## EXECUTIVE SUMMARY (1wsmea2020001)

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### Context and immediate shocks
- Samoa, population around 0.2 million, suffered a severe measles outbreak in late-2019 (claimed 83 lives and resulted in over 5,700 cases), causing a larger economic contraction than past natural disasters.
- The global COVID-19 pandemic further devastates the economy due to heavy dependence on inbound tourism (now banned).
- A BOP financing gap is estimated at US$34.1 million.
- Proposed Fund support: US$22 million (SDR16.2 million, 100 percent of quota) under the RCF to provide a short-term buffer.

### Request for Fund support
- Authorities requested emergency assistance under the Rapid Credit Facility (RCF): disbursement of SDR16.2 million (100 percent of quota), fully available upon Board approval.
- Staff supports the request to ease urgent BOP needs, catalyze development partner assistance, and support implementation of government measures.

### Policy recommendations and immediate response
- Authorities’ response: timely scaling up of health spending and containment measures.
- Recommended fiscal focus:
  - Carefully designed spending reductions, especially on past ambitious public investment plans.
  - Reallocation of resources towards healthcare spending.
  - Temporary support for vulnerable households and businesses most affected.
- Monetary and financial measures: ensure adequate liquidity to banking system and support access to credit.
- Longer term: continue structural reforms to promote inclusive growth while preserving financial-sector and external stability and fiscal sustainability.

### Macroeconomic impact: overview and timing
- Travel restrictions and heightened risk aversion expected to cut tourism receipts for FY2020 by around 10.6 percent of GDP relative to pre-pandemic projections.
- State of Emergency measures and uncertainty are affecting activity; no confirmed COVID-19 cases in Samoa as of April 15, 2020.
- Shocks substantially impact the balance of payments, partly offset by lower global fuel prices and lower imports from reduced tourism and construction.

### Recent economic developments (measles and pre/post COVID-19)
- Growth momentum through Pacific Games; strong growth 4½ percent (y/y) in 2019:Q3.
- Measles outbreak in 2019:Q4; preliminary GDP shows real GDP plunged by 6.4 percent (q/q) in 2019:Q4.
- Commerce sector declined 8.2 percent (y/y) in 2019:Q4 and contracted by SAT18.3 million (3½ percent of FY2019 real GDP) in 2019:Q4.
- Tourism earnings decline through January 2020 larger than following three past natural disasters; total decline during November-January was 1.8 percent of 2019 GDP compared to pre-outbreak expectations.

### Projections and baseline scenario (selected figures)
- Real GDP growth (staff projections):
  - FY2019: 3.5 (Est.)
  - FY2020 Pre-COVID19: 3.0; Post-COVID19: -5.0; diff.: -8.0
  - FY2021 Pre-COVID19: 2.5; Post-COVID19: -1.5; diff.: -4.0
  - FY2022 Pre-COVID19: 2.2; Post-COVID19: 2.7; diff.: 0.5
- CPI inflation (avg.):
  - FY2019: 2.2
  - FY2020 Pre-COVID19: 2.4; Post-COVID19: 2.8; diff.: 0.4
- Central Government Operations (percent of GDP) — Revenue and grants:
  - FY2019: 33.9
  - FY2020 Pre-COVID19: 31.5; Post-COVID19: 28.4; diff.: -3.1
- Grants (of which):
  - FY2019: 4.2
  - FY2020 Pre-COVID19: 3.8; Post-COVID19: 6.9; diff.: 3.1
- Expenditure (percent of GDP):
  - FY2019 Expenditure: 31.2; Expense: 25.9; Net acquisition of non-financial assets: 5.3
  - FY2020 Pre-COVID19 Expenditure: 33.1; Post-COVID19: 35.7; diff.: 2.6
  - FY2020 Expense Pre-COVID19: 25.7; Post-COVID19: 30.3; diff.: 4.6
  - FY2020 Net acquisition Pre-COVID19: 7.4; Post-COVID19: 5.4; diff.: -2.0
- Overall fiscal balance (percent of GDP):
  - FY2019: 2.7
  - FY2020 Pre-COVID19: -1.6; Post-COVID19: -7.3; diff.: -5.7
  - FY2021 Pre-COVID19: -2.3; Post-COVID19: -9.8; diff.: -7.5
- Public debt:
  - FY2019: 47.6
  - FY2020 Pre-COVID19: 43.1; Post-COVID19: 52.9; diff.: 9.8
- Balance of Payments — Services (net):
  - FY2019: 20.5; FY2020 Pre-COVID19: 17.9; FY2020 Post-COVID19: 11.8; diff.: -6.2
- Gross official reserves (millions of U.S. dollar):
  - FY2019: 192.8
  - FY2020 Pre-COVID19: 191.9; Post-COVID19: 182.4; diff.: -9.5

Notes:
- July 2019 baseline assumed growth of 14½ percent (y/y) for FY2020. Revised baseline (April 2020) assumes contraction of 83 percent (y/y) during Feb-Jun, resulting in 32 percent (y/y) decline for the year.
- Fiscal stimulus (3 percent of GDP) approved in April 2020 is reflected in projections.

### Projected path and risks
- Staff projects severe contraction in FY2020, economy bottoms out during FY2021.
  - Assumed declines: tourism earnings by 32 percent (y/y) and remittances by 9 percent in FY2020.
  - Real GDP: –5 percent in FY2020 and –1½ percent in FY2021; recovery to above-trend in FY2022 with tourism recovery.
- Compared to pre-COVID-19 baseline, real GDP growth is 8 and 4 percentage points lower for FY2020 and FY2021, respectively.
- Fiscal deficits projected around 7¼ percent of GDP in FY2020 and 9¾ percent of GDP in FY2021.
- Current account deficit projected around 7 percent of GDP in FY2020–FY2021.
- Urgent BOP financing needs for FY2020: US$34.1 million.

### Financing needs and reserves (selected exact figures)
- BOP financing need: SDR 25.1 million (154¾ percent of quota), or 4.1 percent of GDP (about US$34.1 million).
- Gross international reserves (millions of U.S. dollar) — staff projections:
  - FY2019: 192.8
  - FY2020: 182.3
  - FY2021: 137.8
  - FY2022: 151.4
- Reserves (months of prospective GNFS imports):
  - FY2019: 5.1
  - FY2020 Pre-COVID19: 4.7; Post-COVID19: 5.0; diff.: 0.3
  - FY2021 Pre-COVID19: 4.5; Post-COVID19: 3.8; diff.: -0.7
- With RCF access of 100 percent of quota, drawdown of reserves would be limited; assumes Samoa finds additional financing to meet residual BOP gap of around US$12 million (54¾ percent of quota).

Text Table 2 (selected rows, millions of U.S. dollar):
- Current account balance: FY2019: 19.4; FY2020: -58.7; FY2021: -58.0; FY2022: -23.0
- Overall balance (+ surplus): FY2019: 1.1; FY2020: -43.0; FY2021: -42.8; FY2022: 15.2
- Change in gross official reserves (+ increase): FY2019: -2.1; FY2020: -10.5; FY2021: -44.5; FY2022: 13.6
- o/w: IMF disbursements (+) (A): FY2019: 0.0; FY2020: 22.0
- Financing gap (net of IMF disbursement) (B): FY2019: 0.0; FY2020: 12.1
- Total financing gap (A+B): FY2019: 0.0; FY2020: 34.1

Memorandum:
- Nominal GDP: FY2019: 850.8; FY2020: 828.6; FY2021: 829.7
- USD/SDR (period average): 1.4 (FY2019–FY2025)

### Concluding appraisal
- COVID-19 has caused material damage larger than physical damage from 2009 and 2012 natural disasters.
- Immediate RCF access (SDR16.2 million, 100 percent of quota) is supported to address urgent BOP needs, catalyze further support, and assist fiscal measures.
- Samoa needs reserve coverage equivalent to at least 5 months of prospective imports (GNFS) per the ARA metric; unmet financing gap risks reserves falling below adequacy.

---

### Fiscal impact and key uncertainties
- Authorities estimate stimulus package costs about 3 percent of GDP.
- Authorities’ latest growth projection: −1.6 percent for FY2020 including the stimulus (−2.2 percent without the package).
- IMF staff projects the fiscal deficit to widen to around 7½ percent of GDP.
- Main uncertainties:
  - Revenue: significant slowdown in 2020H1; external project grants may underperform.
  - External grants: stimulus includes SAT40¾ million (1.9 percent of GDP) from multilateral and bilateral donors.
  - Expenditure: planned current spending likely executed; capital spending execution highly uncertain and likely low and lumpy.
  - Financing: government can use bank overdraft; sizable revenue contraction may create cash-flow pressures in June 2020.

Text Table 3 — Budget Execution (selected exact figures)
- Total Revenue: FY2019 Budget/Original: 33.9; FY2019 Outturn Jul.–Dec.: 34.6; FY2020 IMF Proj. Revised: 28.4
- Revenue (excluding grants): 29.7; Outturn: 26.4; FY2020 Revised: 21.5
- Tax revenue: 25.7; Outturn: 21.9; FY2020 Revised: 19.0
- Grants: 4.2; Outturn: 8.3; FY2020 Revised: 6.9
- Total Expenditure: 31.2; Outturn: 35.9; FY2020 Revised: 35.7
- Expense: 25.9; Outturn: 27.8; FY2020 Revised: 30.3
- Transactions in nonfinancial assets: 5.3; Outturn: 8.1; FY2020 Revised: 5.4
- Overall balance: 2.7; Outturn: -1.3; FY2020 Revised: -7.3
- Overall balance (excluding grants): -1.5; Outturn: -9.6; FY2020 Revised: -14.2

Footnotes:
- "Supp. 1" and "Supp. 2" are supplementary budgets approved in December 2019 and April 2020. "Supp. 2" includes external grants of SAT40.8 million (1.9 percent of GDP), of which about SAT29¾ million comes from multilateral donors (ADB, World Bank) and the rest from bilateral donors (New Zealand and Japan), as of April 7.

### Health policy and targeted fiscal measures (exact figures)
- Health allocation in second supplementary budget: SAT22.2 million (1 percent of GDP).
- Samoa Health System Strengthening Program provides funding each year through 2025.
- Multipronged support to businesses and households totals SAT46 million (2.1 percent of GDP):
  - SAT12.5 million to affected businesses.
  - SAT27.5 million to households.
  - SAT3.5 million for food security.
  - SAT2.5 million to essential services sectors.
- Revenue support to private sector: SAT9.8 million (½ of one percent of GDP) including fee waivers and temporary duty exemptions.
- Other measures: time-bound free rent, subsidies for electricity and water, moratorium on pension contributions for hospitality sector.
- DBS time-bound principal repayments relief: SAT1.9 million.
- Pre-COVID-19 NPLs at DBS: 0.25 percent of GDP (or 19 percent of total loan portfolio); tourism accounts for nearly one half.

### Debt sustainability and medium-term fiscal guidance
- Samoa faces high risk of debt distress due to disaster vulnerability and tourism dependence.
- Public debt projections:
  - Public debt projected to reach 55½ percent of GDP in FY2020.
  - Public debt projected to reach 73¼ percent of GDP in FY2025.
- Debt composition: more than one half of external debt owed to multilateral institutions (mostly World Bank and ADB); of bilateral creditors around 80 percent owed to China.
- Policy recommendation: maintain indicative deficit target at 1 percent of GDP on average (starting FY2022), below authorities’ 2 percent annual deficit ceiling; seek external grants to finance development projects.
- Medium-term debt target: 50 percent of GDP.

### Monetary, exchange rate, and financial sector policies (selected exact figures)
- Domestic liquidity in banking system: SAT313.4 million at end-February 2020.
- Excess reserves: SAT262.1 million (21¾ percent of GDP) in early April.
- Foreign assets in banking system: SAT153½ million (12¾ percent of GDP).
- Foreign liabilities: SAT99¾ million (8¼ percent of GDP) in January 2020, a 12 percent (y/y) decline.
- Central Bank measures: Stand-by Credit Facility for commercial banks; promotion of fintech; re-establish national credit bureau; ensure consumer protection.
- Emergency measures: Emergency Price Control Board; State of Emergency Order dated March 30; Price Control Order commenced March 31.
- Financial soundness (end-December 2019):
  - NPL ratio: 4 percent (70 percent household share).
  - Provision for doubtful loans ratio to total loans: 5.2 percent at end-December 2019.
  - Authorities to encourage prudent loan restructuring and monitor crypto-asset risks.

### Medium-term structural reforms and priorities
- Priorities include:
  - Ensure debt sustainability through spending efficiency gains.
  - Strengthen social protection and budget for maintenance and utilities.
  - Improve tax administration (large taxpayer compliance, audit capacity).
  - Strengthen public financial management and AID Coordination and Debt Management Unit capacity.
  - Promote agriculture and MSMEs; expand DBS pilot projects (Inclusive Development Projects and Anchor Businesses).
  - Enhance business environment, promote exports, and improve trade facilitation.

### RCF request, modalities, capacity to repay, and safeguards
- Staff estimate: single disbursement ~100 percent of quota (SDR16.2 million ≈ US$22 million) under RCF to address COVID-19 effects.
- This represents 65 percent of total BOP financing gap (US$34.1 million or 154¾ percent of quota).
- RCF expected to catalyze multilateral and bilateral donor resources.
- Samoa’s track record: good engagement with Fund; strong capacity development from PFTAC.
- Capacity to repay:
  - May 2019: last payment on outstanding purchase in 2009 Rapid Access Component.
  - Outstanding prior RCF credit: access level 38¾ percent of quota (US$8.6 million); outstanding balance (25 percent of quota) at end-March scheduled to be fully paid by FY2023; repayments under new RCF begin in FY2025.
  - Payments to Fund remain at 0.1 to 0.2 months of prospective imports (GNFS base) per year.
  - Staff projects reserve coverage to reach 4.2 months of imports by FY2025 with modest tourism recovery from FY2023.
- Disbursement and safeguards:
  - RCF disbursements to Central Bank of Samoa to finance imports including health sector materials.
  - Authorities commit to a safeguards assessment before any subsequent arrangement approval and to provide recent external audit reports for the central bank.

### Risks
- Elevated downside risks since February 2020 Article IV mission. Key risks:
  - Prolonged COVID-19 impact requiring additional fiscal stimulus.
  - "Perfect storm" of COVID-19 plus high vulnerability to natural disasters.
  - 2021 general election (scheduled 2021:Q1) may increase FY2021 expenditure.
- If risks materialize, authorities may consider a possible UCT-level Fund arrangement while seeking international support.

### Staff appraisal and outlook
- Samoa showed resilience to measles outbreak, but COVID-19 severely affects tourism earnings, remittances, and exports, with knock-on effects.
- Real GDP growth for FY2019/20 expected to decline to around -5 percent (well below pre-COVID-19 estimate of 3 percent) with high uncertainty.
- IMF staff estimate BOP need about 4.1 percent of GDP.

---

### Annex I — Risk Assessment Matrix (summary)
- Domestic risks:
  - Higher frequency/severity of natural disasters: Relative Likelihood: High; Expected Impact: High.
    - Findings: "On average, Samoa has been hit by a major natural disaster once every five years." Natural disasters have historically increased public debt.
    - Policy: Build fiscal buffers; increase resilience via SDS policies.
  - Loss of Correspondent Banking Relationships: Relative Likelihood: Medium/High; Expected Impact: High.
    - Findings: CBR pressures could disrupt remittances and increase hand-carry cash; lower remittances reduce consumption and widen current account deficit.
    - Policy: Strengthen AML/CFT in line with APG/FATF; implement KYC utility; align offshore sector legislation with FATF; strengthen digital and financial literacy.

- External risks:
  - Prolonged COVID-19 outbreak: Relative Likelihood: High; Expected Impact: High.
    - Findings: Containment through early 2021, disrupted supply and demand, financial tightening, bankruptcies, financial institution losses, public debt concerns.
    - Policy: substantial targeted fiscal, monetary, and financial measures; broad-based stimulus consistent with fiscal space; targeted cash transfers, wage subsidies, tax relief; provide ample liquidity to banks and nonbank finance companies; seek concessional external assistance.
  - Widespread social discontent/political instability: Relative Likelihood: High; Expected Impact: Medium/High.
    - Policy: Targeted fiscal and financial support to affected households and businesses.
  - More protectionism: Relative Likelihood: High; Expected Impact: Medium/High.
    - Policy: Improve business environment and connectivity; improve financial inclusion; use technology to lower remittance costs; broaden export base.
  - Oversupply in oil markets: Relative Likelihood: High; Expected Impact: Medium.
    - Findings: Low energy prices reduce import costs but increase volatility.
    - Policy: Improve FX liquidity forecasting; diversify export base.
  - Intensified geopolitical tensions: Relative Likelihood: Medium; Expected Impact: Medium.
    - Policy: Broad-based fiscal stimulus consistent with fiscal space; reduce/postpone non-essential spending; seek concessional assistance.

RAM notes:
- Purpose: show events that could materially alter IMF staff baseline.
- Probability guidance: low <10 percent; medium 10–30 percent; high ≥30 percent.
- RAM reflects staff views at time of discussions; risks may interact and materialize jointly.

---

### Debt sustainability assessment — headline findings
- Risk of external debt distress: High.
- Overall risk of debt distress: High.
- Mechanical risk rating — external DSA: Moderate.
- Mechanical risk rating — public DSA: High.
- Composite Indicator score: 3.29 (based on Oct 2019 WEO and World Bank 2018 CPIA); debt-carrying capacity assessed strong.
- Assessment: "Samoa’s debt remains sustainable" conditional on building fiscal buffers, enhancing resilience, and continued access to grants and concessional financing.

Selected debt and macro projections (exact figures from source):
- External debt (nominal) percent of GDP (selected):
  - 2019: 46.9; 2020: 53.1; 2021: 63.1; 2022: 68.5; 2030: 80.3; 2040: 103.4
- Public sector debt percent of GDP (selected):
  - 2019: 54.8; 2020: 64.6; 2021: 76.2; 2022: 82.7; 2025: 90.4; 2030: 112.9; 2040: 180.2
- Real GDP growth (percent) — selected:
  - 2019: 3.5; 2020: -5.0; 2021: -1.5; 2022: 2.7; long-run around 0.9
- Stress tests: include standard growth shock, tailored natural disaster shock (most extreme), contingent liability, depreciation, combined shocks. Additional financing needs from shocks assumed covered by PPG external MLT debt in external DSA; public DSA allows domestic financing for additional needs.

Financing strategy:
- RCF to help finance BOP needs; fiscal financing gap to be filled by external grants and concessional borrowing.

---

*Source: EXECUTIVE SUMMARY and associated sections (content unit 1wsmea2020001).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and immediate shocks
- Samoa, with a population of around 0.2 million, suffered a severe measles outbreak in late-2019 (claimed 83 lives and resulted in over 5,700 cases), which led to a much larger economic contraction than that of past episodes of natural disasters.
- The global pandemic of COVID-19 has exacerbated the downturn and will devastate the Samoan economy as it heavily depends on now-banned inbound tourism.
- A BOP financing gap is now estimated to amount to US$34.1 million.
- The Fund’s support for Samoa’s balance of payment (BOP) needs (US$ 22 million or 100 percent of quota) will provide a significant short-term buffer.

### Request for Fund support
- Authorities requested Fund emergency assistance under the Rapid Credit Facility (RCF) to address urgent BOP needs caused by the measles outbreak of late-2019 and the global COVID-19 pandemic of early-2020.
- The authorities requested a disbursement of SDR16.2 million, equivalent to 100 percent of quota, with the full amount to become available upon Board approval of the request.
- Staff supports the request. Fund assistance would help ease pressure on urgent BOP needs, help catalyze assistance from development partners, and assist implementation of planned economic and fiscal measures by the Government of Samoa.

### Policy recommendations and immediate response
- Authorities’ responses to the COVID-19 pandemic have been timely, scaling up health care spending and putting in place measures to contain the outbreak.
- The authorities have responded with a combination of fiscal, monetary, and prudential measures that seek to minimize economic impact.
- Fiscal policy response should focus on:
  - Carefully designed spending reductions, especially in terms of the past ambitious public investment plans.
  - Reallocation of resources towards healthcare spending.
  - Measures that provide temporary support for vulnerable households and businesses most affected by the crisis.
- Monetary and financial measures are focused on ensuring adequate liquidity to the banking system and supporting access to credit.
- Beyond the immediate response, authorities remain committed to promoting inclusive growth through implementation of their structural reform agenda, while preserving financial-sector and external stability, as well as fiscal sustainability.

### Macroeconomic impact: overview and timing
- The Samoan and other governments’ travel restrictions, their impact on the global economy, and heightened global risk aversion to flying are expected to dramatically cut tourism receipts for the FY2020 season by around 10.6 percent of GDP relative to pre-pandemic projections.
- Measures (e.g., social distancing) taken under a State of Emergency and related uncertainty are affecting economic activity although no confirmed cases were reported in Samoa as of April 15, 2020.
- The impact of the shocks on the balance of payments is substantive, offset in part by lower global fuel prices and associated lower imports from the fall in tourism and construction, and is subject to further downside risks.

### Recent economic developments (measles and pre/post COVID-19)
- Growth momentum continued through the Pacific Games (PG) in July 2019. Following strong growth, 4½ percent (y/y), in 2019:Q3, a measles outbreak struck the economy in 2019:Q4.
- Preliminary GDP data indicated quarterly real GDP growth plunged by 6.4 percent (q/q) in 2019:Q4, a record decline over the last decade.
- The commerce sector declined by a record magnitude of 8.2 percent (y/y) in 2019:Q4, and the commerce sector contracted by SAT18.3 million (3½ percent of FY2019 real GDP) in the last quarter of 2019.
- The decline in tourism earnings through January 2020 was larger than declines registered following three past episodes of natural disasters over the last two decades.
- Compared to earnings expected prior to the outbreaks, the total decline during November-January period was 1.8 percent of 2019 GDP.

### Projections and baseline scenario (Text Table 1 highlights)
- Staff projects real GDP growth:
  - FY2019: 3.5 (Est.)
  - FY2020 Pre-COVID19: 3.0; Post-COVID19: -5.0; diff.: -8.0
  - FY2021 Pre-COVID19: 2.5; Post-COVID19: -1.5; diff.: -4.0
  - FY2022 Pre-COVID19: 2.2; Post-COVID19: 2.7; diff.: 0.5
- CPI inflation (avg.):
  - FY2019: 2.2
  - FY2020 Pre-COVID19: 2.4; Post-COVID19: 2.8; diff.: 0.4
  - FY2021 Pre-COVID19: 2.2; Post-COVID19: 2.5; diff.: 0.3
  - FY2022 Pre-COVID19: 2.6; Post-COVID19: 2.2; diff.: -0.4
- Central Government Operations (percent of GDP):
  - Revenue and grants FY2019: 33.9
  - FY2020 Pre-COVID19: 31.5; Post-COVID19: 28.4; diff.: -3.1
  - FY2021 Pre-COVID19: 30.8; Post-COVID19: 25.5; diff.: -5.3
  - FY2022 Pre-COVID19: 30.9; Post-COVID19: 28.1; diff.: -2.8
- Grants (of which):
  - FY2019: 4.2
  - FY2020 Pre-COVID19: 3.8; Post-COVID19: 6.9; diff.: 3.1
  - FY2021 Pre-COVID19: 3.6; Post-COVID19: 5.3; diff.: 1.7
  - FY2022 Pre-COVID19: 3.6; Post-COVID19: 4.8; diff.: 1.2
- Expenditure (of which: Expense; Net acquisition of non-financial assets):
  - FY2019 Expenditure: 31.2; Expense: 25.9; Net acquisition of non-financial assets: 5.3
  - FY2020 Pre-COVID19 Expenditure: 33.1; Post-COVID19: 35.7; diff.: 2.6
  - FY2020 Expense Pre-COVID19: 25.7; Post-COVID19: 30.3; diff.: 4.6
  - FY2020 Net acquisition Pre-COVID19: 7.4; Post-COVID19: 5.4; diff.: -2.0
- Overall fiscal balance (percent of GDP):
  - FY2019: 2.7
  - FY2020 Pre-COVID19: -1.6; Post-COVID19: -7.3; diff.: -5.7
  - FY2021 Pre-COVID19: -2.3; Post-COVID19: -9.8; diff.: -7.5
  - FY2022 Pre-COVID19: -2.6; Post-COVID19: -7.8; diff.: -5.2
- Public debt:
  - FY2019: 47.6
  - FY2020 Pre-COVID19: 43.1; Post-COVID19: 52.9; diff.: 9.8
  - FY2021 Pre-COVID19: 43.8; Post-COVID19: 62.8; diff.: 19.0
  - FY2022 Pre-COVID19: 44.8; Post-COVID19: 68.0; diff.: 23.2
- Balance of Payments:
  - Current account balance (percent of GDP):
    - FY2019: 2.3
    - FY2020 Pre-COVID19: -0.7; Post-COVID19: -7.1; diff.: -6.3
    - FY2021 Pre-COVID19: -1.2; Post-COVID19: -7.0; diff.: -5.8
  - Services (net) FY2019: 20.5; FY2020 Pre-COVID19: 17.9; FY2020 Post-COVID19: 11.8; diff.: -6.2
- Gross official reserves (in millions of U.S. dollar) 1/ 2/:
  - FY2019: 192.8
  - FY2020 Pre-COVID19: 191.9; Post-COVID19: 182.4; diff.: -9.5
  - FY2021 Pre-COVID19: 190.7; Post-COVID19: 137.9; diff.: -52.8
  - FY2022 Pre-COVID19: 188.6; Post-COVID19: 151.5; diff.: -37.1
- (In months of next year's imports of GNFS):
  - FY2019: 5.1
  - FY2020 Pre-COVID19: 4.7; Post-COVID19: 5.0; diff.: 0.3
  - FY2021 Pre-COVID19: 4.5; Post-COVID19: 3.8; diff.: -0.7
  - FY2022 Pre-COVID19: 4.2; Post-COVID19: 3.9; diff.: -0.3
- Notes:
  - The baseline (as of July 2019) assumed growth of 14½ percent (y/y) for FY2020. The revised baseline (as of April 2020) assumes contraction of 83 percent (y/y) during Feb-Jun, resulting a 32 percent (y/y) decline for the year.
  - The fiscal stimulus (3 percent of GDP) approved in April 2020 is reflected in projections.

### Projected path and risks
- Staff projects growth will severely contract in FY2020 and expects the economy to bottom out during FY2021.
  - Declines in tourism earnings by 32 percent (y/y) and remittance inflows by 9 percent in FY2020 are assumed in the baseline.
  - Real GDP growth is expected to decline to –5 percent in FY2020 and –1½ percent in FY2021.
  - Growth will rise to above trend growth in FY2022, supported by tourism recovery which will likely take longer due to the severity of synchronized global recessions.
- Compared to the pre-COVID-19 baseline, real GDP growth will be 8 and 4 percentage points lower for FY2020 and FY2021, respectively.
- Sizable losses in tax revenues are expected to deteriorate the overall fiscal balance, resulting in a deficit of around 7¼ percent of GDP in FY2020 and 9¾ percent of GDP in FY2021.
- The current account deficit is projected to widen, reaching around 7 percent of GDP in FY2020-FY2021.
- The rapid deterioration of the current account led to falls in reserve coverage and generated urgent BOP financing needs, amounting to US$34.1 million for FY2020 alone.

### Financing needs and reserves (Text Table 2 highlights)
- The resulting BOP financing need is assessed to be SDR 25.1 million (154¾ percent of quota), or 4.1 percent of GDP (about US$34.1 million).
- Staff projects the current account deficit to widen to around 7 percent of GDP in FY2020-21.
- Gross international reserves projected decline:
  - FY2019 gross reserves: 192.8 (millions of U.S. dollar)
  - FY2020 gross reserves: 182.3
  - FY2021 gross reserves: 137.8
  - FY2022 gross reserves: 151.4
  - (In months of prospective GNFS imports) FY2019: 5.1; FY2020: 5.0; FY2021: 3.8; FY2022: 3.9
- With access of 100 percent of quota under the RCF, the drawdown of reserves would be limited; this assumes Samoa finds additional sources of financing to meet the residual BOP financing gap of around US$12 million (54¾ percent of quota).
- Text Table 2 (selected rows, millions of U.S. dollar):
  - Current account balance FY2019: 19.4; FY2020: -58.7; FY2021: -58.0; FY2022: -23.0; FY2023: -22.4; FY2024: -20.7; FY2025: -13.2
  - Overall balance (+ surplus) FY2019: 1.1; FY2020: -43.0; FY2021: -42.8; FY2022: 15.2; FY2023: 11.9; FY2024: 13.4; FY2025: 16.5
  - Change in gross official reserves (+ increase) FY2019: -2.1; FY2020: -10.5; FY2021: -44.5; FY2022: 13.6; FY2023: 11.1; FY2024: 13.3; FY2025: 14.2
  - Net use of credit FY2019: -3.3; FY2020: 20.4; FY2021: -1.7; FY2022: -1.7; FY2023: -0.9; FY2024: -0.1; FY2025: -2.3
  - o/w: IMF disbursements (+) (A) FY2019: 0.0; FY2020: 22.0; FY2021–FY2025: 0.0
  - Financing gap (net of IMF disbursement) (B) FY2019: 0.0; FY2020: 12.1; FY2021–FY2025: 0.0
  - Total financing gap (A+B) FY2019: 0.0; FY2020: 34.1; FY2021–FY2025: 0.0
- Memorandum items:
  - Nominal GDP: FY2019: 850.8; FY2020: 828.6; FY2021: 829.7; FY2022: 869.6; FY2023: 907.9; FY2024: 948.1; FY2025: 989.9
  - USD/SDR (period average): 1.4 (FY2019–FY2025)

### Concluding appraisal
- The global pandemic of COVID-19 has created material damage to the Samoan economy, assessed to be larger than the physical damage caused by the 2009 and 2012 natural disasters.
- Immediate RCF access (SDR16.2 million, 100 percent of quota) is supported by staff to address urgent BOP needs, catalyze additional support, and assist implementation of planned economic and fiscal measures.
- Samoa faces high vulnerability to natural disasters and needs reserve coverage equivalent to at least 5 months of prospective imports (GNFS) based on the ARA metric; if the total financing gap is left unmet, reserves could fall to levels below that adequacy threshold.

*Source: EXECUTIVE SUMMARY (1wsmea2020001)*

### 19. Based on the authorities’ calculations, the stimulus package (estimated to cost about 3 percent of

### 19. Based on the authorities’ calculations, the stimulus package (estimated to cost about 3 percent of GDP)

### Fiscal impact and key uncertainties
- Authorities estimate the stimulus package costs about 3 percent of GDP and is expected to increase the overall deficit.
- Authorities’ latest growth projection: −1.6 percent for FY2020 including the effects of the stimulus package (−2.2 percent growth without the package).
- IMF staff projects the fiscal deficit to widen to around 7½ percent of GDP.
- Main sources of uncertainty:
  - Revenue: Staff envisages a significant slowdown in economic activity during 2020H1 (second half of FY2020) and projects revenue performance to deteriorate. The receipt of external project grants is projected to underperform based on past experience with natural disasters.
  - External grants: The stimulus package includes budget support and program funds from multilateral donors (the World Bank and the Asian Development Bank) and official bilateral donors (New Zealand and Japan), amounting to SAT40¾ million or 1.9 percent of GDP.
  - Expenditure: Staff projects the government will fully execute planned current spending. Budget execution of capital spending remains highly uncertain; past outturns suggest execution is likely to be both low and lumpy.
  - Financing: During the financial year (July/June), the government can tap into its overdraft account at commercial banks with a low rate of interest. Staff anticipates a sizable revenue contraction due to COVID-19 will exacerbate government cash flow when line ministries rush to spend their appropriated budget toward the end of financial year (i.e. June 2020). Authorities need to prepare in advance for how best to finance an exceptionally large government deficit.

### Text Table 3 — Budget Execution and Revenue Outturns (selected exact figures)
- Table columns: FY2019 Budget 1/Original (A), FY2019 Outturn Jul. – Dec. (B), FY2020 IMF Proj. Revised (Supp. 1 and Supp. 2) (A), Diff. (B) − (A)
- Total Revenue: 33.9 34.6 1.0 1.7 37.3 16.7 28.4 -8.9
- Revenue (excluding grants): 29.7 26.4 0.7 -0.2 26.8 15.4 21.5 -5.3
- Tax revenue: 25.7 21.9 0.1 -0.6 21.4 13.9 19.0 -2.4
- Grants 2/: 4.2 8.3 0.4 1.9 10.5 1.2 6.9 -3.6
- Other revenue: 4.0 4.5 0.6 0.4 5.4 1.5 2.5 -3.0
- Total Expenditure: 31.2 35.9 1.0 2.0 39.0 14.9 35.7 -3.3
- Expense: 25.9 27.8 0.7 1.6 30.1 13.4 30.3 0.1
- Transactions in nonfinancial assets: 5.3 8.1 0.3 0.4 8.8 1.5 5.4 -3.4
- Overall balance: 2.7 -1.3 0.0 -0.4 -1.7 1.7 -7.3 -5.6
- Overall balance (excluding grants): -1.5 -9.6 -0.4 -2.2 -12.2 0.5 -14.2 -2.0
- Primary balance: 3.5 -0.5 0.0 -0.4 -0.8 2.1 -6.5 -5.6
- Sources cited in table: Authorities' data; and IMF staff calculations.
- Footnotes in table:
  - 1/ Based on the "Original" budget approved in May 2019, the supplementary budgets ("Supp. 1" and "Supp. 2") approved in December 2019 and April 2020 following the measles outbreak and the global COVID-19 pandemic, respectively. The "Revised" budget comprises both supplementary budgets.
  - 2/ The second supplementary budget ("Supp. 2") includes external grants of SAT40.8 million (1.9 percent of GDP), of which about SAT29¾ million comes from multilateral donors (the Asian Development Bank, the World Bank) and the rest from official bilateral donors (New Zealand and Japan), as of April 7.

### Health policy and targeted fiscal measures
- Health allocation in second supplementary budget: SAT22.2 million (1 percent of GDP) to enhance preparedness for COVID-19 and strengthen the health sector; supported by external donors.
- Samoa Health System Strengthening Program provides funding each year through 2025 to improve quality and efficiency of the health care system.
- Multipronged support to businesses and households totals SAT46 million (2.1 percent of GDP):
  - SAT12.5 million to affected businesses.
  - SAT27.5 million to households.
  - SAT3.5 million to ensure food security.
  - SAT2.5 million to sectors providing essential services (police, education, communication, community outreach).
- Revenue measures to support private sector: SAT9.8 million (½ of one percent of GDP) including:
  - Waiver on bus and taxi registration fees.
  - Temporary exemption on import duties on most commonly bought food items for households.
  - Duty concessions on selected agricultural and fishing materials.
- Other measures: time-bound free rent, subsidies for utilities (electricity and water), moratorium on pension contributions for the hospitality sector.
- Stimulus also includes time-bound principal repayments for all debtors of the Development Bank of Samoa (DBS) amounting to SAT1.9 million.
- Pre-COVID-19 NPLs at DBS: 0.25 percent of GDP (or 19 percent of total loan portfolio), with tourism accounting for nearly one half.

### Debt sustainability and medium-term fiscal guidance
- Samoa faces a high risk of debt distress due to extreme vulnerability to natural disasters and dependence on tourism.
- Public debt projections:
  - Public debt projected to reach 55½ percent of GDP in FY2020.
  - Public debt projected to reach 73¼ percent of GDP in FY2025.
- Much of debt is long term; more than one half of total external debt is owed to multilateral institutions (mostly the World Bank and Asian Development Bank); the rest from bilateral donors, of which around 80 percent is owed to China.
- Policy recommendation: Maintain the indicative deficit target at 1 percent of GDP on average (starting from FY2022), and below the authorities’ 2 percent annual deficit ceiling over the medium term, while seeking external grants to finance development projects to help bring down the debt-to-GDP trajectory.
- Medium-term debt target: 50 percent of GDP.

### Monetary, exchange rate, and financial sector policies
- Banking system liquidity and reserves:
  - Domestic liquidity in the banking system: SAT313.4 million at end-February 2020.
  - Excess reserves: SAT262.1 million (21¾ percent of GDP) in early April.
  - Foreign assets in the banking system: SAT153½ million (12¾ percent of GDP).
  - Foreign liabilities: SAT99¾ million (8¼ percent of GDP) in January 2020, a 12 percent (y/y) decline.
- Central Bank measures:
  - Stand-by Credit Facility for commercial banks during the COVID-19 affected period.
  - Promotion of fintech to deepen financial inclusion, work toward re-establishing a national credit bureau, and ensure consumer protection to improve monetary policy transmission.
- Emergency measures:
  - Emergency Price Control Board established; State of Emergency Order dated March 30 enforces a price ceiling for selected goods. Price Control Order commenced on March 31 for the duration of the State of Emergency (which began on March 20).
- Financial soundness:
  - NPL ratio remains at 4 percent, 70 percent of which belongs to households.
  - Provision for doubtful loans ratio to total loans: 5.2 percent at end-December 2019.
  - Authorities will encourage prudent loan restructuring and provide guidelines for loan restructuring cases; monitor risks from crypto-assets.
- Regulatory/AML actions:
  - Amendments to Anti-Money Laundering Laws (June 2018) brought cryptocurrency-related activities under CBS oversight; promotional activities require CBS approval.
  - Need to enhance AML/CFT effectiveness, mitigate corresponding banking relationship (CBR) pressures, and safeguard remittance inflows.
  - Planned rollout of a Know-Your-Customer (KYC) utility for money transfer operators.

### Medium-term structural reforms and priorities
- Priorities:
  - Ensure debt sustainability through gains in spending efficiency.
  - Strengthen social protection programs and safety nets; appropriately budget maintenance and utilities costs for infrastructure.
  - Improve tax administration by enhancing compliance of large taxpayers and strengthening audit capacity.
  - Strengthen public financial management (PFM) to monitor and disclose fiscal risks and increase capacity of the AID Coordination and Debt Management Unit.
  - Promote agriculture and MSMEs to achieve more inclusive growth; expand pilot projects implemented by DBS (Inclusive Development Projects and Anchor Businesses).
  - Enhance business environment, promote exports, and improve trade facilitation.

### RCF request, modalities, capacity to repay, and safeguards
- Staff estimate: A single disbursement of around 100 percent of quota (SDR 16.2 million or about US$22 million) under the RCF is urgently needed to address COVID-19 economic effects.
- This amount represents 65 percent of the total BOP financing gap (US$34.1 million or 154¾ percent of quota).
- The RCF disbursement would have catalytic effects to mobilize resources from multilateral and bilateral donors.
- Rationale: Samoa faces urgent BOP needs; without addressing them there would be immediate and severe economic disruption due to high dependence on imports.
- Samoa’s track record:
  - Authorities maintain good engagement with the Fund and implement sound economic policies.
  - Samoa is among the largest recipients of capacity development from PFTAC.
- Capacity to repay:
  - In May 2019, authorities made the last payment on the outstanding purchase in 2009 under the Rapid Access Component of the ESF.
  - Samoa has credit outstanding under a previous RCF disbursement approved on May 15, 2013, with access level of 38¾ percent of quota (US$8.6 million).
  - Outstanding balance (25 percent of quota) at end-March is scheduled to be fully paid by FY2023, before repayments under the new RCF begin in FY2025.
  - Payments to the Fund remain at 0.1 to 0.2 months of prospective imports (GNFS base) per year.
  - With modest recovery in tourism from FY2023 expected in the baseline, staff projects reserve coverage to reach 4.2 months of imports by FY2025.
- Disbursement and safeguards:
  - RCF disbursements will be made to the Central Bank of Samoa and will address urgent BOP financing needs and ensure financing of imports, including health sector materials and equipment.
  - Authorities commit to undergoing a safeguards assessment to be completed before Executive Board approval of any subsequent arrangement, and to provide the most recently-completed external audit reports for the central bank and authorize external auditors to hold discussions with Fund staff.

### Risks
- Downside risks have become elevated since the 2020 Article IV mission in February 2020. Key risks include:
  - A more prolonged impact of the COVID-19 pandemic requiring sizable additional fiscal stimulus.
  - A "perfect storm" combining COVID-19 effects with Samoa’s continuing high vulnerability to natural disasters.
  - The 2021 general election (scheduled for 2021:Q1) may contribute to increases in expenditure for the FY2021 budget without further prioritization.
- If one or more risks materialize, authorities may need to consider a possible UCT-level Fund arrangement while seeking greater international support.

### Staff appraisal and outlook
- Samoa showed resilience to the late-2019 measles outbreak, but the global COVID-19 pandemic has severely affected the economy through precipitous declines in tourism earnings, slowdown in remittances, and export earnings, with knock-on effects to non-tourism sectors.
- Real GDP growth for FY2019/20 is expected to decline to around -5 percent, significantly below the pre-COVID-19 estimate of 3 percent, with a high margin of uncertainty.
- Based on developments, Samoa faces urgent balance of payments need:
  - Estimates point to a balance of payments need of about 4.1 percent of GDP.

*IMF staff summary of content unit 1wsmea2020001 (Text from the provided PDF content).*

### 24.      Staff supports the authorities’ immediate priorities to mitigate the impact of the

### 24.      Staff supports the authorities’ immediate priorities to mitigate the impact of the

### Immediate policy response and priorities
- Authorities’ immediate efforts are focused on:
  - increasing health spending,
  - strengthening social assistance,
  - ensuring adequate liquidity to the banking system,
  - supporting access to credit.
- Beyond the immediate response, authorities remain committed to:
  - promote inclusive growth,
  - mitigate CBR pressures,
  - preserve financial-sector and external stability,
  - preserve fiscal sustainability.

### IMF support: Rapid Credit Facility (RCF)
- Staff supports the authorities’ request for a disbursement under the Rapid Credit Facility in the amount of SDR16.2 million (100 percent of quota).
- Rationale for support:
  - urgent balance of payments needs from the sudden exogenous shock of COVID-19,
  - authorities’ existing and prospective policies to address the external shock,
  - authorities’ commitment to seek additional external budget financing from other development partners.
- Assessment:
  - Samoa’s debt remains sustainable, but the country faces a high level of debt distress.
  - Samoa has a strong track record of economic policymaking, and its capacity to repay the Fund remains strong.

### Macroeconomic outlook and risks
- Staff notes that the risks to the outlook are large.
- Key trajectory indicators (selected):
  - Real GDP growth: 2016/17: 1.0-2.2; 2017/18: 3.5; 2018/19: -5.0; 2019/20: -1.5; 2020/21: 2.7; 2021/22: 2.2; 2022/23: 2.2; 2023/24: 2.2.
  - Consumer price index (end of period): 2016/17: 1.0; 2017/18: 5.8; 2018/19: -0.1; 2019/20: 2.9; 2020/21: 1.9; 2021/22: 2.9; 2022/23: 2.8; 2023/24: 2.8.
  - Overall fiscal balance (in percent of GDP): 2016/17: -2.1; 2017/18: 0.1; 2018/19: 2.7; 2019/20: -7.3; 2020/21: -9.8; 2021/22: -7.8; 2022/23: -5.8; 2023/24: -2.6; 2024/25: -2.7.
  - Public debt (in percent of GDP): 2016/17: 49.7; 2017/18: 52.9; 2018/19: 47.5; 2019/20: 52.9; 2020/21: 62.8; 2021/22: 68.0; 2022/23: 71.3; 2023/24: 71.2; 2024/25: 71.3.
  - Current account balance (in percent of GDP): 2016/17: -2.0; 2017/18: 0.8; 2018/19: 2.3; 2019/20: -7.1; 2020/21: -7.0; 2021/22: -2.6; 2022/23: -2.5; 2023/24: -2.2; 2024/25: -1.3.
  - Gross official reserves (in millions of U.S. dollars): 2016/17: 122.3; 2017/18: 163.1; 2018/19: 192.8; 2019/20: 182.4; 2020/21: 137.9; 2021/22: 151.5; 2022/23: 162.6; 2023/24: 175.9; 2024/25: 190.1.
- Balance of payments highlights:
  - Current Account Balance (in millions of U.S. dollars): 2016/17: -16.6; 2017/18: 6.8; 2018/19: 19.4; 2019/20: -58.7; 2020/21: -58.0; 2021/22: -23.0; 2022/23: -22.4; 2023/24: -20.7; 2024/25: -13.2.
  - Tourism earnings (in percent of GDP): 2016/17: 18.2; 2017/18: 21.6; 2018/19: 23.1; 2019/20: 16.2; 2020/21: 14.7; 2021/22: 17.5; 2022/23: 18.6; 2023/24: 19.8; 2024/25: 20.9.
  - Remittances (in percent of GDP): 2016/17: 18.5; 2017/18: 22.7; 2018/19: 23.4; 2019/20: 21.9; 2020/21: 22.6; 2021/22: 22.7; 2022/23: 22.9; 2023/24: 23.2; 2024/25: 23.5.

### Fiscal response and financing to address COVID-19
- FY2020 expected grants to finance policy responses to COVID-19 (selected items):
  - Catastrophe Deferred Drawdown (Cat DDO): Tala 14.4; USD 5.4.
  - IPF-COVID19: Tala 7.1; USD 2.7.
  - Asian Development Bank Contingency Disaster Facility: Tala 8.2; USD 3.1.
  - Government of New Zealand Budget Support: Tala 9.1; USD 3.4.
  - Government of Japan Health Equipment: Tala 1.8; USD 0.7.
- Note: Table 5 indicates Samoa has US$ 8.7 million access under Cat DDO, of which US$ 3.6 million was used for the measles outbreak of late-2019; the remaining balance was disbursed in March 2020.

### Financial sector soundness and liquidity
- Banking system indicators (Dec. 2019):
  - Regulatory Capital to Risk-Weighted Assets, Ratio: 27.8.
  - Regulatory Tier 1 Capital to Risk-Weighted Assets, Ratio: 22.1.
  - Non-performing Loans to Total Gross Loans, Ratio: 4.0.
  - Provisions to non-performing loans: 84.7.
  - Return on Assets, Ratio: 2.5.
  - Return on Equity, Ratio: 15.3.
  - Liquid Assets to Total Assets (Liquid Asset Ratio), Ratio: 16.0.
  - Total loans to total domestic deposits: 101.5.
  - Foreign-Currency-Denominated Loans to Total Loans, Ratio: 4.2.

### Indicators of capacity to repay the Fund
- Staff projections assume a disbursement of SDR16.2 million (100 percent of quota) under the RCF in 2020/21 and external financial assistance from donors (see Table 5).
- Outstanding Fund credit (in millions of SDRs): 2019/20: 19.1; 2020/21: 17.9; 2021/22: 16.8; 2022/23: 16.2; 2023/24: 16.2; 2024/25: 14.6; 2025/26: 11.3; 2026/27: 8.1; 2027/28: 4.9; 2028/29: 1.6; 2029/30: 0.0.
- Outstanding Fund credit (in percent of quota): 2019/20: 117.9; 2020/21: 110.7; 2021/22: 103.6; 2022/23: 100.0; 2023/24: 100.0; 2024/25: 90.0; 2025/26: 70.0; 2026/27: 50.0; 2027/28: 30.0; 2028/29: 10.0; 2029/30: 0.0.

*Source: Data provided by the Samoan authorities; and IMF staff estimates and projections.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Domestic risks
- Higher frequency and severity of natural disasters
  - Relative Likelihood: High
  - Expected Impact: High
  - Findings:
    - "On average, Samoa has been hit by a major natural disaster once every five years."
    - "In addition to widespread damage, natural disasters have 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 Correspondent Banking Relationships
  - Relative Likelihood: Medium/High
  - Expected Impact: High
  - Findings:
    - "The tight global regulatory landscape could result in increased pressures on CBRs."
    - "Closure of MTOs’ bank accounts could disrupt the remittance channel, which may increase the hand-carry of cash, undermining efforts to increase AML/CFT compliance."
    - "The impact of lower remittances could lead to lower consumption and widen the current account deficit."
    - "Higher cost of remittances would also have a negative impact on more vulnerable households."
  - Policy Recommendations:
    - "Strengthen the AML/CFT regime in line with APG/FATF recommendations;"
    - "implement the Know-Your-Customer utility to verify customers’ identity electronically against the OEC database and help AML/CFT compliance by money transfer operators;"
    - "address the risks from the offshore sector by aligning the pertinent legislation with FATF standards;"
    - "strengthen digital and financial literacy to facilitate use of mobile cross border payments."

### External risks
- Prolonged Covid-19 outbreak
  - Relative Likelihood: High
  - Expected Impact: High
  - Findings:
    - "Containment measures remain in place (in some places intensify or need to be re-introduced) through early 2021."
    - "Longer containment and uncertainties about the intensity and the duration of the outbreak reduce supply (including through global value chains’ disruption) and domestic and external demand."
    - "Deteriorating economic fundamentals and the associated decline in risk appetite result in a second wave of financial tightening (amplified as hidden fragilities are unmasked) and in debt service and refinancing difficulties for corporates and households."
    - "Rising bankruptcies translate into financial institutions’ losses, forcing them to cut credit, with further adverse implications for growth."
    - "Concerns about public debt sustainability mount."
  - Policy Recommendations:
    - "Implement substantial targeted fiscal, monetary, and financial market measures to help affected households and businesses;"
    - "broad-based fiscal stimulus consistent with available fiscal space to help lift aggregate demand;"
    - "targeted cash transfers, wage subsidies, and tax relief for those hardly hit by the economic fallout;"
    - "be ready to provide ample liquidity to banks and nonbank finance companies, particularly to those lending to small- and medium-sized enterprises, which may be less prepared to withstand a sharp disruption;"
    - "seek concessional external assistance."

- Widespread social discontent and political instability
  - Relative Likelihood: High
  - Expected Impact: Medium/High
  - Findings:
    - "Social tensions erupt due to dissatisfaction with the policy response to the epidemic and the economic fallout, including massive unemployment, higher incidence of poverty and shortages of essentials."
    - "Beyond immediate economic disruption and adverse confidence effects, the resulting political instability complicates adjustment following Covid-19."
  - Policy Recommendations:
    - "Support most affected households and businesses by targeted fiscal and financial measures."

- More protectionism
  - Relative Likelihood: High
  - Expected Impact: Medium/High
  - Findings:
    - "Pandemic-prompted protectionist actions (e.g., export controls) stay in place and deteriorating economic conditions re-ignite broader protectionist measures."
    - "Weaker global and regional growth resulting from protectionism could lead to a sharp decline in exports, tourism earnings, and remittances. This could worsen the current account balance, reduce fiscal revenues, and inhibit growth."
    - "Global financial market volatility could exacerbate CBR withdrawal."
    - "Commodity prices could increase due to export restrictions and supply disruptions."
  - Policy Recommendations:
    - "Improve the business environment and connectivity to create a conducive environment for private sector development;"
    - "improve financial inclusion to help cushion the most vulnerable population segments against negative shocks;"
    - "use of technology to reduce the price of remittances;"
    - "explore opportunities for broadening the export base."

- Oversupply in the oil markets
  - Relative Likelihood: High
  - Expected Impact: Medium
  - Findings:
    - "Supply increases following the breakdown of the OPEC+ agreement together with demand shocks mean that energy prices remain at depressed levels. Uncertainty about future production contribute to continued high price volatility."
    - "Low level of energy prices would reduce import costs and improve current account balance, but subject to high price volatility."
  - Policy Recommendations:
    - "Improve FX liquidity forecasting; diversify the export base."

- Intensified geopolitical tensions and security risks
  - Relative Likelihood: Medium
  - Expected Impact: Medium
  - Findings:
    - "Geopolitical tensions and security risks (e.g., in response to pandemic) cause socio-economic and political disruption, disorderly migration, and lower confidence."
    - "Increased geopolitical and security risks could dampen tourism, adversely affecting current account."
  - Policy Recommendations:
    - "Broad-based fiscal stimulus consistent with available fiscal space to help lift aggregate demand;"
    - "further reduce or postpone non-essential spending;"
    - "seek concessional external assistance."

### RAM explanatory notes and definitions
- Purpose: "The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff)."
- Probability guidance (staff’s subjective assessment): 
  - "low" = probability below 10 percent
  - "medium" = probability between 10 and 30 percent
  - "high" = probability of 30 percent or more
- Additional notes:
  - "The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authors."
  - "Non-mutually exclusive risks may interact and materialize jointly."

*Source: Annex I. Risk Assessment Matrix (1wsmea2020001).*

### 13.      We authorize the IMF to publish this letter, along with the Staff Report requesting a

### 1wsmea2020001 - 13. We authorize the IMF to publish this letter, along with the Staff Report requesting a

### Debt sustainability assessment — headline findings
- Risk of external debt distress: High.
- Overall risk of debt distress: High.
- Mechanical risk rating under the external DSA: Moderate.
- Mechanical risk rating under the public DSA: High.
- Granularity in the risk rating: Sustainable.
- Application of judgment: Yes — "The forecast horizon informing mechanical risk signals is extended to 20 years to capture the long-term impact of frequent natural disasters on climate change."
- Composite Indicator score: 3.29 (based on the October 2019 WEO and the World Bank’s 2018 CPIA); country’s debt-carrying capacity assessed to be strong.
- Despite high risk ratings, assessment: "Samoa’s debt remains sustainable" conditional on government efforts to build fiscal buffers, enhance resilience, and continued access to grants and concessional financing.

### Baseline projections and breaches
- Baseline: economy expected to contract in FY2020-21; primary deficit widens significantly in FY2020-21, followed by a gradual recovery (contrast with 2019 DSA which assumed a stable path).
- Tourism earnings: expected to plummet in FY2020-21, widening the current account deficit and pushing reserves well below the adequate level.
- Threshold breaches under baseline scenario:
  - PV of external debt-to-GDP ratio: incurs threshold breach in 2035.
  - PV of public debt-to-GDP ratio: incurs threshold breach in 2028.

### Key quantitative projections (selected)
- External debt (nominal) as percent of GDP (selected years shown in source table):
  - 2017: 48.3
  - 2018: 52.0
  - 2019: 46.9
  - 2020: 53.1
  - 2021: 63.1
  - 2022: 68.5
  - 2023: 72.0
  - 2030: 80.3
  - 2040: 103.4
- PV of PPG external debt-to-GDP ratio (selected): 29.8, 33.3, 38.9, 41.8, 43.5, 43.5, 43.5, 48.0, 63.3 (trend in source table).
- Public sector debt (percent of GDP) — baseline projections (selected):
  - 2017: 57.6
  - 2018: 60.2
  - 2019: 54.8
  - 2020: 64.6
  - 2021: 76.2
  - 2022: 82.7
  - 2023: 87.4
  - 2024: 88.9
  - 2025: 90.4
  - 2030: 112.9
  - 2040: 180.2
- PV of public debt-to-GDP ratio (selected): 37.9, 44.9, 52.0, 56.0, 59.0, 60.3, 61.6, 80.6, 140.2 (from public DSA table).
- Debt service and financing indicators (selected):
  - PPG debt service-to-exports ratio: 7.5, 8.7, 8.1, 10.7, 12.3, 11.1, 10.5, 10.0, 9.3, 12.0, 15.4 (from external DSA table).
  - PPG debt service-to-revenue ratio: 8.6, 10.7, 10.1, 14.5, 16.9, 14.4, 12.3, 10.8, 10.3, 11.8, 15.2 (from external DSA table).
  - Gross external financing need (Million of U.S. dollars): 21.4, 27.8, 3.1, 92.6, 88.4, 47.7, 51.9, 44.9, 40.2, 93.1, 140.2 (selected).
- Key macro assumptions (selected):
  - Real GDP growth (percent): 2017: 1.0; 2018: -2.2; 2019: 3.5; 2020: -5.0; 2021: -1.5; 2022: 2.7; long-run around 0.9.
  - Government revenues (excluding grants, percent of GDP): 27.3, 27.7, 29.7, 21.5, 20.2, 23.2, 26.7, 29.9, 30.0, 30.0, 30.0 (selected).
  - Aid flows (Million of US dollars): 39.3, 65.4, 128.4, 85.8, 82.5, 81.1, 81.7, 75.0, 80.5, 87.6, 123.3 (selected).
  - Grant element of new public sector borrowing (percent): 44.8, 42.3, 43.9, 45.7, 47.4, 49.0, 47.1, 43.3 (selected).

### Stress tests and tailored shocks
- Standard stress tests applied include: real GDP growth shock (standard), tailored natural disaster shock (similar in scale to the median impact of natural disasters in Samoa’s history), contingent liability shock, depreciation shock, combined shocks.
- The tailored natural disaster shock is the "most extreme shock" for several indicators and significantly raises PV debt-to-GDP and PV debt-to-exports ratios across 2020-2040 in scenario tables.
- Note on assumptions: "All the additional financing needs generated by the shocks under the 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." The public DSA allows domestic financing to cover additional financing needs generated by the shocks.

### Financing strategy and realism tools
- Financing strategy: While the RCF will help finance Balance of Payments (BOP) needs, the fiscal financing gap will be filled by external grants and concessional borrowing.
- Realism tools flagged: None.
- Borrowing assumptions: default terms of marginal debt based on baseline projections; shares of marginal debt and maturities vary across external and domestic categories as shown in DSA tables.

### Policy response to COVID-19 (authorities’ actions)
- Early travel restrictions and border health screening.
- Parliament passed the Government’s response package and the Second Supplementary appropriation of SAT$66.3 million (about 3 percent of GDP) on April 7 to bolster health spending and provide temporary financial support to households and small businesses.
- Authorities acknowledge additional financial support of SAT$40.8 million from the World Bank, ADB and donors (New Zealand, Australia and Japan).
- Authorities committed to continue collaboration with development partners to secure health and social welfare.

### Fund assistance request and rationale
- Estimated balance of payments financing gap: about 4 percent of GDP.
- Authorities requested a disbursement under the Rapid Credit Facility (RCF) in the amount of SDR 16.2 million:
  - SDR 16.2 million = 100 percent of quota.
  - SDR 16.2 million represents 65 percent of the total BOP financing gap.
- Objectives of RCF disbursement:
  - (i) ease pressure on urgent BOP needs;
  - (ii) help catalyze assistance from development partners;
  - (iii) assist with implementation of planned economic and fiscal measures.
- Authorities emphasize commitment to maintain macroeconomic stability and debt sustainability; state that capacity to repay the Fund remains strong.

### Contextual and social conditions noted by Executive Director statement
- Samoa relies heavily on tourism, remittances and aid to finance imports.
- Measles outbreak late in 2019 claimed 83 lives (mostly young children); Government declared a State of Emergency and economic activity came to a standstill.
- Tourism contributes about 25 percent of GDP.
- Remittance inflows normally about 25 percent of GDP, mainly from New Zealand and Australia, slowed significantly due to COVID-19.

### Policy recommendations and resilience measures (as stated)
- Government actions recommended/noted in the report:
  - Build fiscal buffers and enhance resilience.
  - Continue access to grants and concessional financing.
  - Implement stronger revenue mobilization measures.
  - Rationalize expenditure "in a growth-friendly, sustainable manner" to create synergies for maintaining debt sustainability.
  - Continue public financial management (PFM) reforms to strengthen transparency, good governance and economic resilience (technical assistance by PFTAC noted).

_Italic: Source: IMF staff report content unit 1wsmea2020001 - 13._

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1wsmea2020001.pdf_