## 1. Technology-Enabled Financial Access Solutions ## Source details **Canonical URL:** [1. Technology-Enabled Financial Access Solutions](https://www.imf.org/-/media/files/publications/cr/2019/1wsmea2019002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1wsmea2019002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1wsmea2019002.pdf.json) --- ### Context - Samoa is vulnerable to natural disasters and to the withdrawal of correspondent banking relationships (CBRs), and displays low and volatile growth. - Authorities are highly engaged with the Fund and development partners; Samoa was selected by Fund staff as a CBR pilot country given its dependence on remittances. - Policies largely consistent with Fund advice: - Revenue collection measures implemented in line with Article IV recommendations. - Measures to mitigate CBR pressures implemented; authorities committed to continuing efforts. - Current accommodative monetary policy stance consistent with staff advice. - Financial sector policies (updating supervisory and regulatory framework and improving access to credit) largely in line with FSAP recommendations. - Structural reforms, including enhancing the business environment, align with Fund advice. ### Recent developments, outlook and risks - Growth and sectoral developments: - Growth: 0.9 percent in 2017/18 (from 2.7 percent in 2016/17) due mainly to Yazaki plant closure (Aug 2017) and Cyclone Gita (Feb 2018). - Sector notes: fishing decreased due to climate change impacts; commerce boosted by tourism and remittances; construction key driver of growth. - Inflation and external position: - Average inflation: 3.7 percent in 2017/18 (compared to 1.3 percent in prior year); authorities’ target: 3 percent. - Current account: surplus of 2.3 percent of GDP in 2017/18 (from deficit of 1.8 percent in previous year), supported by temporary transfers after Gita. - Currency: tala depreciated against the U.S. dollar and nominal effective terms, but appreciated in real effective terms due to relatively higher inflation. - Growth projections: - 2018/19: growth projected to rebound to 3.4 percent. - 2019/20: growth expected to spike to 4.4 percent due to Pacific Games (PG)-related tourism, then normalize at about 2.2 percent in the medium term. - Inflation expected to return below 3 percent in 2018/19 as temporary pressures recede. - Medium-term current account projected to revert to a deficit as transfers normalize. - Fiscal developments and projections: - Fiscal balance: surplus of 0.1 percent of GDP in 2017/18 (from a 1.1 percent of GDP deficit in 2016/17). - Staff projects a 1.2 percent of GDP deficit in 2018/19, widening to close to 3 percent of GDP over the medium term. - Baseline fiscal projections incorporate tax collection gains of 1 percent of GDP over the next three years. - Public debt: - Total public debt: 50.3 percent of GDP in 2017/18 (from 49.1 percent prior year). - Staff baseline projects debt to reach 54 percent of GDP in 2023/24. - Staff assesses Samoa to remain at high-risk of debt distress given disaster vulnerability. - Risks: - Downside: natural disasters, withdrawal of CBRs, tighter global financial conditions, protectionism, commodity price volatility, climate change. - Upside: stronger-than-expected Pacific Games impact. ### Macroeconomic and financial policy advice — A. Financing development needs while ensuring fiscal sustainability - Need for tighter fiscal policy relative to staff baseline: - Mission advised targeting a fiscal deficit of 1 percent of GDP in 2019/20 (vs. projected 1.8 percent of GDP in unchanged baseline) and keeping medium-term deficit close to 1 percent of GDP in normal times. - Adjustment to be achieved by improving tax administration and controlling current spending. - Four-pillar comprehensive fiscal strategy: - Implement vigorous tax administration reforms to fully reap benefits of the 2017 Revenue Review (strengthen audit capacity, encourage voluntary compliance, improve arrears management). - Strengthen PFM reforms: improve forecast capacity, introduce multi-year budgeting, enhance monitoring/disclosure of fiscal risks, monitor spending outcomes via expenditure impact analysis and independent audit. - Reduce long-term debt target to 40 percent of GDP; mission advised targeting in normal times a deficit of 1 percent of GDP with a 2 percent of GDP deficit ceiling. - Ensure newly-contracted loans are consistent with MTDS 2016-2020; new lending concessional where possible (grant element above MTDS minimum of 35 percent); vet projects for high quality and economic viability. - SOE fiscal risk management: - Widen public debt coverage to include SOE debt; estimate and note associated fiscal risks in budget documents. - Strengthen guarantee procedures and establish formal on-lending policy. - Authorities’ commitments: - Expect benefits of 2017 Revenue Review to materialize; working to remove tax exemptions, develop electronic tax payment system, raise taxpayer awareness. - Internal review of public expenditure and financial accountability near finalization. - Committed to public debt-to-GDP target of 45 percent in medium term and 40 percent in long term. - Plan creation of a Debt Management Unit within Ministry of Finance. - Formal on-lending policy drafted and under government review. ### Macroeconomic and financial policy advice — B. Monetary and exchange rate policies - Monetary stance and transmission: - Monetary policy appropriately accommodative. - Official interest rate (average annual yield of CBS securities) stable at below 20 basis points for past five years. - High bank liquidity reflects conservative lending and self-insurance; limited interbank market activity. - Limited financial literacy contributes to credit access deficiencies. - Mission stressed re-establishing a credit bureau (ADB completed diagnostic assessment) and facilitating use of customary land leases as collateral. - Improve central bank liquidity management and FX forecasting to enhance transmission. - External position and reserves: - 2017/18 current account surplus of 2.3 percent of GDP adjusted for transfers => cyclically adjusted deficit of 0.7 percent of GDP. - Revised EBA-Lite cyclically-adjusted CA norm: deficit of 1.7 percent of GDP; CA gap = 1 percent => external position in line with fundamentals. - Reserves projected to increase from 4.5 to about 4.6 months of import cover in 2018/19. - Reserves adequate per ARA metric for credit-constrained economies but close to lower bound when accounting for disaster vulnerability. - Pegged exchange rate provides nominal anchor amid weak monetary transmission. - Authorities’ views: - CBS regards accommodative stance appropriate short term; intends to explore “normalizing” the policy rate as economy rebounds to create space for future cuts when shocks hit, while maintaining communication with banks. - Authorities agree on need to improve transmission and liquidity management. ### Macroeconomic and financial policy advice — C. Financial sector, crypto-assets and fintech - Financial sector soundness: - Capital adequacy and liquidity ratios trending upwards; liquid asset ratio exceeds five-year average. - NPLs increased by 20 basis points to 4.3 percent of total loans; remain well below five-year average and banks are well-provisioned. - Profitability subdued amidst lending slowdown; expected to recover as activity picks up. - Policy priorities: - Complete implementation of 2015 FSAP recommendations. - Swift approval of amended Financial Institutions Act to support corrective actions and resolution frameworks. - Develop in-house stress testing capacity; hold regular high-level committee on financial stability meetings. - Formulate coherent PFI governance framework to mitigate contingent liability risks. - Re-establish a credit bureau; fintech solutions could supplement it in future. ### Managing new risks from crypto-assets - Recent actions and guidance: - Private companies promoted crypto-asset investment and sought CBS approval. - CBS banned all trade in one prominent crypto-asset in May 2018. - CBS issued general warning on crypto-assets in August 2018 and advised promoters are considered financial institutions requiring business licenses and CBS reporting. - Mission supported cautious stance and encouraged consideration of FATF recommendations on crypto-asset oversight expected June 2019. - Financial inclusion and fintech: - Implement NFIS to reduce inequality, including gender inequality. - Support private sector mobile money and payment systems; many Samoans lack access to formal financial services. - Improve financial education via SBEC, DBS, and commercial banks. - Amend NFIS to promote digital and financial literacy, including awareness of crypto-asset risks and fintech potential. - Authorities encouraged to explore fintech for inclusion while building trust and confidence. - Authorities’ views: - Concur with staff assessment; working on remaining FSAP recommendations including re-establishing credit bureau, harmonizing HR policies across PFIs, conducting regular onsite inspections. - Await June 2019 FATF recommendations for crypto-assets oversight. ### Withdrawal of CBRs: exposure, experience, and mitigation - Exposure and recent experience: - Samoa vulnerable to CBR withdrawal; remittances critical. - Around 72 percent of incoming remittances in 2018 were denominated in AUD and NZD, easing CBR maintenance relative to USD remittances. - Three larger MTOs reopened one bank account each with regional banks after upgrading AML/CFT and undertaking compliance audits. - Several smaller MTOs reported terminations of AUD and NZD accounts despite IT and compliance investments. - Samoa’s inclusion on a draft EU AML list could aggravate CBR pressures. - Recommended measures to mitigate CBR pressures and strengthen AML/CFT: - Enhance AML/CFT effectiveness: - Address deficiencies from 2015 APG mutual evaluation: low/moderate compliance in 10 of 11 effectiveness criteria and non/partial compliance in 23 of 40 technical recommendations. - 2018 APG follow-up: positive re-ratings on 3 recommendations; progress noted on 8; reporting cycle adjusted. - 2018 MLPA amendments require reporting entities to verify beneficial owners and increase imprisonment penalties to 15 years. - Update 2014 NRA; improve inspections and enforcement; devote resources to FIU; amend MLPA to cover high-risk domestic PEPs; establish comprehensive asset declaration for high-risk officials. - Establish IT solutions for customer identification and monitoring: - Short term: adopt simple IT solution to validate customers electronically against OEC voter database (includes biometrics) for a fee. - Long term: develop IT solutions to enhance MTO compliance with AML/CFT obligations (verification, record keeping, suspicious transaction reporting). - Exploit synergies with national digital ID and credit bureau plans; ADB support for customer identification database underway. - Reduce OFC risk profile: - Ensure accurate, up-to-date ownership information of IBCs available to competent authorities. - Enhance AML/CFT supervision over TCSPs. - Strong recommendation: allow reliance on third-party intermediaries only under FATF Recommendation 17 conditions. - Continue international engagement: - Develop regional solutions (e.g., regional KYC facility); engage with EU and APG to address AML/tax concerns. - Authorities’ views on CBRs and AML/CFT: - Committed to mitigating CBR pressures and strengthening AML/CFT; engaging with APG. - Note implementation challenges (e.g., enhanced due diligence on domestic PEPs in a small-country familial context). - Working with ADB on decentralized biometric identity platform using OEC data. ### Structural reforms to boost potential growth and inclusiveness - Focus areas: build disaster resilience; enhance business environment (SMEs); encourage female labor participation; improve trade facilitation. - Concrete measures: - Upgrade infrastructure to be disaster-resilient and mainstream climate resilience. - Promote SME credit access and strengthen insolvency resolution; improve SBEC guarantee scheme (larger bank stake, expanded coverage, mobile payments for lending). - Encourage female labor participation by providing affordable childcare. - Improve trade facilitation: comply with international standards, reduce export time/documents, develop one-stop shop for exporters. - Minimum wage considerations: - Plans to increase minimum wage under tripartite consultations. - Current minimum wage: less than US$1 per hour. - Mission advised balancing income/inclusion gains against adverse labor market effects. ### Capacity building and statistical improvements - PFTAC advanced PFM reforms; Samoa completed full in-country PEFA exercise. - Further PFTAC support to focus on financial reporting and SOE risk monitoring. - Full review of tax administration audit programs underway. - PFTAC assists with finalizing insurance regulatory drafts; CBS and other TA involvement ongoing. - As CBR pilot country, Samoa uses HQ-led TA missions, round tables, desk reviews. - IMF CDOT providing TA to improve external sector statistics. - IIP and GDP statistics: - IIP compilation TA scheduled July 2019. - Finalize IIP before end-2019 once direct investment position data from IIS available. - Data for offshore entities remain a major IIP gap. - SBS working on rebasing GDP by production and new GDP by expenditure measure. ### Debt and debt sustainability (DSA) — baseline, scenarios, and policy implications - Coverage and key figures: - PPG accounted for 57.2 percent of GDP in FY2017/18: - central government debt: 50.3 percent of GDP - central government-guaranteed debt: 6.9 percent of GDP - Total public debt (end FY2017/18): SAT1,113.8 million = 50.3 percent of GDP. - External debt: SAT1,094.3 million = 49.4 percent of GDP (100.0 percent of external debt). - Multilateral: SAT563.0 million (51.5 percent of external debt; 25.4 percent of GDP) - IDA: SAT280.8 million (25.7 percent of external debt; 12.7 percent of GDP) - ADB: SAT250.6 million (22.9 percent of external debt; 11.3 percent of GDP) - Bilateral: SAT531.3 million (48.5 percent of external debt; 24.0 percent of GDP) - EXIM Bank (China): SAT440.1 million (40.2 percent of external debt; 19.9 percent of GDP) - Japan: SAT91.2 million (8.3 percent of external debt; 4.1 percent of GDP) - Domestic debt: SAT19.5 million (0.9 percent of GDP). - Memorandum: Nominal GDP: SAT2,213.5 million (FY2017/18); market rate (tala/US$ end period): 2.6. - Baseline macro assumptions (preserve exact phrasings/numbers): - Real GDP growth: rebound to 3.4 percent in FY2018/19; FY2019/20 expected to spike to 4.4 percent; normalize at about and 2.2 percent in medium-term; growth lowered by 1.3 percentage points after 2024 to account for disasters. - Inflation: expected to stabilize at around 2.8 percent over medium term after one-time increase. - Current account deficit: projected to remain below 1 percent of GDP between 2019-2024; temporary surplus of 2.3 percent of GDP in 2017/18; deficit widened by 1.5 percentage points after 2024 to account for disasters. - Overall fiscal balance: staff projects a 1.2 percent of GDP deficit in 2018/19, widening to 2.7 percent in 2023/24; deficit widened by 1.5 percentage points after 2024 for disasters. - Continued eligibility for concessional borrowing from MDBs assumed; grant element of new loans: 40 percent on average. - Key projection table (selected averages as presented): - Real GDP growth (2019-2024): 2.8 - Real GDP growth (2025-2039): 0.9 - Inflation (2019-2024): 2.8 - Inflation (2025-2039): 2.8 - Current account deficit (2019-2024): 0.8 - Current account deficit (2025-2039): 5.1 - Overall fiscal balance deficit (2019-2024): 2.2 - Overall fiscal balance deficit (2025-2039): 5.1 - Debt dynamics and stress tests: - PV of external debt-to-GDP (baseline): 33.4 in 2019 → 39.1 in 2029 → 60.3 in 2039; breaches 55 percent threshold in 2036. - PV of public debt-to-GDP (baseline): breaches benchmark in 2034. - Natural disaster shock (tailored): one-off 21 percent shock to debt-GDP in 2019; reduces real GDP growth by 3 percent and exports by 6 percent; causes earlier and larger breaches (e.g., PV public debt breaches from 2027). - Contingent liability shock (7 percent of GDP) leads to pronounced deterioration (breaches from 2032 onward). - Risk assessment and policy recommendations: - Samoa assessed to remain at high-risk of debt distress; staff judgement considers high probability of substantial and persistent threshold breaches when climate exposure included. - Policy recommendations: - Continue consolidating and boosting revenue collection. - Build fiscal buffers to respond to shocks. - Introduce lower public debt-to-GDP target of 40 percent long term with operational guidance on overall deficit. - Improve debt data coverage (including non-guaranteed SOE debt). ### Staff appraisal: outlook and consolidated policy advice - Growth outlook: - Growth expected to rebound from five-year low; peak in 2019/20 then settle at potential just above 2 percent in medium term. - Risks tilted to downside (natural disasters, CBR pressures). - Fiscal policy recommendations (key bullets): - Tighten fiscal policy relative to baseline; comprehensive fiscal strategy to ensure sustainability and build buffers. - Target fiscal deficit of 1 percent of GDP in 2019/20; keep medium-term deficit close to 1 percent of GDP in normal times. - Implement vigorous tax administration reforms and strengthen PFM (multi-year budgeting, fiscal risk disclosure). - Reduce long-term debt-to-GDP target to 40 percent; complement with operational deficit anchor and 2 percent deficit ceiling. - Newly contracted loans to be on concessional terms where possible. - Improve monitoring and disclosure of fiscal risks, including from SOEs. - Monetary and financial sector recommendations: - Maintain accommodative monetary stance given low growth and receding inflation. - Improve transmission: increase credit access, re-establish credit bureau, facilitate customary land leases as collateral, raise financial literacy, improve central bank liquidity management. - External position and reserves: - External position broadly in line with fundamentals after adjusting for exceptional transfers. - Reserves adequate per ARA but close to lower bound given disaster vulnerability; build additional external buffers recommended. - Pegged exchange rate system provides nominal anchor. - CBR mitigation priorities reiterated: - Improve risk-based AML/CFT inspections of banks, MTOs and TCSPs; allocate resources to FIU. - Adopt IT solutions for faster, cost-effective customer identification (short term) and enhance MTO AML compliance (long term). - Ensure IBC ownership information accurate and available to authorities. - Continue regional solutions and engagement with EU on tax/AML issues. *Source: 1wsmea2019002 - 1. Technology-Enabled Financial Access Solutions (IMF staff report excerpts).* ### 1. Technology-Enabled Financial Access Solutions _______________________________________________ 18 ### 1. Technology-Enabled Financial Access Solutions _______________________________________________ 18 ### Context - Samoa is vulnerable to natural disasters and to the withdrawal of correspondent banking relationships (CBRs), and displays low and volatile growth. - The authorities are highly engaged with the Fund and other development partners; given its dependence on remittances, Samoa was selected by Fund staff as a CBR pilot country. - Policies have been largely consistent with past Fund advice: - Measures aimed at improving revenue collection have been implemented in line with Fund Article IV recommendations. - Measures to mitigate risks from CBR pressures have been implemented and the authorities are committed to continuing efforts in this area. - The current accommodative monetary policy stance is consistent with staff advice. - Financial sector policies (updating supervisory and regulatory framework and improving access to credit) are largely in line with FSAP recommendations. - Structural reforms, including enhancing the business environment, are in line with Fund advice. ### Recent developments, outlook and risks - Growth and sectoral developments: - Growth dropped to 0.9 percent in 2017/18, from 2.7 percent in 2016/17, mainly due to the Yazaki manufacturing plant closure in August 2017 and cyclone Gita in February 2018. - Agriculture and transport sectors had mixed outcomes; the fishing sector decreased largely due to climate change impacts on fish migration. - Commerce (including retail) was boosted by tourism and remittances; construction was a key driver of growth. - Inflation and external position: - Average inflation picked up to 3.7 percent in 2017/18 (compared to 1.3 percent in the previous year), exceeding the authorities’ target of 3 percent, driven by the impact of Gita on local food prices, a one-time increase in education fees, and higher price of imported fuel. - The 2017/18 current account recorded a surplus of 2.3 percent of GDP, compared to a deficit of 1.8 percent of GDP in the previous year, supported by a temporary increase in transfers in the wake of Gita. - The Samoan tala depreciated against the U.S. dollar and in nominal effective terms but appreciated in real effective terms due to Samoa’s relatively higher rate of inflation.2 - Growth projections: - Growth is projected to rebound to 3.4 percent in 2018/19, driven by commerce, infrastructure spending, and the development of the transport and communication sector. - Growth in 2019/20 is expected to spike to 4.4 percent due to Pacific Games (PG)-related tourism, before normalizing at about 2.2 percent in the medium term.3 - Inflation is expected to be back below the central bank target of 3 percent in 2018/19 as temporary inflationary pressures recede. - The medium-term current account is projected to revert to a deficit as transfers normalize. - Fiscal developments and projections: - Fiscal balance reached a surplus of 0.1 percent of GDP in 2017/18 (from a 1.1 percent of GDP deficit in 2016/17), driven by a temporary increase in budget-support grants and a drop in capital spending due to completion of large infrastructure projects in the previous fiscal year. - Inclusion of the National Health Service into the central government budget in January 2018 largely accounted for the reduction in grant spending and the increase in other spending (compensation of employees and goods and services). - Tax revenue-to-GDP ratio slightly dropped; recent tax policy measures—the 2017 Revenue Review—have not yet been supported by progress in tax administration. - Staff projects a 1.2 percent of GDP deficit in 2018/19, widening to close to 3 percent of GDP over the medium term. - Staff’s baseline fiscal projections incorporate tax collection gains of 1 percent of GDP over the next three years. - Public debt: - Total public debt reached 50.3 percent of GDP in 2017/18, compared to 49.1 percent of GDP in the previous year, on account of a depreciating tala, continuous disbursements of external loans, and low growth. - Under the staff’s baseline scenario, debt is projected to reach 54 percent of GDP in 2023/24. - Staff assesses Samoa to remain at high-risk of debt distress, particularly given heightened vulnerability to natural disasters. - Risks: - Downside risks are prominent (Annex I): natural disasters, withdrawal of CBRs, tighter global financial conditions, protectionism, commodity price volatility, and the effects of climate change. - Upside risk: the growth impact of the PG could be stronger than currently anticipated. ### Authorities’ views on outlook and risks - The authorities broadly agreed with staff’s assessment of the outlook and risks and expect growth to rebound in 2018/19 and peak in 2019/20 due to the PG. - The authorities estimate Samoa’s medium-term potential growth to be above staff’s estimate of 2.2 percent, even in the absence of structural reforms. - They agreed on Samoa’s high vulnerability to natural disaster risk and climate change, and noted other downside risks including tightening global financial conditions, protectionism, and high and volatile inflation due to volatile commodity prices. - Upside factors identified by the authorities: - Positive tourism impact from expanded Samoa Airways operations. - Efficiency gains from the new submarine cable. - Stronger-than-expected PG impact. ### Macroeconomic and financial policies A. Financing Development Needs While Ensuring Fiscal Sustainability - Need for tighter fiscal policy relative to staff baseline: - Samoa needs to build fiscal resilience and buffers against natural disasters and achieve progress towards development goals, while ensuring fiscal sustainability and using fiscal policy as the principal macroeconomic instrument given the exchange rate peg and weak monetary policy transmission. - Mission advised targeting a fiscal deficit of 1 percent of GDP in 2019/20, compared to a projected deficit of 1.8 percent of GDP in the unchanged (baseline) policy scenario, and keeping the medium-term deficit close to 1 percent of GDP in normal times (when growth is at or about potential). - Adjustment can be achieved by improving tax administration and controlling current spending. - Four-pillar comprehensive fiscal strategy advised by the mission: - Implement vigorous tax administration reforms to fully reap benefits of the 2017 Revenue Review, including strengthening audit capacity, encouraging voluntary compliance, and improving arrears management. - Strengthen Public Financial Management (PFM) reforms by improving forecast capacity and introducing multi-year budgeting; enhancing monitoring and disclosure of fiscal risks; and monitoring spending outcomes to enhance efficiency through expenditure impact analysis and independent audit. - Reduce the long-term debt target to 40 percent of GDP to reduce the risk of debt distress and create fiscal buffers to respond to natural disasters while ensuring adequate funding for development priorities. To achieve this debt target, the mission advised targeting in normal times (when growth is about potential) a deficit of 1 percent of GDP, with a 2 percent of GDP deficit ceiling (Annex II). - Ensure newly-contracted loans are consistent with the Medium-Term Debt Strategy (MTDS 2016-2020), with new lending on concessional terms to the extent possible (grant element above the MTDS minimum of 35 percent), and that projects being financed are properly vetted as high quality and economically viable. - SOE fiscal risk management: - Coverage of public debt should be widened to include debt from SOEs; associated fiscal risks should be estimated and noted in budget documents. - Strengthen procedures for issuing guarantees to SOEs and put in place a formal on-lending policy. - Authorities’ views and commitments: - Authorities agreed with staff advice on fiscal policy; expect the benefits of the 2017 Revenue Review to materialize in the next fiscal year. - Working on removing tax exemptions, developing an electronic system to pay taxes online, and raising taxpayers’ awareness. - An internal review of public expenditure and financial accountability is about to be finalized. - Authorities committed to a public debt-to-GDP target of 45 percent in the medium term and 40 percent in the long term, and agreed with staff suggestions to implement an operational fiscal deficit target. - Planned creation of a new Debt Management Unit within the Ministry of Finance to improve debt management and monitoring of fiscal risks. - A formal on-lending policy, drafted with the assistance of the World Bank, is currently under government review. B. Monetary and Exchange Rate Policies - Monetary stance and transmission: - Monetary policy remains appropriately accommodative. - The official interest rate (average annual yield of Central Bank of Samoa’s (CBS) securities) has remained stable at below 20 basis points for the past five years. - High bank liquidity reflects conservative lending practices and self-insurance against liquidity squeezes, given the weak lending environment and limited interbank market activity. - Limited financial literacy remains a key contributor to structural deficiencies in credit access. - Mission stressed importance of measures to increase financial inclusion as recommended by the 2015 FSAP such as re-establishing a credit bureau—for which the Asian Development Bank (ADB) recently completed a diagnostic assessment—and facilitating the use of customary land leases as collateral.5 - Improving central bank liquidity management, including better forecasting FX needs, would contribute to improving the transmission mechanism. - External position and reserves: - The 2017/2018 current account surplus of 2.3 percent of GDP was adjusted for the exceptionally high level of transfers in the wake of cyclone Gita, resulting in a 0.7 percent of GDP cyclically adjusted deficit (Annex III). - Based on the revised EBA-Lite approach, the cyclically-adjusted norm for Samoa’s current account is a deficit of 1.7 percent of GDP. - Since the gap between the cyclically-adjusted current account balance and the cyclically-adjusted norm is 1 percent, staff assess the external position to be in line with fundamentals (Annex III). - Staff’s view: the deficit of 1.7 percent of GDP as a current account (CA) norm is more realistic for Samoa than the norm based on the previous EBA-Lite approach. - Reserves are projected to increase from 4.5 to about 4.6 months of import cover in 2018/19. - This level of reserves is adequate according to the Assessing Reserve Adequacy metric for credit-constrained economies, but is close to the lower bound of adequacy once Samoa’s heightened vulnerability to natural disasters is taken into account. - Samoa’s pegged exchange rate continues to serve the country well and provides a nominal anchor in the context of weak monetary policy transmission. - Authorities’ views: - The CBS regards the current accommodative monetary policy stance as appropriate in the short term, particularly in the context of fiscal tightening. - Going forward, the CBS intends to explore opportunities to reduce the degree of accommodation by “normalizing” the policy rate as the economy rebounds, thus creating policy space to cut rates when a negative shock hits the economy; the CBS will maintain communication with banks to ensure normalization does not translate into higher lending rates. - Authorities agreed with staff on the need to improve the monetary policy transmission mechanism, including enhancing liquidity management, improving forecasting of FX needs, and reducing banks’ reluctance to lend. - Authorities concurred with staff that the external position is in line with fundamentals once the current account surplus is adjusted for temporary spike in private remittances in the wake of cyclone Gita, and noted staff’s advice on mindful reserve adequacy given disaster vulnerability. C. Financial Sector, Crypto-Assets and Fintech - Financial sector soundness: - Capital adequacy and liquidity ratios are trending upwards, with the liquid asset ratio exceeding its five-year average. - Profitability and earnings indicators are subdued amidst a lending slowdown, but are expected to recover as economic activity picks up. - Nonperforming loans (NPLs) have increased by 20 basis points to 4.3 percent of total loans, but remain well below their five-year average and banks are well-provisioned. - Policy priorities: - Focus on completing implementation of the 2015 FSAP recommendations (Annex IV). - Swift approval of the amended Financial Institutions Act to support corrective actions and resolutions would help upgrade regulatory and supervisory framework to modern standards. - Develop in-house stress testing capacity and hold regular meetings of the high-level committee on financial stability to monitor and address financial stability risks. - Formulate a coherent public financial institutions (PFI) governance framework to mitigate contingent liability risks from PFIs. - Re-establish a credit bureau, which could be supplemented with fintech solutions in the future (Box 1), to help financial inclusion. *Source: 1wsmea2019002 - 1. Technology-Enabled Financial Access Solutions, IMF staff report content provided.* ### 19. Managing new risks from crypto-assets is also a priority. Private companies have been ### Managing new risks from crypto-assets is also a priority ### Crypto-assets: recent actions and guidance - Private companies have been promoting investment in crypto-assets in Samoa and have requested approval from the CBS for their businesses and products. - To protect consumers, the CBS banned all trade in one prominent crypto-asset in May 2018. - The CBS issued a general warning against the risks of investing in crypto-assets in August 2018, and advised that entities promoting crypto-assets are considered financial institutions, which requires them to hold a business license and follow CBS reporting requirements. - The mission supported the authorities’ cautious stance and encouraged them to consider FATF’s recommendation on oversight of crypto-assets, which are expected to be released in June 2019. ### Financial inclusion and fintech - Implementing the authorities’ financial inclusion strategy (NFIS) is important to reduce inequality, including gender inequality, and increase opportunities for all Samoans. - Continue supporting private sector initiatives for mobile money and payment systems given the large number of Samoans without access to formal financial services. - Improve the effectiveness of financial education programs through the Small Business Enterprise Center (SBEC), the Development Bank of Samoa (DBS), and commercial banks. - Amend the NFIS to promote digital and financial literacy, including awareness of risks from crypto-assets, and the potential of fintech solutions for financial inclusion. - Authorities are encouraged to continue exploring the role of fintech solutions for financial inclusion, while building trust and confidence in these solutions among the population. ### Authorities’ views on financial sector priorities - The authorities concurred with staff’s financial sector assessment and are working on the remaining 2015 FSAP recommendations, while managing new risks associated with crypto-assets. - Remaining FSAP recommendations include: re-establishing a credit bureau; harmonizing human resource policies and compensation across PFIs; conducting regular onsite inspections of commercial and public sector financial institutions and insurance companies. - Authorities noted challenges in developing a unified strategy for governance and mandate definition of all PFIs and stressed that developing stress test analysis capacity is a prerequisite for holding regular meetings of the high-level committee on financial stability. - The authorities look forward to the June 2019 FATF recommendations for the oversight of crypto-assets. ### Withdrawal of correspondent banking relationships (CBRs): exposure and recent experience - Samoa remains vulnerable to the withdrawal of Correspondent Banking Relationships (CBRs), which play a key role in facilitating trade and providing access to finance for households. - Remittances sector stresses are occurring as global and regional banks withdraw CBRs amid a tighter regulatory landscape. - Remittance flows have been resilient, partly because they are largely denominated in Australian and New Zealand dollars (e.g., around 72 percent of incoming remittances in 2018), for which CBRs are less difficult for MTOs to maintain compared to U.S. dollar-denominated remittances. - Three of the bigger MTOs have successfully re-opened one bank account each with the regional banks after upgrading their AML/CFT programs and undertaking independent compliance audits. - Several smaller MTOs reported termination of their Australian dollar and New Zealand dollar denominated bank accounts—without explanation—despite investment in IT infrastructure upgrades and hiring additional compliance staff. - Samoa’s recent inclusion on a draft European Union (EU) AML list (aside from its existing inclusion on the EU list of non-cooperative tax jurisdictions) could further aggravate CBR pressures. ### Measures recommended to mitigate CBR pressures and strengthen AML/CFT - Enhance AML/CFT effectiveness: - Address deficiencies identified in the 2015 Asia Pacific Group (APG) mutual evaluation report, where Samoa was rated low or moderately compliant in 10 of the 11 effectiveness criteria and non-compliant or partially compliant in 23 of the 40 technical recommendations. - Note: In a 2018 follow up report from the APG, Samoa was positively re-rated on 3 recommendations, and progress on 8 other recommendations was noted and the required expedited follow-up reporting was shifted from twelve to six months. - The 2018 amendments to the Money Laundering Prevention Act (MLPA) now requires reporting entities to verify their customer’s beneficial owner and increased the imprisonment penalties for ML offenses to 15 years. - Update the 2014 National Risk Assessment (NRA) to guide risk-based AML/CFT supervision; improve inspections of reporting entities for AML/CFT compliance (including enforcement actions and sanctions). - Devote further resources (including staff and IT systems) to the Samoan Financial Intelligence Unit (FIU) to enable effective analysis of suspicious transaction reports and conduct AML/CFT supervision of reporting entities. - Amend the MLPA to cover high-risk domestic politically exposed persons (PEPs), their family members and close associates. - Establish a comprehensive asset declaration system for high-risk public officials and align the anti-corruption framework with the UN Convention against Corruption to improve customer due diligence. - Establish IT solutions for customer identification and monitoring: - MTOs face challenges with customer identification owing to differences in the use of names in various government-issued identifications. - Short term: adopt a simple IT solution to enable MTOs and financial institutions to quickly validate customers’ identity electronically against the OEC voter database (which includes biometric information) upon payment of a fee. - Long term: develop IT solutions to enhance MTO compliance with other AML/CFT obligations (e.g., customer verification, record keeping and suspicious transaction reporting). - Exploit synergies with plans to establish a national digital identity system and a credit bureau. - ADB support is being provided for development of a customer identification database, which will incorporate the simple IT solution and could be expanded to include other customer financial information, subject to data privacy principles. - Reduce the offshore financial center’s (OFC) risk profile: - The OFC contributes to the country’s overall risk profile through potential misuse of Samoan international business companies (IBCs). - The 2014 NRA identified trust and company service providers (TCSPs) that operate in the OFC to be of high risk. - Ensure basic and beneficial ownership information of IBCs is accurate, up-to-date and available to competent authorities. - Enhance AML/CFT supervision over TCSPs to ensure compliance with record keeping and suspicious transaction reporting requirements. - Strongly recommended: only allow reliance on third party intermediaries under the conditions listed in FATF Recommendation 17. - Continue international engagement: - Work with stakeholders towards developing regional solutions to address CBR pressures, including considering a regional Know-Your-Customer facility. - Continue engagement with the EU regarding tax and AML issues and coordinate with the APG to clarify the EU’s underlying AML concerns that prompted Samoa’s inclusion on the EU AML list. ### Authorities’ views on CBRs and AML/CFT measures - The Samoan authorities are committed to mitigating CBR pressures and strengthening the AML/CFT regime and are engaging with the APG to ensure compliance with the FATF standards. - Authorities broadly agree with staff advice but stressed implementation challenges, notably that enhanced due diligence measures on domestic PEPs are difficult in Samoa given perceptions about familial relations in a small country. - Authorities remain engaged with the EU to seek removal from non-compliance lists and raised concerns about the EU’s methodology, lack of consultation, and inconsistency with APG assessment. - To enhance customer identification, especially for MTOs, the authorities are working with the ADB on developing a decentralized platform using biometric identity data from the OEC. ### Structural reforms to boost potential growth and inclusiveness - Focus areas: build resilience to natural disasters; enhance the business environment (especially for SMEs); encourage female labor participation; improve the trade facilitation framework. - Concrete measures: - Upgrade physical infrastructures to make them fully resilient to natural disasters and mainstream climate resilience into all sector plans. - Enhance the business environment for SMEs by promoting access to credit and strengthening insolvency resolution. Improve the SBEC guarantee scheme through a larger stake by commercial banks in lending projects, expansion of coverage to more SMEs, and use of mobile payment systems for lending activities. - Encourage female labor participation by providing access to affordable childcare facilities. - Improve the trade facilitation framework by pursuing efforts to comply with international standards conventions; reducing the time and documents needed to export; and developing a one-stop shop for exporters. - Minimum wage considerations: - Plans to increase the minimum wage are under tri-partite consultations among government, the private sector and labor unions. - Current Samoan minimum wage is less than US$1 per hour and is low compared to Pacific peers. - The mission advised the increase would need to balance positive effects on income and inclusion with limiting adverse effects on labor market outcomes. ### Capacity building and statistical improvements - Samoa relies on capacity building to support reforms and policy implementation. - PFTAC support has advanced PFM reforms including budget documentation, audit, and cash management; Samoa completed the full in-country PEFA exercise. - Further PFTAC support will focus on continuous improvement of financial reporting and monitoring of SOE risk. - A full review of tax administration audit programs, structure, staffing, management practices, risk analysis and case selection systems to underpin a new audit plan is underway. - PFTAC assists with finalizing insurance regulatory drafts and stakeholder consultation. - As a CBR pilot country, Samoa relies on HQ-led TA missions, round tables and desk review of legislation. - IMF Capacity Development Office in Thailand (CDOT) is providing TA to help improve external sector statistics. - IIP and GDP statistics: - Technical assistance for IIP compilation scheduled in July 2019. - Once direct investment position data of the non-financial sector becomes available through the International Investment Survey (IIS), the authorities should be able to finalize the IIP before the end of 2019. - Data for offshore entities remains a major data gap in the IIP. - Samoa Bureau of Statistics is working on rebasing GDP by production and developing a new measure of GDP by expenditure. ### Staff appraisal: outlook and policy advice - Growth outlook: - Growth is expected to rebound after reaching a five-year low due to the Yazaki manufacturing plant closure and the impact of Cyclone Gita. - Growth will peak in 2019/20, before settling at the potential rate of just above 2 percent in the medium term. - Risks to the outlook are tilted to the downside and stem from Samoa’s vulnerability to natural disasters and CBR pressures. - Fiscal policy recommendations: - Authorities should tighten fiscal policy compared to the baseline and embark on a comprehensive fiscal strategy to ensure fiscal sustainability, build fiscal buffers against natural disasters, and achieve progress towards development goals. - Target a fiscal deficit of 1 percent of GDP in 2019/20 and keep the medium-term deficit close to 1 percent of GDP in normal times (when growth is at or about potential). - Increase fiscal buffers and implement vigorous tax administration reforms to fully reap the benefits of the 2017 Revenue Review. - Strengthen public financial management reforms to improve multi-year budget planning and improve efficiency of spending. - Reduce the long-term debt-to-GDP target to 40 percent. - Complement the new debt target with a fiscal balance anchor aimed at keeping the overall fiscal deficit close to 1 percent in normal times with a 2 percent of GDP deficit ceiling. - Newly contracted loans should be on concessional terms to the extent possible. - Make progress in monitoring and disclosing fiscal risks, including from state-owned enterprises. - Monetary policy and financial sector recommendations: - Monetary policy stance is appropriately accommodative given low growth and receding inflationary pressures. - Improve the transmission mechanism by increasing credit access and reducing banks’ reluctance to lend through raising financial literacy, re-establishing a credit bureau, facilitating the use of customary land leases as collateral, and improving central bank liquidity management. - External position and reserves: - External position assessed to be broadly in line with fundamentals and desired policy settings (based on the revised EBA-Lite methodology and taking into account exceptionally large transfers received after Cyclone Gita). - Level of reserves coverage is adequate according to the ARA metric for credit-constrained economies, but is close to the lower bound of adequacy once Samoa’s heightened vulnerability to natural disasters is taken into account. - Samoa’s pegged exchange rate system provides a nominal anchor in a context of weak monetary policy transmission. - CBR mitigation priorities (reiterated): - Continue reforms to mitigate risks from CBR pressures: improve risk-based AML/CFT inspections of key reporting entities (banks, MTOs and TCSPs) and allocate further resources to the Financial Intelligence Unit. - Adopt IT solutions for speedier and cost-effective customer identification in the short term and enhance MTO compliance with AML obligations in the long term. - Ensure ownership information of Samoan international business corporations is accurate, up-to-date and available to competent authorities. - Continue to work with all relevant stakeholders on regional solutions to address CBR pressures and continue engagement with the EU regarding the EU list of non-cooperative tax jurisdictions. *Source: IMF staff report excerpts.* ### 37. Financial sector policies should focus on completing the implementation of FSAP ### 37. Financial sector policies should focus on completing the implementation of FSAP ### Financial sector—regulatory, supervisory, and stability measures - Complete implementation of FSAP measures with emphasis on: - Upgrading the regulatory and supervisory framework to modern standards through legislation. - Strengthening stress testing capacity. - Making the high-level committee on financial stability operational. - Formulating a coherent public financial institutions (PFI) governance framework to mitigate contingent liability risks. - Continue efforts to improve access to finance; explore fintech solutions. - Authorities’ cautious stance on cryptocurrencies and crypto-assets is appropriate. ### Structural reforms to boost potential growth and inclusiveness - Focus areas: - Building resilience to natural disasters; upgrade infrastructure for full resilience and mainstream climate resilience into all sector plans. - Enhancing the business environment by strengthening insolvency resolution and promoting SMEs access to credit. - Improving the trade facilitation framework by streamlining export requirements and developing a one-stop shop for exporters. - Labor market consideration: - The planned increase in the private sector minimum wage needs to balance positive effects on income and inclusion against adverse effects on labor market outcomes. ### Capacity strengthening and IMF support - Priority reforms to facilitate implementation: - Improve tax administration. - Strengthen public financial management (PFM) systems. - Mitigate CBR pressures. - Improve statistics. - The IMF stands ready to provide further technical assistance (TA) and training. - It is recommended that the next Article IV consultation with Samoa take place on the standard 12-month cycle. ### Box 1 — Technology-Enabled Financial Access Solutions - Credit bureau context and history: - In most Pacific island countries (PICs), public credit registries are either absent or underdeveloped; data on adult coverage by registries is unavailable for most PICs. - Samoa established a credit bureau in 2015 (financed by the IFC and managed by the Fiji Data Bureau); the credit bureau was closed by the Fijian authorities in 2016. - Around 50 percent of the population in Samoa have no access to formal finance. - Design and governance recommendations for a credit bureau: - Build on a secure data information system with robust data governance and risk management frameworks to address privacy concerns. - Ensure the information system is robust and secure to shield collected data from breaches and misuse, while facilitating access to digital financial profiles and credit information by banks and MTOs. - Establish governance on data storage, protection, and utilization. - Implement a comprehensive risk management framework including business continuity plans, contingency arrangements, and industry-wide cyber-security standards to ensure operational resilience in case of outages and cyber-attacks. - Leveraging alternative data and technology: - Use customer data from various sources to create digital financial profiles where traditional identity and credit information is scarce; these can serve as a starting point for a credit bureau or be integrated into it once operational. - Rising internet use, especially given the completion of the Tui Samoa cable in early 2018, will provide more online data. - Potential data sources: mobile phones, utility and invoice payments, online merchant activity, tax or corporate registries, payment history from mobile money solutions such as Digicel Mobile Money or the M-Tala, and lending history from micro-lending programs of the Small Business Enterprise Centre (SBEC) and the South Pacific Business Development. - Regional and international collaboration: - Leverage membership in regional and international bodies to devise effective regulation and build capacity. - Share experience and best practices in regional fora. - Use the 2018 Bali Fintech Agenda as a reference for policies to harness fintech potential while managing risks. *International Monetary Fund — Samoa country report content unit* ### Box 2. Lessons from Samoa’s Experience With Risk of CBR Withdrawal ### Box 2. Lessons from Samoa’s Experience With Risk of CBR Withdrawal ### Vulnerabilities and context - Samoa’s vulnerability to CBR withdrawal reflects factors common to other Pacific island countries—high dependence on remittances, and heavy use of money transfer operators (MTOs). - Despite CBR pressures, Samoa’s remittance flows have thus far shown resilience. - Banks account for only 20 percent of remittance flows. - MTOs have decreased in number from about 30 five years ago, to 12 today. ### Policy actions and mitigation efforts - Authorities are strengthening the AML/CFT framework and improving its effectiveness as a key factor in mitigating CBR pressures. - Working with APG to strengthen the AML/CFT framework. - Working with MTOs and ADB to establish a customer identification facility. - Highly engaged with the Fund in the context of the CBR pilot, and with other stakeholders in the region in search of a regional solution. ### Role of banks - Banks are a higher-cost option for remittances but help reduce the risk of CBR loss to the country. - Foreign banks in particular help reduce CBR loss risk, while increasing Samoa’s vulnerability to the operational decisions of those banks. ### Role and challenges for MTOs - MTOs remain macro-critical in Samoa and dominant in remittance transfers. - MTOs have provided tailored and often lower-cost services, assisting financial inclusion. - Increased compliance costs and reduced market share in smaller MTOs will continue to pose challenges for the sector. - MTOs with more stable CBRs attribute CBR retention to heavy investment in compliance and long-standing bank relationships. - Some MTOs expressed concern that they lacked sufficient clarity from correspondent banks on compliance needs, complicating their business decisions. ### Technology and future channels - Internet-based and mobile-based transfer options are available and will help to lower remittance costs. - Customers may need time to change practices and gain familiarity with technology-based options; uptake may therefore be gradual. *Source: Box 2. Lessons from Samoa’s Experience With Risk of CBR Withdrawal.* ### 1. No Poverty ### 1. No Poverty ### Priority Areas and Key Samoan Outcomes (SDG mapping) - Priority Areas (clusters): 1. Economic; 2. Social; 3. Infrastructure; 4. Environment. - Key Samoan Outcomes mapped to corresponding SDGs: - No Poverty (1) — linked to SDG 1. - Agriculture and fisheries productivity increased — SDG 2 (Zero Hunger). - Exports products increased — SDG 9 (Industry, Innovation, and Infrastructure). - Tourism development and performance improved — SDG 8 (Decent Work & Economic Growth). - Participation of private sector in development enhanced — SDG 12 (Responsible Consumption and Production). - A healthy Samoa and well-being promoted — SDG 3 (Good Health and Well-being). - Quality education and training improved — SDG 4 (Quality Education). - Gender Equality — SDG 5; Reduced Inequalities — SDG 10. - Social institutions strengthened — SDG 16 (Peace, Justice, and Strong Institutions). - Access to clean water and sanitation sustained — SDG 6 (Clean Water and Sanitation). - Transport systems and networks improved — SDG 9 and SDG 11 (Sustainable Cities and Communities). - Improved and affordable country wide ICT connectivity — SDG 9. - Quality energy supply — SDG 7 (Affordable and clean energy). - Environmental resilience improved — SDG 14 (Life Below Water) and SDG 15 (Life on Land). - Climate and disaster resilience — SDG 13 (Climate Action). ### Risk Assessment Matrix — Key Risks, Likelihoods, Impacts, and Policy Recommendations - Natural disasters - Likelihood: High - Rationale: "On average, Samoa has been hit by a major natural disaster once every five years." - Expected Impact if realized: High — "widespread damage" and historically "increased 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. - Loss of CBRs (correspondent banking relationships) - Likelihood: High - Rationale: Tight global regulatory landscape; potential withdrawal of CBRs; closure of bank accounts of money transfer operators (MTOs). - Expected Impact if realized: High — increased hand-carry of cash; undermine AML/CFT compliance; lower remittances leading to lower consumption and wider current account deficit; higher remittance costs affect vulnerable populations. - Policy recommendations: - Strengthen the AML/CFT regime in line with APG/FATF recommendations. - Establish a simple IT solution to verify customers’ identity electronically against the OEC database. - Align legislation governing the offshore sector with FATF standards. - Strengthen digital and financial literacy to facilitate use of mobile cross border payments. - Large swings in energy prices - Likelihood: Medium - Expected Impact if realized: Medium/High — sharp swings in inflation could slow lending and output; rising commodity prices widen the trade balance, drain FX reserves, dampen consumption and investment. - Policy recommendations: - Deepen and develop the financial sector. - Improve the monetary transmission mechanism. - Improve FX liquidity forecasting. - Diversify the export base. - Rising protectionism and retreat from multilateralism - Likelihood: High - Expected Impact if realized: Medium — weaker global and regional growth may cause sharp declines in exports, tourism earnings, and remittances; worsen current account, reduce fiscal revenues, inhibit growth; exacerbate CBR withdrawal via global financial market volatility. - Policy recommendations: - Improve the business environment and connectivity to foster private sector development. - Improve financial inclusion to cushion vulnerable populations. - Use technology to reduce remittance costs. - Explore opportunities for broadening the export base. (Note on RAM probabilities: staff subjective assessment — “low” < 10 percent, “medium” between 10 and 30 percent, “high” 30 percent or more.) ### A Possible Fiscal Path for Samoa — Fiscal Framework and Illustrative Dynamics - Fiscal target and operational guidance: - Proposed debt target: 40 percent of GDP. - Operational rule: Keep the fiscal deficit below 2 percent of GDP to converge towards 40 percent debt-to-GDP in the long term. - Rationale: Favorable debt dynamics would allow debt-to-GDP ratio convergence; a 2 percent overall fiscal deficit ceiling provides short-term operational guidance and a practical test for a rule-based PFM framework. - Role of automatic stabilizers (illustrative example) - Growth shock percentile bounds: 25th-75th percentile implying growth between 0.5 and 5.3 percent. - Resulting overall fiscal balance if automatic stabilizers operate: within the -1.9 to 0.5 percent of GDP range. - Medium-term potential growth rate: 2.2 percent (historical average). - At 2.2 percent growth, the fiscal deficit would be about 1 percent of GDP. ### External Sector Assessment — Current Account, Exchange Rate, and Reserves - Current account developments - CA recorded a surplus of 2.3 percent of GDP in 2017/18, an increase of about 4 percentage points of GDP compared to 2016/17. - Drivers: higher-than-average secondary income credits, tourism receipts, and official and private transfers (remittances). - Staff view: improved CA surplus is temporary; tourism receipts projected strong for Pacific Games in FY 2019/20 but to return to an average annual growth rate of about 4 percent afterwards. - Private transfers spiked after Cyclone Gita and expected to return to a level below 20 percent of GDP. - Trade balance expected to widen due to imports ahead of the Pacific Games in 2018/19, then stabilize in 2020/21. - Baseline (no natural disasters): current account deficit expected to gradually widen to about 1 percent of GDP over the medium term. - Revised EBA-Lite current account results (In percent of GDP) - CA-Actual: 2.3 - Cyclical Contributions (from model): 0.0 - Adjustment for Temporary Factors: 3.0 - Cyclically adjusted CA: -0.7 - CA-Norm: -2.3 - Cyclically adjusted CA Norm: -2.3 - Multilaterally Consistent Cyclically adjusted CA Norm: -1.7 - CA-Gap: 1.0 - of/which Policy gap: -2.8 - Elasticity: -0.28 - REER Gap: -3.8 - CA-Fitted: -3.7 - Residual: 6.0 - Natural Disasters and Conflicts: 1.4 - Note: Adjustment for temporary factors reduces current transfers to ten-year historical average. - Exchange rate assessment - CA model suggests the Samoan Tala is undervalued; IREER model suggests overvaluation. - Tala movements in 2017/18: appreciated against AUD, NZD, and EUR; depreciated against USD. - Real Effective Exchange Rate (REER) generally remained flat over past several years. - Staff assess REER to be broadly in line with fundamentals despite model contradictions. - Reserve adequacy - Gross reserves: rose from 3.6 months of import cover at end-2016/17 to 4.5 months in 2017/18; projected to reach 4.6 months at end of fiscal year 2018/19. - ARA metric for credit constrained economies suggests an optimal reserve level between 2.9 to 4.7 months of imports (depending on assumed long-run opportunity cost). - Incorporating natural disaster vulnerability (higher probability of large shock event assumed at 70 percent vs. sample average 50 percent) raises optimal reserve range to between 4.2 to 6.5 months of imports. - Staff view: reserves are adequate per ARA metric but close to the lower bound once disaster vulnerability is considered; building additional external buffers recommended to increase resilience. - Data limitations - IIP data not produced by authorities, limiting external sustainability approach. - IREER approach limited by quality of long time series data. - Current transfers dominate the CA and are less sensitive to exchange rate; tourism receipts driven more by airway and hotel capacity expansion than price. ### Key 2015 FSAP Recommendations — Status of Actions (Selected) - Cross-cutting - Improve quality and coverage of data (granular data on banks, PFIs, insurers): Work in progress; FSIs produced for commercial banks and other financial institutions, but reporting requires overhaul; internal capacity constraints noted. - Upgrade regulatory and supervisory frameworks (Financial Institutions Act and Central Bank Act): CBS Act 2015 repealed the CBS Act 1984; amendments to the 1996 FIA prepared and with Attorney General awaiting submission to Parliament for approval in 2019. - Raise CBS capacity and staffing for financial oversight: Number of staff gradually increased; two additional staff expected to join supervision department; capacity and cost remain a challenge. - Banking supervision and regulation - Conduct regular on-site inspections and in-depth assessments: CBS conducted regular onsite inspections and in-depth offsite surveillance monthly and quarterly. - Upgrade supervisory guidance to banks (risk management and NPL write-offs): Authorities issued prudential standards; industry consultation underway with final comments expected in March and finalization in April 2019. - PFIs supervision and governance - Produce FSIs for PFIs and ensure proper IFRS accounting: Publication of FSIs mandatory for all PFIs; CBS produces quarterly consolidated FSI reports. - Issue and upgrade prudential regulations for PFIs: Industry consultation completed; prudential regulations for insurance and housing sectors to be finalized by June 2019. - On-site inspections of PFIs: Inspections of Samoa National Provident Fund, Development Bank of Samoa, and Unit Trust of Samoa conducted in 2018; supervision expanded with on-site inspections every other year. - Reform mandates and governance of PFIs: Director’s Handbook signed December 2018; Compensation Review expected to Cabinet by end-March 2019; amendments to Public Bodies Act and related frameworks expected to Parliament by June 2019; no reforms to PFI mandates yet. - Offshore bank regulation - Separate promotional and supervisory roles at SIFA: In October 2016 SIFA created Invest Samoa for promotion. - Crisis preparedness and liquidity - Adopt enforcement and resolution instruments: Amendments to 1996 FIA finalized and submitted to Attorney General; expected Parliamentary approval in 2019. - Disaster Risk Financing Strategy in development to identify resources for natural disasters; draft expected mid-June pending review of World Bank and ADB emergency facility terms. - Systemic financial stability - Financial stability and contingency planning committees: Financial stability committee created; only one meeting held; regular meetings contingent on stress test results. - Stress testing and macro-financial mapping: Preliminary in-house stress test in 2018 indicated banking sector vulnerability to natural disasters and changes in tourism receipts; macro-financial mapping not yet undertaken. - Central bank policies and operations - CBS lending to DBS and SHC: A credit line facility (CLF) of 10 million tala approved in May 2018 after Cyclone Gita; DBS extended only 5 million tala to SMEs in agriculture and small business services; CLF extended only in event of natural disasters. - Access to finance and payment systems - Credit bureau and related infrastructure: ADB diagnostic for credit bureau completed November 2018; ADB expected to provide TA to set up a credit bureau; alternative credit scoring approaches discussed. - National Payment Systems: World Bank procurement completed January 2019; implementation to begin with a scoping mission in early March 2019. - Insurance sector supervision - Insurance supervisory standards and inspections: Eight Insurance Supervision Prudential Standards (ISPS) forwarded for consultation; revised report forms enforced from September 2018; first onsite inspections of insurance sector to begin in April 2019; additional training/TA required. - PFTC TA missions on amendment of the 2007 Insurance Act planned in 2019/20. *Source: Strategy for the Sustainable Development of Samoa; IMF staff reports and annexes in the provided chapter.* ### Annex V. Enhancing Customer Identification of MTOs ### Annex V. Enhancing Customer Identification of MTOs ### Challenges in customer identification - Samoans throughout their lifetime may acquire additional names according to tradition and custom, causing lack of uniformity in the use of names in government-issued identification (i.e., birth certificate, passport, driver’s license, National Provident Fund ID) and potential confusion in sending and receiving remittances. - Example: a sender from Australia and New Zealand may have used one name, but the receiver in Samoa uses a government-ID with a different name when requesting the payout at the local MTO. - Plans to create a national digital ID system exist, but its establishment is not foreseen in the near future. ### Office of the Electoral Commissioner (OEC) database and coverage - The OEC database is comprehensive and includes biometric information. - Almost 80 percent of eligible Samoan voters (ages 21 and above) are covered in the OEC database. - The system captures the registered voter’s photo, fingerprint, signature, residence and date of birth. ### Current MTO–OEC arrangement for identification - Three of the largest domestic MTOs have entered into an agreement with the OEC for purposes of customer identification. - Process: - MTO customers who do not have an acceptable ID are asked to register with the OEC. - The OEC captures the customer’s biometric information and issues a paper certificate with its stamp and validating signature. - After paying a 10-tala fee, the customer presents the OEC certificate to the MTO. - The MTO calls a direct OEC line to confirm the details in the certificate. - Once confirmed, the MTO keeps the certificate in its records and considers it a valid customer identification for a period of 12 months only. - Benefits: - For MTOs: a reliable source of customer identification. - For the OEC: voter information is expanded and kept up to date. ### Recommended IT solutions and policy direction - Implement IT solutions in the short term to speed up customer identification and reduce costs to customers. - Proposed approach: - Instead of securing a paper certificate, the OEC could provide MTOs limited access to the OEC database to verify a customer’s voter profile. - A customer could provide critical information including a finger print, that the MTO could electronically verify against the OEC database. - If the customer’s voter profile is current, the MTO verification could be instantaneous. - This would obviate the need for the customer to pay a fee to get the paper certificate or renew the OEC certificate every 12 months. - Implementation status: - The authorities are working in this direction with support by the ADB. *Source: Annex V. Enhancing Customer Identification of MTOs* ### 1. Central government and central government-guaranteed debts are covered in this report. ### 1wsmea2019002 - 1. Central government and central government-guaranteed debts are covered in this report. ### Coverage and institutional context - Public and Publicly Guaranteed debt (PPG) accounted for 57.2 percent of GDP in FY2017/18, allocated between: - central government debt: 50.3 percent of GDP - central government-guaranteed debt: 6.9 percent of GDP - Government-guaranteed debt includes SOE debt explicitly guaranteed by central government. Non-guaranteed SOE debt estimates are not available and cannot be included in PPG debt. - The Samoa National Provident Fund does not owe debt. - There is no sub-national government structure in Samoa, nor extra budgetary funds. - The Central Bank of Samoa is not allowed to contract debt on behalf of the government. - The definition of external and domestic debt is based on residency (equivalent to currency-based classification in Samoa, since all domestic debt is in tala and all external debt is in foreign currency or SDRs). - Authorities are working to strengthen monitoring and disclosure of fiscal risks from SOEs with PFTAC assistance. Creation of a debt management unit would improve debt data coverage. ### Background on recent public debt developments - Public debt increased to 50.3 percent of GDP in 2017/18, from 49.1 percent in FY2016/17. Contributing factors: depreciation of the Tala against main loan currencies, continuous disbursements of external loans, and limited increase in GDP. - Public external debt at end-FY2017/18: US$421 million, increasing by 3.6 percent with respect to FY2016/17. - Outstanding public external debt at end-FY2017/18: SAT1.09 billion, split 51 percent multilateral creditors and 49 percent bilateral creditors. - Multilateral creditors include IDA and ADB. - Bilateral creditors include China and Japan. - Increase in public external debt and debt service driven by: loss of access to exclusive grant funding from IDA and ADB in 2015 and 2016, and further disbursements from bilateral creditors for large infrastructure projects. ### Stock of public debt (end of FY2017/18) — key figures - Total public debt: SAT1,113.8 million - Total public debt: 50.3 percent of GDP (in percent of GDP presentation) - External debt: SAT1,094.3 million (100.0 percent of external debt; 49.4 percent of GDP) - Multilateral: SAT563.0 million (51.5 percent of external debt; 25.4 percent of GDP) - IDA: SAT280.8 million (25.7 percent of external debt; 12.7 percent of GDP) - ADB: SAT250.6 million (22.9 percent of external debt; 11.3 percent of GDP) - OPEC: SAT24.0 million (2.2 percent of external debt; 1.1 percent of GDP) - Other: SAT7.6 million (0.7 percent of external debt; 0.3 percent of GDP) - Bilateral: SAT531.3 million (48.5 percent of external debt; 24.0 percent of GDP) - EXIM Bank (China): SAT440.1 million (40.2 percent of external debt; 19.9 percent of GDP) - Japan: SAT91.2 million (8.3 percent of external debt; 4.1 percent of GDP) - Domestic debt: SAT19.5 million (0.9 percent of GDP); all domestic public debt held by domestic creditors and issued in local currency. - Guarantees (government-guaranteed debt) accounted for 6.9 percent of GDP in FY2017/18 (down from 7.9 percent in 2016/17). - Memorandum items: - Nominal GDP: SAT2,213.5 million (FY2017/18) - Market rate (tala/U.S. dollar, end period): 2.6 ### Methodology and baseline assumptions - Discount rate for NPV of external debt: 5 percent. - Baseline incorporates effects of natural disasters and climate change over the longer term: - Years 2019–24 assumed disaster free. - From 2025 onwards baseline lowers GDP growth by 1.3 percentage points annually, raises the current account deficit by 1.5 percentage points, and increases the fiscal deficit by 1.5 percentage points vis-à-vis disaster-free projections. - Main macro assumptions (preserve exact phrasings and numbers): - Real GDP growth projected to rebound to 3.4 percent in FY2018/19. Growth in FY2019/20 expected to spike to 4.4 percent, before normalizing at about and 2.2 percent in the medium-term. To account for natural disasters, growth rate is lowered by 1.3 percentage points after 2024. - Inflation expected to stabilize at around 2.8 percent over the medium term after a one-time increase. - Current account deficit projected to remain below 1 percent of GDP between 2019-2024. Current account recorded a temporary surplus of 2.3 percent of GDP in 2017/18. To account for natural disasters, the deficit is widened by 1.5 percentage points after 2024. - Overall fiscal balance: staff projects a 1.2 percent of GDP deficit in 2018/19, widening to 2.7 percent in 2023/24. To account for natural disasters, deficit is widened by 1.5 percentage points after 2024. - Continued eligibility for concessional borrowing from MDBs is assumed; grant element of new loans is 40 percent on average. Borrowing from IDA and ADB assumed on full credit terms for projection purposes. - Data table of selected averages and projections (as presented in source): - Real GDP growth (2019-2024): 2.8 - Real GDP growth (2025-2039): 0.9 - Inflation (2019-2024): 2.8 - Inflation (2025-2039): 2.8 - Current account deficit (2019-2024): 0.8 - Current account deficit (2025-2039): 5.1 - Overall fiscal balance deficit (2019-2024): 2.2 - Overall fiscal balance deficit (2025-2039): 5.1 ### Scenario analyses and stress tests - New realism tools indicate projections are reasonable. Public investment decline in FY2017/18 due to completion of large infrastructure projects is expected to rebound in FY2019/20. Public capital stock expected to contribute about one third of GDP growth. - Country classification: - Composite Indicator (CI) score: 3.31 (based on Oct 2018 WEO and 2017 CPIA) — rating: Strong. - Relevant indicative thresholds for countries with a strong CI rating: - PV of debt-to-GDP ratio: 55 percent - PV of debt-to-exports ratio: 240 percent - Debt service-to-exports ratio: 21 percent - Debt service-to-revenue ratio: 23 percent - Benchmark for PV of total public debt under strong capacity: 70 percent - Tailored natural disaster stress test parameters: - One-off shock of 21 percent to the debt-GDP ratio in 2019 (median natural disaster shock in country history). - Reduction of real GDP growth by 3 percent and exports by 6 percent. - Contingent liabilities (default settings) stress test: - Contingent liability shock amounting to 7 percent of GDP, comprising: - 2 percent of GDP of non-guaranteed SOE debt - 5 percent of GDP of financial market shock ### Debt sustainability results - External debt sustainability (baseline): - PV of external debt-to-GDP ratio projected to increase from 33.4 in 2019 to 39.1 in 2029 and to reach 60.3 in 2039. - PV of external debt-to-GDP breaches indicative threshold of 55 percent in 2036. - PV of external-debt-to-exports ratio also breaches threshold of 240 percent in 2036. - Debt service remains limited and does not breach indicative thresholds due to a large share of concessional terms. - Stress test impacts: - Natural disaster shock has largest negative impact, causing breach of PV debt-to-GDP threshold from 2030. - Protracted and significant breaches of PV debt-to-GDP and PV debt-to-exports after a severe natural disaster shock and after contingent liability shock (from 2035 onward). - Public sector debt sustainability: - PV of public debt-to-GDP ratio breaches the benchmark in 2034 under baseline. - Natural disaster and contingent liability shocks result in sharper deterioration; threshold breached from 2027 and 2032, respectively. ### Risk assessment and policy recommendations - Risk assessment: - Debt outlook subject to several risks. PPG debt expected to grow in the medium-term. - External debt-to-GDP expected to decrease in short-term due to positive FY2017/18 fiscal balance and expected higher growth in FY2018/19 and FY2019/20 (Pacific Games), then increase after FY2020/21 driven by negative primary balance. - Samoa breaches the high-risk threshold when average annual impact of natural disasters and climate change on medium-term projections is included. - Samoa assessed to remain at high-risk of debt distress. Although mechanical assessment of DSF template would yield moderate risk, staff judgement concludes high-risk due to high probability of substantial and persistent threshold breaches from climate exposure. - Policy recommendations: - Continue efforts to consolidate and boost revenue collection. - Build fiscal buffers to respond to future economic shocks or natural disasters. - Introduce a lower public debt-to-GDP target of 40 percent over the long term, associated with operational guidance on the overall deficit, to reduce risk. - Improve coverage of debt data by producing and disseminating aggregate data on general government and public-sector debt (including non-guaranteed SOE debt). *Source: IMF staff report content as provided in the supplied PDF excerpt.* ### 17. The authorities broadly agreed with the DSA assessment and expressed their commitment ### 1wsmea2019002 - 17. The authorities broadly agreed with the DSA assessment and expressed their commitment ### Authorities' policy stance and commitments - Authorities agreed that a lower long-term debt target of 40 percent of GDP (compared to the current target of 50 percent of GDP) is desirable. - Rationale for the lower target: - Allow building fiscal buffers to respond to a large natural disaster. - Ensure adequate funding of development priorities. - Financing strategy consistent with the Medium-Term Debt Strategy: - Aim to fund development needs with grants and concessional loans to the extent possible. - Institutional strengthening: - Authorities are working towards strengthening the monitoring and disclosing of fiscal risks from the SOEs with the assistance of PFTAC. ### External debt: baseline levels and projections (selected figures) - External debt (nominal), public and publicly guaranteed (PPG): - 2016: 50.7 - 2017: 47.7 - 2018: 49.4 - 2019: 48.7 - 2020: 48.6 - 2021: 49.6 - 2022: 50.5 - 2023: 51.4 - 2024: 53.5 - 2029: 59.7 - 2039: 46.9 - Change in external debt: - 2016: -4.6 - 2017: -3.0 - 2018: 1.7 - 2019: -0.7 - 2020: -0.2 - 2021: 1.0 - 2022: 1.0 - 2023: 0.9 - 2024: 2.1 - 2029: 2.1 - 2039: 1.1 - Identified net debt-creating flows: - 2016: 5.2 - 2017: -0.5 - 2018: -5.2 - 2019: 0.4 - 2020: -2.5 - 2021: -1.1 - 2022: -0.2 - 2023: -0.6 - 2024: -0.1 - 2029: 4.2 - 2039: 1.5 - Non-interest current account deficit: - 2016: 4.7 - 2017: 1.8 - 2018: -4.0 - 2019: -0.6 - 2020: -0.1 - 2021: -0.3 - 2022: 0.2 - 2023: 0.2 - 2024: 0.5 - 2029: 4.2 - 2039: 1.9 - Net current transfers (negative = inflow): - 2016: -16.8 - 2017: -16.7 - 2018: -20.2 - 2019: -20.2 - 2020: -19.4 - 2021: -19.7 - 2022: -19.6 - 2023: -19.5 - 2024: -19.4 - 2029: -21.4 - 2039: -19.7 - Endogenous debt dynamics (selected years): - 2016: 1.2 - 2017: -3.3 - 2018: 0.6 - 2019: -0.5 - 2020: -1.1 - 2021: 0.0 - 2022: -0.4 - 2023: -0.5 - 2024: -0.5 - 2029: 0.1 ### External debt sustainability indicators (selected) - PV of PPG external debt-to-GDP ratio (projections shown): - 2024: 33.5 - 2029: 39.1 - 2039: 60.3 - PV of PPG external debt-to-exports ratio (projections): - 2024: 105.7 - 2029: 114.9 - 2039: 261.7 - PPG debt service-to-exports ratio (projections): - 2024: 10.5 - 2029: 13.3 - 2039: 19.1 - PPG debt service-to-revenue ratio (projections): - 2024: 11.9 - 2029: 11.7 - 2039: 15.9 - Gross external financing need (Million of U.S. dollars): - 2016: 31.1 - 2017: 63.2 - 2018: 13.7 - 2019: 38.2 - 2020: 16.4 - 2021: 22.0 - 2022: 33.6 - 2023: 30.4 - 2024: 35.7 - 2029: 95.4 - 2039: 145.2 ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent): - 2016: 7.2 - 2017: 2.7 - 2018: 0.9 - 2019: 3.4 - 2020: 4.4 - 2021: 2.2 - 2022: 2.2 - 2023: 2.2 - 2024: 2.2 - 2029: 0.9 - 2039: 2.1 - GDP deflator in US dollar terms (change in percent): - 2016: -8.7 - 2017: 4.2 - 2018: 1.5 - 2019: 1.6 - 2020: 1.7 - 2021: 1.6 - 2022: 1.8 - 2023: 1.9 - 2024: 1.8 - 2029: 1.9 - 2039: 1.7 - Effective interest rate (percent): - 2016: 0.0 - 2017: 0.0 - 2018: 3.6 - 2019: 2.3 - 2020: 2.1 - 2021: 2.2 - 2022: 1.3 - 2023: 1.3 - 2024: 1.3 - 2029: 1.0 - 2039: 1.5 - Growth of exports of G&S (US dollar terms, in percent): - 2016: 9.5 - 2017: 8.7 - 2018: 8.2 - 2019: -0.1 - 2020: 6.6 - 2021: 3.3 - 2022: 2.9 - 2023: 3.8 - 2024: 3.8 - 2029: 4.5 - 2039: 1.2 - Grant element of new public sector borrowing (in percent): 39.0, 38.7, 39.5, 39.3, 40.2, 39.4, 41.8, 35.4, ... 40.6 (selected entries as given) ### Public sector debt: baseline levels and projections (selected) - Public sector debt (percent of GDP): - 2016: 61.3 - 2017: 57.0 - 2018: 57.2 - 2019: 57.5 - 2020: 57.6 - 2021: 59.2 - 2022: 60.3 - 2023: 61.4 - 2024: 62.5 - 2029: 78.2 - 2039: 65.0 - Change in public sector debt: - 2016: -5.2 - 2017: -4.4 - 2018: 0.3 - 2019: 0.2 - 2020: 0.1 - 2021: 1.6 - 2022: 1.1 - 2023: 1.1 - 2024: 1.1 - 2029: 2.9 - Identified debt-creating flows (primary deficit and others): - Primary deficit (selected): - 2016: 0.4 - 2017: 1.1 - 2018: -0.1 - 2019: 1.2 - 2020: 1.8 - 2021: 2.3 - 2022: 2.5 - 2023: 2.7 - 2024: 2.7 - 2029: 4.5 - 2039: 3.2 - Revenue and grants (percent of GDP): - 2016: 36.1 - 2017: 34.2 - 2018: 34.3 - 2019: 34.0 - 2020: 33.8 - 2021: 33.6 - 2022: 33.5 - 2023: 33.5 - 2024: 33.3 - 2029: 32.5 - 2039: 33.3 - Grants (of revenue and grants): - 2016: 9.3 - 2017: 7.2 - 2018: 7.9 - 2019: 7.0 - 2020: 6.6 - 2021: 6.2 - 2022: 6.2 - 2023: 6.2 - 2024: 6.0 - 2029: 4.9 - 2039: 3.7 ### Public debt sustainability indicators (selected) - PV of public debt-to-GDP ratio (projections): - 2024: 43.3 - 2029: 57.5 - 2039: 88.2 - PV of public debt-to-revenue and grants ratio (projections): - 2024: 123.9 - 2029: 176.8 - 2039: 281.7 - Debt service-to-revenue and grants ratio (projections): - 2024: 17.6 - 2029: 13.0 - 2039: 16.5 - Gross financing need (projections): - 2019: 6.9 - 2020: 6.6 - 2021: 9.6 - 2022: 7.0 - 2023: 7.8 - 2024: 7.7 - 2029: 6.4 - 2039: 10.7 ### Stress tests, sensitivity analysis, and key risks - Stress test identification: - The most extreme stress test is the test that yields the highest ratio in or before 2029. - Tailored tests include Natural Disasters and Combined contingent liabilities. - Default assumption: All additional financing needs generated by shocks under stress tests are assumed to be covered by PPG external MLT debt in the external DSA; default terms of marginal debt are based on baseline 10-year projections. - Most extreme shocks observed in figures and tables: - For PV of debt-to-GDP ratio under alternative scenarios, the most extreme shock is Natural disaster (Figure 1). - For Debt service-to-revenue and PV of debt-to-exports, other extreme shocks include One-time depreciation and Exports shocks. - Sensitivity analysis highlights (Table 3 & Table 4 excerpts): - PV of PPG external debt-to-GDP ratio (baseline series): 33.4 (2019), rising to 60.3 (2039). - Tailored test C2 Natural disaster (PV of PPG external debt-to-GDP ratio): 33.4 (2019) to 81.7 (2039) with notable increases across 2020–2039. - Public debt PV-to-GDP baseline: 42.2 (2019) rising to 88.2 (2039). - Public debt under Natural disaster (C2 tailored test): increases from 42.2 (2019) to 118 (2039) in Table 4 projections. - Benchmarks and thresholds explicitly used: - External DSA debt thresholds and public debt benchmark lines are shown across figures and tables (e.g., threshold values 55, 100, 240 appear in sensitivity tables and figure notes). - A bold value in stress/sensitivity tables indicates a breach of the threshold. ### Drivers of debt dynamics and realism tools (summary) - Primary drivers shown in charts and tables: - Nominal interest rate contribution, real GDP growth contribution, price and exchange rate changes, residual (including exceptional financing). - Realism tools and investment contributions: - Charts compare Government Investment and Private Investment between previous DSA and current DSA and show contribution of government capital. - Indicators include contributions to real GDP growth (percent, 5-year average) and projected fiscal adjustment paths. *Sources: Country authorities; and staff estimates and projections.* ### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the ### Statement by the IMF Staff Representative on Samoa — May 8, 2019 ### GDP statistics revision and methodology - On April 1, Samoa’s Bureau of Statistics published revised GDP statistics reflecting rebasing and an improved methodology. - Under the revision, nominal GDP levels and real GDP growth are lower for recent fiscal years, reflecting in part a downward revision of GDP contribution from the manufacturing sector. - Methodological changes: - Adoption of the System of National Accounts 2008 (SNA 2008). - Change in the base year from 2009 to 2013. - Upgrade of the UN International Standard Industrial Classification from Revision 3.1 to Revision 4. - Greater reliance on Value Added Goods and Service Tax system data. - Incorporation of latest benchmarks from the 2013 Household Income and Expenditure Survey, the 2013 Business Activity Survey, and the 2016 Population Census. ### Recent macroeconomic performance (growth, inflation) - Real GDP growth: - Real GDP grew by 6 percent in the quarter ending December 2018, compared to the same quarter in 2017. - Real GDP growth was 2.5 percent in the quarter ending September 2018. - The pickup was driven by the commerce, communication, and construction sectors. - Inflation: - The average CPI inflation rate for the year ending March 2019 was 3.4 percent, compared with 2.7 percent in March 2018. - Inflation increases partly reflect higher prices for electricity, local foods, and telephone calls. ### External sector, trade, and reserves - Preliminary trade data for February 2019: - Imports decreased by about 10 percent compared to February 2018. - Exports increased by about 30 percent compared to February 2018. - International reserves: - Reserves increased to US$186.3 million (about 4.8 months of next year’s imports of goods and services) in February 2019. - Up from 4.7 months of next year’s imports in January 2019. - Capital inflows in 2018: - Mostly official capital transfers reaching US$25 million (equivalent to about 3 percent of GDP). - Exchange rate and REER: - Samoan tala remains near its January 2019 levels, at about 2.6 tala to the U.S. dollar. - No change in the real effective exchange rate thus far in 2019. ### Fiscal position, debt, and fiscal policy stance - Historical fiscal consolidation: - Deficit reduced from around 7 percent of GDP in 2011-12 to a surplus of 0.1 percent in 2017-18. - Staff and authorities’ targets and projections: - Staff’s recommended range for the fiscal balance in last year’s staff report was ‘less than 2.0 percent of GDP’ to ensure debt is on a sustainable path. - Staff’s current baseline projection is a deficit of 1.8 percent. - Mission advised the authorities to target a fiscal deficit of 1.0 percent of GDP in the 2019 staff report. - Authorities note the increased precision of staff’s advice. - Debt: - Debt to GDP decreased from 58 percent in 2014-15 to 50.3 percent in 2017-18. - 50.3 percent is slightly above the Medium-Term Debt Strategy target of 50 percent. - Authorities agree with staff’s recommendation to bring the debt-to-GDP target in the Medium-Term Debt Strategy down to 45 percent in the medium term. - Public financial institutions and risk management: - Reforms underway, including establishment of a Debt Management Unit. - Cabinet agreed to strengthen procedures for issuing government guarantees to state owned enterprises. - An on-lending policy is under review. ### Natural disaster vulnerability and resilience strategy - Samoa is highly vulnerable to natural disasters and climate change; major natural disasters occur on average every 5 years. - Policy measures to build resilience: - Ensure adequate international reserves. - Build fiscal policy buffers and a contingency reserve as an expenditure item in the Budget. - Invest in building infrastructure ‘back better’ to be more resilient to natural disasters. - Implement a multilayered contingent financing strategy identifying financing sources, access conditions and speed of disbursement. - Authorities seek support for a Climate Change Policy Assessment (CCPA) to further support resilience efforts. - Authorities welcome consideration by the membership of increases to access limits for Fund facilities that help members respond to natural disaster related shocks. - Rapid Credit Facility (RCF) experiences and access: - Samoa drew on the IMF’s RCF in 2012 and continues required repayments. - Given current cumulative access limits, Samoa would only be able to access around 35 percent of quota. ### Correspondent Banking Relationships (CBRs), remittances, and financial inclusion - Importance of remittances and exposure: - Remittances comprise 20 percent of GDP. - Samoa heavily relies on remittances; many flows are received through Money Transfer Operators (MTOs). - Remittance flows increase rapidly in response to natural disasters and are often the first financial assistance received. - CBR withdrawal concerns: - Concerns persist about the threat of withdrawal of CBRs, which threatens financial inclusion and low-cost remittances. - MTOs report bank account closures without warning. - Remittance fees in the Pacific are among the highest in the world and well above the G20 objective of 5 percent. - Centralized customer identification databases are expensive and do not guarantee preservation of CBRs. - Authorities are open to regional solutions and urge the IMF to continue considering all options. - Convening role of IMF: - Authorities thank the IMF for convening efforts (e.g., Pacific Roundtable) to elevate the issue. ### AML/CFT and offshore financial centre (OFC) issues - Participation in international standard bodies and legislative updates: - Samoa is a member of the Asia Pacific Group on Money Laundering (APG) and engages in FATF-related peer reviews. - Samoa amended tax and international finance legislation in 2013, 2014, 2015, 2016 and 2017 to align with international standards. - Samoa completed ‘Automatic Exchange of Information for Tax Purposes’ in 2018. - Trustee Companies Act 2017 (TCA) incorporated regulation of trust company service providers and reinforced AML requirements on Trust Company Service Providers (TCSPs). - New quarterly on-site supervision program introduced. - OFC risk profile and compliance: - Staff note the high-risk rating of the OFC in the 2014 National Risk Assessment. - Actions taken since 2014 to reduce the risk profile and align to international standards. - Current compliance figures: - The 6.0 percent of IBCs already covered by onsite supervision have a current compliance rate for provision of Beneficial Ownership (BO) information of 98.0 percent. - APG engagement and outcomes: - Samoa completed an APG review in 2014-2015 against the 2012 FATF standards. - Amendments to anti-money laundering legislation were made last year to improve compliance with FATF standards. - In the APG Annual Plenary in July 2018, Samoa was given upgrades on 3 key recommendations and moved to reporting to APG every 12 months instead of every 6 months. - Samoa does not appear on any OECD or FATF black lists. - Concerns about EU listings: - Samoa is disappointed by inclusion on a draft European Union AML list and the EU black list of non-cooperative tax jurisdictions. - Authorities expressed concerns about lack of detailed reasons, limited notification time, and lack of meaningful opportunity to challenge inclusion. - Samoa has maintained open dialogue with the EU to seek constructive resolutions. ### Authorities’ views, priorities, and requests - Authorities’ assessment: - Broad agreement with staff’s outlook and risks, though authorities are slightly more optimistic and view risks as more balanced. - Economy rebounding from slowdown due to closure of Yazaki manufacturing plant and lower agriculture and fishing output (impacted by Cyclone Gita and weather patterns). - Authorities expect growth to be driven by large construction projects and hosting the Pacific Games; see potential from undersea cable for IT/communications sector and potential for new businesses to re-establish manufacturing. - Monetary policy: - Authorities agree that current accommodative monetary policy stance is appropriate given fiscal consolidation plans. - Near-term inflation risks are low and inflation expectations are stable. - Authorities are strengthening monetary policy transmission through Central Bank credit line facilities, regular quarterly meetings with commercial banks, and technical assistance from the Reserve Bank of Australia. - Authorities welcome more granular advice on improving transmission and assessing current efforts. - Institutional reforms and ongoing technical assistance: - Continued modernization of legislation to meet international standards on tax, money laundering and terrorism financing. - Establishment of a Debt Management Unit and other procedural reforms to mitigate fiscal risks. - Requests to IMF and membership: - Seek Board support for a Climate Change Policy Assessment (CCPA). - Urge the membership to consider increases to access limits for Fund facilities relevant to natural disaster response. - Encourage Staff to explore ways to increase speed of RCF disbursements. - Welcome continued IMF convening and technical assistance, and look forward to further constructive engagement. *Statement by the IMF Staff Representative on Samoa, May 8, 2019.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1wsmea2019002.pdf_