Press Release No. 15/138

Press Release: Statement at the end of an IMF Staff Mission to Samoa

March 25, 2015

An International Monetary Fund (IMF) team led by Geoffrey Bannister visited Samoa during February 23-March 6 to hold discussions with the authorities and other stakeholders on the 2015 Article IV Consultation.¹ The team met with Prime Minister Tuilaepa Aiono Sailele Malielegaoi, CEO of the Ministry of Finance Tupa'imatuna Iulai Lavea, Central Bank of Samoa (CBS) Governor Atalina Ainuu Enari, and other senior officials, as well as representatives from the private sector and development partners. Staff from the Asian Development Bank (ADB) and the World Bank joined the mission. Regarding the findings of the visit, Mr. Bannister has issued the following statement:

“The government has managed to maintain macroeconomic stability and restore growth during a difficult period following the two natural disasters and the global financial crisis, helped in part by IMF emergency assistance disbursed under the Rapid Credit Facility (RCF) in 2013.² Real GDP grew by around 2 percent in fiscal year 2013/14, led by reconstruction activities, a recovery in agriculture, and preparations for the United Nations Small Island Developing States (SIDS) conference in September of 2014. Inflation has risen recently on the back of a recovery in food prices, but underlying inflation (excluding food, transport and communication) remains subdued. Over the medium-term, growth is expected to be around 2 percent supported by the expansion of agriculture and tourism. However, this outlook is subject to downside risks related to natural disasters, a growth slowdown in major trading partners, and a delay in fiscal consolidation or structural reforms.

“The government has reacted appropriately by increasing expenditure for recovery and reconstruction in the face of recent shocks, including the global financial crisis, tsunami and cyclone. However, public debt has risen rapidly to 55 percent of GDP, leaving little fiscal space to address future shocks. In addition, financial fragility in some public financial institutions could add significantly to the public debt in the case of another natural disaster. Therefore, a gradual fiscal consolidation, that safeguards social spending and economic growth, is critical for fiscal and debt sustainability. The mission supports the authorities’ goal of reducing the fiscal deficit to bring debt to 50 percent of GDP by 2020.

“The government has developed a number of initiatives to facilitate the flow of credit to the economy through the public financial institutions (PFIs). While these initiatives have provided financing to the private sector and state owned enterprises in a time of crisis, they have resulted in contingent liabilities for the government’s finances that could increase the public debt in the future. The recent assessment by the IMF’s Financial Sector Assessment Program has identified a range of measures to contain the risks to public finances from the PFIs, including redesigning their role to support private financial markets, and enhancing the soundness and resilience of the financial system as a whole. In particular, enhanced financial supervision by the Central Bank of Samoa (CBS), including on-site supervision covering all financial institutions, will be important to clearly identify and minimize risk in the financial system. Policies to help develop the financial sector, including the establishment of a credit bureau, a collateral registry and a framework for the use of customary land as collateral will also help facilitate credit for growth.

“The CBS has maintained an appropriately accommodative monetary stance to support the economic recovery, while maintaining exchange rate stability. As the economy recovers and world interest rates normalize, the CBS should stand ready to review its policy stance and make the necessary adjustments to ensure export competitiveness and maintain an adequate level of foreign reserves.

“Continued structural reforms are critical to restore Samoa’s strong growth record. The mission welcomes the government’s continued efforts to increase the accountability and efficiency of public enterprises, improve public financial management, and increase the use of customary land for more productive purposes.

“The IMF continues to support Samoa’s reform efforts by providing technical assistance in the areas of revenue administration, public financial management, financial sector regulation and supervision, and macroeconomic statistics.

“We would like to express our appreciation to the authorities and other stakeholders for the open and constructive discussions.”

¹ Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members. A staff team visits the country (typically on an annual basis) to collect economic and financial information and hold discussions with officials on the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.

² The RCF provides rapid concessional financial assistance to low-income countries facing an urgent balance of payments need. It can provide flexible support in a wide variety of circumstances, including shocks, natural disasters, and emergencies resulting from fragility. Fund support under the RCF is provided as an outright disbursement without explicit program-based conditionality or reviews. Financing under the RCF carries a zero interest rate, has a grace period of 5½ years, and a final maturity of 10 years.