, staff analysis suggests that under a downside scenario with substantially lower tourism receipts, the economy would still grow and reserve coverage would remain more than adequate (Annex V). Samoa also faces the ever-present vulnerability to natural disasters. On the upside, a rapid recovery in tourist inflows could lend greater support to economic activity and employment, though also adding to inflationary pressures.

13. Current projections imply significant post-pandemic scarring. With the economy projected to return in the medium term to its historical average growth of 2.0-2.5 percent, output would remain 14 percent below the pre-pandemic trend. The sharp contraction in investment and increase in the number of seasonal workers abroad (if sustained) will weigh on productive potential, especially in tourism-related sector where these issues are more pronounced.

14. Authorities’ views: The authorities broadly agree with the outlook for a recovery. The baseline projection for real GDP growth is somewhat lower than staff’s—albeit with potential upside—due to a deceleration expected in H2-FY2023 as pent-up demand wears off, and with constraints in the tourism sector holding growth around trend in FY2024. They agree that inflation will continue to ease, but is likely to remain above 3 percent for some time due to elevated inflation in trading partners. The authorities concurred on the main risks to growth and inflation, including global monetary tightening, renewed acceleration in commodity prices, and continued supply chain disruptions.

Near-Term Policies

The risks to the recovery and large pandemic-related scarring justify an expansionary fiscal stance, provided it is used to boost productive capacity through increased public investment and other growth-enhancing expenditure. Given high inflation and the economic recovery, the Central Bank of Samoa should start unwinding its highly accommodative monetary stance, which would also contain a further buildup of private sector leverage. In the event of a slower economic recovery—including if the fiscal expansion doesn’t materialize as planned—monetary tightening could proceed at a slower pace.

A. Fiscal Policy

15. The FY2023 budget plans for an expansionary fiscal stance driven by a new local development program and higher public investment. The budget aims for a deficit of 3.5 percent of GDP, to be financed mainly by deposits. An increase in excise taxes on unhealthy foods takes effect in January 2023, with a full-year impact of 0.2-0.3 percent of GDP. The main new expenditure initiative is a district development program (DDP) for 2.3 percent of GDP, which aims to facilitate inclusive growth by empowering the 51 local districts within Samoa to execute their own community development projects. Capital expenditure is budgeted at 4.5 percent of GDP, below pre-pandemic levels but higher than recent outturns. Grants are expected to decline as pandemic-related support diminishes.

16. Recent data suggests the deficit will be narrower than budgeted even including transfers to Samoa Airways. Central government guarantees on liabilities of Samoa Airways have been called, amounting to 2.2 percent of GDP. Offsetting this, tax revenue is still performing better than expected, driven by buoyant activity and imports, and higher prices. Fully executing budgeted expenditure will also present challenges. For the DDP, execution may lag while the policy framework is being put in place, capacity at the district level is formed, and projects are identified and approved. Public investment will benefit from greater availability of materials and human resources as borders reopen but ramping up execution will take time.

17. The projected expansionary fiscal stance is appropriate to assist the economic recovery, provided there is an increase in public investment. While the budget planned a larger expansion, staff projects a smaller deficit of 2.0 percent of GDP—still an expansionary stance given the FY2022 surplus—and with risks of a higher balance and thus smaller fiscal impulse.⁶ To maximize the positive impulse to growth, priority needs to be given to the timely execution of public investment. The DDP could provide a boost in this area, though it brings risks to expenditure quality given its decentralized nature. However, the central government is implementing thorough evaluation and monitoring frameworks to mitigate these risks.⁷

18. The finances of state-owned enterprises (SOEs) continue to pose challenges. Samoa Airways has limited its operations to ground handling and propeller routes, which reduced its operational losses in 2021-22. The 20 percent reduction in electricity and water tariffs (along with other government fees and charges) enacted in 2021 remains in effect, at an annual cost of over one percent of GDP, which has been reflected in a deterioration in the operational balance of the electricity company. These measures are currently funded by the relevant SOEs, not through the central government.

Largest SOEs by Total Assets

(In percent of GDP; FY2021)

Sources: Samoa Public Accounts; and IMF staff calculations.

^{^1/}2019 information.

Largest SOEs by Total Assets

(In percent of GDP; FY2021)

SOEs	Assets
Electric Power Corporation (EPC)	22
Samoa Ports Authority (SPA)	12
Samoa Water Authority (SWA)	9
Samoa Airport Authority (SAA)	7
Samoa Land Corporation (SLC)	5
Samoa Airways Limited (SA) ^1/	5

Sources: Samoa Public Accounts; and IMF staff calculations.

^{^1/}2019 information.

Largest SOEs by Total Assets

(In percent of GDP; FY2021)

SOEs	Assets
Electric Power Corporation (EPC)	22
Samoa Ports Authority (SPA)	12
Samoa Water Authority (SWA)	9
Samoa Airport Authority (SAA)	7
Samoa Land Corporation (SLC)	5
Samoa Airways Limited (SA) ^1/	5

Sources: Samoa Public Accounts; and IMF staff calculations.

^{^1/}2019 information.

19. Utility tariffs should be made commensurate with costs, with support to households channeled through the budget. Reducing tariffs has buffered the impact of higher commodity prices on households and helped to contain inflation. However, the benefits are not well targeted, and the policy fails to allow higher prices from international commodity markets to pass through into lower demand. A normalization of tariffs over 2-3 years—especially as household incomes recover and inflationary pressures recede—could strike a balance between buffering the macroeconomic impact of recent shocks and preserving SOE finances. Supporting households through a direct, per person transfer (as was executed during the pandemic) would be more transparent and more progressive. It would also preserve the financial position and investment capacity of the power company. As an alternative, the utility tariff measures should be funded by annual budgetary appropriations.

20. Authorities’ views: The authorities aim to fully execute budgeted expenditure including public investment and projects inclusive of District Development Programs, which should contribute to the economic recovery and community development. With the downsizing of operations at Samoa Airways, the company is expected to be profitable going forward. Lower utility tariffs are providing a key source of support to households suffering from the impact of the food and energy price shock. While the need to preserve the finances of the power company is recognized, the high level of inflation does not currently permit an increase in the tariff rate.

B. Monetary and Exchange Rate Policies

21. The CBS aims to maintain an accommodative policy stance in FY2023 to support demand. The CBS has initiated open market operations (OMO) after a gap of two years and discontinued the Standby Credit Facility introduced during the pandemic. However, OMOs have been small and interest rates remain near the 0.15 percent policy rate. Furthermore, financial system liquidity is structurally high, owing both to excess reserves of commercial banks and high levels of liquidity at PFIs, which poses challenges to monetary transmission.⁸

22. The economic recovery and high inflation rates call for monetary policy normalization to begin immediately. With lending rates at historic lows and ample systemic liquidity, some accommodation can be removed without unduly tightening overall financial conditions. This would contribute to financial stability by containing further increases in household leverage. The resultant reduction in demand would, in turn, lower imports and improve external balances, while also helping ensure the inflation pass-through from import prices is only transitory. Normalizing the policy rate during the rebound in activity would build up policy space to respond to future shocks. Complementing policy rate hikes with larger OMO would help absorb excess liquidity in the system. This, together with the end of deposit rate caps in December 2022, will facilitate the transmission of the tighter stance.

23. Removal of monetary accommodation could be gradual, with the pace dependent on the strength of the recovery. In past cycles, the monetary policy rate hovered around the 3-5 percent range and influenced domestic interest rates. However, with the neutral rate and strength of transmission uncertain after a long period of near-zero rates, a gradual approach would allow calibration of the pace of tightening and terminal rate based on the ongoing effects. Interest rate hikes could be slowed if the recovery loses steam. While normalization would adversely impact household and corporate debt repayment capacity against the backdrop of high leverage, rising incomes will buffer the effects. Gradual tightening is also appropriate since pressures from global commodity prices are expected to ease going forward.

24. Authorities’ views: The authorities highlighted that while the economic recovery paves the way for gradual normalization of monetary policy, the stance should remain accommodative given low credit growth and the potential impact of higher interest rates on borrowers’ repayment capacity. Looking ahead, any tightening of the stance would need to be accompanied by active communication with banks and PFIs to guide expectations, and transmission would be facilitated by the expiration of the deposit rate caps. The authorities affirmed their satisfaction with the functioning of the currency basket peg and concurred with staff’s assessment regarding the adequacy of reserves coverage.

C. Financial Sector Risks, Vulnerabilities and Policies

25. Given the deterioration in asset quality and risks to repayment capacity, banks have increased capital buffers and provisioning, helping to maintain systemic resilience. While systemic financial risks increased early in the pandemic, the system has remained resilient, and risks are abating as the economic recovery raises borrower cash flows. However, in the context of high leverage, policy rate normalization could strain private sector repayment capacity and balance sheets of commercial banks and PFIs. Vigilant monitoring of asset quality and financial soundness thus remains necessary to identify and address emerging vulnerabilities. This should include updating stress tests, ensuring consistent application of loan classification standards, maintaining loss-absorbing capital ratios, and developing and monitoring indicators of the debt servicing capacity of borrowers such as debt-to-income and debt service-to-income ratios.⁹ To contain or prepare to deal with systemic risks, the authorities should also enact reforms as previously recommended by IMF TA, including: implementing a rules-based progressive enforcement program of bank supervision, including early intervention; and improving the bank resolution framework and emergency liquidity assistance framework.

Financial Linkages between Sectors

(In percent of GDP, end-FY2022)

Source: Samoan authorities; and IMF staff calculations. Note: NBFIs are non-bank financial institutions which include Public Financial Institutions (PFIs)

^{^*}PFI lending to SOEs and other PFIs, and CBS lending to PFIs are backed by govt. guarantees.

^{^{^}}Excluding PFI lending to Samoa Airways with govt. guarantee that has been called.

26. SNPF and Unit Trust of Samoa (UTOS) are experiencing rapid growth in assets under management. SNPF’s portfolio reached 48 percent of GDP in FY2022, fueled by a phased rise in the employee contribution rate, from 5 percent in FY2015 to 10 percent in FY2022. SNPF and UTOS are increasingly investing their assets overseas, which enables them to increase the rate of return but raises their vulnerability to exchange rate and other risks, and could raise domestic exposure to external shocks. SNPF is also a competitor with banks in lending to the private sector, through lending to participants. While credit risks are low given the lending is collateralized against participants’ contributions, the associated rise in household borrowing could increase financial stability risks. The lending of these PFIs to SOEs and other PFIs, with government guarantees, has diminished in recent years.

27. While efforts have been made to clean up the balance sheet of the Development Bank of Samoa (DBS), more progress is needed. Some longstanding NPLs are being resolved, the government has made capital infusions of $10.6 million tala through the FY2020-2023 annual budgets, and DBS is making progress on repaying its credit lines with CBS. In contrast with past unfunded mandates, a new program to help restart operations at pandemic-affected small businesses has been directly funded by the government. However, DBS is still making net losses, and with large tourism-related NPLs still on its balance sheet, asset quality and cash flow remain weak.

28. Given the systemic importance of the PFIs, the FSAP recommendations to improve the governance and transparency of the PFIs and revise their prudential regulations should be implemented. New polices on government guarantees and on-lending, which aim to improve transparency in the approval and management of guarantees based on credit risk assessments and ensuring sufficient financial returns, should help contain risks from lending to SOEs and other PFIs. The shift of DBS to focus on SMEs (for whom collateral issues often limit their borrowing from commercial banks) will help limit overlap with commercial banks. The lending mandates of other PFIs should also be reviewed with an aim to achieve specific socio-economic objectives while minimizing financial system distortions, including the crowding out of commercial banks. Prudential regulations should be revised to ensure sound classification and reporting of NPLs, and align capital requirements with those of financial intermediaries elsewhere with similar operations. Regulation and supervision should be stepped up with respect to overseas investments. For SNPF, with lump sum withdrawals chosen by almost all eligible participants, the actuarial incentives should also be revisited with a view to providing greater income security during retirement.

29. Authorities’ views: The authorities emphasized the financial system had weathered the pandemic well, with banks remaining well capitalized and NPLs manageable due to ample provisioning and sufficient collateral. They nevertheless agreed that leverage was high and credit risks remained elevated despite the economic recovery. They recognized the risks of higher overseas investment by PFIs, while noting this was mitigated by a ceiling on the overseas portfolio and requirements for some holdings to remain in liquid form. They see risks of PFI-SOE linkages being contained by strengthened policies on government guarantees and on-lending. The authorities pointed to progress in strengthening DBS through capital injections, directly funding its business restart program, and shifting its mandate to focus on SMEs. They affirmed that reforms to limit financial system risks would continue, including developing stress testing capacity, establishing an emergency liquidity assistance framework, and reviewing the PFI prudential guidelines.

Medium-Term Policies

As the economy recovers, policies should shift to preserving medium-term stability and facilitating inclusive growth through pursuing the objectives laid out in the authorities’ Pathway for the Development of Samoa (PDS) five-year plan and the Sustainable Development Goals (SDGs). Key priorities are:

Spurring growth to recover the pre-pandemic level of output and raise standards of living.
Bolstering fiscal sustainability, while making the necessary investments in climate resilience and the social safety net.
Deepening financial development and ensuring sustained, robust access to the international payments system.

A. Higher, More Inclusive Growth

30. The authorities are undertaking structural reforms to achieve the SDGs and pursue sustainable growth and diversification. Long-standing structural bottlenecks include low accumulation of human capital, food insecurity, high concentration of activity in tourism, and a sizable informal labor market.¹⁰ Reforms are required to improve the quality of education and health coverage, enhance digitalization and connectivity, and further accumulate human capital. The PDS identifies five key strategic outcomes and explicitly links to the SDGs. Within this framework, the authorities have advanced measures to boost inclusive growth:

The National Employment Policy aims to raise employment in locally-producing firms, upskill/reskill workers, introduce online and on-the-job training, increase youth and female employment, and formalize workers in the informal sector.
The Labour and Employment Relations Act is being amended to improve labor protections and working conditions by strengthening redundancy and termination procedures, and enhancing provisions for discrimination, harassment, and grievances.

^{Text Table:}

Pathways for Development of Samoa (PDS) and the SDGs

The National Industry Development Policy aims to accelerate transformation of priority industries where Samoa has potential comparative advantage. The plan includes measures to support innovation and entrepreneurship, improve enabling infrastructure—especially in transportation and information and communication technology, and work with the private sector to provide appropriate training and skills upgrading.
The DDP noted above also aims at increasing economic opportunities with projects focused on local infrastructure, small business creation and support, and training and skill development.

31. Further developing human capital and improving the business environment remain priorities. Training programs should be expanded to rebuild skilled labor supply, especially among the high share of youth who are not in education, employment or training. Samoa can also take greater advantage of the PACER-Plus agreement covering trade within the region (including Australia and New Zealand) to diversify exports by upgrading the business environment and further reducing trade facilitation costs.¹¹

32. Authorities’ views: The authorities underscored the role of structural reforms and community development to spur inclusive growth. In this context, enhancing human capital is a priority, through training and reskilling programs—particularly in the tourism sector, as well as through investments in health and education. They see benefits from seasonal workers schemes through employment opportunities and remittances, while noting they constrain the domestic labor supply. They also emphasized the need to make better use of the skills acquired by seasonal workers abroad.

B. Fiscal Sustainability, Climate Resilience, and Social Safety Net

33. The high risks of debt distress over the long term, in part due to climate vulnerability, call for gradual fiscal consolidation and spending reallocation toward climate mitigation policies. The Debt Sustainability Analysis (DSA) indicates high risks of debt distress, though only at a long-term horizon (see DSA Annex). The importance of building fiscal buffers against shocks, including natural disasters, is highlighted by stress tests that result in breaches of the indicative debt thresholds, though the preponderance of concessional loans in public debt mitigates debt service risks. Given the risks are flagged mainly in the outer years of the projection horizon, the fiscal consolidation necessary to safeguard sustainability can be gradual. Bringing the deficit below 2 percent of GDP within three years would keep debt below 40 percent of GDP, in line with previous staff recommendations, safeguarding debt dynamics.¹²

34. Revenue measures should take priority given social spending needs and the estimated revenue loss from the gradual reduction of tariffs associated with the PACER-Plus agreement (1.2-1.6 percent of GDP over 25 years). While VAGST revenue is already comparatively high and excises have been raised, other policy measures recommended by previous IMF TA remain relevant, including: 1) widen the VAGST base by taxing imported services and scaling down zero-rating and exemptions; 2) reduce corporate income tax holidays and other exemptions; and 3) review and reduce import duty exemptions. These base-broadening measures should be pursued ahead of raising tax rates given their lower multiplier impact on growth and the already-high tax rates in Samoa relative to regional peers (Annex II).

35. Some revenue measures recommended by the Climate Macroeconomic Assessment Program (CMAP) would also assist with climate mitigation goals (Annex VII). Increasing excise taxes on kerosene and LPG and adjusting them in line with inflation would internalize some of their negative environmental externalities. Similarly, electricity should be taxed at the standard VAGST rate. The revenue raised could be redistributed to vulnerable groups by strengthening the social safety net.

36. Revenue gains are also possible through further improvements to administration. As noted, Samoa has made significant strides in revenue administration, including the rollout of electronic fiscal devices in 2020 which boosted both VAGST and corporate income tax revenue (Annex II). Further priorities identified by IMF TA include: 1) better enforcement of transfer pricing and thin capitalization rules; 2) improving the information technology system; 3) moving towards a full self-assessment system to reduce the resource-intensive checking of returns; and 4) deepening segmentation to better tailor services.

37. There is also room to strengthen public financial management to improve the effectiveness of spending and strengthen social safety nets. To create space for investment, the current expenditure-GDP ratio should be normalized after its transitory, pandemic-driven increase. Within that envelope, finalizing the national digital ID would facilitate the delivery of health and education services and complement the authorities’ ongoing efforts to expand the social safety net. Relevant recommendations from previous IMF assessments include: strengthening budget planning through greater scrutiny of budget proposals and outcomes, improving the credibility of revenue projections, and reinforcing execution with closer monitoring of development projects and corrective actions in case of implementation delays.¹³ Execution of capital expenditure could be raised through strengthened project planning incorporating longer, more realistic timelines. Maintenance expenditure also needs to be adequately budgeted, which would improve resilience to natural disasters.

38. A scaling up of investment is necessary to meet climate adaptation needs and should be pursued through increased grant financing given limited fiscal space. The CMAP estimated additional financing of 6 percent of GDP per year would be necessary to fully fund total climate spending needs.¹⁴ Debt-investment-growth modeling illustrated that ex-ante funding of climate-resilient infrastructure would be more cost effective both for Samoa and donors than ex-post reconstruction after disasters, boost medium-term growth potential, and help preserve fiscal sustainability, presenting a strong rationale for higher grants from the international community.¹⁵

39. The government has taken steps to improve governance and contain fiscal risks from SOEs, including PFIs. Recent advances include the approval of policies on government guarantees and on-lending, and the tightening of oversight of direct SOE borrowing under the revised Medium-Term Debt Management Strategy. These measures will help limit risks from contingent liabilities. Other recommendations of recent IMF TA and the FSAP that should be implemented include funding in the budget any costs associated with social obligations or policy lending, better targeting policy lending, and investigating and clarifying any guarantees the government may need to provide on the assets of PFIs.

40. Authorities’ views: The authorities agreed that there are long-term fiscal risks from climate change and natural disasters. These concerns are driving stepped-up efforts to fund climate-resilient investment with grants rather than borrowing. Efforts to improve revenue administration are currently taking priority and bearing fruit. New tax policy measures are not under consideration after the recent increase in excise taxes for unhealthy products. The authorities emphasized recent substantial progress in strengthening public financial management—including policies governing SOEs—and plan to continue to build on this progress with CD from the IMF and other partners.

C. Financial Development and International Payments Systems

41. Reforms to facilitate credit intermediation and financial inclusion are advancing, though the pandemic has pushed back the timeline. The authorities are finalizing an updated national financial inclusion strategy centered on the national digital ID and credit registry projects. The strategy also maps out steps to facilitate the deployment of digital financial services through improvements to the regulatory framework and technological infrastructure, as well as efforts to bolster financial literacy and consumer protection. Progress has been made against many of the 2015 FSAP recommendations, though some items remain pending (Annex VIII). The authorities are also working to approve a regulatory framework for money lenders, credit unions, and microfinance institutions, and with the support of IMF TA they are elaborating amendments to insurance laws.

42. Safeguards assessment: An updated safeguards assessment was completed in May 2021, and progress on the implementation of its recommendations has subsequently been mixed. The assessment found that legal reforms in 2015 enhanced the CBS’ autonomy and strengthened its governance, and that financial reporting is sound, in line with International Financial Reporting Standards. Since the assessment, progress has been made in strengthening controls in operational areas, and the CBS has sought IMF technical assistance in strengthening risk management. However, a recommendation for the appointment of a reputable external auditor experienced in auditing central banks has not been implemented. Staff continues to follow up on this and other outstanding recommendations.

43. Pressures on CBRs continue for domestic financial institutions. In 2021, the two domestic banks had their U.S. dollar CBRs terminated by their Australian correspondent bank (their Australian and New Zealand dollar CBRs remain active). The banks secured more expensive alternative arrangements, but they continue to pursue new CBRs with other correspondent banks. While larger money transfer operators have access to bank accounts, smaller ones have struggled to maintain them in remittance-sending countries. Key factors in CBR pressures include low profitability, risks from weaknesses in AML/CFT supervision, and reputational risks arising from Samoa’s offshore sector. The latter includes Samoa’s presence on the EU list of non-cooperative tax jurisdictions because of the preferential tax treatment of offshore companies with little or no economic substance in Samoa. Notwithstanding these developments, the costs of sending/receiving remittances to/from Samoa has declined, while the share of non-bank versus bank flows has remained stable (Figure 7).

44. The authorities should continue to pursue a multi-pronged approach to mitigating CBR pressures at the national and regional levels. The authorities are conducting an updated national AML/CFT risk assessment and elaborating a national AML/CFT strategy. Augmented staffing resources and continuous training would also contribute to enhancing risk-based AML/CFT supervision. Risks from the offshore sector should be mitigated with improved supervision of licensed trust and company service providers and greater transparency of beneficial ownership information through a central registry and effective verification mechanisms, which are being worked on. With assistance from the ADB, the Know-Your-Customer (KYC) utility project will facilitate customer identification for cross-border transactions (particularly remittances). The authorities are prioritizing removal from the EU tax list and are engaging with the relevant authorities on the issue. In 2021, Samoa joined the OECD/G20 Inclusive Framework on BEPS, demonstrating their commitment to transparency and equitable treatment under their tax system.

45. Authorities’ views: The authorities reiterated their commitment to developing the financial system and highlighted progress on establishing a national digital ID and credit registry, implementing a national automated payments system, expanding the CBS supervisory perimeter, updating insurance regulations, and strengthening CBS risk management. They emphasized their efforts to strengthen AML/CFT supervision, and in their judgment AML/CFT compliance among financial institutions is high and risks are low. They expect further benefits from finalizing the KYC utility, and underscored efforts to ensure beneficial ownership transparency and equitable taxation in the offshore sector.

Staff Appraisal

46. After a three-year, pandemic-driven recession, the Samoan economy is recovering, boosted by the reopening of borders. Tourism inflows are raising activity more broadly, with growth projected at 5 percent in FY2023. Inflation is subsiding as food and fuel prices stabilize, though pressures remain due to constraints in the local labor supply. The sharp contraction in investment and reduction in the domestic labor force will likely weigh on medium-term potential growth.

47. An expansionary fiscal policy is appropriate provided there is an increase in investment and other growth-enhancing expenditure. Higher public investment and community-level development expenditure should attenuate pandemic-related scarring and boost growth potential. Vigilant monitoring and evaluation of the DDP should ensure high expenditure quality and maximize the program’s growth impact. Meanwhile, utility tariffs should be restored to cost-recovery levels, with rate increases phased over 2-3 years to mitigate the impact on households. This is critical to preserving the investment capacity of the power company, with support to households best channeled through the budget.

48. With economic recovery underway, monetary policy normalization should begin immediately. This would contain leverage as the economy picks up, while preventing inflation from becoming entrenched domestically. Removal of accommodation could be gradual, with the pace dependent on the speed of recovery. The currency basket peg has served Samoa well in maintaining external stability, and reserve coverage is adequate.

49. The financial system has remained resilient despite the economic downturn. Systemic risks increased during the pandemic but are declining with the border reopening, and banks are well capitalized with ample provisioning. This illustrates the need to implement longstanding recommendations to strengthen the emergency liquidity assistance framework and bank resolution regime. Efforts to reinforce the financial position of DBS are welcome and should be continued. While recent government policies limit risk from PFI-SOE linkages, PFI regulations should be reviewed to ensure sound credit quality is maintained.

50. Structural reforms are necessary to address long-standing bottlenecks and minimize the negative effects of the pandemic. Implementing the key priorities of the Pathway for the Development of Samoa would foster inclusive growth, particularly reforms geared toward improving the quality of education and health care and enhancing digital capabilities. In the tourism sector, expanding training programs and providing greater access to credit for facility renovations could help restore capacity.

51. A gradual, revenue-driven fiscal consolidation is necessary in the medium term. While recent budget surpluses have lowered public debt, risks of debt distress remain high in the long term due to Samoa’s vulnerability to climate events. There has been welcome strengthening of revenue administration and public financial management, including to contain fiscal risks from SOEs. Continuing efforts in these areas would provide space to reallocate spending toward social needs and investment in climate-resilient infrastructure.

52. Deepening financial development and ensuring access to the international payments system remain priorities. Once finalized, the national digital ID and credit registry should facilitate financial intermediation and inclusion. With pressures on CBRs continuing, welcome progress has been made in assessing AML/CFT risks, and efforts to strengthen AML/CFT supervision and establish the KYC utility should facilitate cross-border transactions.

53. It is recommended that the next Article IV consultation with Samoa take place on the standard 12-month cycle.

^{Table 1.}

Samoa: Selected Economic and Financial Indicators ^1/

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

^{^1/}Fiscal years July-June.

^{^2/}Incorporates August 2021 SDR allocation.

^{^3/}Increase signifies appreciation.

^{Table 1.}

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

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

^{^1/}Fiscal years July-June.

^{^2/}Incorporates August 2021 SDR allocation.

^{^3/}Increase signifies appreciation.

^{Table 1.}

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

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

^{^1/}Fiscal years July-June.

^{^2/}Incorporates August 2021 SDR allocation.

^{^3/}Increase signifies appreciation.

^{Table 2.}

Samoa: Balance of Payments^1/

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

^{^1/}The presentation follows the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6).

^{^2/}Excluding reserve assets.

^{Table 2.}

Samoa: Balance of Payments^1/

				Projections
	2019/20	2020/21	2021/22	2022/23	2023/24	2024/25	2025/26	2026/27	2027/28
	(In millions of U.S. Dollars)
Current account balance	1.5	-123.3	-96.8	-29.8	-37.8	-37.9	-35.3	-25.0	-13.5
Trade balance	-271.0	-284.4	-312.6	-364.7	-372.7	-383.0	-397.1	-408.5	-421.4
Exports, fob	45.3	34.8	31.8	41.9	43.3	45.5	46.9	49.3	52.0
Imports, fob	316.3	319.2	344.4	406.6	416.0	428.6	444.0	457.8	473.4
Services balance, net	114.1	-33.2	-24.3	75.1	80.6	102.4	126.7	142.9	162.2
Services credits	209.8	63.8	70.4	176.1	186.1	213.7	244.0	266.0	292.1
Of which: Tourism receipts	139.1	0.0	0.0	97.0	107.8	138.5	167.9	186.1	207.8
Services debits	95.7	97.0	94.7	101.0	105.4	111.3	117.3	123.2	129.9
Primary income, net	-30.5	-15.4	-24.3	-26.9	-26.1	-28.0	-28.8	-30.4	-30.9
Secondary income, net	188.9	209.7	264.4	286.7	280.3	270.7	263.9	271.1	276.6
Official transfers, net	3.0	-0.2	-0.3	0.3	0.2	0.3	0.2	0.2	0.3
Private transfers, net	185.9	209.9	264.7	286.5	280.0	270.5	263.7	270.8	276.4
Capital account balance	67.6	77.2	99.5	70.9	55.4	58.5	61.6	64.7	68.2
Official	64.4	57.6	78.1	53.9	46.9	49.5	52.1	54.7	57.7
Private	3.3	19.6	21.4	17.0	8.5	9.0	9.5	10.0	10.5
Financial account balance ^2/	26.9	21.7	19.4	21.1	20.5	23.1	33.0	35.0	36.9
Direct investment, net	3.3	-6.5	-5.3	-10.8	-4.9	-4.9	-5.2	-5.4	-5.7
Portfolio investment, net	16.7	-15.0	36.9	26.9	21.6	22.8	20.9	21.9	23.1
Other investment, net	7.0	43.2	-12.1	4.9	3.8	5.2	17.3	18.6	19.6
Errors and omissions	-3.4	97.1	36.4	0.0	0.0	0.0	0.0	0.0	0.0
Overall balance	38.7	29.2	19.7	20.0	-2.9	-2.5	-6.6	4.7	17.8
Financing	-38.7	-29.2	-19.7	-20.0	2.9	2.5	6.6	-4.7	-17.8
Change in gross official reserves (-is increase)	-38.7	-29.2	-19.7	-20.0	2.9	2.5	6.6	-4.7	-17.8
Net use of credit	20.6	-1.7	-1.7	-0.9	-0.1	-2.3	-4.5	-4.5	0.0
Of which: IMF disbursements (+)	22.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Of which: Repayments to the IMF (-)	-1.6	-1.7	-1.7	-0.9	-0.1	-2.3	-4.5	-4.5	0.0
Exceptional financing	0.0	0.0	0.0	-1.0	-0.6	-0.6	-0.6	-0.6	-0.6
	(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
Trade balance	-31.2	-33.7	-37.6	-40.6	-39.7	-38.7	-38.1	-37.3	-36.5
Exports, fob	5.2	4.1	3.8	4.7	4.6	4.6	4.5	4.5	4.5
Imports, fob	36.5	37.8	41.4	45.3	44.4	43.3	42.6	41.8	41.0
Services balance, net	13.2	-3.9	-2.9	8.4	8.6	10.4	12.2	13.1	14.1
Services credit	24.2	7.6	8.5	19.6	19.8	21.6	23.4	24.3	25.3
Of which: Tourism receipts	16.0	0.0	0.0	10.8	11.5	14.0	16.1	17.0	18.0
Services debit	11.0	11.5	11.4	11.3	11.2	11.3	11.3	11.3	11.3
Primary income, net	-3.5	-1.8	-2.9	-3.0	-2.8	-2.8	-2.8	-2.8	-2.7
Secondary income, net	21.8	24.8	31.8	31.9	29.9	27.4	25.3	24.8	24.0
Official transfers, net	0.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Private transfers, net	21.4	24.9	31.8	31.9	29.9	27.3	25.3	24.7	23.9
Capital account balance	7.8	9.1	12.0	7.9	5.9	5.9	5.9	5.9	5.9
Official	7.4	6.8	9.4	6.0	5.0	5.0	5.0	5.0	5.0
Private	0.4	2.3	2.6	1.9	0.9	0.9	0.9	0.9	0.9
Financial account balance ^2/	3.1	2.6	2.3	2.3	2.2	2.3	3.2	3.2	3.2
Direct investment, net	0.4	-0.8	-0.6	-1.2	-0.5	-0.5	-0.5	-0.5	-0.5
Portfolio investment, net	1.9	-1.8	4.4	3.0	2.3	2.3	2.0	2.0	2.0
Other investment, net	0.8	5.1	-1.5	0.5	0.4	0.5	1.7	1.7	1.7
Errors and omissions	-0.4	11.5	4.4	0.0	0.0	0.0	0.0	0.0	0.0
Overall balance	4.5	3.5	2.4	2.2	-0.3	-0.3	-0.6	0.4	1.7
Financing	-4.5	-3.5	-2.4	-2.2	0.3	0.3	0.6	-0.4	-1.7
Change in gross official reserves (-is increase)	-4.5	-3.5	-2.4	-2.2	0.3	0.3	0.6	-0.4	-1.7
Net use of credit	2.4	-0.2	-0.2	-0.1	0.0	-0.2	-0.4	-0.4	0.0
Exceptional financing	0.0	0.0	0.0	-0.1	-0.1	-0.1	-0.1	-0.1	-0.1

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

^{^1/}The presentation follows the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6).

^{^2/}Excluding reserve assets.

^{Table 2.}

Samoa: Balance of Payments^1/

				Projections
	2019/20	2020/21	2021/22	2022/23	2023/24	2024/25	2025/26	2026/27	2027/28
	(In millions of U.S. Dollars)
Current account balance	1.5	-123.3	-96.8	-29.8	-37.8	-37.9	-35.3	-25.0	-13.5
Trade balance	-271.0	-284.4	-312.6	-364.7	-372.7	-383.0	-397.1	-408.5	-421.4
Exports, fob	45.3	34.8	31.8	41.9	43.3	45.5	46.9	49.3	52.0
Imports, fob	316.3	319.2	344.4	406.6	416.0	428.6	444.0	457.8	473.4
Services balance, net	114.1	-33.2	-24.3	75.1	80.6	102.4	126.7	142.9	162.2
Services credits	209.8	63.8	70.4	176.1	186.1	213.7	244.0	266.0	292.1
Of which: Tourism receipts	139.1	0.0	0.0	97.0	107.8	138.5	167.9	186.1	207.8
Services debits	95.7	97.0	94.7	101.0	105.4	111.3	117.3	123.2	129.9
Primary income, net	-30.5	-15.4	-24.3	-26.9	-26.1	-28.0	-28.8	-30.4	-30.9
Secondary income, net	188.9	209.7	264.4	286.7	280.3	270.7	263.9	271.1	276.6
Official transfers, net	3.0	-0.2	-0.3	0.3	0.2	0.3	0.2	0.2	0.3
Private transfers, net	185.9	209.9	264.7	286.5	280.0	270.5	263.7	270.8	276.4
Capital account balance	67.6	77.2	99.5	70.9	55.4	58.5	61.6	64.7	68.2
Official	64.4	57.6	78.1	53.9	46.9	49.5	52.1	54.7	57.7
Private	3.3	19.6	21.4	17.0	8.5	9.0	9.5	10.0	10.5
Financial account balance ^2/	26.9	21.7	19.4	21.1	20.5	23.1	33.0	35.0	36.9
Direct investment, net	3.3	-6.5	-5.3	-10.8	-4.9	-4.9	-5.2	-5.4	-5.7
Portfolio investment, net	16.7	-15.0	36.9	26.9	21.6	22.8	20.9	21.9	23.1
Other investment, net	7.0	43.2	-12.1	4.9	3.8	5.2	17.3	18.6	19.6
Errors and omissions	-3.4	97.1	36.4	0.0	0.0	0.0	0.0	0.0	0.0
Overall balance	38.7	29.2	19.7	20.0	-2.9	-2.5	-6.6	4.7	17.8
Financing	-38.7	-29.2	-19.7	-20.0	2.9	2.5	6.6	-4.7	-17.8
Change in gross official reserves (-is increase)	-38.7	-29.2	-19.7	-20.0	2.9	2.5	6.6	-4.7	-17.8
Net use of credit	20.6	-1.7	-1.7	-0.9	-0.1	-2.3	-4.5	-4.5	0.0
Of which: IMF disbursements (+)	22.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Of which: Repayments to the IMF (-)	-1.6	-1.7	-1.7	-0.9	-0.1	-2.3	-4.5	-4.5	0.0
Exceptional financing	0.0	0.0	0.0	-1.0	-0.6	-0.6	-0.6	-0.6	-0.6
	(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
Trade balance	-31.2	-33.7	-37.6	-40.6	-39.7	-38.7	-38.1	-37.3	-36.5
Exports, fob	5.2	4.1	3.8	4.7	4.6	4.6	4.5	4.5	4.5
Imports, fob	36.5	37.8	41.4	45.3	44.4	43.3	42.6	41.8	41.0
Services balance, net	13.2	-3.9	-2.9	8.4	8.6	10.4	12.2	13.1	14.1
Services credit	24.2	7.6	8.5	19.6	19.8	21.6	23.4	24.3	25.3
Of which: Tourism receipts	16.0	0.0	0.0	10.8	11.5	14.0	16.1	17.0	18.0
Services debit	11.0	11.5	11.4	11.3	11.2	11.3	11.3	11.3	11.3
Primary income, net	-3.5	-1.8	-2.9	-3.0	-2.8	-2.8	-2.8	-2.8	-2.7
Secondary income, net	21.8	24.8	31.8	31.9	29.9	27.4	25.3	24.8	24.0
Official transfers, net	0.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Private transfers, net	21.4	24.9	31.8	31.9	29.9	27.3	25.3	24.7	23.9
Capital account balance	7.8	9.1	12.0	7.9	5.9	5.9	5.9	5.9	5.9
Official	7.4	6.8	9.4	6.0	5.0	5.0	5.0	5.0	5.0
Private	0.4	2.3	2.6	1.9	0.9	0.9	0.9	0.9	0.9
Financial account balance ^2/	3.1	2.6	2.3	2.3	2.2	2.3	3.2	3.2	3.2
Direct investment, net	0.4	-0.8	-0.6	-1.2	-0.5	-0.5	-0.5	-0.5	-0.5
Portfolio investment, net	1.9	-1.8	4.4	3.0	2.3	2.3	2.0	2.0	2.0
Other investment, net	0.8	5.1	-1.5	0.5	0.4	0.5	1.7	1.7	1.7
Errors and omissions	-0.4	11.5	4.4	0.0	0.0	0.0	0.0	0.0	0.0
Overall balance	4.5	3.5	2.4	2.2	-0.3	-0.3	-0.6	0.4	1.7
Financing	-4.5	-3.5	-2.4	-2.2	0.3	0.3	0.6	-0.4	-1.7
Change in gross official reserves (-is increase)	-4.5	-3.5	-2.4	-2.2	0.3	0.3	0.6	-0.4	-1.7
Net use of credit	2.4	-0.2	-0.2	-0.1	0.0	-0.2	-0.4	-0.4	0.0
Exceptional financing	0.0	0.0	0.0	-0.1	-0.1	-0.1	-0.1	-0.1	-0.1

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

^{^1/}The presentation follows the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6).

^{^2/}Excluding reserve assets.

^{Table 3a.}

Samoa: Budgetary Central Government Operations

Sources: Data provided by the Samoa authorities; and IMF staff estimates.

^{^1/}Primarily to subsidize the cost of production for public corporations.

^{^2/}Grants paid to extra budgetary units of the central government. Includes calls on central government guarantees.

^{^3/}To meet the direct cost of social assistance related spending that are not covered by a social security fund or provident fund.

^{^4/}Includes current and capital transfers to meet the cost of operation for state owned enterprises, which are not part of subsidies.

^{Table 3a.}

Samoa: Budgetary Central Government Operations

				Projections
	2019/20	2020/21	2021/22	2022/23	2023/24	2024/25	2025/26	2026/27	2027/28
	(in millions of tala)
Total Revenue	842	791	835	852	903	966	1,031	1,090	1,148
Revenue (excluding grants)	639	643	632	706	748	798	852	901	949
Tax revenue	563	543	550	617	659	702	748	791	833
Taxes on income, profits … cap. gains	130	129	131	138	152	160	170	179	189
Taxes on property	0	0	0	1	1	1	1	1	1
Taxes on goods … services	379	354	352	402	426	458	489	517	544
Value added tax	232	218	221	254	264	286	306	324	341
Excises	132	127	125	137	151	161	171	181	191
Others	14	9	6	10	10	10	11	12	12
Taxes on int. trade … transactions	55	60	67	76	81	84	89	94	99
Grants	203	148	203	146	155	169	179	189	199
Other revenue	75	101	82	89	89	95	104	110	116
Total Expenditure	715	753	719	902	967	1,035	1,106	1,169	1,232
Expense	639	679	700	818	823	881	928	980	1,033
Compensation of employees	262	268	281	310	321	344	365	385	406
Use of goods and services	189	170	170	187	200	214	227	240	252
Interest	16	7	11	14	18	19	20	21	23
External	15	6	10	14	14	16	17	18	20
Domestic	0	0	0	4	4	3	3	3
Subsidies ^1/	9	17	16	24	25	26	28	29	31
Grants ^2/	124	159	179	233	205	220	227	239	252
Social benefits ^3/	23	28	34	38	40	43	46	48	51
Other expense ^4/	15	30	8	13	14	15	16	17	18
Transact ions in nonfinancial assets	77	74	19	84	144	155	179	189	199
Gross operating balance	203	112	135	34	80	85	104	109	115
Overall balance	127	38	117	-50	-64	-69	-75	-80	-84
Overall balance excluding grants	-76	-110	-87	-196	-219	-238	-254	-269	-283
Primary balance	143	45	127	-36	-46	-50	-55	-58	-61
Financing	134	38	117	-50	-64	-69	-75	-80	-84
Net acquisition of financial assets	89	13	61	-60	0	0	0	0	0
Domestic currency and deposits	89	13	61	-60	0	0	0	0	0
Net incurrence of liabilities	-45	-25	-56	-10	64	69	75	80	84
External loans (net)	-38	-22	-53	-62	67	72	78	82	87
Disbursement	37	2	0	21	153	153	154	159	154
Amortization	75	24	53	83	86	82	76	77	67
Domestic loans (net)	-7	-3	-3	52	-3	-3	-3	-3	-3
Statistical discrepancy	-8	0	0	0	0	0	0	0	0
Memorandum items:
Nominal GDP	2,340	2,169	2,169	2,460	2,625	2,810	2,981	3,151	3,318
Total central government debt	1,012	1,004	948	948	1,032	1,115	1,198	1,285	1,367
Domestic debt	8	5	2	54	51	49	46	43	41
External debt	1,005	1,000	947	894	981	1,067	1,152	1,242	1,327
Stock of government deposits	295	321	356	296	296	296	296	296	296

Sources: Data provided by the Samoa authorities; and IMF staff estimates.

^{^1/}Primarily to subsidize the cost of production for public corporations.

^{^2/}Grants paid to extra budgetary units of the central government. Includes calls on central government guarantees.

^{^3/}To meet the direct cost of social assistance related spending that are not covered by a social security fund or provident fund.

^{^4/}Includes current and capital transfers to meet the cost of operation for state owned enterprises, which are not part of subsidies.

^{Table 3a.}

Samoa: Budgetary Central Government Operations

				Projections
	2019/20	2020/21	2021/22	2022/23	2023/24	2024/25	2025/26	2026/27	2027/28
	(in millions of tala)
Total Revenue	842	791	835	852	903	966	1,031	1,090	1,148
Revenue (excluding grants)	639	643	632	706	748	798	852	901	949
Tax revenue	563	543	550	617	659	702	748	791	833
Taxes on income, profits … cap. gains	130	129	131	138	152	160	170	179	189
Taxes on property	0	0	0	1	1	1	1	1	1
Taxes on goods … services	379	354	352	402	426	458	489	517	544
Value added tax	232	218	221	254	264	286	306	324	341
Excises	132	127	125	137	151	161	171	181	191
Others	14	9	6	10	10	10	11	12	12
Taxes on int. trade … transactions	55	60	67	76	81	84	89	94	99
Grants	203	148	203	146	155	169	179	189	199
Other revenue	75	101	82	89	89	95	104	110	116
Total Expenditure	715	753	719	902	967	1,035	1,106	1,169	1,232
Expense	639	679	700	818	823	881	928	980	1,033
Compensation of employees	262	268	281	310	321	344	365	385	406
Use of goods and services	189	170	170	187	200	214	227	240	252
Interest	16	7	11	14	18	19	20	21	23
External	15	6	10	14	14	16	17	18	20
Domestic	0	0	0	4	4	3	3	3
Subsidies ^1/	9	17	16	24	25	26	28	29	31
Grants ^2/	124	159	179	233	205	220	227	239	252
Social benefits ^3/	23	28	34	38	40	43	46	48	51
Other expense ^4/	15	30	8	13	14	15	16	17	18
Transact ions in nonfinancial assets	77	74	19	84	144	155	179	189	199
Gross operating balance	203	112	135	34	80	85	104	109	115
Overall balance	127	38	117	-50	-64	-69	-75	-80	-84
Overall balance excluding grants	-76	-110	-87	-196	-219	-238	-254	-269	-283
Primary balance	143	45	127	-36	-46	-50	-55	-58	-61
Financing	134	38	117	-50	-64	-69	-75	-80	-84
Net acquisition of financial assets	89	13	61	-60	0	0	0	0	0
Domestic currency and deposits	89	13	61	-60	0	0	0	0	0
Net incurrence of liabilities	-45	-25	-56	-10	64	69	75	80	84
External loans (net)	-38	-22	-53	-62	67	72	78	82	87
Disbursement	37	2	0	21	153	153	154	159	154
Amortization	75	24	53	83	86	82	76	77	67
Domestic loans (net)	-7	-3	-3	52	-3	-3	-3	-3	-3
Statistical discrepancy	-8	0	0	0	0	0	0	0	0
Memorandum items:
Nominal GDP	2,340	2,169	2,169	2,460	2,625	2,810	2,981	3,151	3,318
Total central government debt	1,012	1,004	948	948	1,032	1,115	1,198	1,285	1,367
Domestic debt	8	5	2	54	51	49	46	43	41
External debt	1,005	1,000	947	894	981	1,067	1,152	1,242	1,327
Stock of government deposits	295	321	356	296	296	296	296	296	296

Sources: Data provided by the Samoa authorities; and IMF staff estimates.

^{^1/}Primarily to subsidize the cost of production for public corporations.

^{^2/}Grants paid to extra budgetary units of the central government. Includes calls on central government guarantees.

^{^3/}To meet the direct cost of social assistance related spending that are not covered by a social security fund or provident fund.

^{^4/}Includes current and capital transfers to meet the cost of operation for state owned enterprises, which are not part of subsidies.

^{Table 3b.}

Samoa: Budgetary Central Government Operations

Sources: Data provided by the Samoa authorities; and IMF staff estimates.

^{^1/}Primarily to subsidize the cost of production for public corporations.

^{^2/}Grants paid to extra budgetary units of the central government. Includes calls on central government guarantees.

^{^3/}To meet the direct cost of social assistance related spending that are not covered by a social security fund or provident fund.

^{^4/}Includes current and capital transfers to meet the cost of operation for state owned enterprises, which are not part of subsidies.

^{Table 3b.}

Samoa: Budgetary Central Government Operations

				Projections
	2019/20	2020/21	2021/22	2022/23	2023/24	2024/25	2025/26	2026/27	2027/28
	(In percent of GDP)
Total Revenue	36.0	36.5	38.5	34.6	34.4	34.4	34.6	34.6	34.6
Revenue (excluding grants)	27.3	29.6	29.1	28.7	28.5	28.4	28.6	28.6	28.6
Tax revenue	24.1	25.0	25.4	25.1	25.1	25.0	25.1	25.1	25.1
Taxes on income, profits … cap. gains	5.5	6.0	6.0	5.6	5.8	5.7	5.7	5.7	5.7
Taxes on property	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Taxes on goods and services	16.2	16.3	16.2	16.3	16.2	16.3	16.4	16.4	16.4
Value added tax	9.9	10.0	10.2	10.3	10.1	10.2	10.3	10.3	10.3
Excises	5.7	5.9	5.7	5.6	5.7	5.7	5.7	5.7	5.7
Others	0.6	0.4	0.3	0.4	0.4	0.4	0.4	0.4	0.4
Taxes on int. trade … transact ions	2.4	2.8	3.1	3.1	3.1	3.0	3.0	3.0	3.0
Grants	8.7	6.8	9.4	5.9	5.9	6.0	6.0	6.0	6.0
Other revenue	3.2	4.6	3.8	3.6	3.4	3.4	3.5	3.5	3.5
Total Expenditure	30.6	34.7	33.1	36.7	36.8	36.8	37.1	37.1	37.1
Expense	27.3	31.3	32.3	33.3	31.3	31.3	31.1	31.1	31.1
Compensation of employees	11.2	12.3	13.0	12.6	12.2	12.2	12.2	12.2	12.2
Use of goods and services	8.1	7.8	7.8	7.6	7.6	7.6	7.6	7.6	7.6
Interest	0.7	0.3	0.5	0.6	0.7	0.7	0.7	0.7	0.7
Subsidies ^1/	0.4	0.8	0.7	1.0	0.9	0.9	0.9	0.9	0.9
Grants ^2/	5.3	7.3	8.3	9.5	7.8	7.8	7.6	7.6	7.6
Social benefits ^3/	1.0	1.3	1.6	1.5	1.5	1.5	1.5	1.5	1.5
Other expense ^4/	0.6	1.4	0.4	0.5	0.5	0.5	0.5	0.5	0.5
Transactions in nonfinancial assets	3.3	3.4	0.9	3.4	5.5	5.5	6.0	6.0	6.0
Gross operating balance	8.7	5.2	6.2	1.4	3.1	3.0	3.5	3.5	3.5
Overall balance	5.4	1.7	5.4	-2.0	-2.4	-2.5	-2.5	-2.5	-2.5
Overall balance excluding grants	-3.3	-5.1	-4.0	-8.0	-8.3	-8.5	-8.5	-8.5	-8.5
Primary balance	6.1	2.1	5.9	-1.5	-1.8	-1.8	-1.8	-1.8	-1.8
Financing	5.7	1.7	5.4	-2.0	-2.4	-2.5	-2.5	-2.5	-2.5
Net acquisition of financial assets	3.8	0.6	2.8	-2.4	0.0	0.0	0.0	0.0	0.0
Domestic currency and deposits	3.8	0.6	2.8	-2.4	0.0	0.0	0.0	0.0	0.0
Net incurrence of liabilities	-1.9	-1.2	-2.6	-0.4	2.4	2.5	2.5	2.5	2.5
External loans	-1.6	-1.0	-2.4	-2.5	2.5	2.6	2.6	2.6	2.6
Disbursement	1.6	0.1	0.0	0.9	5.8	5.5	5.2	5.1	4.6
Amortization	3.2	1.1	2.4	3.4	3.3	2.9	2.6	2.4	2.0
Domestic loans	-0.3	-0.1	-0.1	2.1	-0.1	-0.1	-0.1	-0.1	-0.1
Statistical discrepancy	-0.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Memorandum items:
Nominal GDP On millions of tala)	2,340.1	2,169.3	2,168.8	2,459.9	2,624.9	2,809.9	2,981.2	3,150.7	3,318.2
Total central government debt	43.3	46.3	43.7	38.5	39.3	39.7	40.2	40.8	41.2
Domestic debt	0.3	0.2	0.1	2.2	2.0	1.7	1.5	1.4	1.2
External debt	42.9	46.1	43.7	36.4	37.4	38.0	38.6	39.4	40.0
Stock of government deposits	12.6	14.8	16.4	12.0	11.3	10.5	9.9	9.4	8.9

Sources: Data provided by the Samoa authorities; and IMF staff estimates.

^{^1/}Primarily to subsidize the cost of production for public corporations.

^{^2/}Grants paid to extra budgetary units of the central government. Includes calls on central government guarantees.

^{^3/}To meet the direct cost of social assistance related spending that are not covered by a social security fund or provident fund.

^{^4/}Includes current and capital transfers to meet the cost of operation for state owned enterprises, which are not part of subsidies.

^{Table 3b.}

Samoa: Budgetary Central Government Operations

				Projections
	2019/20	2020/21	2021/22	2022/23	2023/24	2024/25	2025/26	2026/27	2027/28
	(In percent of GDP)
Total Revenue	36.0	36.5	38.5	34.6	34.4	34.4	34.6	34.6	34.6
Revenue (excluding grants)	27.3	29.6	29.1	28.7	28.5	28.4	28.6	28.6	28.6
Tax revenue	24.1	25.0	25.4	25.1	25.1	25.0	25.1	25.1	25.1
Taxes on income, profits … cap. gains	5.5	6.0	6.0	5.6	5.8	5.7	5.7	5.7	5.7
Taxes on property	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Taxes on goods and services	16.2	16.3	16.2	16.3	16.2	16.3	16.4	16.4	16.4
Value added tax	9.9	10.0	10.2	10.3	10.1	10.2	10.3	10.3	10.3
Excises	5.7	5.9	5.7	5.6	5.7	5.7	5.7	5.7	5.7
Others	0.6	0.4	0.3	0.4	0.4	0.4	0.4	0.4	0.4
Taxes on int. trade … transact ions	2.4	2.8	3.1	3.1	3.1	3.0	3.0	3.0	3.0
Grants	8.7	6.8	9.4	5.9	5.9	6.0	6.0	6.0	6.0
Other revenue	3.2	4.6	3.8	3.6	3.4	3.4	3.5	3.5	3.5
Total Expenditure	30.6	34.7	33.1	36.7	36.8	36.8	37.1	37.1	37.1
Expense	27.3	31.3	32.3	33.3	31.3	31.3	31.1	31.1	31.1
Compensation of employees	11.2	12.3	13.0	12.6	12.2	12.2	12.2	12.2	12.2
Use of goods and services	8.1	7.8	7.8	7.6	7.6	7.6	7.6	7.6	7.6
Interest	0.7	0.3	0.5	0.6	0.7	0.7	0.7	0.7	0.7
Subsidies ^1/	0.4	0.8	0.7	1.0	0.9	0.9	0.9	0.9	0.9
Grants ^2/	5.3	7.3	8.3	9.5	7.8	7.8	7.6	7.6	7.6
Social benefits ^3/	1.0	1.3	1.6	1.5	1.5	1.5	1.5	1.5	1.5
Other expense ^4/	0.6	1.4	0.4	0.5	0.5	0.5	0.5	0.5	0.5
Transactions in nonfinancial assets	3.3	3.4	0.9	3.4	5.5	5.5	6.0	6.0	6.0
Gross operating balance	8.7	5.2	6.2	1.4	3.1	3.0	3.5	3.5	3.5
Overall balance	5.4	1.7	5.4	-2.0	-2.4	-2.5	-2.5	-2.5	-2.5
Overall balance excluding grants	-3.3	-5.1	-4.0	-8.0	-8.3	-8.5	-8.5	-8.5	-8.5
Primary balance	6.1	2.1	5.9	-1.5	-1.8	-1.8	-1.8	-1.8	-1.8
Financing	5.7	1.7	5.4	-2.0	-2.4	-2.5	-2.5	-2.5	-2.5
Net acquisition of financial assets	3.8	0.6	2.8	-2.4	0.0	0.0	0.0	0.0	0.0
Domestic currency and deposits	3.8	0.6	2.8	-2.4	0.0	0.0	0.0	0.0	0.0
Net incurrence of liabilities	-1.9	-1.2	-2.6	-0.4	2.4	2.5	2.5	2.5	2.5
External loans	-1.6	-1.0	-2.4	-2.5	2.5	2.6	2.6	2.6	2.6
Disbursement	1.6	0.1	0.0	0.9	5.8	5.5	5.2	5.1	4.6
Amortization	3.2	1.1	2.4	3.4	3.3	2.9	2.6	2.4	2.0
Domestic loans	-0.3	-0.1	-0.1	2.1	-0.1	-0.1	-0.1	-0.1	-0.1
Statistical discrepancy	-0.3	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Memorandum items:
Nominal GDP On millions of tala)	2,340.1	2,169.3	2,168.8	2,459.9	2,624.9	2,809.9	2,981.2	3,150.7	3,318.2
Total central government debt	43.3	46.3	43.7	38.5	39.3	39.7	40.2	40.8	41.2
Domestic debt	0.3	0.2	0.1	2.2	2.0	1.7	1.5	1.4	1.2
External debt	42.9	46.1	43.7	36.4	37.4	38.0	38.6	39.4	40.0
Stock of government deposits	12.6	14.8	16.4	12.0	11.3	10.5	9.9	9.4	8.9

Sources: Data provided by the Samoa authorities; and IMF staff estimates.

^{^1/}Primarily to subsidize the cost of production for public corporations.

^{^2/}Grants paid to extra budgetary units of the central government. Includes calls on central government guarantees.

^{^3/}To meet the direct cost of social assistance related spending that are not covered by a social security fund or provident fund.

^{^4/}Includes current and capital transfers to meet the cost of operation for state owned enterprises, which are not part of subsidies.

^{Table 4.}

Samoa: Central Bank and Commercial Bank Balance Sheets

Sources: Central Bank of Samoa; and IMF staff estimates.

^{^1/}Net credit is net of liquid liabilities.

^{Table 4.}

Samoa: Central Bank and Commercial Bank Balance Sheets

	2017/18	2018/19	2019/20	2020/21	2021/22
	(In millions of Tala; end of period)
Central Bank
Net foreign assets	346	449	496	639	665
Net domestic assets	-25	-41	-59	-98	-134
Net credit to central government	-142	-151	-191	-226	-267
Net credit to financial corporations ^1/	116	114	137	130	125
Other items (net)	1	-4	-5	-1	8
Monetary base	320	408	437	541	530
Other Depository Corporations
Net foreign assets	30	25	7	15	45
Net domestic assets	1,022	1,118	1,123	1,201	1,189
Net credit to central government	-55	-62	-89	-94	-67
Net credit to public non financial corporations ^1/	12	10	9	10	7
Credit to private sector	1,010	1,073	1,136	1,153	1,155
Net claims on central bank and other financial corporations ^1/	267	334	314	396	370
Other items (net)	-212	-237	-246	-264	-276
Deposits and other liabilities	1,052	1,143	1,130	1,216	1,234
Transfer able deposits	424	469	419	486	501
Other deposits	625	670	709	726	730
Depository Corporations, Consolidated
Net fo reign assets	376	474	503	653	710
Net domestic assets	749	763	722	672	645
Broad money	1,124	1,236	1,225	1,325	1,355
	(In percent of GDP; end of period)
Central Bank
Net foreign assets	15.3	18.8	21.2	29.5	30.6
Net domestic assets	-1.1	-1.7	-2.5	-4.5	-6.2
Monetary base	14.2	17.1	18.7	24.9	24.4
Other Depository Corporations
Net foreign assets	1.3	1.0	0.3	0.7	2.1
Net domestic assets	45.3	46.8	48.0	55.4	54.8
Of which: Credit to private sector	44.8	44.9	48.5	53.1	53.2
Deposits	46.7	47.8	48.3	56.0	56.9
Depository Corporations, Consolidated
Net foreign assets	16.7	19.8	21.5	30.1	32.7
Net domestic assets	33.2	31.9	30.9	31.0	29.7
Broad money	49.9	51.7	52.4	61.1	62.5
	(12-month percent change)
Monetary and Credit Aggregates
Monetary base	24.9	27.2	7.3	23.8	-2.0
Broad money	16.5	9.9	-0.9	8.1	2.2
Credit to private sector, commercial banks	-0.7	6.2	5.9	1.5	0.2

Sources: Central Bank of Samoa; and IMF staff estimates.

^{^1/}Net credit is net of liquid liabilities.

^{Table 4.}

Samoa: Central Bank and Commercial Bank Balance Sheets

	2017/18	2018/19	2019/20	2020/21	2021/22
	(In millions of Tala; end of period)
Central Bank
Net foreign assets	346	449	496	639	665
Net domestic assets	-25	-41	-59	-98	-134
Net credit to central government	-142	-151	-191	-226	-267
Net credit to financial corporations ^1/	116	114	137	130	125
Other items (net)	1	-4	-5	-1	8
Monetary base	320	408	437	541	530
Other Depository Corporations
Net foreign assets	30	25	7	15	45
Net domestic assets	1,022	1,118	1,123	1,201	1,189
Net credit to central government	-55	-62	-89	-94	-67
Net credit to public non financial corporations ^1/	12	10	9	10	7
Credit to private sector	1,010	1,073	1,136	1,153	1,155
Net claims on central bank and other financial corporations ^1/	267	334	314	396	370
Other items (net)	-212	-237	-246	-264	-276
Deposits and other liabilities	1,052	1,143	1,130	1,216	1,234
Transfer able deposits	424	469	419	486	501
Other deposits	625	670	709	726	730
Depository Corporations, Consolidated
Net fo reign assets	376	474	503	653	710
Net domestic assets	749	763	722	672	645
Broad money	1,124	1,236	1,225	1,325	1,355
	(In percent of GDP; end of period)
Central Bank
Net foreign assets	15.3	18.8	21.2	29.5	30.6
Net domestic assets	-1.1	-1.7	-2.5	-4.5	-6.2
Monetary base	14.2	17.1	18.7	24.9	24.4
Other Depository Corporations
Net foreign assets	1.3	1.0	0.3	0.7	2.1
Net domestic assets	45.3	46.8	48.0	55.4	54.8
Of which: Credit to private sector	44.8	44.9	48.5	53.1	53.2
Deposits	46.7	47.8	48.3	56.0	56.9
Depository Corporations, Consolidated
Net foreign assets	16.7	19.8	21.5	30.1	32.7
Net domestic assets	33.2	31.9	30.9	31.0	29.7
Broad money	49.9	51.7	52.4	61.1	62.5
	(12-month percent change)
Monetary and Credit Aggregates
Monetary base	24.9	27.2	7.3	23.8	-2.0
Broad money	16.5	9.9	-0.9	8.1	2.2
Credit to private sector, commercial banks	-0.7	6.2	5.9	1.5	0.2

Sources: Central Bank of Samoa; and IMF staff estimates.

^{^1/}Net credit is net of liquid liabilities.

^{Table 5.}

Samoa: Financial System Balance Sheet

Sources: Central Bank of Samoa; and IMF staff estimates.

^{^1/}Other Financial Corporations include DBS, SNPF, SHC, UTOS, Samoa Life Assurance Corporation, and four General Insurance Companies.

^{^2/}Financial Corporations Survey consolidates the accounts of Depository Corporations (Central Bank and Other Depository Corporations) and Other Financial Corporations.

^{Table 5.}

Samoa: Financial System Balance Sheet

	2017/18	2018/19	2019/20	2020/21	2021/22
	(In millions of Tala; end of period)
Other Financial Corporations ^1/
Net foreign assets	42	71	87	100	174
Net domestic assets	1,063	1,091	1,195	1,234	1,275
Net credit to central government	45	38	39	46	51
Net credit to public nonfinancial corporations	30	40	49	40	63
Credit to private sector	739	784	861	853	895
Net credit to depository corporations	150	123	121	132	88
Other items (net)	99	107	124	163	177
Liabilities and equity	1,105	1,162	1,282	1,334	1,449
Loans	125	122	100	95	92
Technical reserves	749	797	887	912	992
Shares and other equity	232	244	296	327	364
Financial Corporations Survey ^2/
Net foreign assets	418	544	590	753	883
Net domestic assets	1,644	1,735	1,817	1,785	1,840
Net credit to central government	-153	-174	-241	-274	-283
Net credit to public nonfinancial corporations	43	49	58	50	70
Credit to private sector	1,754	1,860	2,000	2,009	2,053
(In percent of GDP; end of period)
Other Financial Corporations ^1/
Net foreign assets	1.9	3.0	3.7	4.6	8.0
Net domestic assets	47.2	45.7	51.1	56.9	58.8
Liabilities and equity	49.0	48.6	54.8	61.5	66.8
Financial Corporations Survey ^2/
Net foreign assets	18.5	22.8	25.2	34.7	40.7
Net domestic assets	72.9	72.6	77.6	82.3	84.9
Net credit to central government	-6.8	-7.3	-10.3	-12.6	-13.0
Net credit to public nonfinancial corporations	1.9	2.1	2.5	2.3	3.2
Credit to private sector	77.8	77.8	85.5	92.6	94.6
	(12-month percent change)
Financial System Aggregates
Credit to private sector, other financial corporations	8.4	6.0	9.9	-0.9	4.9
Credit to private sector, total financial system	2.9	6.1	7.5	0.4	2.2

Sources: Central Bank of Samoa; and IMF staff estimates.

^{^1/}Other Financial Corporations include DBS, SNPF, SHC, UTOS, Samoa Life Assurance Corporation, and four General Insurance Companies.

^{^2/}Financial Corporations Survey consolidates the accounts of Depository Corporations (Central Bank and Other Depository Corporations) and Other Financial Corporations.

^{Table 5.}

Samoa: Financial System Balance Sheet

	2017/18	2018/19	2019/20	2020/21	2021/22
	(In millions of Tala; end of period)
Other Financial Corporations ^1/
Net foreign assets	42	71	87	100	174
Net domestic assets	1,063	1,091	1,195	1,234	1,275
Net credit to central government	45	38	39	46	51
Net credit to public nonfinancial corporations	30	40	49	40	63
Credit to private sector	739	784	861	853	895
Net credit to depository corporations	150	123	121	132	88
Other items (net)	99	107	124	163	177
Liabilities and equity	1,105	1,162	1,282	1,334	1,449
Loans	125	122	100	95	92
Technical reserves	749	797	887	912	992
Shares and other equity	232	244	296	327	364
Financial Corporations Survey ^2/
Net foreign assets	418	544	590	753	883
Net domestic assets	1,644	1,735	1,817	1,785	1,840
Net credit to central government	-153	-174	-241	-274	-283
Net credit to public nonfinancial corporations	43	49	58	50	70
Credit to private sector	1,754	1,860	2,000	2,009	2,053
(In percent of GDP; end of period)
Other Financial Corporations ^1/
Net foreign assets	1.9	3.0	3.7	4.6	8.0
Net domestic assets	47.2	45.7	51.1	56.9	58.8
Liabilities and equity	49.0	48.6	54.8	61.5	66.8
Financial Corporations Survey ^2/
Net foreign assets	18.5	22.8	25.2	34.7	40.7
Net domestic assets	72.9	72.6	77.6	82.3	84.9
Net credit to central government	-6.8	-7.3	-10.3	-12.6	-13.0
Net credit to public nonfinancial corporations	1.9	2.1	2.5	2.3	3.2
Credit to private sector	77.8	77.8	85.5	92.6	94.6
	(12-month percent change)
Financial System Aggregates
Credit to private sector, other financial corporations	8.4	6.0	9.9	-0.9	4.9
Credit to private sector, total financial system	2.9	6.1	7.5	0.4	2.2

Sources: Central Bank of Samoa; and IMF staff estimates.

^{^1/}Other Financial Corporations include DBS, SNPF, SHC, UTOS, Samoa Life Assurance Corporation, and four General Insurance Companies.

^{^2/}Financial Corporations Survey consolidates the accounts of Depository Corporations (Central Bank and Other Depository Corporations) and Other Financial Corporations.

^{Table 6.}

Samoa: Commercial Bank Financial Soundness Indicators

Sources: Central Bank of Samoa; IMF Financial So und ness Indicators database.

^{Table 6.}

Samoa: Commercial Bank Financial Soundness Indicators

	2017/18	2018/19	2019/20	2020/21	2021/22	Sep-22
Capital Adequacy
Regulatory capital to risk-weighted assets, ratio	27.3	27.5	28.7	28.1	28.8	30.3
Regulatory tier 1 capital to risk-weighted assets, ratio	22.7	22.4	24.5	23.7	24.7	24.3
Total capital to total assets, ratio	15.2	15.0	15.2	15.1	14.9	..
Asset Quality
Non-performing loans to total gross loans, ratio	4.3	3.9	2.9	3.7	4.6	4.3
Provisions to no n-performing loans	85.1	138.3	207.2	189.6	168.3	164.3
Non-performing loans net of provisions to capital, ratio	2.8	2.3	-1.7	0.2	0.6	-0.7
Large exposures to capital, ratio	68.5	51.6	49.2	53.2	38.2	47.1
Earnings and Profitability
Return on assets, ratio	3.1	3.9	2.4	2.8	2.6	3.3
Return on equity, ratio	18.9	23.9	14.6	16.5	15.1	19.2
Net interest margin, percent	3.5	3.6	3.6	3.4	3.7	5.5
Exchange Rate Risk
Net open position in foreign exchange to capital, ratio	25.1	19.4	23.8	-6.5	-2.1	-3.2
FX loans to total loans, ratio	4.1	3.6	4.2	1.9	1.5	1.6
FX liabilities to total liabilities, ratio	11.4	9.7	9.6	10.5	14.6	15.7
Liquidity Ratios
Liquid assets to total assets, ratio	13.8	16.3	16.8	19.9	17.7	18.4
Liquid assets to short-term liabilities, ratio	30.3	33.4	34.6	35.0	36.1	36.3
Total loans to total domestic deposits	87.6	85.3	85.6	79.8	76.8	75.5

Sources: Central Bank of Samoa; IMF Financial So und ness Indicators database.

^{Table 6.}

Samoa: Commercial Bank Financial Soundness Indicators

	2017/18	2018/19	2019/20	2020/21	2021/22	Sep-22
Capital Adequacy
Regulatory capital to risk-weighted assets, ratio	27.3	27.5	28.7	28.1	28.8	30.3
Regulatory tier 1 capital to risk-weighted assets, ratio	22.7	22.4	24.5	23.7	24.7	24.3
Total capital to total assets, ratio	15.2	15.0	15.2	15.1	14.9	..
Asset Quality
Non-performing loans to total gross loans, ratio	4.3	3.9	2.9	3.7	4.6	4.3
Provisions to no n-performing loans	85.1	138.3	207.2	189.6	168.3	164.3
Non-performing loans net of provisions to capital, ratio	2.8	2.3	-1.7	0.2	0.6	-0.7
Large exposures to capital, ratio	68.5	51.6	49.2	53.2	38.2	47.1
Earnings and Profitability
Return on assets, ratio	3.1	3.9	2.4	2.8	2.6	3.3
Return on equity, ratio	18.9	23.9	14.6	16.5	15.1	19.2
Net interest margin, percent	3.5	3.6	3.6	3.4	3.7	5.5
Exchange Rate Risk
Net open position in foreign exchange to capital, ratio	25.1	19.4	23.8	-6.5	-2.1	-3.2
FX loans to total loans, ratio	4.1	3.6	4.2	1.9	1.5	1.6
FX liabilities to total liabilities, ratio	11.4	9.7	9.6	10.5	14.6	15.7
Liquidity Ratios
Liquid assets to total assets, ratio	13.8	16.3	16.8	19.9	17.7	18.4
Liquid assets to short-term liabilities, ratio	30.3	33.4	34.6	35.0	36.1	36.3
Total loans to total domestic deposits	87.6	85.3	85.6	79.8	76.8	75.5

Sources: Central Bank of Samoa; IMF Financial So und ness Indicators database.

^{Table 7.}

Samoa: Integration Matrix of Surveillance and Capacity Building

Sources: IMF; World Bank; Asian Development Bank (ADB) 1/ Calendar year.

Annex I. Implementation of Previous IMF Recommendations

Previous IMF Recommendations	Main Policy Measures
*Fiscal policy*
Maintain accommodative policy until a sustained economic recovery is attained, including by extending social protection measures and funding the stimulus measures of SOEs.	The FY2022 budget increased the basic pension from $160 to $200 per month and introduced a disability benefit scheme. The FY2023 budget maintained an accommodative fiscal stance with a budgeted deficit of 3.5 percent of GDP.
Undertake medium-term fiscal consolidation to build fiscal buffers and ensure debt sustainability.	The authorities have implemented a “zero-borrowing strategy” aiming to utilize accumulated cash deposits and to finance investment going forward through grants and concessional loans.
Improve revenue mobilization by broadening the VAGST base, raising excises, and strengthening tax administration through the rollout of TIMS.	The FY2022/23 budget increased excise taxes on selected fatty food items, sugary products, liquor, and tobacco, effective January 2023. TIMS was implemented for the largest firms beginning in 2020 and for all firms above the reporting threshold in January 2023.
Public financial management: improve budget predictability, enhance cash management and execution controls, and strengthen procurement efficiency and SOEs performance.	A new Automatic Transaction System is being implemented to facilitate automatic payments for all government transactions, a key prerequisite for enabling the transition to a Treasury Single Account. An e-tendering portal is being used to manage the tenders process, however information relating to awarded tenders has not been posted on the website. A medium-term debt management strategy was approved, with the definition of public debt extended to include all SOE debt. Policies governing on-lending and government guarantees have also been approved.
*Monetary and financial policy*
Maintain accommodative policy, while strengthening the transmission mechanism.	Accommodative policy has been maintained; however, transmission remains weak.
Build reserve buffers to at least five months of imports in the long term.	International reserves ended FY2022 at 7.9 months of imports, supported by the August 2021 SDR allocation, among other assistance.
Establish a credit bureau to reduce credit risk and promote financial inclusion.	Work is in progress on the online credit registry legislation.
Strengthen risk-based AML/CFT supervision and enhance compliance with customer due diligence and suspicious transaction reporting obligations by banks and MTOs.	On-site AML/CFT inspections were completed in 2021 and 2022. An updated national AML/CFT risk assessment is in progress and is expected to be followed by a national strategy to implement the recommendations. Work on the Know-Your-Customer facility is in progress.
Improve credit intermediation and reduce fiscal risks by strengthening the DBS balance sheet and reorienting its operations.	The government has made capital injections in each of the last four years. While properties underlying some NPLs have been foreclosed, others remain on the balance sheet. Operations are being reoriented from large tourism projects toward small businesses and agriculture.
*Structural reforms and climate change*
Pursue economic diversification and job creation by developing agriculture, fishery, and MSMEs.	This is a key priority in the latest five-year development plan, and a National Industry Development Policy is being developed to pursue these objectives.
Upskill and reskill the labor force and boost human capital to reduce skill mismatch and help increase female and youth labor force participation.	The Labor and Employment Relations Act is being amended to formalize employment, improve worker protection and working conditions, adjust minimum wages every two years, and strengthen provisions against gender discrimination. The authorities’ priorities laid out in Pathway for the Development of Samoa for FY2021/22-FY2025/26 include labor programs and apprenticeship skills prioritizing women and youth; better targeted skill development and training programs; improving ICT skills; upskilling and training in the tourism sector; and improving labor mobility.
Enhance climate resilience by upgrading physical infrastructure and mainstreaming resilience into all sector plans.	Infrastructure investment has been significantly below budgeted levels, in part due to the border closure. A Disaster Risk Financing Policy and a Multi-Hazard Early Warning System Policy were approved. The authorities undertook the IMF’s Climate Macroeconomic Assessment Program to further assess policies in these areas (see Annex VII).

Previous IMF Recommendations	Main Policy Measures
*Fiscal policy*
Maintain accommodative policy until a sustained economic recovery is attained, including by extending social protection measures and funding the stimulus measures of SOEs.	The FY2022 budget increased the basic pension from $160 to $200 per month and introduced a disability benefit scheme. The FY2023 budget maintained an accommodative fiscal stance with a budgeted deficit of 3.5 percent of GDP.
Undertake medium-term fiscal consolidation to build fiscal buffers and ensure debt sustainability.	The authorities have implemented a “zero-borrowing strategy” aiming to utilize accumulated cash deposits and to finance investment going forward through grants and concessional loans.
Improve revenue mobilization by broadening the VAGST base, raising excises, and strengthening tax administration through the rollout of TIMS.	The FY2022/23 budget increased excise taxes on selected fatty food items, sugary products, liquor, and tobacco, effective January 2023. TIMS was implemented for the largest firms beginning in 2020 and for all firms above the reporting threshold in January 2023.
Public financial management: improve budget predictability, enhance cash management and execution controls, and strengthen procurement efficiency and SOEs performance.	A new Automatic Transaction System is being implemented to facilitate automatic payments for all government transactions, a key prerequisite for enabling the transition to a Treasury Single Account. An e-tendering portal is being used to manage the tenders process, however information relating to awarded tenders has not been posted on the website. A medium-term debt management strategy was approved, with the definition of public debt extended to include all SOE debt. Policies governing on-lending and government guarantees have also been approved.
*Monetary and financial policy*
Maintain accommodative policy, while strengthening the transmission mechanism.	Accommodative policy has been maintained; however, transmission remains weak.
Build reserve buffers to at least five months of imports in the long term.	International reserves ended FY2022 at 7.9 months of imports, supported by the August 2021 SDR allocation, among other assistance.
Establish a credit bureau to reduce credit risk and promote financial inclusion.	Work is in progress on the online credit registry legislation.
Strengthen risk-based AML/CFT supervision and enhance compliance with customer due diligence and suspicious transaction reporting obligations by banks and MTOs.	On-site AML/CFT inspections were completed in 2021 and 2022. An updated national AML/CFT risk assessment is in progress and is expected to be followed by a national strategy to implement the recommendations. Work on the Know-Your-Customer facility is in progress.
Improve credit intermediation and reduce fiscal risks by strengthening the DBS balance sheet and reorienting its operations.	The government has made capital injections in each of the last four years. While properties underlying some NPLs have been foreclosed, others remain on the balance sheet. Operations are being reoriented from large tourism projects toward small businesses and agriculture.
*Structural reforms and climate change*
Pursue economic diversification and job creation by developing agriculture, fishery, and MSMEs.	This is a key priority in the latest five-year development plan, and a National Industry Development Policy is being developed to pursue these objectives.
Upskill and reskill the labor force and boost human capital to reduce skill mismatch and help increase female and youth labor force participation.	The Labor and Employment Relations Act is being amended to formalize employment, improve worker protection and working conditions, adjust minimum wages every two years, and strengthen provisions against gender discrimination. The authorities’ priorities laid out in Pathway for the Development of Samoa for FY2021/22-FY2025/26 include labor programs and apprenticeship skills prioritizing women and youth; better targeted skill development and training programs; improving ICT skills; upskilling and training in the tourism sector; and improving labor mobility.
Enhance climate resilience by upgrading physical infrastructure and mainstreaming resilience into all sector plans.	Infrastructure investment has been significantly below budgeted levels, in part due to the border closure. A Disaster Risk Financing Policy and a Multi-Hazard Early Warning System Policy were approved. The authorities undertook the IMF’s Climate Macroeconomic Assessment Program to further assess policies in these areas (see Annex VII).

Annex II. Revenue Mobilization Performance and Options¹

1. Samoa has made significant strides in domestic revenue mobilization over the last decade. Tax revenue has increased from 20 percent of GDP in 2010 to over 25 percent of GDP in 2022. Tax policy changes to increase revenue have included an increase in the VAGST (Value Added on Goods and Services Tax) rate in 2011 to 15 percent (from the previous 10 percent), increases in various excise taxes beginning in 2017, reduction in personal income tax (PIT) exemptions, and winding down of a tax credit for investment in hotels since 2018. Samoa has also made revenue administration improvements, strengthening core tax administration functions such as filing and payments, and building risk-based compliance capability— with substantial technical assistance (TA) from the IMF and other development partners.

2. There has been little discernible impact of the pandemic on the revenue-GDP ratio. Factors underlying the buoyant revenue performance include that Samoa refrained from widespread discretionary tax cuts in response to the pandemic, taking only small, targeted, temporary measures; the rollout of electronic fiscal devices under the TIMS (Tax Invoicing and Monitoring System) starting in 2020, which boosted both VAGST and corporate income tax revenue; and buoyant remittances that supported revenue from taxes based on consumption and imports.

Tax Revenue: Samoa and Other Pacific Islands

(In percent of GDP, 2021)

Sources: National authorities; and Sy and others (2022).

Tax Revenue: Samoa and Other Pacific Islands

(In percent of GDP, 2021)

	Samoa	Other PICs
Total tax revenue	25.0	19.3
Taxes on income	5.9	6.6
Taxes on goods and services	16.3	8.3
Taxes on international trade	2.8	3.5
Other	0.0	1.0

Sources: National authorities; and Sy and others (2022).

Tax Revenue: Samoa and Other Pacific Islands

(In percent of GDP, 2021)

	Samoa	Other PICs
Total tax revenue	25.0	19.3
Taxes on income	5.9	6.6
Taxes on goods and services	16.3	8.3
Taxes on international trade	2.8	3.5
Other	0.0	1.0

Sources: National authorities; and Sy and others (2022).

3. Samoa has high tax revenue compared to other Pacific Island economies and a relatively high VAGST rate. The tax revenue-GDP ratio is well above the simple average of 19.3 percent among other PICs. The main differences are substantially higher collection of taxes on goods and services—the VAGST and excise taxes—both of which are the highest in the region. The VAGST rate is tied for the highest in the region, and relatively high for a country of Samoa’s per capita income. VAGST revenue-GDP is also the highest in the region, as Samoa scores well on measures of C-efficiency. This suggests a low scope for additional gains to the VAGST by broadening the base and is consistent with the findings of Sy and others (2022), who find that Samoa’s revenue collection is already near its tax potential given the fundamental features of its economy.

VAT Rates

Source: Sy and others (2022).

4. Some tax policy measures noted by previous TA could yield modest revenue gains. A recommended first step in identifying potential revenue gains is to develop a regular tax expenditure statement, which could quantify the potential yield of various measures. Additionally:

The increase in excise taxes coming into effect in 2023 is in line with previous recommendations. For import duties, exemptions could be reviewed and reduced.
Previous TA has noted the potentially regressive impact of raising the VAGST rate but has recommended reducing VAGST zero-rating and exemptions, in particular for water and electricity, as well as making some zero-rated items exempt, such as medical and educational supplies.
Similarly, previous TA saw risks that raising the corporate income tax (CIT) rate could induce income-shifting given the already-high rate and that most major businesses are foreign owned. Alternatively, measures such as limiting the time period on carrying forward tax losses and phasing out CIT holidays have been recommended. Introducing a withholding tax of 10 to 15 percent on dividend payments to non-residents could also ensure a greater contribution of corporate profits to tax revenue.

5. Further strengthening revenue administration would also help bolster revenue. Samoa has opted to raise business license fees instead of implementing a small business tax regime given the administrative challenges of taxing small businesses. Other steps recommended by previous TA include: 1) enforcement of transfer pricing and thin capitalization rules to strengthen compliance among large firms; 2) improving the information technology system to facilitate strengthened compliance management; 3) moving towards a full self-assessment system, which would reduce the resource-intensive physical assessment and checking of returns; and 4) deepening segmentation to better tailor services across different taxpayer types.

Annex III. Impact of Global Commodity Price Shocks on Samoa’s Inflation¹

1. Geographical remoteness, small economic size, and a narrow production base make Samoa heavily reliant on imports, especially for food and oil, which account for 48 percent of overall imports. Likewise, imported items account for 49 percent of the CPI basket. Taken together, the ’food’ and ’transport’ components account for 55 percent of the CPI basket and 72 percent of the CPI import basket, implying a high exposure of domestic inflation to global food and oil prices. Geographical isolation also increases transportation costs. Given that fuel is a large component of shipping costs, global oil price shocks raise the landed cost of products, broadening the impact on inflation.

2. After remaining in negative territory for parts of 2020-21, inflation began to gather pace in the latter half of 2021 due a pickup in global oil and food prices. The spike in global food and oil prices in early 2022 began to impact Samoa’s inflation within a few months, with inflation surging into double-digits by June 2022. Following the sharp rise in import prices, local inflation also gained momentum.

3. Food followed by fuel and transport have been the key drivers of import and local inflation in 2022. Local food inflation accelerated into double-digits, due to weather-related factors. The commodity price shock has also affected prices beyond food and fuel. The prices of imported construction materials and manufactured goods have risen due to higher shipping costs. The surge in food and fuel prices has driven up the prices for airfares and restaurants.

4. Changes in global food prices are reflected in Samoa’s ’CPI import index for food’ component with a few months lag. At the onset of the pandemic in March 2020, the government introduced price controls on the wholesale and retail prices of selected imported food products, which helped contain the increase in imported food prices, though they covered only a small share of the consumption basket. The price ceilings were subsequently revised (in June 2020, December 2020 and December 2021) to partially account for movements in global food prices. The price controls were removed in July 2022, which have led to upward pressure on some imported food products. However, the overall impact on imported food inflation has been mitigated by the stabilization in global food prices in H2 2022.

5. Samoa has full pass-through from global oil prices to domestic fuel prices, with the government policy to adjust domestic prices with a two-month lag. With global oil prices peaking in June 2022, the ’CPI import index for transport’ component and ’CPI import index for kerosene, cooking gas & building materials’ peaked in August 2022. The ’CPI local index for utilities & house rent’ component has also been influenced by changes in global oil prices in the past. In April 2020, utility tariffs were temporarily lowered as part of the pandemic support measures, in line with the decline in oil prices. However, in efforts to continue to support households, the water and electricity tariffs were reduced again in November 2021 and remained unchanged even as global oil prices jumped in 2022. This has led to persistent downward pressure on utility prices and a divergence between tariffs and input prices.

6. Inflation trends during the 2008 and 2011 global commodity shocks suggest that there is quick pass-through from global commodity prices to import prices and headline inflation. This also feeds into higher local prices. However, as global food and fuel prices normalize, import inflation tends to subside quickly, which also gradually brings down local inflation.

7. In order to estimate the impact of global commodity price shocks on Samoa’s inflation over a 12-month period, an analysis is undertaken using the Local Projection Method by Jorda (2005). The local projection equation regresses global commodity prices, NEER (control variable) and their respective lags on Samoa’s inflation over a 12-month forecast horizon, using OLS.²

8. To assess the extent of pass-through from global commodity prices, the analysis is undertaken for three types of inflation – CPI headline inflation, CPI import inflation and CPI local inflation. The impact is estimated separately for global food prices and global oil prices.

L n (C P I_{t + h}) - L n (C P I_{t - 1}) = α_{h} + \sum_{i = 1}^{k} β_{i} Δ L n (C P I_{t - i}) + \sum_{j = 0}^{k} θ_{j} Δ L n (g l o b a l c o m m o d i t y p r i c e s_{t - j}) + \sum_{j = 0}^{k} ψ_{j} Δ L n (N E E R_{t - j}) + \sum_{p = 1}^{h} \partial_{p} Δ L n (g l o b a l c o m m o d i t y p r i c e s_{t + p}) + \sum_{p = 1}^{h} γ_{p} Δ L n (N E E R_{t + p}) + ε_{t + h}

Where,

CPI: Monthly headline CPI index, CPI import index, or CPI local index.

Global commodity prices: World Bank food price index in USD, and Dubai Fateh crude price in USD

NEER: Nominal effective exchange rate

h: 0, 1, ….,12 – Number of months of forecast horizon

k: Number of lags for inflation, global commodity prices and NEER. The lag selection is based on the AIC criteria.

The results obtained for the local projection coefficient π₀ for the forecast horizon (t, t+1, ….., t+h) are presented in the impulse response functions, showing the cumulative impact of a 10 percent change in food prices or oil prices on Samoan prices over a 12-month period.³

9. The results show that changes in global food and oil prices significantly affect both headline and import prices with a 1-3 month lag, with the impact peaking at about 11-12 months and stabilizing thereafter. The lagged impact of oil prices on inflation is consistent with the government’s policy to adjust domestic fuel prices to changes in global oil prices with a two-month lag. The impact of global food prices on headline prices is more than twice that of global oil prices, consistent with the larger weight of imported food in the CPI basket.

10. In addition, the impact of commodity price shocks on import inflation is relatively higher than on headline inflation, given the relatively larger weight of food and oil in the CPI import basket. On the other hand, the impact of global price shocks on local inflation, particularly oil prices, is small and uneven, suggesting that the pass-through from global commodity prices to local goods and services inflation has been historically low.

11. Global commodity prices began to ease somewhat starting July 2022 and are expected to continue moderating into 2023, particularly oil prices. Based on the above local projection estimates, the softening of global food and oil prices since 2022Q3 is expected to begin subtracting from headline inflation in m/m terms starting from 2022Q4 and reduce m/m inflation by about 4.0 percentage points by June 2023, relative to 2022Q3.

References

Jorda, O. (2005). “Estimation and Inference of Impulse Responses by Local Projections.” The American Economic Review, Vol. 95, No. 1.
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Teulings, C. and Zubanov, N. (2014). “Is Economic Recovery a Myth? Robust Estimation of Impulse Responses.” Journal of Applied Econometrics, 29: 497-514.
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Kpodar, K. and Liu, B. (2021). “The Distributional Implications of the Impact of Fuel price Increases on Inflation.” IMF Working Paper WP/21/271.
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Choi, S., Furceri, D., Loungani, P., Mishra, S. and Poplawski-Ribeiro, M. (2017). “Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies.” IMF Working Paper WP/17/196.
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Annex IV. External Sector Assessment¹

Annex V. Tourism Reopening Experience¹

The prolonged border closure policy has saved lives and livelihoods from the COVID-19 pandemic, but also has brought economic challenges to Samoa’s tourism-reliant economy. The protracted vaccination rollout and the uncertainty about the path of the pandemic delayed the reopening of borders until August 2022. This annex discusses Samoa’s initial reopening experience and projects tourism earnings based on the experience of other small island developing countries.

1. A strict border closure was imposed in March 2020 to insulate Samoa from the coronavirus and was lifted in August 2022. Samoa implemented strict border controls in January 2020 when two suspected cases of COVID-19 were detected, followed up by more stringent measures and full closure of the border from March 2020 to August 2022.² Since then, the authorities frequently reassessed measures in lieu of new local and international data, keeping borders largely closed until August 2022.

Until January 2023, Samoa has registered around 16,087 confirmed cases of COVID-19 with 29 deaths. The first deaths were registered only in April 2022.³
In March 2020, after reporting the first suspected cases, Samoa declared a State of Emergency (SOE) imposing a strict border closure and other measures, including public gathering limitations. The authorities adjusted the SOE measures according to changes in local and international conditions, gradually lifting local gathering measures or imposing more strict limitations and short-duration national lockdowns as conditions warranted, but borders remained largely closed.
Vaccine rollout started in April 2021 and authorities implemented measures to boost uptake, including a 48-hour lockdown with health teams administering door-to-door vaccines. As of January 2023, more than 96 percent of Samoa’s population has received at least one dose and 89 percent has been fully vaccinated.
On August 1^st, 2022, Samoa’s government ended the two-year SOE and lifted the border closure, permitting foreign nationals to enter the country. Remaining requirements were lifted on September 22nd, 2022—vaccination certificates or pre-departure testing for COVID-19 passengers are no longer required; upon arrival, passengers are advised to wear face masks and continue to take preventative measures.

2. The prolonged tourism halt successfully contained the local spread of the virus, but not without economic costs. Past episodes and challenges in health system coverage partially spurred the authorities’ careful approach to reopening the border.⁴ Nevertheless, as tourism-related sectors underpin Samoa’s economy and tourism receipts amounted to about 20 percent of GDP pre-pandemic, the closed borders dealt a significant blow to the tourism-related sectors, with sizable spillovers to other sectors. This was the main driver in the cumulative decline of 15 percent in real GDP over FY2020-FY2022.

3. Tourism earnings have increased rapidly since the reopening of border. Tourist arrivals and tourism earnings both saw rapid recoveries to over 40 percent of pre-COVID levels. In September 2022, the highest shares of tourists are from New Zealand (45 percent), Australia (24 percent) and American Samoa (10 percent), with American Samoan tourists recovering the most compared to pre-pandemic levels (to 56 percent of previous arrivals and 64 percent of tourist earnings). In terms of purpose of visit, family visits and holidays brought the highest percentage of arrivals and earnings, but business and conference travel recovered the most compared to pre-pandemic level (61 percent of previous arrivals and 68 percent of tourist earnings).

4. The tourism halt’s negative effects on the tourism and hospitality sector could linger, hampering full recovery. The closure of some facilities, including some upscale resorts and hotels, has reduced capacity, while those facilities in operation have needed to invest to update the infrastructure as maintenance was limited during the pandemic. Additionally, although the authorities promoted some training opportunities in early 2020, the impact of the prolonged border closure on employment in tourism resulted in a loss of human capital as workers migrated to other sectors, including through the seasonal workers employment schemes. The degree of success in addressing these challenges will affect the timeline and magnitude of recovery.

5. To forecast Samoa’s tourism recovery trajectory, the experience from reopening in other countries is studied. While many Caribbean countries reopened earlier, Samoa and many other Pacific Islands reopened their borders in mid-2022. Most of the Caribbean countries reopened their borders in mid-2020, before widespread vaccination had occurred, which in some cases led to severe local outbreaks. Partly as a result, arrivals to Caribbean tourism destinations took around a year and a half, on average, to fully recover to pre-pandemic levels. In the Pacific region, Maldives also reopened in 2020, and took 11 months to reach its pre-pandemic arrivals level. Fiji followed a similar path, but it will likely reach pre-pandemic levels slightly later.

6. In staff’s baseline scenario, a gradual tourism recovery is conservatively assumed. Cross-country experience and Samoa’s first few months of reopening suggest tourism could recover within a two-year time frame. However, pent up travel demand and in Samoa’s case some one-off events (such as the celebration of the 60th anniversary of its independence) may have led to an initial surge in arrivals. Given the projected global economic weakness and remaining pandemic risks, staff’s baseline scenario estimates that Samoa recovers around half of pre-pandemic tourism receipts in FY2023 and FY2024, with arrivals continuing to climb thereafter. In this scenario, real GDP growth is projected at 5.0 percent and 3.6 percent in FY2023 and FY2024 respectively.

Baseline and Illustrative Downside Scenario for Tourism

Source: IMF staff calculations.

Baseline and Illustrative Downside Scenario for Tourism

		FY2018-20 Average	FY2023	FY2024
Tourism receipts	Baseline	19.4	10.8	11.5
(In percent of GDP)	Downside		8.0	8.0
Real GDP	Baseline	0.2	5.0	3.6
(In y/y percent change)	Downside		1.9	3.0
Reserves	Baseline	5.3	7.4	7.1
(In months of imports)	Downside		7.3	6.7

Source: IMF staff calculations.

Baseline and Illustrative Downside Scenario for Tourism

		FY2018-20 Average	FY2023	FY2024
Tourism receipts	Baseline	19.4	10.8	11.5
(In percent of GDP)	Downside		8.0	8.0
Real GDP	Baseline	0.2	5.0	3.6
(In y/y percent change)	Downside		1.9	3.0
Reserves	Baseline	5.3	7.4	7.1
(In months of imports)	Downside		7.3	6.7

Source: IMF staff calculations.

7. In a downside scenario, while the impact of lower tourism flows would likely be substantial, growth would remain positive and reserve coverage would decline only modestly. The downside scenario assumes a slower recovery in tourism receipts to only about a third of pre-pandemic levels, explained by a combination of stricter travel restrictions in source countries, higher travel costs, and a global economic downturn. In such circumstances, the impact on Samoa’s economy would be substantial, both directly through reduced tourism and indirectly through spillovers to other sectors. While this scenario would reduce economic activity, real GDP growth would remain positive at 1.9 percent in FY2023 and 3 percent in FY2024, according to historical elasticities between tourist inflows and GDP, and between tourism-related and other sectors. Using the EBA-lite coefficient of 0.5 for the impact of a tourism shock on the current account, reserve coverage would decline modestly, reaching 6.7 months of import cover in FY2024, still above adequate levels.

Samoa: Selected COVID-19 milestones

Sources: Samoan Authorities; and World Health Organization Coronavirus Dashboard.

References

Government of Samoa (2020). Second Voluntary National Review on the Implementation of the Sustainable Development Goals. SDG Taskforce - Ministry of Foreign Affairs and Trade (MFAT).
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Tomkins, S. M. (1992). The Influenza Epidemic of 1918-19 in Western Samoa. The Journal of Pacific History. Vol. 27, No. 2 (Dec.1992), pp. 181-197. Published By: Taylor & Francis, Ltd.
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World Health Organization (2023). Samoa COVID-19 Dashboard.
World Health Organization - UNICEF (2020). Measle Outbreak in the Pacific – Situation Report No. 11. Joint WHO/UNICEF Measle Outbreak Response and Preparedness in the Pacific (Jan. 22, 2020).
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Annex VI. Risk Assessment Matrix¹

Source of Risks	Relative Likelihood	Expected Impact	Policy Recommendations
Domestic risks
Natural disasters related to climate change	Medium: On average, Samoa has been hit by a major natural disaster once every five years.	High: Widespread damage to infrastructure; disruption to supply chains, tourism and other activities; reconstruction costs that raise public debt.	Build fiscal and external buffers. Increase investment in climate-resilient infrastructure. Strengthen natural disaster preparedness and response capacities.
Loss of Correspondent Banking Relationships (CBRs)	High: The global regulatory landscape could result in continued pressures on CBRs, as correspondent banks face penalties over breaching AML laws, which could limit correspondent banking services.	Medium: Closure of correspondent bank accounts held by MTOs and the Samoan local banks could limit flows of U.S. dollars, hampering international payments. Foreign banks in Samoa could provide some offset.	Strengthen the AML/CFT regime in line with APG/FATF recommendations. Implement the KYC utility for customer due diligence. Pursue agreements on “safe corridors” for remittance-related transfers.
External risks
Abrupt global slowdown or recession Local COVID-19 outbreaks	Medium: Synchronized global slowdown and recession in some economies lead to trade and financial spillovers. Medium: Emergence of more contagious variants lead to new lockdowns or inhibit commerce, causing extended supply chain disruptions and slower growth.	High: Downturn in tourism and broader economic activity, with negative spillovers on the financial sector. Lower tourism earnings and exports could weigh on the current account.	Implement targeted fiscal measures to cushion households and businesses. Seek concessional loans and grants for external and budget support.
De-anchoring of inflation expectations and stagflation	Medium: Higher core inflation and wage-price spiral prompt larger-than-expected monetary tightening, leading to weaker global demand, tighter financial conditions and the onset of stagflation.	Medium: Weaker global activity and higher inflation could reduce tourism inflows and raise import costs, worsening the current account deficit. Low financial integration limits the potential impact via private capital flows.	Assist tourism sector in restoring and maintaining capacity, while supporting vulnerable households and businesses through targeted fiscal measures.
Systemic social unrest	High: Social unrest and political instability due to rising inflation, declining incomes, and worsening inequality, leading to weaker growth and populist policies.	Medium: Beyond immediate economic disruption and adverse confidence effects, the resulting political polarization could complicate implementation of sound policies needed for sustained economic recovery.	Continue to support vulnerable households and businesses via targeted fiscal measures. Ramp up efforts to attain SDGs with structural reforms and support from the international community.
Commodity price shocks Intensifying spillovers from Russia’s war in Ukraine	High: Continued supply chain disruptions and negative demand shocks lead to recurrent commodity price volatility, and social and economic instability. High: Trade and financial disruptions and commodity price volatility.	High: Import price pressures could deteriorate the current account, raise domestic inflation, reduce household purchasing power, and increase local production costs.	Provide targeted fiscal support to affected households. Enact reforms to improve efficiency of state-owned enterprises, ensuring production costs are reflected in charges for services. Pursue increased domestic agriculture production.
Deepening geo-economic fragmentation and geopolitical tensions	High: Intensified conflicts and reduced international cooperation result in deglobalization via reconfiguration of trade, technological fragmentation, and fracturing of international monetary and financial system.	Medium: Increased geopolitical risks and global fragmentation could constrain the tourism recovery, reduce remittances, raise import costs and exacerbate CBR withdrawal, adversely affecting the current account.	Improve business environment and connectivity to create a conducive environment for private sector development and export diversification.

Source of Risks	Relative Likelihood	Expected Impact	Policy Recommendations
Domestic risks
Natural disasters related to climate change	Medium: On average, Samoa has been hit by a major natural disaster once every five years.	High: Widespread damage to infrastructure; disruption to supply chains, tourism and other activities; reconstruction costs that raise public debt.	Build fiscal and external buffers. Increase investment in climate-resilient infrastructure. Strengthen natural disaster preparedness and response capacities.
Loss of Correspondent Banking Relationships (CBRs)	High: The global regulatory landscape could result in continued pressures on CBRs, as correspondent banks face penalties over breaching AML laws, which could limit correspondent banking services.	Medium: Closure of correspondent bank accounts held by MTOs and the Samoan local banks could limit flows of U.S. dollars, hampering international payments. Foreign banks in Samoa could provide some offset.	Strengthen the AML/CFT regime in line with APG/FATF recommendations. Implement the KYC utility for customer due diligence. Pursue agreements on “safe corridors” for remittance-related transfers.
External risks
Abrupt global slowdown or recession Local COVID-19 outbreaks	Medium: Synchronized global slowdown and recession in some economies lead to trade and financial spillovers. Medium: Emergence of more contagious variants lead to new lockdowns or inhibit commerce, causing extended supply chain disruptions and slower growth.	High: Downturn in tourism and broader economic activity, with negative spillovers on the financial sector. Lower tourism earnings and exports could weigh on the current account.	Implement targeted fiscal measures to cushion households and businesses. Seek concessional loans and grants for external and budget support.
De-anchoring of inflation expectations and stagflation	Medium: Higher core inflation and wage-price spiral prompt larger-than-expected monetary tightening, leading to weaker global demand, tighter financial conditions and the onset of stagflation.	Medium: Weaker global activity and higher inflation could reduce tourism inflows and raise import costs, worsening the current account deficit. Low financial integration limits the potential impact via private capital flows.	Assist tourism sector in restoring and maintaining capacity, while supporting vulnerable households and businesses through targeted fiscal measures.
Systemic social unrest	High: Social unrest and political instability due to rising inflation, declining incomes, and worsening inequality, leading to weaker growth and populist policies.	Medium: Beyond immediate economic disruption and adverse confidence effects, the resulting political polarization could complicate implementation of sound policies needed for sustained economic recovery.	Continue to support vulnerable households and businesses via targeted fiscal measures. Ramp up efforts to attain SDGs with structural reforms and support from the international community.
Commodity price shocks Intensifying spillovers from Russia’s war in Ukraine	High: Continued supply chain disruptions and negative demand shocks lead to recurrent commodity price volatility, and social and economic instability. High: Trade and financial disruptions and commodity price volatility.	High: Import price pressures could deteriorate the current account, raise domestic inflation, reduce household purchasing power, and increase local production costs.	Provide targeted fiscal support to affected households. Enact reforms to improve efficiency of state-owned enterprises, ensuring production costs are reflected in charges for services. Pursue increased domestic agriculture production.
Deepening geo-economic fragmentation and geopolitical tensions	High: Intensified conflicts and reduced international cooperation result in deglobalization via reconfiguration of trade, technological fragmentation, and fracturing of international monetary and financial system.	Medium: Increased geopolitical risks and global fragmentation could constrain the tourism recovery, reduce remittances, raise import costs and exacerbate CBR withdrawal, adversely affecting the current account.	Improve business environment and connectivity to create a conducive environment for private sector development and export diversification.

Annex VII. Key 2022 CMAP Recommendations¹

Annex VIII. Key 2015 FSAP Recommendations

Recommendation	Actions Taken
Overarching issues
Improve the quality and coverage of data. CBS to collect granular data on banks, PFIs, insurers, and other financial intermediaries for prudential and financial stability analysis.	Complete. Financial Soundness Indicators are being produced for commercial banks and PFIs in line with international standards.
Upgrade the regulatory and supervisory frameworks to modern standards, including amending the Financial Institutions Act and Central Bank Act to support corrective actions and resolution.	The CBS Act (1984) was amended in 2015 and commercial bank prudential guidelines were revised in January 2021. Draft amendments to the Financial Institutions Act (1996), which incorporate corrective actions, resolution options, enforcement, governor’s discretion, etc., are being prepared.
CBS should raise capacity and hire additional staff for financial oversight, and over time assume supervision and regulation of all financial intermediaries.	This is a continuous process. The number of staff has increased gradually but capacity remains a challenge.
Banking supervision and regulation
Conduct regular on-site inspections, and in-depth assessments of financial statements (including asset quality reviews, of potentially vulnerable banks).	This is a continuous process. Regular on-site inspections and assessment of financial statements of commercial banks is being conducted.
Upgrade supervisory guidance to banks, especially regarding risk management and NPL write-offs.	Completed. The revised commercial bank prudential guidelines were issued in January 2021.
PFIs - supervision and regulation
CBS to produce periodic financial soundness indicators for PFIs and ensure proper IFRS accounting, especially for loan classification, NPLs, and provisioning.	This is a continuous process. Financial Soundness Indicators are being produced for all PFIs, and the CBS analyzes their financial statements on a quarterly basis.
CBS to issue and upgrade prudential regulations for PFIs.	The CBS issued prudential regulations for insurance companies and SHC in 2020. Prudential guidelines for DBS and SNPF have not been revised.
CBS to start on-site inspections of PFIs.	This is a continuous process. On-site inspection of PFIs is scheduled to be conducted every two years.
Offshore bank regulation and supervision
Enhance operational independence of Samoa International Finance Authority (SIFA) to supervise international banks and remove potential for conflict between SIFA’s promotional and supervisory roles.	In October 2016, the SIFA created a separate division, Invest Samoa, focusing solely on promotion. In December 2020, the Cabinet approved establishing a separate company solely responsible for promotion and marketing, which will allow the SIFA to focus on its supervisory role.
PFIs – governance
Government to reform mandates and governance of PFIs for defined policy objectives based on cost-benefit assessments, and to ensure efficient operations.	There have been no reforms to the mandates of PFIs.
Crisis preparedness
Adopt a full set of enforcement and resolution instruments.	Draft amendment to the Financial Institutions Act (1996), which incorporates corrective actions, resolution options, enforcement, governor’s discretion, etc., is being prepared.
Create an appropriate scheme and operational framework for Emergency Liquidity Assistance.	The Emergency Liquidity Assistance (ELA) framework and revisions to the guidelines for other CBS credit facilities are being prepared.
Systemic financial stability
CBS and Ministry of Finance to create financial stability and contingency planning committees.	The Financial Stability Committee has been created but only one meeting has taken place. Regular meetings are contingent on additional stress test results.
CBS to analyze systemic risks, including stress testing and macro-financial mapping.	An in-house preliminary and unofficial stress testing exercise was conducted by CBS staff in 2018. Macro-financial mapping has not been undertaken thus far.
Central bank policies and operations
CBS to unwind lending to Development Bank of Samoa (DBS) and Samoa Housing Corporation (SHC).	There has been no new lending to DBS and SHC via the credit line facility (CLF) since May 2018. DBS and SHC are making repayments on previous CLF loans.
Access to finance
Focus on indirect measures to enhance access to finance, including credit bureau, economic use of customary land, and complete setting up a personal property registry.	A draft bill for establishing an online Credit Registry is being prepared.
Insurance
CBS to develop insurance supervisory strategy and capacity building plans.	Largely complete. The CBS has implemented several measures to establish a risk-based system of supervision. Draft amendments to the Insurance Act (2007) covering supervisory issues remain pending.
Payment system and financial market infrastructure
CBS to implement the new National Payment Systems.	Establishing the Automatic Transfer System (ATS) and Central Securities Depository (CSD) is in the pipeline for 2023.

Recommendation	Actions Taken
Overarching issues
Improve the quality and coverage of data. CBS to collect granular data on banks, PFIs, insurers, and other financial intermediaries for prudential and financial stability analysis.	Complete. Financial Soundness Indicators are being produced for commercial banks and PFIs in line with international standards.
Upgrade the regulatory and supervisory frameworks to modern standards, including amending the Financial Institutions Act and Central Bank Act to support corrective actions and resolution.	The CBS Act (1984) was amended in 2015 and commercial bank prudential guidelines were revised in January 2021. Draft amendments to the Financial Institutions Act (1996), which incorporate corrective actions, resolution options, enforcement, governor’s discretion, etc., are being prepared.
CBS should raise capacity and hire additional staff for financial oversight, and over time assume supervision and regulation of all financial intermediaries.	This is a continuous process. The number of staff has increased gradually but capacity remains a challenge.
Banking supervision and regulation
Conduct regular on-site inspections, and in-depth assessments of financial statements (including asset quality reviews, of potentially vulnerable banks).	This is a continuous process. Regular on-site inspections and assessment of financial statements of commercial banks is being conducted.
Upgrade supervisory guidance to banks, especially regarding risk management and NPL write-offs.	Completed. The revised commercial bank prudential guidelines were issued in January 2021.
PFIs - supervision and regulation
CBS to produce periodic financial soundness indicators for PFIs and ensure proper IFRS accounting, especially for loan classification, NPLs, and provisioning.	This is a continuous process. Financial Soundness Indicators are being produced for all PFIs, and the CBS analyzes their financial statements on a quarterly basis.
CBS to issue and upgrade prudential regulations for PFIs.	The CBS issued prudential regulations for insurance companies and SHC in 2020. Prudential guidelines for DBS and SNPF have not been revised.
CBS to start on-site inspections of PFIs.	This is a continuous process. On-site inspection of PFIs is scheduled to be conducted every two years.
Offshore bank regulation and supervision
Enhance operational independence of Samoa International Finance Authority (SIFA) to supervise international banks and remove potential for conflict between SIFA’s promotional and supervisory roles.	In October 2016, the SIFA created a separate division, Invest Samoa, focusing solely on promotion. In December 2020, the Cabinet approved establishing a separate company solely responsible for promotion and marketing, which will allow the SIFA to focus on its supervisory role.
PFIs – governance
Government to reform mandates and governance of PFIs for defined policy objectives based on cost-benefit assessments, and to ensure efficient operations.	There have been no reforms to the mandates of PFIs.
Crisis preparedness
Adopt a full set of enforcement and resolution instruments.	Draft amendment to the Financial Institutions Act (1996), which incorporates corrective actions, resolution options, enforcement, governor’s discretion, etc., is being prepared.
Create an appropriate scheme and operational framework for Emergency Liquidity Assistance.	The Emergency Liquidity Assistance (ELA) framework and revisions to the guidelines for other CBS credit facilities are being prepared.
Systemic financial stability
CBS and Ministry of Finance to create financial stability and contingency planning committees.	The Financial Stability Committee has been created but only one meeting has taken place. Regular meetings are contingent on additional stress test results.
CBS to analyze systemic risks, including stress testing and macro-financial mapping.	An in-house preliminary and unofficial stress testing exercise was conducted by CBS staff in 2018. Macro-financial mapping has not been undertaken thus far.
Central bank policies and operations
CBS to unwind lending to Development Bank of Samoa (DBS) and Samoa Housing Corporation (SHC).	There has been no new lending to DBS and SHC via the credit line facility (CLF) since May 2018. DBS and SHC are making repayments on previous CLF loans.
Access to finance
Focus on indirect measures to enhance access to finance, including credit bureau, economic use of customary land, and complete setting up a personal property registry.	A draft bill for establishing an online Credit Registry is being prepared.
Insurance
CBS to develop insurance supervisory strategy and capacity building plans.	Largely complete. The CBS has implemented several measures to establish a risk-based system of supervision. Draft amendments to the Insurance Act (2007) covering supervisory issues remain pending.
Payment system and financial market infrastructure
CBS to implement the new National Payment Systems.	Establishing the Automatic Transfer System (ATS) and Central Securities Depository (CSD) is in the pipeline for 2023.

Fiscal years end in June.

Price controls were introduced on a limited number of imported food items in March 2020, with price ceilings subsequently revised to account for movements in international prices. The controls were lifted in July 2022. Staff analysis suggests that the impact on aggregate inflation has been modest.

Commercial banks established a rate cap of 3 percent on new deposits in December 2020 for a period of 12 months. The rate cap was later extended through December 2022.

The basket weights are not disclosed.

The CBS determines its indicative inflation target in relation to inflation in trading partners.

The staff projection includes the Samoa Airways guarantee. Netting this payment and calculating the fiscal impulse as the overall balance excluding grants results in an impulse of 1.8 percent of GDP, smaller than the projected increase in public investment.

Release of the district’s budgeted allotment for a given year is contingent on a satisfactory auditing of the previous year’s expenditure as well as approval of planned expenditure by a steering committee at the ministerial level. Technical experts are available to districts to assist in project planning and proposals.

Banks do not receive interest on required or excess reserves.

According to the prudential guidelines for commercial banks, a loan should be classified as non-performing when payments of interest and/or principal are past due by 90 days or more, or if payments must be capitalized, refinanced, or delayed by agreement, due to inability to repay.

See Samoa 2021 Article IV Consultation Report, Annex VI, “Structural Reforms to Support an Inclusive Economic Recovery and Achieve SDGs in the Post-Pandemic Future”.

According to the OECD trade facilitation index, Samoa’s average score across subcomponents improved to 0.90 in 2019, from 0.66 in 2017, on a range of 0 (lowest) to 2 (best practice).

See IMF Country Report 19/138 and IMF Country Report 18/145.

R. Neves, et al, Samoa: Public Expenditure Financial Accountability Assessment, July 2019.

The RST, with an access ceiling of 3.6 percent of Samoa’s GDP, could play a role in filling this gap, though given it would add to debt service obligations, it would also need to catalyze larger amounts of grant financing.

Y. Kinoshita et al, Samoa: Climate Macroeconomic Assessment Program, March 2022.

Prepared by Andrew Swiston. This draws from Sy and others, 2022, “Fund the Future: Tax Revenue Mobilization in the Pacific Island Countries,” IMF Departmental Paper, available at: https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2022/09/09/Funding-the-Future-Tax-Revenue-Mobilization-in-the-Pacific-Island-Countries-522181, as well as various IMF technical assistance reports.

Prepared by Arpitha Bykere.

Using the methodology by Teulings and Zubanov (2014), the local projection equation is augmented with the leads of the independent variables (global commodity prices and NEER) between forecast horizon ’t’ and ’t+h’ in order to correct for the downward bias of the coefficient estimates.

The instantaneous coefficient π₀ at each forecast horizon ’t+h’ is the local projection coefficient for that horizon, showing the cumulative response of a global commodity price shock in time ’t’ on inflation in time ’t+h’. The coefficient for each forecast horizon is plotted to construct the impulse response function from time ’t’ to ’t+h’.

Prepared by Daniela Alcantara.

Prepared by Daniela Alcantara and Stella Tam.

The COVID-19 State of Emergency orders are part of the National Disaster Management Plan. Both the SOE orders and the COVID-19 Health Travel Advisories are available on the Government website.

World Health Organization (2023). Samoa COVID-19 Dashboard.

The 1918 influenza pandemic was brought inland by a cargo ship and infected around 90 percent of the population with an estimated death toll of 25 percent of the population (Tomkins, 1992). The 2019 measles outbreak killed 83 people, 87% under five-years of age, and highlighted limitations in the country health system, including the overall low levels of immunization (WHO/UNICEF, 2020).

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the most likely scenario to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10-30 percent, and “high” a probability of 30 percent or more). The RAM reflects staff views on source of risks and overall level of concern as of the time of discussions with the authors. Non-mutually exclusive risks may interact and materialize jointly.

Highest-priority recommendations are in bold text.

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Samoa: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Samoa

Author:

International Monetary Fund. Asia and Pacific Dept

Volume/Issue:: Volume 2023: Issue 110

Publisher:: International Monetary Fund

ISBN:: 9798400236938

ISSN:: 1934-7685

Pages:: 95

DOI:: https://doi.org/10.5089/9798400236938.002

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Permanent Output Loss from Pandemic

(Index, 2019=100)

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Central government debt has been contained despite the Pandemic

(in percent of GDP)

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Tourism has rebounded quickly upon border reopening

(Monthly visitor arrivals, in thousands)

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Buoyant revenue and expenditure shortfalls drove fiscal surpluses

(Fiscal outturn deviation from budget, in percent of GDP)

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Surging overseas workers are boosting remittances

(Participation in seasonal labor programs, in total number and in percentage)

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The exchange rate has moved in line with Pacific peers

(National currency per SDR, Dec 2019=100)

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The pandemic has scarred tourism-related sectors

(Real gross value added, in million Tala)

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Samoa Airways has scaled back operations in the wake of substantial losses

(In percent of GDP)

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The SOE sector is large, and aggregate revenue exceeds expenditure

(SOE revenue and expenditure in percent of GDP)

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With the pandemic pushing some into losses

(SOE net revenue, in percent of GDP)

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Samoa’s closed capital account permits divergence in interest rates

(Policy interest rates, in percent)

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In the past, the policy rate influenced other interest rates

(In percent)

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SNPF assets are growing rapidly, with rising holdings abroad

(SNPF investment portfolio, in percent of GDP)

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Trade facilitation has improved

(Index, 0-2 scale)

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^{Figure 1.}

Economic Activity and Employment

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^{Figure 2.}

Inflation Developments

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^{Figure 3.}

Fiscal Sector Developments

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^{Figure 4.}

Monetary Sector Developments

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^{Figure 5.}

Financial Sector Developments

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^{Figure 6.}

External Sector Developments

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^{Figure 7.}

The Role of Remittances

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Samoa: Tax Revenue by Category

(In percent of GDP)

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Tax Revenue

(In percent of GDP)

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VAT Rates and VAT Collection

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^{Figure 1.}

Drivers of Headline, Import and Local Inflation

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^{Figure 2.}

Impact of Global Shocks on Samoan Prices

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New COVID Cases Per Million People

(Smoothened)

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Vaccination Rate

(Latest data available, in percent of population)

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Pacific Countries Reopening Borders

(In number of countries)

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Tourism Dependence and Real GDP Impact from COVID

(In percent)

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^{Figure 1.}

Samoa: Visitor arrivals and earnings upon reopening

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^{Figure 2.}

Tourism and GDP Growth

(In percent)

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Tourism Recovery

(In percent of 2018-19 monthly average)

Foresee

Recommendation	Actions Taken
Overarching issues
Improve the quality and coverage of data. CBS to collect granular data on banks, PFIs, insurers, and other financial intermediaries for prudential and financial stability analysis.	Complete. Financial Soundness Indicators are being produced for commercial banks and PFIs in line with international standards.
Upgrade the regulatory and supervisory frameworks to modern standards, including amending the Financial Institutions Act and Central Bank Act to support corrective actions and resolution.	The CBS Act (1984) was amended in 2015 and commercial bank prudential guidelines were revised in January 2021. Draft amendments to the Financial Institutions Act (1996), which incorporate corrective actions, resolution options, enforcement, governor’s discretion, etc., are being prepared.
CBS should raise capacity and hire additional staff for financial oversight, and over time assume supervision and regulation of all financial intermediaries.	This is a continuous process. The number of staff has increased gradually but capacity remains a challenge.
Banking supervision and regulation
Conduct regular on-site inspections, and in-depth assessments of financial statements (including asset quality reviews, of potentially vulnerable banks).	This is a continuous process. Regular on-site inspections and assessment of financial statements of commercial banks is being conducted.
Upgrade supervisory guidance to banks, especially regarding risk management and NPL write-offs.	Completed. The revised commercial bank prudential guidelines were issued in January 2021.
PFIs - supervision and regulation
CBS to produce periodic financial soundness indicators for PFIs and ensure proper IFRS accounting, especially for loan classification, NPLs, and provisioning.	This is a continuous process. Financial Soundness Indicators are being produced for all PFIs, and the CBS analyzes their financial statements on a quarterly basis.
CBS to issue and upgrade prudential regulations for PFIs.	The CBS issued prudential regulations for insurance companies and SHC in 2020. Prudential guidelines for DBS and SNPF have not been revised.
CBS to start on-site inspections of PFIs.	This is a continuous process. On-site inspection of PFIs is scheduled to be conducted every two years.
Offshore bank regulation and supervision
Enhance operational independence of Samoa International Finance Authority (SIFA) to supervise international banks and remove potential for conflict between SIFA’s promotional and supervisory roles.	In October 2016, the SIFA created a separate division, Invest Samoa, focusing solely on promotion. In December 2020, the Cabinet approved establishing a separate company solely responsible for promotion and marketing, which will allow the SIFA to focus on its supervisory role.
PFIs – governance
Government to reform mandates and governance of PFIs for defined policy objectives based on cost-benefit assessments, and to ensure efficient operations.	There have been no reforms to the mandates of PFIs.
Crisis preparedness
Adopt a full set of enforcement and resolution instruments.	Draft amendment to the Financial Institutions Act (1996), which incorporates corrective actions, resolution options, enforcement, governor’s discretion, etc., is being prepared.
Create an appropriate scheme and operational framework for Emergency Liquidity Assistance.	The Emergency Liquidity Assistance (ELA) framework and revisions to the guidelines for other CBS credit facilities are being prepared.
Systemic financial stability
CBS and Ministry of Finance to create financial stability and contingency planning committees.	The Financial Stability Committee has been created but only one meeting has taken place. Regular meetings are contingent on additional stress test results.
CBS to analyze systemic risks, including stress testing and macro-financial mapping.	An in-house preliminary and unofficial stress testing exercise was conducted by CBS staff in 2018. Macro-financial mapping has not been undertaken thus far.
Central bank policies and operations
CBS to unwind lending to Development Bank of Samoa (DBS) and Samoa Housing Corporation (SHC).	There has been no new lending to DBS and SHC via the credit line facility (CLF) since May 2018. DBS and SHC are making repayments on previous CLF loans.
Access to finance
Focus on indirect measures to enhance access to finance, including credit bureau, economic use of customary land, and complete setting up a personal property registry.	A draft bill for establishing an online Credit Registry is being prepared.
Insurance
CBS to develop insurance supervisory strategy and capacity building plans.	Largely complete. The CBS has implemented several measures to establish a risk-based system of supervision. Draft amendments to the Insurance Act (2007) covering supervisory issues remain pending.
Payment system and financial market infrastructure
CBS to implement the new National Payment Systems.	Establishing the Automatic Transfer System (ATS) and Central Securities Depository (CSD) is in the pipeline for 2023.

Jan 27, 2020	Samoa implemented travel restrictions due to the international outbreak of COVID-19, including requirements to travelers to self-quarantine for at least 14 days
Mar 18, 2020	Samoa reported the first suspected case of COVID-19 for an entering person
Mar 20, 2020	Samoa declared a State of Emergency (SOE) in response to the pandemic prohibiting all international travelers from entering Samoa and limiting public gatherings
Apr 11, 2020	The government announced a US$23.6 million package to help the country’s hotel sector
May 20, 2020	The government issued an amendment to the COVID-19 State of Emergency Orders lifting domestic lockdown restrictions but maintaining the border closure
Aug 6, 2020	Emergency Order 24 was issued ceasing all international travel to and from Samoa except for returning residents, prohibiting access to boats and ships except for trade and fishing, and limiting public gatherings
Apr 9, 2021	Samoa received its first doses of COVID-19 vaccines through the COVAX facility
May 8, 2021	The government confirmed that borders would reopen once 98 percent of the population had been vaccinated
Aug 11, 2021	Samoa launched a country-wide door-to-door vaccination campaign
Sep 23, 2021	Start of a two-day lockdown to boost COVID-19 vaccination coverage
Nov 8, 2021	New Zealand commenced one-way quarantine free travel from Samoa
Jan 22, 2022	A 48-hour nationwide lockdown was imposed after 15 COVID-19 cases were confirmed
Jan 25, 2022	The nationwide lockdown was extended until 27 January after frontline nurses tested positive for COVID-19, however there was no further community transmission
Feb 16, 2022	The Ministry of Health issued a Special Travel Advice for travelers from American Samoa, including that only Samoa residents/citizens would be allowed to enter Samoa
March-May, 2022	A domestic outbreak occurred, prompting tight mobility restrictions. The first community transmission of COVID-19 was detected on March 17. Over 15,000 cases have been detected to date, mostly between March and May before the pace slowed significantly. However, with more than 92 percent of adults being fully vaccinated, most cases resulted in mild symptoms and the death rate has been low (29 deaths were registered).
Jul 27, 2022	With cases diminishing substantially, the State of Emergency was lifted
Aug 1, 2022	Samoa’s border reopened to international travel, albeit with strict vaccination and testing requirements
Sep 22, 2022	All travel restrictions for COVID-19 were lifted

Jan 27, 2020	Samoa implemented travel restrictions due to the international outbreak of COVID-19, including requirements to travelers to self-quarantine for at least 14 days
Mar 18, 2020	Samoa reported the first suspected case of COVID-19 for an entering person
Mar 20, 2020	Samoa declared a State of Emergency (SOE) in response to the pandemic prohibiting all international travelers from entering Samoa and limiting public gatherings
Apr 11, 2020	The government announced a US$23.6 million package to help the country’s hotel sector
May 20, 2020	The government issued an amendment to the COVID-19 State of Emergency Orders lifting domestic lockdown restrictions but maintaining the border closure
Aug 6, 2020	Emergency Order 24 was issued ceasing all international travel to and from Samoa except for returning residents, prohibiting access to boats and ships except for trade and fishing, and limiting public gatherings
Apr 9, 2021	Samoa received its first doses of COVID-19 vaccines through the COVAX facility
May 8, 2021	The government confirmed that borders would reopen once 98 percent of the population had been vaccinated
Aug 11, 2021	Samoa launched a country-wide door-to-door vaccination campaign
Sep 23, 2021	Start of a two-day lockdown to boost COVID-19 vaccination coverage
Nov 8, 2021	New Zealand commenced one-way quarantine free travel from Samoa
Jan 22, 2022	A 48-hour nationwide lockdown was imposed after 15 COVID-19 cases were confirmed
Jan 25, 2022	The nationwide lockdown was extended until 27 January after frontline nurses tested positive for COVID-19, however there was no further community transmission
Feb 16, 2022	The Ministry of Health issued a Special Travel Advice for travelers from American Samoa, including that only Samoa residents/citizens would be allowed to enter Samoa
March-May, 2022	A domestic outbreak occurred, prompting tight mobility restrictions. The first community transmission of COVID-19 was detected on March 17. Over 15,000 cases have been detected to date, mostly between March and May before the pace slowed significantly. However, with more than 92 percent of adults being fully vaccinated, most cases resulted in mild symptoms and the death rate has been low (29 deaths were registered).
Jul 27, 2022	With cases diminishing substantially, the State of Emergency was lifted
Aug 1, 2022	Samoa’s border reopened to international travel, albeit with strict vaccination and testing requirements
Sep 22, 2022	All travel restrictions for COVID-19 were lifted

Topics

Countries

Series

About

Resources

Abstract

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

Annex I. Implementation of Previous IMF Recommendations

Annex II. Revenue Mobilization Performance and Options1

Annex III. Impact of Global Commodity Price Shocks on Samoa’s Inflation1

References

Annex IV. External Sector Assessment1

Annex V. Tourism Reopening Experience1

References

Annex VI. Risk Assessment Matrix1

Annex VII. Key 2022 CMAP Recommendations1

Annex VIII. Key 2015 FSAP Recommendations

Other IMF Content

Other Publishers

Asian Development Bank

Inter-American Development Bank

The World Bank

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Table of Contents

Headings

Figures

Metrics

Foresee

Annex II. Revenue Mobilization Performance and Options¹

Annex III. Impact of Global Commodity Price Shocks on Samoa’s Inflation¹

Annex IV. External Sector Assessment¹

Annex V. Tourism Reopening Experience¹

Annex VI. Risk Assessment Matrix¹

Annex VII. Key 2022 CMAP Recommendations¹