IMF Staff Concludes 2023 Article IV Mission to Samoa – Stock Market News

IMF Staff Concludes 2023 Article IV Mission to Samoa

February 2, 2023

End-of-mission press releases include statements from IMF staff conveying preliminary findings after a country visit. The views expressed in this statement are those of IMF staff and do not necessarily represent the views of the IMF Executive Board. Based on the preliminary findings of this mission, staff will prepare a report which, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

• After a three-year recession driven by the Covid-19 pandemic, the Samoan economy is enjoying a strong recovery driven by the return of tourism.
• An expansionary fiscal stance remains appropriate if it is geared towards increased public investment, which will help the economy return to pre-pandemic levels of activity.
• With the economy recovering, a gradual normalization of the highly accommodative monetary stance of the Central Bank of Samoa is appropriate, to contain further increases in private borrowing and create policy space to weather future shocks.

Apia, Samoa:
An International Monetary Fund (IMF) team led by Mr. Andrew Swiston held discussions with Samoan authorities and other stakeholders in Apia from January 16 to February 1, 2023. Following the visit, Mr. Swiston issued the following statement:

“The Samoan economy has started to recover after a three-year recession caused by the Covid-19 pandemic. The lifting of national Covid-19 restrictions in July and the resumption of the influx of visitors during the reopening borders in August led to a rebound in economic activity, with real GDP increasing by 4.7% year-on-year in Q3 2022. The economy is boosted by the return of tourism, the increase in remittances and increased public investment.As a result, the team forecasts real economic growth of 5.0% in fiscal year 2023.

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“The recent spike in the cost of living has begun to subside. Inflation rose to over 15% year-on-year from August to September 2022, mainly due to a surge in import prices. However, falling food and energy prices in recent months have pushed inflation down to 7.5% year-on-year in December, and the team expects inflation to continues to decline, at a gradual rate.

“The team expects economic growth to remain above trend in fiscal years 2024 and 2025 as tourism flows and the national economy normalize. Higher tourism receipts and resilient remittances are also expected to reduce the current account deficit Reserve coverage, which was over 8 months of imports in FY22, is expected to remain above adequate levels over the medium term, with a coverage of 6 months potential imports.

“The financial system has remained resilient despite increased systemic risks during the pandemic, and risks are diminishing as the economic recovery improves the ability of borrowers to repay. With the economy recovering and inflation still high, the team believes the time is right for the Central Bank of Samoa to start normalizing its very accommodative monetary policy. This would contribute to financial stability by containing further increases in private borrowing and creating policy space to react to future shocks. Housing removal could be gradual, with the pace depending on the strength of the economic recovery.

“Recent central government surpluses despite the pandemic have helped maintain Samoa’s fiscal sustainability. Sustained tax revenue, including through improvements in tax administration, and subsidies helped the central government achieve a surplus of 5.4% of GDP and reduce debt to 43.7% of GDP during the 2022 financial year.

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However, the under-execution of public investments has been a drag on growth.

“For FY2023, the team considers an expansionary fiscal stance appropriate, provided there is an increase in public investment to improve productivity growth and help the economy return to normal levels. during the pre-pandemic period. Meanwhile, the finances and investment capacity of utility companies would be strengthened by raising their tariffs to a level sufficient to cover costs. Taking into account the effects on inflation and household finances, this could be done over a period of two to three years, with the authorities directing more targeted support to vulnerable households.

“Over the medium term, Samoa needs significant investment in disaster-resilient infrastructure and development-related spending such as health and education. This highlights the importance of continuing to increase grant funding given Samoa’s limited fiscal space. Fiscal space can also be created by increasing revenue through further gains in tax administration and reducing tax exemptions, as well as by continuously improving public financial management.

“The team welcomes the authorities’ efforts to pursue inclusive growth through their

Samoa Development Pathway

five-year plan. Further human capital development is a key priority, as it would help meet the demands for skilled labor resulting from the economic recovery. Progress continues to be made on other initiatives with large-scale benefits for growth and inclusion, including national digital ID and credit registry.

“The IMF team would like to thank the Samoan authorities and other stakeholders for their constructive discussions and support during the mission.”