## cr18145 - SAMOA STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION ## Source details **Canonical URL:** [cr18145 - SAMOA STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION](https://www.imf.org/-/media/files/publications/cr/2018/cr18145.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18145.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18145.pdf.json) --- ### Recent economic developments - Real GDP growth: 2.5 percent for 2016/17 (after peaking at above 7 percent in 2015/16). Commerce, services and agriculture were the key drivers. - Average inflation: picked up to 1.3 percent in 2016/17, compared to close to zero in the previous year, but remains below the authorities’ target of 3 percent. - Current account deficit: narrowed to 2.3 percent of GDP in 2016/17 (compared to 4.7 percent of GDP in 2015/16), driven by temporary factors (one-off items in the service balance and reduction in import growth related to completion of large hotel projects). - Exchange rates and reserves: - Samoan Tala appreciated against the U.S. dollar during 2016/17; little change in nominal and real effective exchange rates. - Gross official reserves: 121.6 (2016/17, millions of U.S. dollars); 143.0 (2017/18); 144.2 (2018/19); 164.1 (2019/20); 166.4 (2020/21); 164.6 (2021/22); 174.5 (2022/23). - Financial soundness: commercial banks are well capitalized; earnings, profitability, and liquidity indicators are within historical norms. ### Outlook and risks - Growth projections and drivers: - 2017/18: Growth projected to moderate to 1.8 percent, reflecting closure of Yazaki and normalizing fishing exports, partially offset by higher public infrastructure spending and hosting regional meetings. - 2018/19: Growth expected to rebound as two new businesses scale up operations at the old Yazaki plant and infrastructure projects complete. - 2019/20: Growth projected to accelerate to 5 percent, driven by tourism-related sectors as Samoa hosts the Pacific Games in July 2019. - Medium term: settle at just above 2 percent. - Disaster and event impacts: - Cyclone Gita (February 2018): negative growth impact estimated at about 0.1 percentage point. - Inflation and external position: - Inflation expected to continue to pick up to about 3 percent in the medium term. - Current account deficit expected to widen to just above 4 percent of GDP in the next few years to support investment for the Pacific Games and other infrastructure. - Vulnerabilities: - High vulnerability to natural disasters and to the partial withdrawal of correspondent banking relationships (CBRs). ### Executive Board assessment and main policy recommendations - Executive Directors: commended robust growth and resilience; noted downside risks from natural disasters and partial withdrawal of CBRs; underscored need to build fiscal space, mitigate CBR spillovers, and implement structural reforms. - Priority policy recommendations (selected): - Strengthen the fiscal framework to reduce public debt; consider introducing a lower public debt-to-GDP target and a fiscal balance anchor consistent with the target. - Improve tax administration and compliance. - Improve performance and governance of public financial institutions (PFIs) and state-owned enterprises; strengthen public financial management (PFM) to mitigate fiscal risks. - Maintain an accommodative monetary policy stance while strengthening the monetary transmission mechanism. - Mitigate vulnerability from withdrawal of CBRs: align AML/CFT framework to international standards; leverage technology solutions for customer identification and monitoring; encourage industry-led, regional solutions. - Implement FSAP recommendations, focusing on upgrading regulatory and supervisory frameworks to support corrective actions and resolution. - Formulate a coherent framework for governance and performance of PFIs, including a clear definition of their mandates. - Structural reforms to broaden financial inclusion, enhance disaster resilience, and improve the business environment; follow up on measures to improve access to finance. ### Key statistics and indicators (selected) - Population (2016): 195.843 thousands - GDP per capita (2016/17): US$ 4,255 - IMF Quota: SDR 16.2 million - Main exports: Tourism, fish, taro - Key export markets: American Samoa, New Zealand, Australia Selected time series (est./proj. from Table 1) - Real GDP growth (12-month percent change): 2014/15: 1.6; 2015/16: 7.1; 2016/17: 2.5; 2017/18: 1.8; 2018/19: 3.2; 2019/20: 5.0; 2020/21: 2.2; 2021/22: 2.2; 2022/23: 2.2 - Consumer price index (end of period): 2014/15: 0.4; 2015/16: 2.3; 2016/17: 1.0; 2017/18: 2.6; 2018/19: 2.5; 2019/20: 2.7; 2020/21: 2.8; 2021/22: 3.0; 2022/23: 3.0 - Broad money (M2) (12-month percent change): 2014/15: 0.6; 2015/16: 7.1; 2016/17: 7.8; 2017/18: 4.8; 2018/19: 5.8; 2019/20: 5.2; 2020/21: 5.0; 2021/22: 5.3; 2022/23: 5.3 - Private sector credit, Commercial banks (12-month percent change): 2014/15: 12.7; 2015/16: 13.6; 2016/17: 7.2; 2017/18: 7.0; 2018/19: 7.4; 2019/20: 7.5; 2020/21: 6.9; 2021/22: 7.0; 2022/23: 6.5 - Current account balance (In millions of U.S. dollars): 2014/15: -24.9; 2015/16: -37.3; 2016/17: -19.5; 2017/18: -25.1; 2018/19: -40.6; 2019/20: -37.7; 2020/21: -42.4; 2021/22: -46.4; 2022/23: -48.1 - (In percent of GDP): 2014/15: -3.1; 2015/16: -4.7; 2016/17: -2.3; 2017/18: -2.9; 2018/19: -4.4; 2019/20: -3.8; 2020/21: -4.2; 2021/22: -4.4; 2022/23: -4.3 - Public debt (in millions of tala): 2014/15: 1,126.1; 2015/16: 1,080.7; 2016/17: 1,047.4; 2017/18: 1,120.7; 2018/19: 1,187.6; 2019/20: 1,262.3; 2020/21: 1,340.1; 2021/22: 1,427.5; 2022/23: 1,518.9 - (In percent of GDP): 2014/15: 57.8; 2015/16: 52.6; 2016/17: 49.1; 2017/18: 50.1; 2018/19: 50.2; 2019/20: 49.6; 2020/21: 50.1; 2021/22: 50.7; 2022/23: 51.2 ### Fiscal outlook, DSA findings, and recommended debt targets - Fiscal developments: - Current expenditure fell from 28.4 percent of GDP in 2013/14 to 23 percent of GDP in 2016/17. - Fiscal deficit widened to 1.1 percent of GDP in 2016/17 from 0.4 percent of GDP the previous year, partly due to additional infrastructure spending. - Fiscal balance expected to widen to 2 percent of GDP in 2017/18 and reach 2.5 percent of GDP by 2021/22. - Debt and contingent liabilities: - Total public debt fell below 50 percent of GDP, down from close to 58 percent of GDP in 2014/15. - Contingent liabilities from government guarantees to SOEs stand at about 7 percent of GDP. - Fiscal risks from on-lending to SOEs are about 6 percent of GDP. - Staff assesses Samoa remains at high risk of debt distress when the average annual effect of natural disasters is incorporated. - DSA recommendations: - Lower public debt target to 45 percent of GDP over the medium term and 40 percent of GDP over the longer term. - Introduce a fiscal balance anchor: keep the overall fiscal deficit under 2 percent of GDP on average over the medium term. - Achieving new debt targets feasible but will require additional fiscal consolidation efforts of about 0.5 percentage point of GDP. - Consider creating a more permanent contingency fund funded by unexpected revenue increases or SOE privatization; current annual appropriation for unforeseen expenditure not exceeding 1 percent of the total budget. ### Monetary policy, external assessment, and reserves - Monetary stance: - Policy rate has remained stable below 20 basis points in recent years; stance appropriately accommodative. - Inflation projected to remain below the authorities’ medium-term target of 3 percent. - Monetary transmission is weak: high excess reserves, falling private credit-to-deposit ratio, and a large interest rate spread. - Measures under discussion: create a credit bureau; facilitate use of customary land leases as collateral. - External position assessment: - Staff analysis points to a current account gap in the 0.8-1.7 percent of GDP range; adjusted current account gap of 1.2 percent of GDP using EBA-lite. - External Sustainability Approach based on a 40 percent of GDP public debt target gives a current account gap of 0.8 percent of GDP—staff judges this most informative. - Reserves coverage: 3.7 months of imports; adequate by the ARA metric for credit-constrained economies but below the lower bound once natural disaster vulnerability is taken into account; building additional external buffers recommended. ### Risks from withdrawal of Correspondent Banking Relationships (CBRs) and mitigation - Remittance and CBR facts: - Remittances account for over 15 percent of GDP; about 85 percent of remittances channeled through MTOs. - Of the 12 licensed MTOs operating in Samoa, 9 have lost at least one CBR since 2013. - Four MTOs have had transaction limits imposed on their accounts. - Currently only one MTO has access to CBRs in U.S. dollars, compared with seven MTOs with current access to CBRs in New Zealand dollars. - U.S. dollar-denominated share of total remittances fell from 21 percent in 2012 to 13 percent by Q3 2014. - Average cost to remit remains far above the SDG target of 3 percent and above the G20 objective of 5 percent. - Effects and risks: - Loss of CBRs could prompt MTO market consolidation, increase remittance costs, affect financial inclusion, and risk remittances moving to unregulated channels. - Overall risk of a complete and abrupt loss of CBRs considered very low, but further withdrawal remains a vulnerability. - Mitigation and recommendations: - Reform AML/CFT framework: strengthen legal framework, improve sanctioning powers, improve CBR and remittance data. - Establish a database for customer identification and monitoring; encourage MTOs to use OEC election database; develop IT solutions to bridge access. - Address offshore sector risks: new Trustee Companies Act; strengthen SIFA supervision; align offshore laws with international AML/CFT standards; reassess offshore business model. - IMF to support industry-led and regional solutions, more intensive regional dialogue, information sharing, and best-practice guidelines for banks and MTOs. ### Financial sector, PFIs, and FSAP progress - Banking system: - Financial soundness indicators: banks well capitalized; NPL ratio increased in late 2017 but preliminary numbers point to reduction; profitability dipped in Dec-2017 but expected to rebound. - CBS producing FSIs for commercial banks and PFIs; conducting regular on-site inspections; increasing staff and supervisory capacity. - CBS should prioritize upgrading regulatory and supervisory frameworks, including amending the Financial Institutions Act to support corrective actions and resolution. - Recommendation: high-level committee on financial stability should meet regularly. - PFIs and specific cases: - PFIs expanded beyond original mandates, competing with commercial banks and generating contingent liabilities. - Development Bank of Samoa (DBS): accounts for about 80 percent of government guaranteed loans; NPL ratio of 12 percent. - Samoa National Provident Fund (SNPF): should develop strategy to gradually reduce personal lending against members’ contributions. - Unit Trust of Samoa (UTOS): should continue to reduce leverage and aim to operate as an unleveraged mutual fund in the medium term. - FSAP recommendations: complete implementation, upgrade prudential regulations, strengthen PFI governance and mandates. ### Structural priorities: disaster resilience, business environment, financial inclusion, SOEs - Disaster resilience: - Priority actions: upgrade health and education facilities for disaster/climate resilience; upgrade key infrastructure to prevent flooding; mainstream climate and disaster resilience into sector and agency plans; pursue grant-financed measures consistent with fiscal strategy. - Develop a Disaster Risk Financing Strategy to identify resources (domestic contingencies, regional catastrophe risk insurance, credit lines with IFIs). - Business environment: - Completion of a submarine cable and rehabilitation of hydro plants expected to improve IT services and reduce electricity costs. - Launch of personal property online registry; plans for credit bureau; facilitating customary land leases as collateral to improve access to finance. - SOE governance and privatization: - Strengthen SOE governance and explore privatization to improve performance and reduce fiscal risks. - Option papers prepared for privatization of Samoa Post Limited (SPL), Public Trust Office (PTO) and Samoa Housing Corporation (SHC). - Financial inclusion: - 49 percent of Samoan adults are excluded from the formal financial sector. - National Financial Inclusion Strategy 2017-2020 priority measures: expand services to underserved segments; develop cost-effective payment solutions; promote digital financial services and institutional innovations; promote financial education in schools. ### Data, technical assistance, and development partner engagement - Statistics and TA: - September 2017 GFS mission reconciled grants and transfer data and completed general government consolidation for FY2016; next GFS mission expected November 2018. - PFTAC assisted CBS in reviewing and redrafting prudential standards; revised prudential statements due to be finalized and issued by end-2018. - GDP rebasing: production base to move from 2009 to 2015 (work in progress). - Samoa needs at least two years to build capacity to provide full IIP data to the Fund; partial IIP data excluding private sector might be provided sooner. - World Bank and ADB portfolios: - World Bank active portfolio: 8 projects, total commitment US$147 million; undisbursed balance US$87.0 million. - ADB: as of end-2017 $189.3 million in loans, $130.87 million in grants, $32.16 million in TA provided historically; active portfolio $164.5 million at end-2017. - Projects cover climate resilience, infrastructure, ICT connectivity (submarine cable), agriculture, aviation, and resilience programs. ### DSA, stress tests, and policy implications - DSA key findings: - Samoa remains at high risk of external debt distress; incorporating average long-term costs of natural disasters causes breach of threshold under baseline for PV of PPG external debt-to-GDP ratio. - Baseline assumptions include real GDP growth normalized at 2.5 percent for 2016/17 and projected at 2.2 percent on average between 2018-2023; growth lowered by 1.3 percentage points after 2023 to account for natural disasters. - Contingent liabilities from government guarantees to SOEs included (7.2 percent of GDP in baseline). - Stress tests: - Significant breach of PV of PPG debt-to-GDP ratio following an extreme shock and severe natural disaster shock. - Extreme shock (markdown of real GDP growth by a full standard deviation) leads to debt-to-GDP more than double prudent levels by end of projection period. - Policy implications: - Continue boosting revenue collection and consolidating public finances. - Introduce lower public debt-to-GDP targets: 45 percent medium term; 40 percent longer term. - Maintain prudent borrowing terms and prioritize grant-equivalent financing where possible. - Build fiscal buffers to respond to natural disasters and other shocks. ### Annex: Public Enterprises (selected listing) - 17 Public Trading Bodies (asterisks denote PFIs): Development Bank of Samoa*; Electric Power Corporation; Gambling Control Authority; Land Transport Authority; Polynesian Airline Ltd; Public Trust Office; Samoa Airport Authority; Samoa Housing Corporation*; Samoa International Finance Authority; Samoa Land Corporation; Samoa Ports Authority; Samoa Post Limited; Samoa Shipping Corporation; Samoa Shipping Services; Samoa Trust Estates Corporation; Samoa Water Authority; Unit Trust of Samoa*. - 3 Public Mutual Bodies: Accident Compensation Corporation; Samoa Life Assurance Corporation; Samoa National Provident Fund*. - 8 Public Beneficial Bodies: National Health Services; National Kidney Foundation; National University of Samoa; Samoa Fire & Emergencies Services; Samoa Qualification Authority; Samoa Sports Facilities Authority; Samoa Tourism Authority; Scientific Research Organisation. *Source: SAMOA STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION (cr18145).* ### 1.3 percent in 2016/17, compared to close to zero in the previous year, but remains well below ### cr18145 - 1.3 percent in 2016/17, compared to close to zero in the previous year, but remains well below ### Recent economic developments - Real GDP growth: 2.5 percent for 2016/17 (after peaking at above 7 percent in 2015/16). Commerce, services and agriculture were the key drivers. - Average inflation picked up to 1.3 percent in 2016/17, compared to close to zero in the previous year, but remains below the authorities’ target of 3 percent. - Current account deficit narrowed to 2.3 percent of GDP in 2016/17 (compared to 4.7 percent of GDP in 2015/16), driven by temporary factors—one-off items in the service balance and some reduction in import growth related to the completion of large hotel projects in the previous year. - The Samoan Tala appreciated against the U.S. dollar during 2016/17, although there was little change in the nominal and real effective exchange rates. - Financial soundness indicators: commercial banks are well capitalized and earnings, profitability, and liquidity indicators are within historical norms. ### Outlook and risks - Growth projections and drivers: - Growth is projected to moderate to 1.8 percent in 2017/18, due to the negative impact of the closure of the Yazaki manufacturing plant in August 2017 and normalizing of fishing exports after two exceptionally good years, only partially offset by the impact of higher public infrastructure spending and Samoa’s hosting of regional meetings. - Growth is expected to rebound in 2018/19, as two new businesses scale up operations at the old Yazaki plant and several infrastructure projects are completed. - In 2019/20, growth is projected to accelerate to 5 percent, driven by tourism related sectors as Samoa hosts the Pacific Games in July 2019, before settling at just above 2 percent in the medium term. - Disaster and event impacts: - The negative growth impact of February 2018’s Cyclone Gita is estimated to be about 0.1 percentage point. - Inflation and external position: - Inflation is expected to continue to pick up to about 3 percent in the medium term. - The current account deficit is expected to widen to just above 4 percent of GDP in the next few years, driven by a rebound in imports to support investment for the Pacific Games and other infrastructure projects. - Vulnerabilities: - High vulnerability to natural disasters and to the partial withdrawal of correspondent banking relationships (CBRs). ### Executive Board assessment and main policy recommendations - Executive Directors’ views: - Commended the authorities for Samoa’s robust growth and resilience in the face of external shocks. - Noted downside risks from natural disasters and partial withdrawal of CBRs. - Underscored the need to build fiscal space, mitigate spillovers from loss of CBRs, and implement structural reforms for sustained, inclusive growth. - Priority policy recommendations: - Strengthen the fiscal framework to reduce public debt to a more sustainable level, including by considering the introduction of a lower public debt-to-GDP target, and a fiscal balance anchor consistent with the target. - Improve tax administration and compliance. - Continue efforts to improve the performance of public financial institutions (PFIs) and state-owned enterprises and to strengthen public financial management (PFM) to mitigate fiscal risks. - Maintain an accommodative monetary policy stance while strengthening the monetary transmission mechanism. - Continue measures to mitigate vulnerability from withdrawal of CBRs; align the AML/CFT framework to international standards; leverage technology solutions for customer identification and monitoring; encourage engagement for an industry-led, regional solution to the withdrawal of CBRs. - Continue implementing FSAP recommendations, focusing on upgrading the regulatory and supervisory framework to support corrective actions and resolution. - Formulate a coherent framework for governance and performance of PFIs, including a clear definition of their mandates. - Focus structural reforms on broadening financial inclusion, enhancing resilience to natural disasters, and improving the business environment; follow up on plans to introduce measures to improve access to finance for households and businesses. ### Key statistics and fiscal/financial indicators (selected, as reported) - Population (2016): 195.843 thousands - Main Exports: Tourism, fish, taro - Key Export Markets: American Samoa, New Zealand, Australia - GDP per capita (2016/17): US$ 4,255 - IMF Quota: SDR 16.2 million Selected time series (est./proj. from Table 1) - Real GDP growth (12-month percent change): 2014/15: 1.6; 2015/16: 7.1; 2016/17: 2.5; 2017/18: 1.8; 2018/19: 3.2; 2019/20: 5.0; 2020/21: 2.2; 2021/22: 2.2; 2022/23: 2.2 - Nominal GDP (12-month percent change): 2014/15: 4.4; 2015/16: 5.5; 2016/17: 3.8; 2017/18: 4.8; 2018/19: 5.8; 2019/20: 7.7; 2020/21: 5.0; 2021/22: 5.3; 2022/23: 5.3 - Consumer price index (end of period): 2014/15: 0.4; 2015/16: 2.3; 2016/17: 1.0; 2017/18: 2.6; 2018/19: 2.5; 2019/20: 2.7; 2020/21: 2.8; 2021/22: 3.0; 2022/23: 3.0 - Central government budget (In percent of GDP): - Revenue and grants: 2014/15: 35.1; 2015/16: 36.1; 2016/17: 34.2; 2017/18: 35.7; 2018/19: 35.7; 2019/20: 35.6; 2020/21: 35.6; 2021/22: 34.9; 2022/23: 34.9 - Expenditure and net lending: 2014/15: 38.9; 2015/16: 36.5; 2016/17: 35.3; 2017/18: 37.7; 2018/19: 38.0; 2019/20: 38.0; 2020/21: 38.0; 2021/22: 37.4; 2022/23: 37.4 - Overall balance: 2014/15: -3.9; 2015/16: -0.4; 2016/17: -1.1; 2017/18: -2.0; 2018/19: -2.3; 2019/20: -2.4; 2020/21: -2.4; 2021/22: -2.5; 2022/23: -2.5 - Broad money (M2) (12-month percent change): 2014/15: 0.6; 2015/16: 7.1; 2016/17: 7.8; 2017/18: 4.8; 2018/19: 5.8; 2019/20: 5.2; 2020/21: 5.0; 2021/22: 5.3; 2022/23: 5.3 - Private sector credit, Commercial banks (12-month percent change): 2014/15: 12.7; 2015/16: 13.6; 2016/17: 7.2; 2017/18: 7.0; 2018/19: 7.4; 2019/20: 7.5; 2020/21: 6.9; 2021/22: 7.0; 2022/23: 6.5 - Current account balance (In millions of U.S. dollars): 2014/15: -24.9; 2015/16: -37.3; 2016/17: -19.5; 2017/18: -25.1; 2018/19: -40.6; 2019/20: -37.7; 2020/21: -42.4; 2021/22: -46.4; 2022/23: -48.1 - (In percent of GDP): 2014/15: -3.1; 2015/16: -4.7; 2016/17: -2.3; 2017/18: -2.9; 2018/19: -4.4; 2019/20: -3.8; 2020/21: -4.2; 2021/22: -4.4; 2022/23: -4.3 - Gross official reserves (In millions of U.S. dollars): 2014/15: 131.9; 2015/16: 111.0; 2016/17: 121.6; 2017/18: 143.0; 2018/19: 144.2; 2019/20: 164.1; 2020/21: 166.4; 2021/22: 164.6; 2022/23: 174.5 - (In months of next year's imports of GNFS): 2014/15: 4.0; 2015/16: 3.4; 2016/17: 3.5; 2017/18: 3.8; 2018/19: 3.6; 2019/20: 4.0; 2020/21: 3.9; 2021/22: 3.7; 2022/23: 3.6 - Public debt (in millions of tala): 2014/15: 1,126.1; 2015/16: 1,080.7; 2016/17: 1,047.4; 2017/18: 1,120.7; 2018/19: 1,187.6; 2019/20: 1,262.3; 2020/21: 1,340.1; 2021/22: 1,427.5; 2022/23: 1,518.9 - (In percent of GDP): 2014/15: 57.8; 2015/16: 52.6; 2016/17: 49.1; 2017/18: 50.1; 2018/19: 50.2; 2019/20: 49.6; 2020/21: 50.1; 2021/22: 50.7; 2022/23: 51.2 - Exchange rates (market rate, tala/U.S. dollar, period average): 2014/15: 2.42; 2015/16: 2.61; 2016/17: 2.49 ### Key issues and staff recommendations (summary) - Strengthen the fiscal framework to ensure debt sustainability, including consideration of a lower public debt target and a fiscal balance anchor consistent with the debt target. - Mitigate risks from the loss of CBRs: bring AML/CFT framework in line with international standards; establish a database for customer identification and monitoring; leverage technology solutions; pursue industry-led, regional solutions. - Implement FSAP recommendations and reform PFIs’ governance and mandates. - Maintain accommodative monetary policy while improving monetary transmission and addressing banks’ reluctance to lend. - Prioritize structural reforms for financial inclusion, resilience to natural disasters, and business environment improvements. *Source: SAMOA STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION (cr18145).* ### 6. The risks to the outlook are tilted to the downside (Annex I). Samoa is highly vulnerable ### 6. The risks to the outlook are tilted to the downside (Annex I). Samoa is highly vulnerable ### Downside and upside risks to the outlook - Samoa is highly vulnerable to natural disasters, which "in the past have hit the country on average every five years, causing widespread damage and increasing public debt." - Spillovers from the partial withdrawal of correspondent banking relationships (CBRs) by global and regional banks: could disrupt the inflow of remittances to Samoa. - Dengue outbreak: "Between August 2017 and February 2018, 3,199 dengue cases were reported, five of which were deaths." The dengue outbreak could affect tourism (noted as a tail risk), and authorities are mitigating via dengue awareness. - Upside possibility: the hosting of the Pacific Games (PG) could have a stronger-than-expected positive impact on economic sentiment and growth. ### Authorities’ views on outlook and risks - Authorities broadly agreed with staff’s assessment that current growth moderation is temporary and growth is expected to rebound, peaking in the year of the PG. - Authorities emphasized Samoa’s small island developing state challenges, the ever-present natural disaster risk, and downside risks including greater loss of CBRs and possible reduced access to concessional loans in the medium to long term. - On the upside, authorities highlighted potential strong pickup in tourism and increased export opportunities. ### Fiscal developments and projections - Recent fiscal consolidation progress, but fiscal deficit widened in 2016/17. - Current expenditure fell from "28.4 percent of GDP in 2013/14" to "23 percent of GDP in 2016/17". - Total revenues (excluding grants) steadily increased due to improved compliance and increased collection of VAGST and income and excise taxes. - Fiscal deficit widened to "1.1 percent of GDP in 2016/17" from "0.4 percent of GDP" the previous year, partly due to additional infrastructure spending. - Projected fiscal path: - Fiscal balance expected to widen to "2 percent of GDP in 2017/18". - Deficit projected to reach "2.5 percent of GDP by 2021/22". - Revenue measures and implementation: - Measures factored into staff’s fiscal projections represent "a cumulative increase of just above 1 percent of GDP in the fiscal balance over two years." - Additional compliance and auditing improvements could raise revenues by "another 0.5 percent of GDP." ### Public debt, contingent liabilities, and recommended debt targets - Debt developments: - "Total public debt has fallen below 50 percent of GDP, down from close to 58 percent of GDP in 2014/15." - Government debt management strategy anchored on a target debt ratio of "50 percent of GDP (excluding contingent liabilities)." - Debt-to-GDP projected to start rising again in the medium term; debt service requirements remain high. - Risk assessment: - Samoa remains "at high risk of debt distress when the average annual effect of natural disasters is incorporated in medium-term projections." - Contingent liabilities from government guarantees to SOEs "stand at about 7 percent of GDP." - Fiscal risks from on-lending to SOEs are "about 6 percent of GDP." - Staff recommendations: - Lower public debt target to "45 percent of GDP over the medium term, and 40 percent of GDP over the longer term." - Rationale: create fiscal space to respond to a natural disaster and bring Samoa’s debt closer to the Pacific island countries average ("about 34 percent of GDP") and change debt distress rating from high to moderate. - Introduce a fiscal balance anchor: keep the overall fiscal deficit "under 2 percent of GDP on average over the medium term," which staff analysis shows is consistent with achieving the "40 percent of GDP" long-term debt target. - Achieving the new debt targets feasible but will require additional fiscal consolidation efforts (e.g., improved tax administration) of "about 0.5 percentage point of GDP." - Contingency funding: - Current annual appropriation not exceeding "1 percent of the total budget" is allocated for unforeseen expenditure. - Staff suggests considering a more permanent contingency fund funded by unexpected revenue increases or SOE privatization to meet disaster-related needs or fiscal costs from contingent liabilities. ### Public financial management (PFM) recommendations - Strengthen procedures for issuing government guarantees. - Develop a formal on-lending policy. - Consider creating a contingency fund to increase buffers beyond the current "1 percent of the total budget" annual appropriation. ### Monetary policy and external position - Monetary stance: - Monetary policy remains appropriately accommodative; "policy rate has remained stable below 20 basis points in recent years." - Inflation projected to remain below the authorities’ medium-term target of "3 percent." - Monetary transmission is weak: high excess reserves, falling private credit-to-deposit ratio, and a large interest rate spread reflect limited competition and conservative lending. - Measures under discussion: create a credit bureau and facilitate use of customary land leases as collateral to reduce banks’ reluctance to lend. - Samoa’s pegged exchange rate system provides a nominal anchor. - External position assessment: - Staff analysis points to a current account gap in the "0.8-1.7 percent of GDP" range. - Adjustments for temporary factors produced an adjusted current account gap of "1.2 percent of GDP" using EBA-lite methodology. - External Sustainability Approach (based on a "40 percent of GDP" public debt target) gives a current account gap of "0.8 percent of GDP." Staff judges this most informative. - At "3.7 months of imports," reserves are adequate per the ARA metric for credit-constrained economies, but below the lower bound once natural disaster vulnerability is taken into account. - Authorities’ views: - Central Bank of Samoa (CBS) sees continuation of current accommodative policy appropriate in the near term; in the medium term the CBS aims to "normalize" (raise) the policy rate as the economy rebounds to create space to cut rates when negative shocks hit. - Authorities intend to build additional reserves to increase resilience. ### Risks from withdrawal of Correspondent Banking Relationships (CBRs) and mitigation steps - Vulnerability: - CBR withdrawals by global and regional banks could disrupt trade and remittances; Samoa was selected as an IMF CBR pilot country. - Key facts on remittances and CBRs: - Remittances "account for over 15 percent of GDP" and are primarily channeled through money transfer operators (MTOs). - Of the "12 licensed MTOs operating in Samoa, 9 have lost at least one CBR since 2013." - Four MTOs have had transaction limits imposed on their accounts. - Currently only "one MTO has access to CBRs in U.S. dollars," compared with "seven MTOs with current access to CBRs in New Zealand dollars." - The U.S. dollar-denominated share of total remittances fell "from a high of 21 percent in 2012 to a low of 13 percent by the third quarter of 2014." - About "85 percent of remittances are channeled through MTOs." - Effects and risks: - Loss of CBRs could prompt MTO market consolidation, potentially increasing the cost to remit and affecting financial inclusion. - The average cost to remit in Samoa remains far above the SDG target of "3 percent." - Risk of remittances moving to unregulated channels (e.g., hand-carrying cash) if CBR access worsens. - Overall risk of a complete and abrupt loss of CBRs considered "very low," but Samoa remains vulnerable to further withdrawal. - Authorities’ and staff’s mitigation actions and recommendations: - Reform the AML/CFT framework: - Progress made with implementation of the national AML/CFT strategy; Samoa Financial Intelligence Unit (FIU) has trained staff, introduced risk-based monitoring, and started quarterly compliance meetings with MTOs and financial institutions. - Priorities: strengthen legal framework to facilitate criminal prosecution of money laundering, improve sanctioning powers of supervisory agencies for AML/CFT violations, continue improving availability and quality of CBR and remittance data for supervisory analysis. - Establish a database for customer identification and monitoring: - Authorities encouraged MTOs to sign bilateral Memoranda of Understanding with the Samoa election commission (OEC) to verify customer identity using the OEC’s election database. - Recommendation: develop an IT solution to bridge MTOs’ targeted access to OEC data and explore other cost-effective technology solutions to enhance MTO compliance with AML/CFT obligations (e.g., record keeping and suspicious transaction reporting). - Address risks from the offshore sector: - New Trustee Companies Act aims to enhance legal framework for accounting records and beneficial information. - Samoa International Finance Authority (SIFA) strengthened supervisory capacity (increased staff, training, on-site visits) and created a separate promotion division. - Suggested further efforts: bring laws governing the offshore sector in line with international AML/CFT standards (e.g., timely access to accurate and up-to-date beneficial ownership information) and reassess the offshore sector’s business model with the goal of lowering the country’s overall risk profile. *IMF staff summary based on the content of the Article IV consultation chapter.* ### 20. The IMF will continue to support the authorities’ efforts, including by promoting an ### 20. The IMF will continue to support the authorities’ efforts, including by promoting an ### CBR withdrawal, remittances, and regional/industry solutions - IMF will support authorities’ efforts, including by promoting an industry-led and regional solution to the withdrawal of CBRs. - Progress requires concerted actions by Pacific banks, MTOs and regulators building on dialogue initiated at the Pacific Roundtable on CBRs and Remittances (Sydney and Auckland, early February 2018). - Specific actions recommended: - More intensive regional dialogue, including with Australian and New Zealand regulators. - Promoting information sharing. - Greater transparency and communication by regulators, banks and MTOs, including development of best practice guidelines by banks for opening and maintaining CBRs. - Better verification of MTOs’ adherence to standards (e.g., independent and comprehensive AML/CFT audits) and training. - Facilitating MTO associations to improve verification and training. - Authorities are encouraged to engage with all relevant stakeholders on these issues. ### Authorities’ views on CBRs and AML/CFT - Samoan authorities commit to further reforms to mitigate risks from the partial withdrawal of CBRs: - Continue to reform AML/CFT framework to align with international standards. - Hold regular on-site inspections and off-site monitoring for AML/CFT adherence. - Committed to establish a centralized database for customer identification and monitoring. - Working towards developing a mandatory national identification system and exploring options for setting up a credit bureau. - Authorities expressed strong concerns about the European Union’s decision to include Samoa in its list of non-cooperative tax jurisdictions, viewing it as unilateral and undermining efforts to address loss of CBRs. ### Financial sector: soundness, supervision, and PFIs - Banking system assessment: - Financial soundness indicators show commercial banks are well capitalized and earnings, profitability, and liquidity indicators are within historical norms. - Banks’ NPL ratio increased in the last quarter of 2017, but preliminary more recent numbers point to a reduction. - Profitability dipped in December 2017 but expected to rebound with increased economic activity and lending. - Progress on FSAP recommendations: - CBS is producing FSIs for commercial banks and PFIs; conducting regular on-site inspections; increasing staff and training supervisory capacity. - CBS should prioritize upgrading regulatory and supervisory frameworks, including amending the Financial Institutions Act to support corrective actions and resolution. - A high-level committee on financial stability (senior officials from Ministry of Finance and CBS) should hold regular meetings to discuss systemic issues. - Public Financial Institutions (PFIs): - Reform of PFIs remains a high priority. - Some PFIs expanded beyond original mandates, engaging in lending that competes with commercial banks and generates public contingent liabilities. - Risks from PFI activities include weakening financial inclusion and increased unsupervised lending. - Government should formulate a coherent framework for PFI governance and performance, including clear definition of mandates. - Specific PFI cases and figures: - Development Bank of Samoa (DBS): - Accounts for about 80 percent of government guaranteed loans. - Has an NPL ratio of 12 percent. - Should re-orient focus back onto agriculture and original development objectives, and work with debtors to resolve long-standing poor-performing tourism loans. - Samoa National Provident Fund (SNPF): - Should develop a strategy to gradually reduce personal lending, including against members’ contributions, to better align with retirement income mandate. - Unit Trust of Samoa (UTOS): - Originally to enable small investors in SOE privatization; became a leveraged financing vehicle for SOEs. - Should continue to reduce leverage with objective of operating as an unleveraged mutual fund in the medium term. ### Authorities’ views on financial sector reforms - Authorities agree banking system remains sound and commit to continuing FSAP-recommended reforms. - In process of amending Financial Institutions Act to support corrective actions and resolution. - Acknowledge need to strengthen PFI governance and re-orient mandates, but stress strengthened PFI supervision and positive roles of PFIs in a small island economy context (including bringing down lending rates). ### Medium-term challenges: disaster resilience, business environment, SOEs, financial inclusion - Disaster resilience priority: - Increasing resilience to natural disasters would boost growth by encouraging private sector activity. - Prioritized measures within the authorities’ strategy: - Upgrade health and education facilities to be fully compliant with disaster and climate resilience plans. - Upgrade key infrastructure to prevent flooding, including through implementation of the Green Climate project. - Mainstream climate and disaster resilience into all sector plans, Ministry and implementing agencies’ corporate plans, and into transport, ICT, energy, and utility planning and systems. - Policies should be consistent with fiscal strategy and preferably grant-financed. - Business environment improvements: - Completion of a submarine cable expected to improve quality and affordability of IT services. - Rehabilitation of hydro plants destroyed by Cyclone Evan in 2012 expected to reduce electricity costs. - Launch of a personal property online registry, plans to establish a credit bureau, and facilitation of customary land leases as collateral should improve access to finance for households and SMEs. - SOE governance and privatization: - Efforts to strengthen SOE governance and explore privatization would improve performance, raise growth prospects, and reduce fiscal risks. - Performance Management Framework for Board and Board Directors and a Director’s Handbook are under preparation. - Option papers for privatization of Samoa Post Limited (SPL), Public Trust Office (PTO) and Samoa Housing Corporation (SHC) prepared and approved; review to identify further candidates ongoing. - Financial inclusion (National Financial Inclusion Strategy 2017-2020): - Samoa has a relatively large unbanked population: 49 percent of Samoan adults are excluded from the formal financial sector. - NFIS priority measures: - Expand financial services to underserved segments, especially rural and low-income populations, women and youth, through appropriate products and delivery channels. - Develop cost-effective, convenient and safe payment solutions for domestic and international payments, including promoting digital financial services and institutional innovations (e.g., branchless banking and mobile money). - Promote financial education through core curriculum in schools and integrating financial literacy into product design and service delivery by financial sector providers. ### Authorities’ views on structural priorities and statistics - Authorities agree with structural reform priorities: disaster resilience, financial inclusion, and business environment improvements. - Developing a Disaster Risk Financing Strategy to identify and quantify resources for disaster response, including domestic contingencies, regional catastrophe risk insurance policies, and credit lines with IFIs. - Plans to develop a national SME policy framework (including a current lack of SME definition) to help support SMEs. - Committed to strengthening SOE governance and exploring privatization opportunities while considering positive economic roles of SOEs. - Data and statistics: - Data quality remains a concern for some series; staff encouraged to seek PFTAC support for capacity in data compilation and provision. - Samoa Bureau of Statistics, with PFTAC assistance, working on: - Rebasing GDP by production from base 2009 to base 2015. - Developing a new measure of GDP by expenditure. - Authorities indicated need for at least two years to build capacity to provide full IIP data to the Fund, though partial IIP data (excluding the private sector) might be provided sooner. - Staff delivered a presentation on debt sustainability analysis and external sector assessment. ### Staff appraisal: growth, fiscal, monetary, external, and policy priorities - Growth outlook: - Growth remains robust but expected to moderate before rebounding. - Temporary moderation largely due to closure of the Yazaki manufacturing plant. - Growth expected to rebound—supported by infrastructure spending and preparations for the 2019 Pacific Games—peaking at 2019/20, before settling just above 2 percent in the medium term. - Risks tilted to the downside from vulnerability to natural disasters and partial loss of CBRs. - Fiscal framework recommendations: - Strengthen fiscal framework to solidify gains from previous consolidation. - New debt-to-GDP targets: - 45 percent in the medium term. - 40 percent over the longer term. - Complementary fiscal anchor: keep overall fiscal deficit under 2 percent of GDP on average over the medium term. - Public financial management reforms recommended: - Strengthen guidelines for government guarantees. - Develop a formal on-lending policy. - Create a contingency fund for natural disasters and other unexpected fiscal costs. - Monetary policy: - Monetary stance is appropriately accommodative given moderating growth, inflation below authorities’ target, and fiscal consolidation needs. - Transmission mechanism needs strengthening. - Creating a credit bureau and facilitating use of customary land leases as collateral could reduce banks’ reluctance to lend and strengthen transmission. - External position: - Assessed broadly in line with fundamentals and desirable policies using the external sustainability approach considering high vulnerability to natural disasters. - Level of reserves coverage is adequate according to the ARA metric for credit-constrained economies, but below the lower bound of the desirable range once vulnerability to natural disasters is taken into account. - Pegged exchange rate system provides a nominal anchor; exchange rate estimated to be in line with fundamentals with little sign of deterioration in competitiveness. - Continued priorities to mitigate CBR withdrawal vulnerabilities: - Fully implement AML/CFT strategy, including amending legal framework to facilitate criminal prosecution of money laundering and allowing supervisory agencies to impose proportionate dissuasive functions. - Improve availability and quality of CBRs and remittances data; train supervisory staff in data analysis. - Leverage technology solutions for customer identification and monitoring, building on existing Memoranda of Understanding several MTOs signed with the OEC. - Enhance entity transparency in line with international standards and reassess sustainability of the offshore business model. - Engage with banks, MTOs and regional regulators toward an industry-led and regional solution to CBR withdrawal. - Financial sector policy priorities: - Complete implementation of FSAP measures, including PFI reform. - Central Bank of Samoa should upgrade regulatory and supervisory framework to modern standards, including amending the Financial Institutions Act to support corrective actions and resolutions. - High-level committee on financial stability should meet regularly. - Formulate coherent framework for PFI governance and performance, including clear mandates, to avoid crowding out private institutions and minimize contingent liabilities. - Structural reform priorities: - Focus on improving disaster resilience, enhancing financial inclusion, and improving the business environment. - Speedy implementation of climate resilience measures and mainstreaming disaster reliance plans and upgrading infrastructure would boost growth and private sector activity. - Implementation of financial inclusion strategy and plans to establish a credit bureau and facilitate customary land leases as collateral should improve access to finance for households and SMEs. *Source: cr18145 - 20. The IMF will continue to support the authorities’ efforts, including by promoting an* ### 43. It is recommended that the next Article IV consultation with Samoa take place on the ### It is recommended that the next Article IV consultation with Samoa take place on the standard 12-month cycle. ### Real sector developments - Growth has moderated after a temporary spike but remains robust, driven by commerce, services, and agriculture. - A rebound in oil prices is weighing on transportation sector growth. - Tourism arrivals and earnings have rebounded. - Inflation is picking up but remains below the authorities’ target of 3 percent. - Both imported and underlying inflation are on the rise. - Samoa fares well in most doing business categories compared to the Pacific island average. - Key statistics: - Inflation target (authorities’ target): 3 percent - Real GDP growth (selected projections, Table 1): 2016/17: 2.5; 2017/18: 1.8; 2018/19: 3.2; 2019/20: 5.0; 2020/21: 2.2; 2021/22: 2.2; 2022/23: 2.2 - GDP per capita (2016/17): US$ 4,255 - Population (2016): 195.843 thousands ### External sector developments - The current account deficit has narrowed, driven by services and a smaller trade deficit. - The capital and financial account surplus narrowed as FDI flows turned negative after years of increases. - Reserves have increased, in contrast with a gradual decline in the Pacific island average. - The REER has remained broadly stable in the last few years. - Import growth is flat while exports continue to grow. - Key statistics: - Current account balance (in millions of U.S. dollars, Table 2): 2014/15: -24.9; 2015/16: -37.3; 2016/17: -19.5; 2017/18: -25.1; 2018/19: -40.6; 2019/20: -37.7; 2020/21: -42.4; 2021/22: -46.4; 2022/23: -48.1 - Gross official reserves (Table 2, in million of U.S. dollars): 2014/15: 131.9; 2015/16: 111.0; 2016/17: 121.6; 2017/18: 143.0; 2018/19: 144.2; 2019/20: 164.1; 2020/21: 166.4; 2021/22: 164.6; 2022/23: 174.5 - Current account balance (in percent of GDP, memorandum): 2014/15: -3.1; 2015/16: -4.7; 2016/17: -2.3; 2017/18: -2.9; 2018/19: -4.4; 2019/20: -3.8; 2020/21: -4.2; 2021/22: -4.4; 2022/23: -4.3 ### Fiscal sector developments - The fiscal deficit has widened. - Public-sector debt remains high. - Revenue gains have been sustained while current expenditure has been cut further. - Development expenditure is on the rise. - Samoa has limited fiscal space compared to other Pacific islands, given its large debt ratio. - Key statistics: - Revenue and grants (percent of GDP, Table 3): 2014/15: 35.1; 2015/16: 36.1; 2016/17: 34.2; 2017/18: 35.7; 2018/19: 35.7; 2019/20: 35.6; 2020/21: 35.6; 2021/22: 34.9; 2022/23: 34.9 - Overall balance (percent of GDP, Table 3): 2014/15: -3.9; 2015/16: -0.4; 2016/17: -1.1; 2017/18: -2.0; 2018/19: -2.3; 2019/20: -2.4; 2020/21: -2.4; 2021/22: -2.5; 2022/23: -2.5 - Development expenditure (percent of GDP, Table 3): 2014/15: 11.9; 2015/16: 12.0; 2016/17: 12.3; 2017/18: 12.4; 2018/19: 12.5; 2019/20: 12.5; 2020/21: 12.5; 2021/22: 11.9; 2022/23: 11.9 - Gross public debt (in percent of GDP, Table 3 memorandum): 2014/15: 57.8; 2015/16: 52.6; 2016/17: 49.1; 2017/18: 50.1; 2018/19: 50.2; 2019/20: 49.6; 2020/21: 50.1; 2021/22: 50.7; 2022/23: 51.2 ### Monetary and financial sector developments - The policy rate is close to the zero lower bound, but the monetary transmission mechanism is weak. - The interest spread is narrowing but still high in Samoa. - Excess reserves have rebounded. - The private credit-to-deposit ratio is on a downward trend. - Credit to the economy is lower than in some regional peers. - Samoa has the region’s largest number of adults excluded from both formal and informal financial services. - Key statistics: - Lending rate (Table 4, end series): Sep-10 to Sep-17 trend; Dec-17 lending rate: 8.9 - Deposit rate (Table 4, selected): 2011/12: 2.4; 2012/13: 2.8; 2013/14: 3.1; 2014/15: 2.6; 2015/16: 2.4; 2016/17: 2.6 - Private credit, Commercial banks (Table 1): 2014/15: 12.7; 2015/16: 13.6; 2016/17: 7.2; 2017/18: 7.0; 2018/19: 7.4; 2019/20: 7.5; 2020/21: 6.9; 2021/22: 7.0; 2022/23: 6.5 - Private credit/GDP (Table 4 memorandum): 2011/12: 38.1; 2012/13: 38.6; 2013/14: 39.3; 2014/15: 42.4; 2015/16: 45.7; 2016/17: 47.9; Dec-17: 45.8 ### Role of remittances - Remittances are large at about 16 percent of GDP and help to narrow the current account deficit and support imports. - Remittances are primarily channeled by non-banks, including money transfer operators, and are mainly for families. - Australia and New Zealand are the main source of remittances. - The average cost of remittance transfers has fallen but remains well above the G20 objective of 5 percent. - Key statistics: - Remittances (in percent of GDP, Table 2 memorandum): 2014/15: 20.0; 2015/16: 16.7; 2016/17: 16.1; 2017/18: 16.3; 2018/19: 16.3; 2019/20: 16.2; 2020/21: 16.2; 2021/22: 16.1; 2022/23: 16.0 - Tourism earnings (in percent of GDP, Table 2 memorandum): 2014/15: 17.4; 2015/16: 18.5; 2016/17: 17.9; 2017/18: 18.0; 2018/19: 18.1; 2019/20: 19.0; 2020/21: 18.1; 2021/22: 18.2; 2022/23: 18.2 - Average cost of remittance to send $200 NZD or AUD (Figure 5): shown as declining over Sep-12 to Sep-17 but remained above 5 percent (G20 objective) ### Selected economic and financial indicators (highlights from tables) - Nominal GDP (in millions of tala, Table 1 memorandum): 2014/15: 1,949; 2015/16: 2,055; 2016/17: 2,133; 2017/18: 2,235; 2018/19: 2,364; 2019/20: 2,545; 2020/21: 2,673; 2021/22: 2,815; 2022/23: 2,965 - Consumer price index (end of period, Table 1): 2014/15: 0.4; 2015/16: 2.3; 2016/17: 1.0; 2017/18: 2.6; 2018/19: 2.5; 2019/20: 2.7; 2020/21: 2.8; 2021/22: 3.0; 2022/23: 3.0 - Gross official reserves (Table 1): 2014/15: 131.9; 2015/16: 111.0; 2016/17: 121.6; 2017/18: 143.0; 2018/19: 144.2; 2019/20: 164.1; 2020/21: 166.4; 2021/22: 164.6; 2022/23: 174.5 - Public debt (in millions of tala, Table 3 memorandum): 2014/15: 1,126.1; 2015/16: 1,080.7; 2016/17: 1,047.4; 2017/18: 1,120.7; 2018/19: 1,187.6; 2019/20: 1,262.3; 2020/21: 1,340.1; 2021/22: 1,427.5; 2022/23: 1,518.9 _ Sources: Samoan authorities; The World Bank – Doing Business (2018); and IMF staff calculations._ ### 1. No Poverty ### 1. No Poverty ### Priority areas, key outcomes, and SDG mapping - Four strategic pillars identified: 1. Economic; 2. Social; 3. Infrastructure; 4. Environment. - Priority areas mapped to Samoan outcomes and corresponding SDGs (extract): - "No Poverty" — SDG 1. - "Zero Hunger" — Agriculture and fisheries productivity increased; Exports products increased; Tourism development and performance improved — SDG 2. - "Good Health and Well-being" — A healthy Samoa and well-being promoted — SDG 3. - "Quality Education" — Quality education and training improved — SDG 4. - "Gender Equality" — Participation of private sector in development enhanced — SDG 5 and 10 (Reduced Inequalities). - "Clean Water and Sanitation" — Access to clean water and sanitation sustained — SDG 6. - "Affordable and Clean Energy" — Quality energy supply — SDG 7. - "Decent Work & Economic Growth" — Multiple outcomes including tourism and private sector participation — SDG 8. - "Industry, Innovation, and Infrastructure" — Exports, ICT connectivity, transport systems — SDG 9. - "Sustainable Cities and Communities" — Transport systems and networks improved — SDG 11. - "Responsible Consumption and Production" — Private sector participation and production outcomes — SDG 12. - "Climate Action / Life Below Water / Life on Land" — Environmental resilience and climate/disaster resilience — SDGs 13, 14, 15. - "Peace, Justice, and Strong Institutions" — Strengthening social institutions — SDG 16. - "Partnership for the Goals" — Institutional and international partnerships — SDG 17. - Source for mapping: Strategy for the Sustainable Development of Samoa. ### Post-disaster finance sources (time-frame for access) - Ex-ante financing measures in place: - Parametric insurance (PCRAFI, based on event trigger) — Short-term. - Traditional insurance (based on damages/losses) — Medium/long term. - Contingent-debt financing facility (ADB & WB, based on event trigger) — Short/medium term. - Ex-post financing measures in place or available: - Unforeseen expenditure budget line (PFMA2001 S29) — Short/medium term. - In-year budget reallocation (PFMA2002 S26 & S29) — Short/medium term. - Development partners and international agency assistance and relief — Short/medium term. - Domestic credit from banking system — Medium/long term. - External credit from international agencies (including the IMF RCF) — Medium/long term. - Capital budget realignment (domestic and external funds) — Medium/long term. - Development partner assistance (reconstruction) — Medium/long term. - Tax and other revenue measures — Medium/long term. - Note: Short-term = within one month; Medium-term = within two-to-four months; Long-term = beyond four months. - PCRAFI = Pacific Catastrophe Risk Assessment and Financing Initiative. - Source: Secretariat of the Pacific Community (2015) and CBS. ### Risk Assessment Matrix — major risks, likelihood, impact, and policy recommendations - Natural disasters - Likelihood of severe realization in next one–three years: High. - Expected impact if realized: High. - Observations: Samoa has been hit by a major natural disaster once every five years on average; natural disasters historically increase public debt. - Policy recommendations: - Build fiscal buffers. - Increase resilience to natural disasters by implementing policies under the Strategy for the Development of Samoa (SDS) 2016/17-2019/20. - Reduced financial services by global/regional banks (correspondent banking withdrawal) - Likelihood: High. - Expected impact: High. - Observations: Closure of bank accounts of MTOs likely to continue, disrupting remittance channels; could increase hand-carry of cash and undermine AML/CFT compliance; lower remittances likely to reduce consumption and widen current account deficit; higher remittance costs affect vulnerable populations. - Policy recommendations: - Strengthen the AML/CFT regime in line with APG/FATF recommendations. - Establish a database for customer identification and monitoring. - Address risks from the offshore sector by aligning laws governing it with international AML/CFT standards. - Weaker-than-expected global growth - Likelihood: High. - Expected impact: Medium/High. - Observations: Weak growth in key advanced economies could reduce export and tourism receipts, impacting GDP growth, current account balance, and fiscal revenues. - Policy recommendations: - Improve the business environment and connectivity to foster private sector development. - Improve financial inclusion to cushion vulnerable populations against negative shocks. - Financial stress in Public Financial Institutions (PFIs) - Likelihood: Medium. - Expected impact: High. - Observations: PFIs have poor asset quality; financial spillovers would have limited effects on banks but would significantly deteriorate public finances and reduce a key source of credit. - Policy recommendations: - Strengthen financial operations of PFIs. - Enhance transparency and governance of PFIs. - Reform PFIs to restore them to their original mandate. - Note on RAM interpretation: "low" indicates probability below 10 percent; "medium" between 10 and 30 percent; "high" 30 percent or more. RAM reflects staff views as of time of discussions with the authorities. ### External Sector Assessment — key findings, balances, and reserves - Staff assessment: The external position is broadly in line with fundamentals and desirable policies. - Current account developments: - The current account deficit narrowed to -2.3 percent of GDP in 2016/17, an improvement of about 2.4 percentage points of GDP compared to 2015/16. - Improvement driven by a smaller trade imbalance by 2.2 percent of GDP and import compression of 2.4 percent of GDP. - Staff expects this improvement to be temporary; baseline (no natural disasters) projects the current account deficit to gradually widen to just over 4 percent of GDP over the medium term as imports rebound for infrastructure projects. - EBA-lite adjustments and outcomes: - Underlying current account adjusted by -1.2 percent of GDP for one-off flows related to (i) payments from Virgin Australia and (ii) a popular U.S. television series shot in Samoa. - Underlying current account further adjusted by -2.1 percent of GDP for a temporary reduction in imports due to completion of large projects (difference between 2016/17 import-to-GDP ratio 36.7 percent and twenty-year historical average 38.8 percent). - Given adjustments, cyclically adjusted underlying current account = -5.4 percent of GDP. - Estimated current account norm = -6.6 percent of GDP (cyclically adjusted CA Norm). - CA gap = 1.2 percent of GDP, of which Policy gap = 0.6 percent. - Additional figures shown: CA-Norm -6.8% (in one table), Elasticity -0.27, REER Gap -4.5%. - External sustainability approach outcomes: - Maintaining net foreign assets at 2016 level suggests a current account gap of 1.7 percent of GDP. - Targeted reduction in debt-to-GDP ratio and Net International Investment Position (NIIP) to 40 percent (consistent with building fiscal cushion against natural disasters and reducing external sustainability concerns given current NIIP of -52.5 percent of GDP) yields: - Current account norm = -6.2 percent. - Current account gap = 0.8 percent. - Staff therefore assesses external position as broadly in line with fundamentals; external sustainability approach based on maintaining public external debt at 40 percent of GDP is considered more informative given high vulnerability to natural disasters. - Exchange rate assessment: - EBA-Lite REER equation suggests REER moderately overvalued, but REER generally remained flat despite tourism terms-of-trade improvement and Tala appreciation against U.S. dollar in 2017. - Staff assess Samoa’s exchange rate as broadly in line with fundamentals and desirable policies. - Reserve adequacy: - Level of reserves = 3.7 months of imports (3.6 months in June 2017; 3.7 months in January 2018; rose from a low of 2.6 months in late 2016). - ARA metric for credit-constrained economies suggests optimal reserve level between 2.8 to 4.2 months of imports depending on assumed long-run opportunity cost. - Incorporating natural disaster vulnerability (assuming a higher probability of a large shock event, 70 percent vs sample average 50 percent) raises optimal reserve range to between 4.2 to 6.0 months of imports. - Conclusion: reserves adequate by ARA metric for credit-constrained economies but fall below lower bound of desirable range once vulnerability to natural disasters is taken into account; building additional external buffers recommended to increase resilience. ### Key 2015 FSAP recommendations and authorities' actions (selected) - Cross-cutting - Improve the quality and coverage of data: FSIs now produced for commercial banks; FSIs for other financial institutions are being produced — Still work in progress. - Upgrade regulatory and supervisory frameworks, amending Financial Institutions Act and Central Bank Act: The CBS Act 2015 repealed the CBS Act 1984; Technical Assistance on amendments to Financial Institutions Act 1996 (including resolution options) is underway; authorities target tabled amendments in parliament before end-2018. - CBS to raise capacity and hire additional staff for financial oversight: Number of staff gradually increasing; cost remains an issue. - Banking supervision and regulation - Conduct regular on-site inspections and in-depth assessments: Regular onsite inspections and in-depth offsite surveillance are ongoing. - Upgrade supervisory guidance to banks (risk management and NPL write-offs): In progress; authorities expect to finalize review of prudential statements before the end of this year. - PFIs (supervision, regulation, and governance) - CBS to produce periodic financial soundness indicators for PFIs and ensure proper IFRS accounting: Done. - CBS to issue and upgrade prudential regulations for PFIs: In progress. - CBS to start on-site inspections of PFIs: Done. - Government to reform mandates and governance of PFIs: Authorities acknowledge need to strengthen governance and re-orient mandates; PFI lending seen as positive in bringing down lending rates given limited bank competition. - Offshore bank regulation and supervision - Enhance operational independence of Samoa International Finance Authority (SIFA): In October 2016, SIFA created a separate division, Invest Samoa, focusing solely on promotion. - Crisis preparedness - Adopt a full set of enforcement and resolution instruments: FI Act 1996 under review; resolution and enforcement provisions drafted. - Create Emergency Liquidity Assistance framework: Authorities developing a Disaster Risk Financing Strategy to identify and quantify resources (domestic contingencies, regional catastrophe risk insurance, credit lines with IFIs). - Systemic financial stability - Create financial stability and contingency planning committees: Financial stability committee created but regular meetings yet to commence. - Analyze systemic risks (stress testing and macro-financial mapping): Preliminary and unofficial stress testing exercises conducted in-house by CBS staff. - Central bank policies and operations - CBS to unwind lending to DBS and SHC: Last approved CBS CLF to these institutions were in November 2015. - Access to finance - Focus on indirect measures: Credit bureau diagnostic assessment planned for March 2018; considerations include cost-effectiveness, regulatory framework, legal underpinnings, integration with personal securities registry, potential integration with an AML utility. - Personal property registry launched in early 2017. - Insurance and payments infrastructure - CBS to develop insurance supervisory strategy and capacity building plans: Authorities have requested TA. - CBS to implement new National Payment Systems: World Bank assistance ongoing; procurement of Automatic Transfer System under World Bank processes with Request for Proposal drafted; target finalization of contract by end June 2018 and implementation expected in second half of 2018; consultations on Oversight Regulation nearing completion; discussions with World Bank on functional set up to operationalize payments oversight. *Source: Strategy for the Sustainable Development of Samoa.* ### Annex IV. List of Public Enterprises ### Annex IV. List of Public Enterprises ### Overview - Total categories listed: - 17 Public Trading Bodies - 3 Public Mutual Bodies - 8 Public Beneficial Bodies - Asterisks denote PFIs ### 17 Public Trading Bodies - Development Bank of Samoa* - Electric Power Corporation - Gambling Control Authority - Land Transport Authority - Polynesian Airline Ltd - Public Trust Office - Samoa Airport Authority - Samoa Housing Corporation* - Samoa International Finance Authority - Samoa Land Corporation - Samoa Ports Authority - Samoa Post Limited - Samoa Shipping Corporation - Samoa Shipping Services - Samoa Trust Estates Corporation - Samoa Water Authority - Unit Trust of Samoa* ### 3 Public Mutual Bodies - Accident Compensation Corporation - Samoa Life Assurance Corporation - Samoa National Provident Fund* ### 8 Public Beneficial Bodies - National Health Services - National Kidney Foundation - National University of Samoa - Samoa Fire & Emergencies Services - Samoa Qualification Authority - Samoa Sports Facilities Authority - Samoa Tourism Authority - Scientific Research Organisation *Annex IV. List of Public Enterprises — SAMOA Staff Report for the 2018 Article IV Consultation (Informational Annex).* ### 2015. The September 2017 GFS mission assisted the statistics office to reconcile grants and transfer ### cr18145 - 2015. The September 2017 GFS mission assisted the statistics office to reconcile grants and transfer ### Public financial statistics and technical assistance - September 2017 GFS mission assisted the statistics office to reconcile grants and transfer data for budgetary central government (BCG) and completed general government consolidation for the fiscal year 2016. - A two-week GFS mission is expected to take place in November 2018 with a focus on expanding GFS coverage and compiling and reviewing public sector debt statistics. - Since May 2017, Samoa have been eligible to request funding through the IMF’s Technical Assistance Office for Laos and Myanmar (TAOLAM) for BoP TA. - Monetary and financial sector TA: - April 2017 PFTAC assisted the Central Bank of Samoa in reviewing and redrafting their suite of prudential standards for banks. - The revised prudential statements are subject to industry consultation, with all revised prudential statements due to be finalized and issued by the end of 2018. - This is noted as an important achievement for the Central Bank of Samoa in enhancing its regulatory framework. ### Relations with the World Bank — objectives and active portfolio (as of March 9, 2018) - RPF (February 2017) focuses on supporting Government efforts to: - fully exploit economic opportunities (including agriculture and tourism); - enhance access to employment (labor mobility, improved education outcomes); - protect incomes and livelihoods (resilience to natural disasters and climate change); - strengthen enablers of growth (macroeconomic management and infrastructure). - RPF is closely aligned with the Government’s Strategy for the Development of Samoa 2017-2020. - The Bank’s currently active portfolio consists of 8 projects with a total commitment of US$147 million. - Samoa: IDA Lending Operations (as of March 2018) — Current projects (IDA plus trust fund contributions) - Agriculture Competitiveness Enhancement Project — Year of Approval (FY) 2012 — Original Amount 13.0 — Undisbursed Balance 1.4 - Enhancing the Climate Resilience of West Coast Road — FY 2013 — Original Amount 14.8 — Undisbursed Balance 13.0 - Enhanced Road Access Project — FY 2014 — Original Amount 26.4 — Undisbursed Balance 7.8 - Enhancing the Climate Resilience of Coastal Resources & Communities — FY 2014 — Original Amount 14.6 — Undisbursed Balance 9.2 - Aviation Investment Project — FY 2014 — Original Amount 41.9 — Undisbursed Balance 35.1 - Pacific Resilience Program — FY 2015 — Original Amount 13.8 — Undisbursed Balance 12.0 - Pacific Regional Connectivity Project — FY 2015 — Original Amount 17.5 — Undisbursed Balance 8.5 - First Resilience Development Policy Operation — FY 2018 — Original Amount 5.0 — Undisbursed Balance 0.0 - Total — Original Amount 147.0 — Undisbursed Balance 87.0 - World Bank activity areas and project summaries: - Post-disaster recovery: Enhanced Road Access Project — restore road sector assets damaged by Cyclone Evan and enhance climate resilience. - Budget support: First Resilience Development Policy Operation — supports reforms in revenue, AML/CFT, access to finance, building codes, infrastructure asset management, pharmaceutical procurement, taxation of unhealthy products. - Climate resilience: projects include Enhancing the Climate Resilience of West Coast Road; Enhancing the Climate Resilience of Coastal Resources & Communities; Pacific Resilience Program (strengthen early warning systems, promote resilient investments, facilitate access to immediate liquidity after a natural disaster). - ICT sector: Pacific Regional Connectivity Project — submarine cable connecting Samoa to Fiji, establishment of Samoa Submarine Cable Company (SSCC), technical assistance for ICT regulation. - Agriculture sector: Agriculture Competitiveness Enhancement Project — support for fruit/vegetable growers and livestock producers; components (i) livestock production and marketing, (ii) fruit and vegetable production and marketing, (iii) institutional strengthening. - Aviation sector: Samoa Aviation Investment Project — improve operational safety and oversight, runways, facilities, navigation aids. - IFC engagement: - Active in telecoms sector; invested substantially in Digicel. - Mobile access increased to over 80 per cent of the population. - Assistance to tourism sector and expansion of banking services for small and medium entrepreneurs. ### Relations with the Asian Development Bank (ADB) (as of March 9, 2018) - ADB operations in Samoa started in 1966. - As at year-end 2017, $189.3 million in loans, $130.87 million in grants, and $32.16 million in technical assistance (TA) have been provided to Samoa. - ADB’s active portfolio of 6 projects in Samoa at end of 2017 was $164.5 million, including $96 million in ADB financing, and $68.5 million in administered cofinancing. - ADB focus areas include economic management, energy efficiency, statistics, private sector development (SOE reforms, land reforms, secured transactions). - ADB financed almost two thirds of generation capacity in Samoa over 20 years; power sector expansion project mobilized $100 million in financing (of which $57 million was in cofinancing); $27 million mobilized for renewable energy rehabilitation and development. - ICT connectivity: Tui Samoa cable landed in February 2018. - Pacific regional disaster resilience program approved December 2017 gives Samoa access to $6 million in contingent financing; government decided against drawing down funds after Cyclone Gita in February 2018. - TA developed legal framework for leasing of customary land; framework endorsed by the Government of Samoa. - ADB support to upgrade Apia port and to procure a mobile x-ray scanner for Ministry for Revenue. - ADB will provide $39.78 million in ADF grants in 2018. - ADB loans to Samoa, 2012–17 (in millions of USD) - Loan Approvals: 2012: 0; 2013: 0; 2014: 0; 2015: 0; 2016: 0; 2017: 3.1 - Loan Disbursements: 2012: 17.9; 2013: 4.3; 2014: 2.03; 2015: 1.1; 2016: 0.0; 2017: 0.0 - Cumulative loan amount available: 2012: 177.51; 2013: 177.45; 2014: 177.24; 2015: 176.37; 2016: 176.34; 2017: 179.44 - Cumulative disbursements: 2012: 167.8; 2013: 172.1; 2014: 174.13; 2015: 175.21; 2016: 175.25; 2017: 175.32 - Net loan amount undisbursed: 2012: 9.7; 2013: 5.3; 2014: 3.1; 2015: 2.0; 2016: 2.0; 2017: 4.1 ### Statistical issues (as of March 2018) - Overall assessment: Data provision has some shortcomings but is broadly adequate for surveillance. Core macroeconomic and monetary data are regularly reported; weaknesses remain in national accounts, monetary and financial, and external sector statistics. - National Accounts: - Improvements over the last three years. - GDP compiled quarterly, predominantly using the VAGST data. - GDP by production is being rebased from 2009 to 2013, expected to be published in April 2018. - Parallel work on an experimental estimate of GDP by expenditure tentatively expected for release by end-FY19. - Price Statistics: - CPI compiled monthly (February 2016=100; weights largely derived from the 2013-14 Household Income and Expenditure Survey). - Quarterly import price index (March 2009 = 100) published, coverage limited to chapters 01-27 of the Harmonized System. - Government Finance Statistics (GFS): - Samoa participated in the JSA-funded project through September 2015. - Since completion of the JSA project, authorities began publishing and submitting data for inclusion in IMF publications. - Statistics office started compiling high frequency GFS (quarterly). - Last mission in September 2017 produced GFS for the general government (FY16). - MoF Debt Management Unit started to compile and publish the quarterly debt report for the general government. - Improving GFS data, debt statistics and expanding coverage is the focus of the next mission planned for November 2018. - Monetary and Financial Statistics (MFS): - Samoa reports monetary data to the IMF for the central bank, other depository corporations and other financial corporations (OFC) on a regular basis and through SRF. - Following recommendations of the 2015 MFS TA mission, data for OFCs, including coverage, could be further improved. - Financial Sector Surveillance: - Samoa began reporting Financial Soundness Indicators to the IMF in March 2016. - External Sector Statistics (ESS): - Overall poor quality, hindered by frail data collection framework and limited access to source data for key ESS components. - CBS produces and disseminates the balance of payments quarterly following BPM6, but restricted to main aggregates. - Improved coverage and accuracy of trade in goods, travel, and remittances achieved under the JSA ESS project completed in February 2016, but important gaps remain. - Access to offshore enterprise source data, a major component of Samoa’s ESS, was obtained. - Non-offshore data collection framework developed; implementation ongoing. - Authorities need more time—at least two years—to build capacity to provide full IIP data to the Fund; partial IIP data (excluding the private sector) might be provided over a shorter time horizon. - Data Standards and Quality: - Samoa has participated in the GDDS since September 2012 and eGDDS was launched in April 2017. - No data module ROSC has been conducted in Samoa. - Table of Common Indicators Required for Surveillance (selected entries, As of March 2018) - Exchange Rates — Date of latest observation 03/12/18 — Date received 03/12/18 — Frequency of Data D — Frequency of Reporting D — Frequency of Publication D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities — Date of latest observation 01/18 — Date received 02/19/18 — Frequency M M M - Reserve/Base Money — Date of latest observation 12/17 — Date received 02/19/18 — Frequency M M M - Broad Money — Date of latest observation 10/17 — Date received 01/10/18 — Frequency M M M - Central Bank Balance Sheet — Date of latest observation 12/17 — Date received 02/19/18 — Frequency M M N/A - Consolidated Balance Sheet of the Banking System — Date of latest observation 12/17 — Date received 02/19/18 — Frequency M M N/A - Interest Rates — Date of latest observation 12/17 — Date received 02/19/18 — Frequency M M M - Consumer Price Index — Date of latest observation 12/17 — Date received 02/19/18 — Frequency M M M - Revenue, Expenditure, Balance and Composition of Financing – Central Government — Date of latest observation Q3 2017 — Date received 02/19/18 — Frequency Q Q Q - Stocks of Central Government and Central Government-Guaranteed Debt — Date of latest observation Q3 2017 — Date received 02/19/18 — Frequency Q Q N/A - External Current Account Balance — Date of latest observation Q3 2017 — Date received 02/19/18 — Frequency Q Q Q - Exports and Imports of Goods and Services — Date of latest observation Q4 2017 — Date received 02/19/18 — Frequency M M M - GDP — Date of latest observation Q3 2017 — Date received 02/19/18 — Frequency Q Q Q - Gross External Debt — Date of latest observation Q3 2017 — Date received 02/19/18 — Frequency Q Q Q - International Investment Position — Samoa does not provide International Investment Position data due to capacity constraints. ### Debt sustainability analysis (DSA) — key findings, methodology, and assumptions - Overall finding: - The update of the DSA shows that Samoa remains at high risk of external debt distress. - Incorporating average long-term costs of natural disasters into the DSA results in a breach of the threshold under the baseline scenario for the present value of the public-and publicly guaranteed (PPG) external debt-to-GDP ratio. - Given Samoa’s vulnerability to natural disasters, strategies to strengthen resilience to economic shocks should continue to be implemented. - Classification and thresholds: - For DSF thresholds, Samoa is classified as a strong policy performer, with an average CPIA rating of 4.0 over 2014-2017. - External debt burden thresholds (including remittances) applied: - PV of debt-to-GDP ratio: 45 percent - PV of debt-to-exports ratio: 160 percent - PV of debt-to-revenue ratio: 300 percent - Debt service-to-revenue ratio: 22 percent - Debt service-to-exports ratio: 20 percent - Background and recent history: - Samoa’s risk rating revised from moderate to high in the 2017 Article IV Staff Report due to methodology change incorporating average annual effects of natural disasters. - Long run assumption for baseline average growth rate adjusted to 0.8 percent (compared with non-disaster potential growth rate of 2.1 percent); current account deficit widened by 1.5 percentage points in that assessment. - Historically, annual average damage and losses after natural disasters in Samoa have been the highest in the region. - Recovery and reconstruction after the 2009 tsunami and 2012 Cyclone Evan were largely financed by borrowing, pushing total public debt close to 58 percent of GDP in FY2014/15—above the government’s threshold target of 50 percent. - Total debt service requirements increased from a historical average of around 50 million Samoan Tala (SAT) to above SAT 60 million. - Contingent liabilities and foreign currency exposure: - Much of Samoa’s debt is long-term and concessional, but the proportion of total public debt denominated in foreign currency is high, limiting exchange rate adjustment channels. - Methodology and baseline assumptions (as presented) - Underlying assumptions consistent with macroeconomic framework and updated data from authorities. - Impact of natural disasters incorporated using methodology introduced in 2017 AIV Staff Report, in line with the 2016 IMF Board Paper on “Small States’ Resilience to Natural Disasters and Climate Change.” - Specific baseline assumptions: - Real GDP growth normalized at 2.5 percent for 2016/17—after peaking at 7 percent in 2015/16—and projected at 2.2 percent on average between 2018-2023. - To account for average impact of natural disasters and climate change, the growth rate is lowered by 1.3 percentage points after 2023. - Average inflation picked up to 1.3 percent in 2016/17 and is expected to stabilize at around 3 percent over the medium term. - Current account deficit narrowed to 2.3 percent of GDP in 2016/17 and is projected to remain below 5 percent of GDP between 2018-2023. - To account for average impact of natural disasters and climate change, the deficit is widened by 1.5 percentage points annually after 2023. - Fiscal deficit widened to 1.1 percent of GDP in 2016/17 from 0.4 percent of GDP in 2015/16, and is projected to widen further after 2023 to account for average annual impact of natural disasters and climate change. - Contingent liabilities from government guarantees to SOEs fell from around 8.8 percent of GDP in 2015/15 to an estimated 7.2 percent of GDP in 2016/17 and are included in the baseline in the public DSA. - Guarantees outstanding are mostly with the Development Bank of Samoa (DBS)—79 percent of total guarantees—for a credit line facility channeled from the Central Bank of Samoa (CBS) through the DBS for rehabilitation and recovery efforts post-Cyclone Evan. - Continued eligibility for concessional borrowing from MDBs is assumed for the forecast period to finance the fiscal deficit. - The grant element of new loans is 40 percent on average. - It is assumed that borrowing from the World Bank is on full credit terms. - Remittances are included as they account for over 15 percent of GDP; following staff guidance note remittances are presented as the base case. - Notes on the DSA preparation: - The DSA was prepared jointly in accordance with the Staff Guidance Note on the Application of the Joint Fund-Bank Debt Sustainability Framework (DSF) for Low-Income Countries (November 5, 2013). - The DSA update is described as a light update since the external risk rating remained unchanged. _Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA). April 16, 2018._ ### 5. Under the baseline scenario, the PV of the PPG debt-to-GDP+remittances ratio (Figure 1a. ### 5. Under the baseline scenario, the PV of the PPG debt-to-GDP+remittances ratio (Figure 1a. ### Baseline scenario: debt ratios and growth - The PV of the PPG debt-to-GDP+remittances ratio breaches the indicative threshold from 2034 onwards. - Losses in production and higher expenditures related to mitigation of the effects of natural disasters have historically reduced growth. - Consistent with the historical average, the average growth rate under the baseline scenario is reduced after 2027 to 0.9 percent of GDP. - Under the baseline scenario, total public sector debt rises but remains below the benchmark over the projection period (Figure 2). - The public DSA baseline includes government guarantees to SOEs of 7.2 percent of GDP. ### Stress tests and shocks - Stress tests confirm Samoa’s vulnerability to exogenous shocks. - There is a significant breach of the PV of the PPG debt-to-GDP ratio threshold following an extreme shock and a severe natural disaster shock. - There is a breach of the PV of PPG debt-to-exports threshold following an extreme shock. - Under the extreme shock scenario—a markdown of real GDP growth by a full standard deviation—there is a large and substantial breach of the PV of public debt-to-GDP benchmark from 2028 onwards, and by the end of the projection period is at more than double prudent levels. ### Policy implications and recommended targets - The updated DSA suggests that Samoa remains at high risk of debt distress. - Samoa’s external debt breaches the threshold when the average impact of natural disasters is incorporated into medium-term projections. - The government should continue with efforts to boost revenue collection and consolidate public finances, to be better prepared to respond to a future economic shock or natural disaster. - Introducing a lower public debt-to-GDP target of 45 percent in the medium term and 40 percent over the longer term would increase fiscal space available to respond to a natural disaster. *IMF staff summary of DSA findings and policy recommendations.* ### 9. The authorities agreed with the DSA findings and remain committed to reducing total ### cr18145 - 9. The authorities agreed with the DSA findings and remain committed to reducing total ### Authorities' agreement and debt targets - The authorities agreed with the DSA findings and remain committed to reducing total public debt. - Debt was "just below the government’s target of 50 percent of GDP." - Authorities were open to lowering the debt target to: - 45 percent of GDP in the medium-term, and - 40 percent of GDP in the longer term, - to build fiscal buffers for responding to natural disasters and other shocks. ### Stress tests and vulnerability assessment - The most extreme stress tests for the debt indicators are “combination shocks”, which: - assess effects on the baseline indicator of a markdown to GDP growth, inflation, exports and non-debt creating capital flows by half a standard deviation of the 10-year average for these series. - are enabled for the first two years of the forecast. - For Samoa this is "suggestive of high exposure to developments in both the domestic and external environments." - Footnote detail: "The most extreme stress test is the test that yields the highest ratio on or before 2027." - In figure captions these correspond variably to Combination shock, One-time depreciation shock, and Exports shock depending on the indicator. ### Key indicators and scenario structure (figures and tables summarized) - Figure coverage (2017-2037) includes: - Debt accumulation; Grant-equivalent financing (% of GDP); Grant element of new borrowing (right scale). - PV of debt-to-GDP+remittances ratio; PV of debt-to-exports+remittances ratio; PV of debt-to-revenue ratio. - Debt service-to-exports+remittances ratio; Debt service-to-revenue ratio. - Figures present multiple scenario series: Baseline, Historical scenario, Most extreme shock, Threshold, Severe Natural Disaster. - Table 1a (External Debt Sustainability Framework, Baseline Scenario, 2014-2037) key reported series (selected entries as presented): - External debt (nominal) 1/: 51.8 55.3 50.7 47.7 49.1 49.6 49.0 49.8 50.5 61.3 96.9 - of which: public and publicly guaranteed (PPG): same as above. - Change in external debt: 0.2 3.6 -4.6 -3.0 1.3 0.5 -0.6 0.8 0.7 3.3 3.1 - Identified net debt-creating flows: 6.2 -0.3 5.2 2.1 1.1 2.1 0.4 2.0 2.2 4.2 3.2 - Non-interest current account deficit: 7.4 2.4 4.0 5.5 2.5 1.3 1.8 3.2 2.9 3.2 3.6 5.8 5.3 5.5 - Exports: 27.8 27.4 30.7 31.2 31.0 30.7 31.2 30.1 30.0 29.9 29.9 - Imports: 52.5 48.7 49.8 46.8 47.3 48.5 48.5 47.9 47.9 50.0 49.8 - Net current transfers (negative = inflow): -20.2 -20.2 -16.8 -20.3 1.9 -16.7 -16.8 -16.8 -16.7 -16.6 -16.5 -16.5 -16.5 -16.5 - PV of external debt (selected projection entries): 39.3 39.8 40.8 40.0 39.1 39.0 38.7 41.0 61.8 - PV of PPG external debt (in percent of exports): 128.1 127.7 131.8 130.2 125.3 129.5 129.1 136.8 206.2 (as reported in table) - PPG debt service-to-revenue ratio (in percent): 2.6 2.8 2.9 9.9 12.3 12.4 11.5 11.9 10.9 10.3 13.5 - Total gross financing need (Millions of U.S. dollars): 49.1 -2.4 31.1 42.3 36.9 53.9 48.6 55.4 59.7 99.5 156.2 - Key macroeconomic assumptions (selected): - Real GDP growth (in percent): 1.2 1.6 7.1 1.0 3.8 2.5 1.8 3.2 5.0 2.2 2.2 2.8 0.9 0.9 0.9 - GDP deflator in US dollar terms (change in percent): -1.3 -1.6 -8.7 3.9 8.3 4.3 2.6 1.6 1.7 1.7 1.8 2.3 1.8 1.8 1.8 - Effective interest rate (percent) 5/: 1.3 1.3 1.4 1.2 0.5 2.0 2.4 2.5 2.1 2.0 1.6 2.1 1.3 1.2 1.3 - Grant-equivalent financing (in percent of GDP): 9.5 11.7 9.9 10.0 10.0 9.1 7.2 6.6 7.2 (as reported for projection years) - Nominal GDP (Millions of US dollars) (selected): 803.6 804.0 786.4 840.7 878.0 920.4 982.7 1,021.1 1,063.2 1,301.4 1,947.6 - Gross workers' remittances (Millions of US dollars) (selected): 160.0 160.9 131.6 135.7 143.1 150.1 159.5 165.3 170.8 209.0 312.8 - Table 1b (Sensitivity Analysis for Key Indicators of PPG External Debt, 2017-2037) reports scenario outcomes for: - PV of debt-to-GDP+remittances ratio, PV of debt-to-exports+remittances ratio, PV of debt-to-revenue ratio, Debt service-to-revenue ratio, Debt service-to-exports+remittances ratio across Baseline, Alternative Scenarios (A1, A2, A3), and Bound Tests (B1–B6) for years 2017–2037. Example entries: - Baseline PV of debt-to-GDP+remittances ratio (2017–2037): 34 35 34 34 34 33 35 53 (table rows as presented) - Bound test B6 (One-time 30 percent nominal depreciation relative to the baseline in 2018) shows elevated ratios (examples): 34 47 46 45 45 45 47 71 for PV of debt-to-GDP+remittances ratio. - Memorandum item: Grant element assumed on residual financing: 43 43 43 43 43 43 43 43 43 - Table 2a (Public Sector Debt Sustainability Framework, Baseline Scenario, 2014-2037) selected entries: - Public sector debt: 63.1 66.1 60.5 56.3 57.3 57.4 56.8 57.3 57.9 68.5 104.1 - of which: foreign-currency denominated: 51.8 55.3 50.7 47.7 49.1 49.6 49.0 49.8 50.5 61.3 96.9 - Change in public sector debt: 0.7 3.0 -5.6 -4.3 1.0 0.1 -0.6 0.5 0.6 3.2 3.1 - Revenue and grants: 38.0 35.1 36.1 34.2 35.7 35.7 35.6 35.6 34.9 32.1 30.9 - Primary (noninterest) expenditure: 42.4 37.7 35.2 34.0 36.3 36.6 36.9 37.0 36.6 36.7 36.4 - PV of public sector debt (selected): 49.1 48.3 49.1 47.8 46.9 46.5 46.1 48.2 69.0 - Gross financing need 2/: 5.3 3.9 0.8 3.0 4.6 5.0 4.9 4.8 4.8 7.4 9.2 - PV of public sector debt-to-revenue and grants ratio (in percent): 136.2 141.1 137.3 133.7 131.4 130.4 132.0 149.9 222.8 - Debt service-to-revenue and grants ratio (in percent) 4/: 2.6 3.6 4.6 9.7 11.4 11.4 10.1 9.8 9.1 9.1 12.3 - Key macro and fiscal assumptions overlap with Table 1a (e.g., Real GDP growth, Average nominal interest rate on forex debt). - Table 2b (Sensitivity Analysis for Key Indicators of Public Debt, 2017-2037) provides PV of Debt-to-GDP Ratio, PV of Debt-to-Revenue Ratio, Debt Service-to-Revenue Ratio under Baseline, Alternative scenarios (A1–A3), and Bound tests (B1–B5) for 2017–2037. Example entries: - Baseline PV of Debt-to-GDP Ratio (2017–2037): 48 49 48 47 46 46 48 69 - A3 (Permanently lower GDP growth): 48 50 49 49 49 50 63 151 (reported in row) - B4 (One-time 30 percent real depreciation in 2018) shows elevated values (example): 48 66 63 61 59 58 57 97 for PV of Debt-to-GDP Ratio. ### Policy implications and scenarios emphasized by the DSA - Maintain fiscal consolidation to reduce public debt toward targets (50 percent, with medium-term 45 percent and longer-term 40 percent of GDP). - Build fiscal buffers to respond to natural disasters and other shocks. - The suite of stress tests (including Combination shocks, One-time depreciation, Exports shock, Severe Natural Disaster) highlights potential large increases in debt and debt-service metrics under adverse scenarios, underscoring the need for: - prudent borrowing terms (grant element of new borrowing is tracked); - reliance on grant-equivalent financing where possible (grant-equivalent financing series reported in Table 1a); - maintaining adequate revenue and primary balance outcomes. *Sources: Country authorities; and staff estimates and projections.* ### 0.1 percent in the quarter ending December 2017, compared to the same quarter in 2016. This ### 0.1 percent in the quarter ending December 2017, compared to the same quarter in 2016. This ### Economic performance and inflation - Real GDP growth: - 0.1 percent in the quarter ending December 2017, compared to the same quarter in 2016. - -2.6 percent in the quarter ending September 2017, compared to the same quarter in 2016. - Pickup driven by the commerce, construction, and communications sectors. - Sectoral drivers and domestic demand: - Export growth recovered to 7 percent (month-on-month) in December from -2 percent in November. - Import growth declined to -25.2 percent in December from 16.8 percent in November, indicating subdued domestic demand. - Inflation: - Average annual CPI inflation rate for the year ending March 2018 was at 2.7 percent, compared to 2.3 percent in January 2018. - Recent inflation partly reflects increased prices of locally-produced food and beverages after Cyclone Gita in February 2018. ### External sector and international reserves - International reserves: - US$ 140 million as of February 2018. - Reserves rose to 3.8 months of next year’s imports of goods and services in February 2018 (compared to 3.7 months of imports in January 2018). - Balance of payments (2017): - Current account deficit: US$ 19.5 million in 2017. - Capital account surplus: US$ 43.2 million for 2017. - Capital inflows (aid): US$26 million in 2017 (equivalent to 3.1 percent of GDP). - Exchange rates: - Samoan tala around 2.5 tala to the U.S. dollar, near end-December 2017 levels. - Little change in nominal and real effective exchange rates thus far in 2018. ### Authorities’ growth outlook and risks - Authorities’ growth expectations: - Expect growth to slow to 1.3 percent of GDP in 2017-18 due to a sharp decline in fishing exports and the closure of the large Yazaki manufacturing plant. - Expect growth to rebound to around 3.3 percent in 2018-19 driven by preparations for hosting the South Pacific Games and continuation of large infrastructure projects. - Medium-term trend growth expected to be around 3.0 percent. - Upside risks cited by authorities: - Increase in tourism from new accommodation and flight connections. - Newly established manufacturing businesses increasing production. - Economic diversification through reinvigoration of agriculture and alternative markets for excess primary products. - Downside risks: - Further exacerbation of loss of Correspondent Banking Relationships (CBRs). - High vulnerability to natural disasters. ### Monetary policy stance and transmission - Authorities’ position: - Current accommodative monetary policy stance considered appropriate given the closure of Yazaki and cyclone Gita recovery efforts. - Despite a pickup in inflation, near-term inflation risks seen as low and inflation expectations stable. - Strengthening transmission: - Central Bank’s credit line facilities and regular quarterly meetings with commercial banks cited as effective. - Recent technical assistance received to strengthen the monetary policy transmission mechanism and better manage future liquidity issues. ### Fiscal consolidation, debt, and fiscal safeguards - Fiscal consolidation achievements: - Fiscal deficit reduced from around 7 percent of GDP in 2011-12 to 1.1 percent in 2016-17. - Fiscal balance remains within staff’s recommended range of ‘less than 2 percent of GDP’. - Debt developments: - Debt to GDP decreased from 58 percent in 2014-15 to 49 percent in 2016-17. - Debt levels are now lower than the target of 50 percent in the Medium Term Debt Strategy. - Authorities will carefully consider staff’s recommendation to bring the debt-to-GDP target in the Medium Term Debt Strategy down to 40 percent. - Fiscal rules and public sector risks: - Fiscal rule: any new financing received must at a minimum have a concessional component of 35 percent. - Authorities aware of fiscal risks from non-performing public financial institutions and state owned enterprises; reforms ongoing. - Cabinet agreed to strengthen procedures for issuing government guarantees to state owned enterprises; an on-lending policy is being developed by the Ministry of Finance. ### Public spending priorities and revenue measures - Spending priorities while consolidating: - Prioritizing high quality spending on infrastructure, health and education. - Improving design and procurement capacity to reduce infrastructure bottlenecks. - Centralization of the Project Management Office within the Ministry of Finance intended to address technical implementation constraints and simplify procurement. - Reviewing efficiency and effectiveness of health and education expenditure. - Revenue mobilization measures: - Removing various tax concessions and income tax exemptions for heads of states and ministers of religion. - Increasing excises including on tobacco. - Enhanced tax compliance through community education, additional staff training, and more regular audits. - New scanning technology at customs to improve declaration process and collection of import duties. ### Natural disaster and climate resilience strategy - Multi-pronged strategy elements: - Rebuilding reserves and fiscal policy buffers, including an annual contingency reserve as an expenditure item in the Budget. - Re-building climate-proof infrastructure. - Developing a multilayered contingent financing strategy identifying financing from development partners to draw upon quickly after disasters. - Contingency fund preferences: - Staff suggested establishing a contingency fund for natural disasters; authorities prefer using additional funds to further reduce debt levels. - Authorities look forward to the upcoming 2018 LIC Facilities Review to assess adequacy of Fund’s lending instruments for countries facing frequent natural disasters. ### Correspondent Banking Relationships (CBRs), AML/CFT, and remittances - CBRs status: - Staff assessment: Samoa is still far from losing access to CBRs, but the situation remains volatile. - Money Transfer Operators report bank accounts being closed without warning; significant remittance costs threaten financial inclusion. - Impact of de-risking has not yet had a visible impact on overall remittance flows, but authorities remain concerned about uncertainty and implications for financial inclusion. - AML/CFT and regulatory compliance: - Samoa actively strengthening AML/CFT frameworks; authorities thank IMF for convening role and initiatives like the Pacific Roundtable. - Samoa committed to complete the ‘Automatic Exchange of Information for Tax Purposes’ in September 2018. - Tax and international finance legislation amended in 2013, 2014, 2015, 2016 and 2017. - Incorporated new standard for regulation of trust company service providers into the Trustee Companies Act 2017, reflecting OECD Global Forum standards. - Successfully completed an Asia Pacific Group (APG) review on Anti-Money Laundering and Counter Terrorism Financing against the 2012 FATF standards in 2014-2015. - Samoa does not appear on any OECD, or FATF (APG), or GIFCS black lists. - EU listing: - Samoa has been included on the European Union black list of noncooperative tax jurisdictions. - Samoa responded and cooperated with the EU process, meeting mid-year and November 2017 deadlines for response while meeting obligations under OECD/G20, FATF, and GIFCS. - Samoa has maintained open dialogue with the EU Council’s Code of Conduct Group and hopes for reconsideration of its inclusion. ### Closing acknowledgements - Authorities expressed appreciation: - Thank development partners for continued support. - Thank the mission team, led by Mr. Giovanni Ganelli, for candid and constructive discussions during the Article IV consultation. - Value IMF advice and technical assistance and look forward to further constructive engagement. *Statement by Christine Barron, Alternate Executive Director for Samoa and Gemma Preston, Senior Advisor to Executive Director May 7, 2018* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18145.pdf_