IMF says Samoan economy ‘performing well’ and shows resilience

An International Monetary Fund (IMF) team visited Samoa from February to March this year to hold discussions with authorities on the 2018 Article IV Consultation.

The team met with the heads of relevant government ministries and corporations including the Samoa Tourism Authority, as well as with representatives of the private sector. A Senior Advisor to the Executive Director for the Asia and Pacific Constituency also joined the meetings.

At the conclusion of the meetings, Mr. Giovani Ganelli of the IMF issued the following statement:

“The Samoan economy continues to perform well and has shown resilience. Growth was robust at 2.5 percent in the 2016/17 fiscal year (ending June 30), but is expected to temporarily moderate to 1.8 percent in 2017/18, mostly reflecting the closure of the Yazaki manufacturing plant.”

“In the medium term, growth is projected to rebound — averaging around 3 percent in the next five years — supported by infrastructure spending, preparation for the Pacific Games (PG) that Samoa will host in 2019, and new business operations at the former Yazaki plant. Inflation is expected to remain within the Central Bank of Samoa (CBS) 3 percent target. This outlook is subject to downside risks related to natural disasters, and spillovers from the partial withdrawal of correspondent banking relationships.”

“In recent years, the authorities have made progress toward fiscal consolidation, but, while the fiscal deficit remains well below the authorities’ 2 percent target, it widened to 1.1 percent of GDP in 2016/17, up from 0.4 percent of GDP in the previous year.

“The fiscal position is projected to loosen further in the medium term, given limited scope for reductions in current spending, a projected increase in development expenditure, and uncertainties on the revenue impact of planned tax reforms.”

“Strengthening the fiscal framework would solidify the gains from previous consolidation efforts. Specific measures in this regard should include targeting a debt-to-GDP ratio of 40 percent in the long term, and keeping the overall fiscal deficit under 2 percent of GDP. The level of international reserves is adequate according to the Fund’s metric for Assessing Reserves Adequacy for credit constrained economies. Monetary policy remains appropriately accommodative.”

“The Samoan authorities have taken welcome steps to mitigate Samoa’s vulnerability to the partial withdrawal of correspondent banking relationships, including progress with the implementation of the national strategy for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), which should continue. Further progress in this area should also include establishing a database for customer identification and monitoring, and addressing risks from the offshore sector by aligning the laws governing it with international AML/CFT standards. The IMF is supporting the authorities’ efforts through technical assistance and by promoting dialogue between banks, Money Transfer Operators and regulators in the region.

“Financial stability indicators suggest that the banking system remains sound. Commercial banks are well capitalized and earnings, profitability and liquidity indicators are within historical norms.

“Structural reforms should focus on boosting growth prospects by increasing resilience to natural disasters, improving the business environment, and fostering financial inclusion. In this regard, the mission encouraged the authorities to speedily implement measures aimed at strengthening resilience and improve financial inclusion, including those laid out in the Strategy for the Development of Samoa 2016/17-2019/20 and in the National Financial Inclusion Strategy for Samoa 2017-2020.

“The IMF team would like to thank the Ministry of Finance, the Central Bank of Samoa, other ministries and government agencies, and private sector interlocutors for their open and constructive discussions and for their generous hospitality.”