## 1wsmea2021001 ## Source details **Canonical URL:** [1wsmea2021001](https://www.imf.org/-/media/files/publications/cr/2021/english/1wsmea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1wsmea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1wsmea2021001.pdf.json) --- ### Authorities’ response and immediate effects - Quick responses to the measles outbreak in 2019 and to the global COVID-19 pandemic; early identification of policy priorities. - IMF disbursement under the Rapid Credit Facility (RCF) in April 2020 (RCF drawn 4/28/2020; Amount Drawn 16.20 SDR million / US$22 million noted elsewhere). - Strengthened health system and targeted support to private sector, vulnerable businesses, and households. - Border closure and State of Emergency measures protected citizens from a domestic COVID-19 outbreak. ### Economic impact, short-term outlook, and key projections - 2020 September quarter real GDP pushed to its 2014 level. - Economy projected to contract by 7.8 percent in FY2021 (ending June 2021). - Recovery expected to begin in FY2022 with growth reaching 1.7 percent in FY2022. - Vaccines procurement and rollout expected by end-2021; border reopening projected by early 2022. - Selected real GDP growth (12-month percent change): - 2016/17: 1.0 - 2017/18: -2.1 - 2018/19: 3.6 - 2019/20: -3.2 - 2020/21: -7.8 - 2021/22: 1.7 - 2022/23: 3.0 - 2023/24: 3.5 - 2024/25: 2.5 - 2025/26: 2.1 - Consumer price index (end of period) projections: - 2020/21: 3.1; 2021/22: 1.9; 2022/23: 2.4; 2023/24: 2.4; 2024/25: 2.6; 2025/26: 2.6 ### Role and outlook for remittances - Remittances resilient during measles outbreak and COVID-19; increased by 5 percent (y/y). - Remittances contributed to a current account surplus of 1.2 percent of GDP in FY2020. - Remittances (in percent of GDP): - 2016/17: 18.5; 2017/18: 22.7; 2018/19: 23.4; 2019/20: 25.7; 2020/21: 28.4; 2021/22: 23.9; 2022/23: 24.1; 2023/24: 23.3; 2024/25: 24.3; 2025/26: 24.2 - Risks to remittances: - AML/CFT concerns and pressures on correspondent banking relationships (CBRs). - Premature removal of stimulus, delayed vaccine rollout, natural-disaster vulnerability. ### Fiscal outlook, baseline and active scenario - Staff baseline projects overall fiscal balance: - FY2021: -3.4 percent of GDP - FY2022: -6.7 percent of GDP - FY2023: -5.2 percent of GDP - FY2024: -2.7 percent of GDP - FY2025: -2.2 percent of GDP - FY2026: -2.0 percent of GDP - Baseline revenue and grants (percent of GDP): FY2021 37.0; FY2022 32.3; FY2023 33.9; FY2024 35.5; FY2025 35.9; FY2026 36.0 - Baseline tax revenue (percent of GDP): FY2021 22.0; FY2022 22.9; FY2023 24.4; FY2024 25.9; FY2025 26.3; FY2026 26.4 - Baseline expenditure (percent of GDP, expense plus CAPEX): - Expense (A) FY2021 36.4; FY2022 32.7; FY2023 31.7; FY2024 30.5; FY2025 30.0; FY2026 29.7 - Transactions in nonfinancial assets (incl. CAPEX) (A) FY2021 4.0; FY2022 6.3; FY2023 7.4; FY2024 7.7; FY2025 8.1; FY2026 8.3 - Active scenario (augmenting fiscal policy) projected overall balance (B): - FY2021: -4.5; FY2022: -7.6; FY2023: -5.6; FY2024: -3.4; FY2025: -1.9; FY2026: -1.8 - Key active scenario revenue measures (gains in percent of GDP): - Tax revenue: FY2024 0.3; FY2025 0.7; FY2026 1.0 - Broadening VAGST base: FY2024 0.1; FY2025 0.3; FY2026 0.4 - Increasing excises: FY2024 0.2; FY2025 0.4; FY2026 0.6 - Staff recommends full execution of operating budget including phase-II stimulus and DSSI one-off financing of 2.3 percent of GDP; conservative grant receipts assumed around 5.5 percent of GDP over the medium term. ### Debt, financing, and debt-sustainability stance - Public debt (in millions of tala): - 2016/17: 1,047.4; 2017/18: 1,113.8; 2018/19: 1,058.6; 2019/20: 1,012.3; 2020/21: 956.1; 2021/22: 1,102.5; 2022/23: 1,215.7; 2023/24: 1,278.9; 2024/25: 1,335.3; 2025/26: 1,389.8 - Public debt (percent of GDP): 2019/20: 46.7; 2020/21: 49.0; 2021/22: 54.1; 2022/23: 56.8; 2023/24: 56.4; 2024/25: 56.0; 2025/26: 55.6 - Staff assessment: Samoa’s debt is sustainable but remains at high risk of distress given high vulnerability to natural disasters. - Baseline public-debt-to-GDP ratio projected to plateau around 56.5 percent; financing assumed largely concessional. - DSSI and donor support: staff projection includes grants of US$20 million (ADB) and US$15 million (World Bank); IMF RCF disbursement US$22 million (100 percent of quota referenced). - Debt-sustainability recommendations: - Secure adequate financing early on concessional terms. - Mobilize additional budget support grants to approach target public debt of 50 percent of GDP. - Medium-term consolidation and PFM strengthening. ### Debt Sustainability Analysis (DSA) and stress tests - DSA baseline macro assumptions: - Real GDP: decline of 7.8 percent in FY2021; rebound to 1.7 percent in FY2022; normalize at around 2.1 percent by FY2026. - Current account: surplus of 1.2 percent of GDP in FY2020; projected deficit 6.5 percent of GDP in FY2021 and 10.9 percent of GDP in FY2022; gradual improvement to -2.0 percent of GDP by FY2025/26. - Discount rate for NPV: 5 percent. - Tailored natural disaster stress test: - Median damage proxied at 21 percent of GDP. - Assumed increase in public debt-to-GDP by 21 percent in FY2022, real GDP growth declines by 3 percent in FY2022, exports growth declines by 6 percent in FY2022. - DSA findings: - PV of external debt-to-GDP projected: 37 percent in 2021; 41 percent in 2030; 64 percent in 2041. - PV of external debt-to-GDP breaches indicative threshold of 55 percent in 2038. - PV of public-debt-to-GDP breaches benchmark in 2034. - All standard stress tests breach the PV of external debt-GDP threshold; exports shock causes earliest breach in 2032; natural disaster shock causes protracted breach starting in FY2030. - Risk rating: - Mechanical model yields moderate risk; judgment applied (extended horizon to 20 years) results in “high risk of debt distress.” - Policy implications from DSA: - Build fiscal and external buffers; secure concessional financing; prioritize expenditure and PFM reforms; preserve cash deposits; seek additional grants. ### Monetary policy, monetary transmission, and external buffers - Monetary stance: appropriately accommodative; policy rate at 15 basis points (CBS policy rate around 17 basis points in other references). - Domestic liquidity: excess reserves reached 16 percent of GDP (end-November 2020); reserves coverage (gross official reserves, in millions USD): - 2016/17: 115.0; 2017/18: 155.6; 2018/19: 185.3; 2019/20: 222.3; 2020/21: 214.7; 2021/22: 168.7; 2022/23: 164.9; 2023/24: 179.4; 2024/25: 190.1; 2025/26: 184.4 - Reserves in months of next year's imports of GNFS: 2019/20: 7.0; 2020/21: 6.5; medium-term projected to decline toward 4.0–4.9 months. - Staff advises building reserve buffers to at least 5 months of prospective imports when accounting for natural-disaster vulnerability. - Monetary transmission challenges: - CPI-adjusted deposit and lending rates reached a 7-year high; credit growth weak at 1.5 percent (y/y) in November 2020. - Banks implemented a deposit rate cap on new term deposits starting December 2020 for twelve months; cap set at 3 percent. - CBS measures: Standby Credit Facility; ceased open market operations to encourage bank lending. - Recommended measures to improve transmission: - Financial inclusion (fintech/mobile money), establish a credit bureau, enhance bankruptcy laws and consumer protection, improve financial literacy. - Bring non-bank financial institutions under CBS oversight in a measured way. - Make disaster risk insurance available to farmers; develop disaster-responsive financial products. ### Financial sector stability, PFIs, and AML/CFT priorities - Banking sector indicators (selected): - Regulatory Capital to Risk-Weighted Assets: 28.7 (2019/20); 29.4 (Sep. 2020) - Non-performing Loans to Total Gross Loans: 2.9 (2019/20); 2.9 (Sep. 2020) - Return on Assets: 2.4 (2019/20); 2.5 (Sep. 2020) - Liquid Assets to Total Assets: 16.4 (2019/20); 17.8 (Sep. 2020) - Total loans to total domestic deposits: 85.6 (2019/20); 82.1 (Sep. 2020) - PFIs and fiscal risks: - PFIs include SNPF, DBS, SHC, UTOS; PFIs’ private credit to GDP rose from 20 percent in FY2012 to 31 percent in FY2019. - Policy lending, government guarantees, and CLF support to DBS are key fiscal risk channels. - Recommended reforms: improve DBS balance sheet, continue NPL write-offs, enhance accounting and disclosure, reform PFIs’ mandates to limit crowding-out and market distortions. - AML/CFT and CBR pressures: - APG 2015 mutual evaluation found significant shortcomings; Samoa under APG enhanced follow-up with next report due June 2021. - Two domestic banks received notice of termination of their U.S. dollar CBRs by end-March 2021 (Australian correspondent bank), while Australian dollar CBR maintained. - Near-term recommended actions: make U.S. dollar liquidity readily available; avoid FX mismatches; strengthen risk-based AML/CFT supervision for banks, MTOs, and TCSPs. - Implement national digital ID to facilitate customer identification and improve KYC for remittance channels. - Ensure resources for effective operation of the Financial Intelligence Unit (FIU). - Continued international engagement to be delisted from EU list of non-cooperative tax jurisdictions (authorities aiming for removal in 2021). - Financial sector reforms: continue implementation of 2015 FSAP recommendations; modernize regulatory and supervisory frameworks; operationalize high-level financial stability committee. ### Structural reforms, inclusive recovery, and capacity building - Structural priorities to limit scarring and support SDGs: - Promote agriculture, fishery, and MSMEs; leverage PACER-Plus for exports (PACER-Plus came into effect in December 2020; PACER Plus Implementation Unit established within the Ministry of Foreign Affairs and Trade in 2021). - Upskill and reskill labor force; boost female and youth labor force participation. - Improve business environment, trade facilitation, and customs clearance efficiency; complete TIMS rollout and establish a large taxpayer office. - Enhance climate resilience: upgrade infrastructure, mainstream climate resilience into sector plans, roll out Self-Insurance Scheme in 2021. - Establish national digital ID to better target social protection. - Implement National Financial Inclusion Strategy; establish credit bureau; modernize insolvency regime. - Capacity building and statistics: - Strengthen tax administration and PFM systems; improve statistical capacity and interagency data sharing. - IMF and partners (PFTAC, CDOT, STA, FAD, MCM) providing technical assistance across national accounts, GFS, ESS, PFM, revenue administration, financial sector supervision, and CBR-related work. ### Risks and Risk Assessment Matrix highlights - Key risks (relative likelihood and expected impact where provided): - Natural disasters: Relative Likelihood: High; Expected Impact: High. Recommendation: build fiscal/external buffers; increase resilience. - Loss of CBRs: Relative Likelihood: High; Expected Impact: High. Recommendation: strengthen AML/CFT; increase reserve coverage; leverage OEC database for KYC support. - Prolonged pandemic: Relative Likelihood: Medium; Expected Impact: High. Recommendation: procure vaccines early; continue targeted fiscal stimulus; seek concessional loans and grants. - Social/political instability: Relative Likelihood: Medium; Expected Impact: High. Recommendation: target support to vulnerable households and businesses; advance structural reforms. - Accelerating de-globalization and geopolitical tensions: Relative Likelihood: Medium–High; Expected Impact: Medium/High. Recommendation: improve business environment, financial inclusion, and diversify exports. - Oil market oversupply/volatility: Relative Likelihood: Medium; Expected Impact: Medium. Recommendation: improve FX forecasting and deepen financial sector. ### Selected external sector and BOP figures - Current account balance (millions USD): - 2016/17: -15.9; 2017/18: 7.2; 2018/19: 25.9; 2019/20: 9.3; 2020/21: -49.0; 2021/22: -84.6; 2022/23: -44.7; 2023/24: -25.2; 2024/25: -17.9; 2025/26: -19.1 - Current account (percent of GDP): 2019/20: 1.2; 2020/21: -6.5; 2021/22: -10.9; 2022/23: -5.5; 2023/24: -2.9; 2024/25: -2.0; 2025/26: -2.0 - Merchandise exports, f.o.b (millions USD): 2019/20: 46.3; 2020/21: 41.2; 2021/22: 40.1; 2022/23: 40.4; 2023/24: 41.6; 2024/25: 43.1; 2025/26: 45.0 - Merchandise imports, f.o.b (millions USD): 2019/20: 316.3; 2020/21: 290.3; 2021/22: 304.0; 2022/23: 316.9; 2023/24: 344.7; 2024/25: 387.1; 2025/26: 425.2 - Tourism earnings (percent of GDP): 2019/20: 17.3; 2020/21: 0.0; 2021/22: 4.7; 2022/23: 9.4; 2023/24: 14.3; 2024/25: 17.7; 2025/26: 21.0 - Gross official reserves (months of next year's imports of GNFS): 2019/20: 7.0; 2020/21: 6.5; projected medium-term to fall toward 4.0–4.9 months; staff recommends at least 5 months buffer. ### Main policy recommendations (condensed) - Maintain sufficiently accommodative fiscal policy in the near term; extend stimulus measures until sustained recovery, then gradually withdraw while committing to medium-term consolidation to bring public debt toward 50 percent of GDP. - Target fiscal stimulus better toward vulnerable households and businesses; prioritize job-creation and climate-resilient CAPEX. - Mobilize revenue: raise excises; broaden VAGST base; introduce time limits to loss carry-forward; complete TIMS rollout; establish large taxpayer office. - Strengthen PFM, procurement efficiency, and SOE governance; improve DBS balance sheet. - Preserve accommodative monetary policy; improve monetary transmission via financial inclusion, fintech, credit bureau, and PFI reforms; ensure deposit rate cap is time-bound. - Strengthen AML/CFT supervision and implement national digital ID to safeguard remittances and mitigate CBR pressures. - Advance structural reforms: promote agriculture, fishery, MSMEs; upskill workforce; leverage PACER-Plus; mainstream climate resilience. - Strengthen statistical capacity and interagency data sharing; publish improved IIP and granular data to support evidence-based policymaking. *Source: Samoa — Staff Report for the 2021 Article IV Consultation (IMF), content unit 1wsmea2021001.* ### 19. The authorities’ quick response to the measles outbreak in 2019 and the global pandemic has ### 19. The authorities’ quick response to the measles outbreak in 2019 and the global pandemic has ### Authorities’ response and immediate effects - Authorities implemented quick responses to the measles outbreak in 2019 and to the global COVID-19 pandemic, identifying policy priorities early. - International community support included the IMF disbursement under the Rapid Credit Facility (RCF) in April 2020, which helped unlock record budget support grants by the Asian Development Bank and the World Bank. - The authorities strengthened the health care system and provided targeted support to the private sector and vulnerable businesses and households to safeguard livelihoods. - The border closure and restrictions under the State of Emergency protected citizens from a domestic outbreak of the pandemic. ### Economic impact and short-term outlook - The compounding effects of the two consecutive health shocks pushed the 2020 September quarter real GDP to its 2014 level. - The economy is projected to contract by 7.8 percent in FY2021 (ending June 2021). - Resilient remittances and the government’s commitment to maintaining expansionary fiscal policies in the near term are expected to support a gradual recovery starting in FY2022, with growth reaching 1.7 percent in FY2022. - Procurement and rollout of vaccines are expected by end-2021, followed by reopening of the border by early 2022. ### Risks to the outlook - Risks to the outlook remain tilted to the downside and unprecedented uncertainty persists. - Key risks include: - Under-execution and premature withdrawal of economic stimulus, which could impede recovery and strain financial stability. - Pace of vaccination and resumption of private sector activities. - Premature opening of the border posing a threat of a domestic COVID-19 outbreak. - High vulnerability to natural disasters. - AML/CFT concerns that could adversely impact correspondent banking relationships (CBRs) and remittances. ### Executive Board assessment and macroeconomic stance - The Samoan economy is projected to bottom in FY2021, with a recovery to follow. - Fiscal policy needs to remain sufficiently accommodative in the near term, with strong commitment to medium-term consolidation to ensure debt sustainability. - Authorities need to maintain stimulus measures until a sustained economic recovery is attained, then gradually withdraw stimulus while mobilizing revenue, strengthening PFM, and ensuring sound governance. - Samoa’s debt is sustainable but remains at high risk of distress when considering vulnerability to natural disasters. Authorities should secure adequate financing early to stimulate the economy and ensure debt sustainability. - Monetary policy remains appropriately accommodative; efforts must continue to improve monetary transmission. A deposit rate cap implemented by commercial banks should be time-bound and complemented by SOE/PFI reforms. - Samoa’s pegged exchange rate system provides a welcome nominal anchor given weak monetary policy transmission. ### Financial sector and AML/CFT priorities - Strengthen AML/CFT framework to safeguard remittances and financial stability: - Continue strengthening risk-based AML/CFT supervision and enhance compliance with customer due diligence and suspicious transaction reporting obligations by banks and MTOs. - Implement a national digital identity to facilitate customer identification and address money laundering and corruption risks. - Mitigate risks from TCSPs’ reliance on third party intermediaries for customer due diligence. - Secure resources for effective operation of the FIU. - Continue international engagement to address AML/CFT shortcomings and EU concerns on Samoa as a non-cooperative tax jurisdiction. - Financial sector policies should: - Reinforce financial stability with continued implementation of the 2015 FSAP recommendations. - Monitor financial institutions, ensure compliance with prudential regulation, and be ready to act as needed. - Design appropriate pace and sequence of reforms to bring non-bank financial institutions under CBS oversight without overstretching supervisory capacity. - Improve the balance sheet of the Development Bank of Samoa (DBS) and implement the National Financial Inclusion Strategy. ### Structural reforms and capacity building - Structural reforms should support SDGs and limit scarring: - Promote agriculture, fishery, and MSMEs for economic diversification and job creation. - Upskill and reskill the labor force, boost human capital, and increase female and youth labor force participation. - Realize potential benefits of PACER-Plus to support recovery. - Enhance climate resilience by upgrading physical infrastructure and mainstreaming climate resilience into sector plans. - Strengthening capacity will facilitate evidence-based policymaking and implementation: - Priority reforms include improving tax administration and PFM systems, strengthening banking sector supervision, mitigating CBR pressures, and enhancing statistical capacity. - IMF stands ready to support reform efforts through capacity development. ### Main policy recommendations (as listed) - Fiscal policy that extends some stimulus measures with better targeting for vulnerable households and businesses, along with gradual withdrawal and medium-term consolidation which will slowly bring public debt to 50 percent of GDP. - Accommodative monetary policy with continuing efforts to improve the monetary transmission mechanism. - Implementation of comprehensive financial sector reforms, along with continued implementation of the 2015 Financial Sector Assessment Program recommendations. - Enhancing AML/CFT supervision to upgrade compliance in high-risk institutions, guided by customer due diligence and suspicious transaction reporting obligations that are conducive to mitigating correspondent banking relationship pressures. - Structural reforms that help achieve SDGs, with priority on job creation and mobility, supported by promotion of financial inclusion with fintech applications and of agriculture, fishery, and MSMEs to leverage the PACER-Plus for exports; improving the business environment and building resilience to climate change with a coherent adaptation strategy. - Further developing statistical capacity and interagency collaboration, facilitated by a legal framework for information sharing that promotes evidence-based policymaking. ### Key statistics and projections (selected from Table 1) - Real GDP growth (12-month percent change): - 2016/17: 1.0 - 2017/18: -2.1 - 2018/19: 3.6 - 2019/20: -3.2 - 2020/21: -7.8 - 2021/22: 1.7 - 2022/23: 3.0 - 2023/24: 3.5 - 2024/25: 2.5 - 2025/26: 2.1 - Nominal GDP (12-month percent change): - 2016/17: 1.0 - 2017/18: -0.1 - 2018/19: 5.8 - 2019/20: -2.8 - 2020/21: -10.0 - 2021/22: 4.4 - 2022/23: 5.1 - 2023/24: 5.9 - 2024/25: 5.2 - 2025/26: 4.8 - Consumer price index (end of period): - 2016/17: 1.0 - 2017/18: 5.8 - 2018/19: -0.1 - 2019/20: -3.3 - 2020/21: 3.1 - 2021/22: 1.9 - 2022/23: 2.4 - 2023/24: 2.4 - 2024/25: 2.6 - 2025/26: 2.6 - Central government budget (in percent of GDP): - Revenue and grants: 2016/17: 30.7; 2017/18: 32.1; 2018/19: 35.7; 2019/20: 38.5; 2020/21: 37.0; 2021/22: 32.3; 2022/23: 33.9; 2023/24: 35.5; 2024/25: 35.9; 2025/26: 36.0 - Of which: grants: 2016/17: 3.4; 2017/18: 4.4; 2018/19: 6.0; 2019/20: 9.4; 2020/21: 11.2; 2021/22: 5.5; 2022/23: 5.6; 2023/24: 5.6; 2024/25: 5.6; 2025/26: 5.6 - Expenditure: 2016/17: 32.8; 2017/18: 32.1; 2018/19: 32.9; 2019/20: 32.3; 2020/21: 40.4; 2021/22: 39.0; 2022/23: 39.1; 2023/24: 38.2; 2024/25: 38.1; 2025/26: 38.0 - Overall fiscal balance: 2016/17: -2.1; 2017/18: 0.1; 2018/19: 2.7; 2019/20: 6.2; 2020/21: -3.4; 2021/22: -6.7; 2022/23: -5.2; 2023/24: -2.7; 2024/25: -2.2; 2025/26: -2.0 - Overall fiscal balance excl. grants: 2016/17: -5.5; 2017/18: -4.3; 2018/19: -3.3; 2019/20: -3.2; 2020/21: -14.6; 2021/22: -12.2; 2022/23: -10.8; 2023/24: -8.3; 2024/25: -7.9; 2025/26: -7.6 - Balance of payments, Current account balance (in millions of U.S. dollars): - 2016/17: -15.9 - 2017/18: 7.2 - 2018/19: 25.9 - 2019/20: 9.3 - 2020/21: -49.0 - 2021/22: -84.6 - 2022/23: -44.7 - 2023/24: -25.2 - 2024/25: -17.9 - 2025/26: -19.1 - (In percent of GDP): 2016/17: -1.9; 2017/18: 0.9; 2018/19: 3.0; 2019/20: 1.2; 2020/21: -6.5; 2021/22: -10.9; 2022/23: -5.5; 2023/24: -2.9; 2024/25: -2.0; 2025/26: -2.0 - Current transfers (net): 2016/17: 140.0; 2017/18: 171.1; 2018/19: 181.3; 2019/20: 188.9; 2020/21: 244.0; 2021/22: 176.5; 2022/23: 186.3; 2023/24: 188.7; 2024/25: 208.3; 2025/26: 216.0 - Gross official reserves (in millions of U.S. dollars): - 2016/17: 115.0 - 2017/18: 155.6 - 2018/19: 185.3 - 2019/20: 222.3 - 2020/21: 214.7 - 2021/22: 168.7 - 2022/23: 164.9 - 2023/24: 179.4 - 2024/25: 190.1 - 2025/26: 184.4 - (In months of next year's imports of GNFS): 2016/17: 3.3; 2017/18: 4.2; 2018/19: 5.4; 2019/20: 7.0; 2020/21: 6.5; 2021/22: 4.9; 2022/23: 4.4; 2023/24: 4.3; 2024/25: 4.2; 2025/26: 4.0 - Public debt (in millions of tala): - 2016/17: 1,047.4 - 2017/18: 1,113.8 - 2018/19: 1,058.6 - 2019/20: 1,012.3 - 2020/21: 956.1 - 2021/22: 1,102.5 - 2022/23: 1,215.7 - 2023/24: 1,278.9 - 2024/25: 1,335.3 - 2025/26: 1,389.8 - (In percent of GDP): 2016/17: 49.6; 2017/18: 52.8; 2018/19: 47.4; 2019/20: 46.7; 2020/21: 49.0; 2021/22: 54.1; 2022/23: 56.8; 2023/24: 56.4; 2024/25: 56.0; 2025/26: 55.6 - GDP per capita (U.S. dollars): - 2016/17: 4,212 - 2017/18: 4,198 - 2018/19: 4,238 - 2019/20: 3,961 - 2020/21: 3,672 - 2021/22: 3,764 - 2022/23: 3,913 - 2023/24: 4,099 - 2024/25: 4,261 - 2025/26: 4,407 *Source: Samoa — Staff Report for the 2021 Article IV Consultation (IMF).* ### 5. The Role of Remittances ____________________________________________________________________________ 31 ### 5. The Role of Remittances ### Key findings on remittances - Remittances proved resilient during the dual health shocks (measles outbreak and COVID-19 pandemic), supported by fiscal stimulus measures implemented by source countries (Australia, New Zealand, United States). - Remittances increased by 5 percent (y/y). - Remittances contributed to a current account surplus of 1.2 percent of GDP in FY2020, amid sizable import compression driven by weak domestic demand and declines in fuel prices. - Remittance inflows are sourced primarily from the United States, New Zealand, Australia, American Samoa, and others (chart breakdown by contribution by country). ### Projections, macroeconomic context, and risks - The prolonged border closure and collapse of tourism depressed overall economic activity; remittances remained a stabilizing external financing source while tourism and export earnings contracted sharply. - Staff projects a deep contraction of real GDP in FY2021 (around 7.8 percent) and a slow recovery beginning in FY2022, implying continued reliance on remittances during the recovery phase. - Key downside risks to remittance flows: - AML/CFT concerns could hurt perceptions on remittance flows, raise pressures on correspondent banking relationships (CBRs), and adversely impact the economy and reserves coverage. - Premature removal of stimulus measures, delayed vaccine rollout and reopening of borders, and high natural-disaster vulnerability could indirectly weaken remittance support to the economy. ### Policy implications and recommendations relevant to remittances - Maintain macroeconomic policies and structural reforms to facilitate job creation and a durable recovery, acknowledging remittances’ role in supporting consumption and external balances. - Address AML/CFT vulnerabilities to protect remittance channels and limit pressures on correspondent banking relationships. - Preserve transparency and oversight in fiscal measures that interact with remittance-supported households and businesses. Staff encourages the government to publish beneficial ownership information of public procurement contract holders (as part of broader procurement transparency commitments). - Continue donor engagement and targeted support in source countries to sustain transfers that underpin household resilience. ### Related fiscal and programmatic context (implications for remittance dependence) - The overall fiscal outturns noted in FY2020: - The overall fiscal surplus reached 6.7 percent of GDP (paragraph describing FY2020 twin surpluses). - Later text indicates the fiscal surplus reached 6.2 percent of GDP in FY2020, up from 2.7 percent in FY2019, with timely and sizable grants from the international community reaching 9.4 percent of GDP in FY2020. - The phase-II stimulus included annual dividend payouts by the Samoa National Provident Fund (SNPF) that were sizable (1.5 percent of GDP), supporting household incomes alongside remittances. - The IMF disbursement under the RCF amounted to US$22 million (100 percent of quota), aimed at addressing the balance of payments financing gap; this was matched by budget support grants (US$20 million by the ADB and US$15 million by the WB). *Source: IMF staff report excerpt, “5. The Role of Remittances.”* ### 14. Staff’s baseline projects the fiscal deficit to reach 3.4 percent of GDP in FY2021 and ### 1wsmea2021001 - 14. Staff’s baseline projects the fiscal deficit to reach 3.4 percent of GDP in FY2021 and ### Fiscal outlook and baseline projections - Staff’s baseline projects the fiscal deficit to reach 3.4 percent of GDP in FY2021 and increase to 6.7 percent of GDP in FY2022 before declining gradually over the medium term. - Tax revenue collection has been better than anticipated in 2020:H2, reflecting improved tax compliance. - A sizable surplus in FY2019 and FY2020 was driven by under-execution of CAPEX. - Staff’s baseline assumes: - full execution of the operating budget, inclusive of the phase-II stimulus, the FY2021 supplementary budget, and the G20 Debt Services Suspension Initiative (DSSI) which provides one-off financing of 2.3 percent of GDP for additional projects (mostly infrastructure); - a reformulated CAPEX in line with the authorities’ past execution capacity; - conservative grant receipts of around 5.5 percent of GDP over the medium term, approximating pre-COVID outturns in the absence of natural disasters. ### Augmenting fiscal policies — staff recommendations and active scenario - Staff recommends augmenting fiscal policy (full execution, "active scenario") to steer an inclusive, sustained recovery, while committing to stronger medium-term fiscal consolidation with more conservative grant estimates to ensure debt sustainability. - Recommended policy mix highlights: - Extending social protection programs and budget support to SOEs to safeguard vulnerable groups, address setbacks on SDGs, and ensure SOEs can maintain stimulus measures. - Gaining expenditure efficiency with sound governance, coordinating with NGOs and organizations providing social welfare. - Reprioritizing budget expenditure towards job creation and mobility and reforms to foster resource reallocation for growth sectors and address high unemployment among women and youth. - Implementing economically-viable CAPEX projects, prioritizing climate-resilient infrastructure (including schools) and reserving budget for infrastructure maintenance. - Revenue mobilization over the medium term: raising excises, broadening the value-added goods and services tax (VAGST) base to more than offset revenue loss expected from the PACER-Plus; introducing time limits (e.g., 5 years) to the loss carry-forward period; completing TIMS rollout and establishing a large taxpayer office to improve tax compliance. - Strengthening public financial management (PFM) with focuses on: (i) improving budget reliability, predictability, and execution controls; (ii) enhancing cash management and forecasting; (iii) improving procurement efficiency; and (iv) strengthening SOEs’ performance. - Key figures from Text Table 1 (Percent of GDP): - Revenue (A) Baseline: Total revenue FY2021 37.0, FY2022 32.3, FY2023 33.9, FY2024 35.5, FY2025 35.9, FY2026 36.0 - o/w Tax revenue (A) Baseline: FY2021 22.0, FY2022 22.9, FY2023 24.4, FY2024 25.9, FY2025 26.3, FY2026 26.4 - Revenue (B) Active scenario gains from additional measures: Tax revenue FY2024 0.3, FY2025 0.7, FY2026 1.0; Broadening VAGST base FY2024 0.1, FY2025 0.3, FY2026 0.4; Increasing excises FY2024 0.2, FY2025 0.4, FY2026 0.6 - Expenditure (A) Baseline: Expense FY2021 36.4, FY2022 32.7, FY2023 31.7, FY2024 30.5, FY2025 30.0, FY2026 29.7 - Transactions in nonfinancial assets (incl. CAPEX) (A) Baseline: FY2021 4.0, FY2022 6.3, FY2023 7.4, FY2024 7.7, FY2025 8.1, FY2026 8.3 - Expenditure (B) Active scenario additional measures (Expense): FY2021 1.0, FY2022 2.0, FY2023 1.0, FY2024 0.6, FY2025 0.0, FY2026 0.0 - Social benefits (B) Active scenario: FY2021 0.5, FY2022 1.0, FY2023 0.5, FY2024 0.3, FY2025 0.0, FY2026 0.0 - Budget support to SOEs (transfers) (B): FY2021 0.5, FY2022 1.0, FY2023 0.5, FY2024 0.3, FY2025 0.0, FY2026 0.0 - Expense (B) Active scenario totals: FY2021 37.4, FY2022 34.7, FY2023 32.7, FY2024 31.1, FY2025 30.0, FY2026 29.7 - CAPEX: Prioritization (B): FY2021 0.0, FY2022 -1.0, FY2023 -0.5, FY2024 0.5, FY2025 0.4, FY2026 0.8 - Transactions in nonfinancial assets (incl. CAPEX) (B): FY2021 4.0, FY2022 5.3, FY2023 6.9, FY2024 8.2, FY2025 8.5, FY2026 9.1 - Overall balance (A) Baseline: FY2021 -3.4, FY2022 -6.7, FY2023 -5.2, FY2024 -2.7, FY2025 -2.2, FY2026 -2.0 - Overall balance (B) Active scenario 5/: FY2021 -4.5, FY2022 -7.6, FY2023 -5.6, FY2024 -3.4, FY2025 -1.9, FY2026 -1.8 ### Financing, debt sustainability, and medium-term risks - Staff projects a sizable fiscal deficit to persist over the medium term but decline to 2 percent of GDP by FY2026. - The public-debt-to-GDP ratio is projected to plateau at around 56.5 percent under the baseline, with the deficit fully financed by concessional loans. - The fiscal policies under the staff’s active scenario would raise the deficit in FY2021–FY2024 but bring the public debt trajectory downward over the medium term. - Efforts to mobilize additional budget support grants would bring public debt closer to the target of 50 percent of GDP. - Samoa’s debt is assessed as sustainable but remains at high risk of distress given high vulnerability to natural disasters. ### Authorities’ views on fiscal strategy - Authorities concur with staff’s recommendations to maintain expansionary fiscal policy in the near term, improve budget execution, and target support to the vulnerable. - They broadly agreed to extend temporary stimulus measures with better targeting and gradual withdrawal and plan to prioritize expenditures to stimulate the economy and ensure an inclusive, durable recovery. - Authorities accept that near-term expansionary fiscal policy may breach their fiscal deficit target of 2 percent of GDP but remain committed to medium-term fiscal consolidation. - Authorities recognize the importance of fully executing the budget and are committed to identifying bottlenecks of CAPEX under-execution for improvement; discussions of a Phase III stimulus package have begun. ### Monetary policy stance and transmission - Monetary policy is appropriately accommodative; the policy rate has remained at 15 basis points. - Central Bank of Samoa (CBS) measures: - Standby Credit Facility for commercial banks to obtain liquidity as needed. - Ceased open market operations to allow banks to use available liquidity for private-sector credit demand. - As of end-November 2020, domestic liquidity remained ample, with excess reserves reaching 16 percent of GDP. - Given price deflation, CPI-adjusted deposit and lending rates reached a 7-year high, and credit growth remained weak, reaching 1.5 percent (y/y) in November 2020 (the lowest since 2013). - A broad-based interest rebate in 2020: CBS helped the government execute interest rebates for three months at the rate of 2 percent per annum; the rebate cost the government 0.3 percent of GDP. - Banks initiated an interest rate cap on new term deposits starting December 2020 for twelve months; the cap was set at 3 percent in deposit rate charts. - The cap narrowed interest paid to retail versus wholesale depositors but falls short of addressing weak monetary transmission; it should be time-bound and complemented by SOE/PFI reforms to improve transmission while ensuring financial stability. ### Measures to improve monetary transmission - Staff recommends a holistic approach including: - Implementing financial inclusion reforms: promotion of fintech (mobile money and payment systems), establishment of a credit bureau, enhancement of bankruptcy laws and consumer protection, and financial literacy. - Minimizing regulatory gaps that may hamper effective credit bureau operations and mobilizing adequate budget for technology and resources. - Strengthening regulatory and supervisory frameworks to monitor credit unions, microlenders, and informal lending arrangements—bringing them under CBS oversight while avoiding overstretching CBS supervisory capacity. - Mitigating credit risks from natural disasters by making disaster risk insurance available to farmers or developing financial products addressing those risks. ### External buffers and exchange rate policy - Samoa’s external position in FY2020 is assessed as moderately stronger than fundamentals and desirable policy settings. - At end-November, reserves covered about 8 months of prospective imports and are adequate for credit-constrained economies but are expected to decline toward the lower bound of the desirable range (4.1 to 6.4 months of prospective imports) over the medium term when accounting for vulnerability to natural disasters. - Authorities need to build reserve buffers to at least five months, including through donor support. - Authorities commit to quarterly reviews of the weights applied to the currency-basket peg to help ensure exchange rate stability; they indicated no plans to change the exchange rate policy. - Authorities noted that timely IMF disbursement under the RCF alleviated short-term balance-of-payment financing concerns and signaled urgent need for donor assistance. ### Financial sector stability - Commercial banks hold capital well in excess of minimum requirements but need to maintain sound liquidity positions. - Financial soundness indicators through 2020:Q3 show banking sector resilience: - Loan-to-deposit ratio continued to fall with slowdowns in credit growth. - NPL ratio declined overall, but banks set aside additional provisions amid concerns of deteriorating loan quality. - Concentration of banks’ exposure to commercial real estate has increased recently against limited customary land supply for commercial use. - Declines in profitability during 2019:Q4 and 2020:Q3 reflect shock impacts; experiences varied among banks depending on profit base and tourism exposure. - Careful monitoring of cash flow, liquidity positions, and balance sheets at individual bank level is needed to maintain financial stability. *Italic: Sources: Authorities' data; and IMF staff calculations.* ### 26. The authorities need to improve performance and governance of PFIs, and minimize ### 26. The authorities need to improve performance and governance of PFIs, and minimize their fiscal risks. ### Performance, governance, and fiscal risks of PFIs and SOEs - Subsidized lending schemes with government guarantees need to be well formulated and targeted with a commercial focus, and evaluated based on a sound guiding principle to contain potential fiscal risks of contingent liabilities. - The role and governance of the PFIs should be reformed to achieve the specific socio-economic objectives they were set up for, to: - prevent crowding-out of commercial bank activities, - reduce market distortions, and - create a level playing field for all financial institutions. - To ensure debt sustainability, policy can aim to improve the balance sheet of the Development Bank of Samoa (DBS), which provides important services to the development of MSMEs for inclusive growth. - Recent efforts by the DBS to write-off existing NPLs are a step in the right direction and need to continue to reduce fiscal risks. - Improving accounting and disclosure practices is needed to enhance transparency and governance. - Note from management correspondence: - Based on the management letter (signed on November 4), the Central Bank of Samoa did not extend any additional loans to SOEs (including PFIs) under Credit Loan Facilities during FY2019/20, complying with the Letter of Intent (IMF Country Report No. 20/138). ### Financial sector policies and FSAP recommendations (2015) - Financial sector policies should continue to focus on the 2015 Financial Sector Assessment Program (FSAP) recommendations, particularly: - Modernizing the regulatory and supervisory framework, and making the high-level committee on financial stability operational. - Bringing non-bank financial institutions under the CBS oversight in a measured way to avoid overstretching its supervisory capacity, and eliminate any regulatory gaps. - Enhancing crisis preparedness and building capacity to analyze systemic risks, including stress testing and macro-financial mapping. ### Authorities’ views on financial system reforms - The authorities view Samoa’s financial system as sound, stable, and robust, and are committed to implementing the 2015 FSAP recommendations. - Ongoing and planned actions cited by the authorities: - Drafting legislation to enforce effective CBS oversight of financial institutions such as credit unions, microfinance institutions, and money lenders. - Taking a judicious approach to bring non-bank financial institutions under CBS supervision to avoid overstretching supervisory capacity. - Establishing credit bureau and the national digital ID system. - Promoting financial inclusion with fintech solutions to improve monetary transmission, promote MSMEs, and facilitate inclusive growth while maintaining stability. ### Structural reforms aligned with SDGs to limit scarring - Structural issues predating the pandemic require urgent attention; sectoral strategies need realignment to the post-pandemic context. - Focus areas and structural reform examples: - Promoting agriculture, fishery, and MSMEs as priorities for inclusive growth; improve credit access and facilitate insurance provision to promote these sectors and create jobs. - Boosting human capital: strengthen the health system, ensure food security, improve access to and quality of education with ICT, and link education/training to skills needed for jobs. - Upskilling and reskilling the labor force to facilitate job creation/mobility and promote economic diversification, with attention to non-tourism sectors; facilitate skill/knowledge transfers by returned Samoans under SEPs and establish apprentice programs. - Upgrading the business environment for export growth to take advantage of the PACER-Plus: - PACER-Plus came into effect in December 2020. - Establishing the PACER Plus Implementation Unit within the Ministry of Foreign Affairs and Trade in 2021 is noted as welcome. - Another reference: leveraging PACER-Plus (coming into force in mid-December) to promote exports and safeguard remittances. - Reviewing tax regime for businesses, improving trade facilitation, expediting customs clearance using Samoa Trade Information Portal, and promoting export diversification with FDI support. - Upgrading and maintaining physical infrastructure to be fully resilient to natural disasters and mainstreaming climate resilience into all sector plans for coherent adaptation and improved climate-responsive PFM. - Establishing the digital national ID system to help target social protection programs and safety nets. - Implementing financial sector reforms to support MSMEs and financial inclusion, including establishment of a national credit bureau and modernization of the insolvency regime. - Building climate resilient PFM and economic structure, enhancing the National Disaster Management Plan and the Climate Change Policy. - Strengthening capacity with support from the international community. ### Authorities’ views on structural reforms - Authorities concurred with staff recommendations to advance structural reforms for job creation and higher, more-inclusive growth. - Authorities prioritize promoting agriculture, fishery, and MSMEs, boosting human capital (including female and youth labor force participation), and trade-related needs to take advantage of PACER-Plus. - Authorities committed to implementing trade promotion strategies and enhancing climate change resilience, including upgrading physical infrastructure and integrating climate resilience into sector plans. ### Mitigating CBR (correspondent banking relationship) pressures and AML/CFT issues - CBR pressures remain a concern and need mitigation through enhanced AML/CFT effectiveness. - Consultants engaged by CBS to take stock of implementation of the Asia Pacific Group’s recommendations in the 2015 Mutual Evaluation Report and update the national risk assessment. - Enhancing risk-based supervision should improve AML/CFT compliance by higher risk institutions: banks, money transfer operators (MTOs), and trust and company service providers (TCSPs). - Development of a national digital identification system should facilitate customer identification by MTOs, especially remittance recipients. - Ensuring TCSPs verify accuracy of beneficial ownership information and facilitating international exchange of such information will help transparency of international business companies. - Authorities are engaging Pacific Island Countries and international partners to develop regional solutions to address CBR pressures, including a regional digital Know-Your-Customer facility. - IMF staff initiated AML/CFT capacity development support to the region (including Samoa) to assist in mitigating CBR pressures. - Immediate operational concerns: - Two domestic banks received notice of termination of their U.S. dollar CBRs with a correspondent bank in Australia by end-March 2021; the Australian dollar CBR will be maintained by the correspondent bank. - CBS is monitoring how affected banks identify alternatives and analyzing impacts on trade, financial, and remittance flows. - Recommended near-term actions: make U.S. dollar liquidity readily available to support cash flow needs and ensure banks avoid foreign exchange mismatches to help safeguard financial stability. - On tax governance and offshore sector: - Authorities need to continue engagement with the European Union regarding the EU list of non-cooperative tax jurisdictions, aiming to be removed from the EU list in 2021. - The activities of offshore financial center in Samoa currently bring about 1 percent of GDP, including through business management services to international business companies catered by the TCSPs and licensed by the SIFA. - Parliament passed several legislative amendments in 2019 to strengthen SIFA’s regulatory and supervisory roles. ### Authorities’ views on AML/CFT and CBRs - Authorities committed to enhancing AML/CFT supervision for commercial banks, MTOs, and TCSPs. - They conduct due diligence and assessments of suspicious transaction reports and coordinate processes from financial institutions to the Financial Intelligence Unit (FIU) of the CBS and to prosecution/investigation phases. - Supported by the ADB, authorities are ready to progress on the KYC utility project to improve CBRs and will continue to work with local commercial banks on solutions for U.S. dollar nostro account closures in Australia. - Authorities remain committed to engaging with the EU to be delisted. ### Capacity development, statistics, and evidence-based policymaking - Several technical assistance teams joined the 2021 Article IV consultation covering CBR pressures, legal issues on international taxation, and statistics. - Authorities engage with IMF and partners and have made improvements in external sector statistics (led by IMF Capacity Development Office in Thailand (CDOT)) and government financial statistics (led by HQs and PFTAC). - Further strengthening statistical capacity and interagency collaboration is indispensable to facilitate evidence-based policy making; COVID-19 increased the need for granular, relevant, reliable, and timely data. - Authorities expressed appreciation for support from PFTAC, CDOT, and IMF HQs, and are interested in a Climate Change Policy Assessment (CCPA). - Authorities reiterated commitment to reforms supported by capacity building, especially: - PFM reforms, - tax policy and administration, - strengthening financial sector supervision and risk management, - mitigating CBR pressures, and - statistics. ### Staff appraisal and outlook - The Samoan economy is projected to bottom in FY2021, with an economic recovery to follow. - Border closure and State of Emergency protected citizens from a domestic outbreak, but the economy experienced a deep contraction. - Government stimulus, international support, and resilient remittances helped moderate impacts. - Risks to the outlook remain tilted to the downside; recovery depends on: - execution of economic stimulus measures, - procurement and rollout of vaccines, - resumption of private sector activities. - Key risks highlighted: - Premature border opening risks domestic COVID-19 outbreak. - AML/CFT shortcomings and high vulnerability to natural disasters continue to threaten the economy. *Source: IMF staff report text (content unit: 1wsmea2021001).* ### 41. Fiscal policy needs to remain sufficiently accommodative in the near term, with strong ### Fiscal policy needs to remain sufficiently accommodative in the near term, with strong ### Fiscal stance and public debt - Maintain stimulus measures until a sustained economic recovery is attained. - Gradually withdraw stimulus over the medium term, coupled with: - revenue mobilization, - strengthening PFM, - sound governance. - Samoa’s debt is sustainable, but remains at high risk of distress when the country’s vulnerability to natural disasters is considered. - Secure adequate financing early to stimulate the economy and ensure debt sustainability. - The annual Unforeseen budget (i.e., reserve fund) provides some financial buffer for self-insurance against losses from natural disasters. - Allocating adequate budget to forge climate resilience can provide long-term benefits to the economy. ### Monetary policy and transmission - Monetary policy remains appropriately accommodative. - Continue efforts to improve monetary transmission. - A deposit rate cap, recently implemented by the commercial banks, should be time-bound. - Deposit rate cap should be complemented by SOE/PFI reforms to improve monetary transmission. - The CBS, the banks, and other stakeholders need to work together to address bottlenecks to credit intermediation, including through implementation of financial inclusion and PFI reforms. ### External position and reserves - Samoa’s external position is assessed to be moderately stronger than fundamentals and desirable policy settings. - Assessment reflected impacts of the domestic measles outbreak and the global COVID-19 pandemic, which created substantial import compression. - Resilient remittance inflows and sizeable foreign grants contributed to the stronger position. - The CBS accumulated adequate foreign exchange reserves during the period, according to the ARA metric for credit-constrained economies. - Underlying economic recovery is projected to: - stimulate import demand, - deteriorate the current account balance, - lower the reserves over the medium-term. - When Samoa’s vulnerability to natural disasters is considered, authorities need to build reserve buffers to at least 5 months of prospective imports. - Given weak monetary policy transmission, Samoa’s pegged exchange rate system provides a welcome nominal anchor. ### AML/CFT and safeguarding remittances - Strengthen the effectiveness of the AML/CFT framework to safeguard remittances and financial stability. - Continue strengthening risk-based AML/CFT supervision and enhancing compliance with: - customer due diligence, - suspicious transaction reporting obligations by banks and MTOs. - Implementing a national digital identity should facilitate customer identification and contribute to addressing money laundering and corruption risks. - Mitigate risks from TCSP’s reliance on third party intermediaries for customer due diligence. - Secure resources for the effective operation of the FIU. - Continued international engagement is needed to address AML/CFT shortcomings and concerns raised by the EU on Samoa as a non-cooperative tax jurisdiction. ### Financial sector stability and reforms - Focus financial sector policies on reinforcing financial stability, with continued efforts to implement the 2015 FSAP recommendations. - Overall financial stability remains sound, though pandemic effects vary across financial institutions depending on profit and customer bases. - Monitor financial institutions, ensure compliance with prudential regulations, and be ready to take actions as needed. - Formulate the appropriate pace and sequence of reforms to: - bring non-bank financial institutions under CBS oversight, - avoid overstretching CBS supervisory capacity. - Policy should focus on improving the balance sheet of the DBS. - Implement the National Financial Inclusion Strategy to reduce inequality. ### Structural reforms and resilience - Structural reforms should support SDGs to limit scarring. - Promote agriculture, fishery, and MSMEs for economic diversification and job creation. - Upskill and reskill the labor force, boost human capital to reduce skill mismatch, and increase female and youth labor force participation. - Realize potential benefits of PACER-Plus to support economic recovery. - Enhance climate resilience by upgrading physical infrastructure and mainstreaming climate resilience into all sector plans. ### Capacity building and IMF support - Strengthen capacity to facilitate evidence-based policy making and implementation. - Priority reforms: - improve tax administration and PFM systems, - strengthen banking sector supervision, - mitigate CBR pressures. - Enhance statistical capacity to support evidence-based policy making. - The IMF stands ready to support the government’s reform efforts through capacity development. *Source: IMF content unit 1wsmea2021001.* ### 49. It is recommended that the next Article IV consultation with Samoa take place on the ### 1wsmea2021001 - 49. It is recommended that the next Article IV consultation with Samoa take place on the ### Real sector developments - Growth across all sectors deteriorated due to the adverse impact of the COVID-19 pandemic; employment declined reflecting weak economic activities. - Tourism earnings remained severely depressed with the prolonged border closure. - Inflation in FY2020 remained subdued at 1.5 percent, and prices continued to decline during the second half of 2020. - Recent disinflation was mainly driven by declines in food and fuel prices, and the cost of transportation. - Both exports and imports declined due to weak global and domestic demand in the aftermath of COVID-19. - Table 1 selected series (estimates and projections): - Real GDP growth: 1.0-2.1 (2016/17), 3.6 (2017/18), -3.2 (2018/19), -7.8 (2019/20), 1.7 (2020/21), 3.0 (2021/22), 3.5 (2022/23), 2.5 (2023/24), 2.1 (2024/25), 2.1 (2025/26) - Consumer price index (end of period): 1.0 (2016/17), 5.8 (2017/18), -0.1 (2018/19), -3.3 (2019/20), 3.1 (2020/21), 1.9 (2021/22), 2.4 (2022/23), 2.4 (2023/24), 2.6 (2024/25), 2.6 (2025/26) - Nominal GDP (in millions of tala): 2,110 (2016/17), 2,108 (2017/18), 2,231 (2018/19), 2,168 (2019/20), 1,952 (2020/21), 2,038 (2021/22), 2,142 (2022/23), 2,268 (2023/24), 2,386 (2024/25), 2,499 (2025/26) ### External sector developments - The current account surplus in FY2020 was driven by import compression, remittances, and foreign grants; strong capital account surplus was driven by official transfers. - Samoa’s reserves coverage continues to expand, but is still below the PIC average. - While the NEER remained broadly unchanged, the REER started depreciating due to sizable disinflation in Samoa. - Economic contraction, including under-execution of capital expenditure, led to a sharp decline in imports; global downturn led to rapid deterioration in exports. - Balance of payments highlights (Table 2): - Current account balance (in percent of GDP): -1.9 (2016/17), 0.9 (2017/18), 3.0 (2018/19), 1.2 (2019/20), -6.5 (2020/21), -10.9 (2021/22), -5.5 (2022/23), -2.9 (2023/24), -2.0 (2024/25), -2.0 (2025/26) - Gross official reserves (in millions of U.S. dollars): 115.0 (2016/17), 155.6 (2017/18), 185.3 (2018/19), 222.3 (2019/20), 214.7 (2020/21), 168.7 (2021/22), 164.9 (2022/23), 179.4 (2023/24), 190.1 (2024/25), 184.4 (2025/26) - Tourism earnings (in percent of GDP): 18.2 (2016/17), 21.5 (2017/18), 23.6 (2018/19), 17.3 (2019/20), 0.0 (2020/21), 4.7 (2021/22), 9.4 (2022/23), 14.3 (2023/24), 17.7 (2024/25), 21.0 (2025/26) - Remittances (in percent of GDP): 18.5 (2016/17), 22.7 (2017/18), 23.4 (2018/19), 25.7 (2019/20), 28.4 (2020/21), 23.9 (2021/22), 24.1 (2022/23), 23.3 (2023/24), 24.3 (2024/25), 24.2 (2025/26) - Merchandise exports, f.o.b (in millions USD): 38.0 (2016/17), 36.3 (2017/18), 50.0 (2018/19), 46.3 (2019/20), 41.2 (2020/21), 40.1 (2021/22), 40.4 (2022/23), 41.6 (2023/24), 43.1 (2024/25), 45.0 (2025/26) - Merchandise imports, f.o.b (in millions USD): 308.6 (2016/17), 328.9 (2017/18), 349.4 (2018/19), 316.3 (2019/20), 290.3 (2020/21), 304.0 (2021/22), 316.9 (2022/23), 344.7 (2023/24), 387.1 (2024/25), 425.2 (2025/26) ### Fiscal sector developments - Operational expense picked up further in FY2019, driven by a higher wage bill; capital expenditure fell to a historical low. - Revenue performance proved resilient, supported by favorable grant and tax receipts despite the pandemic; sizable under-execution of CAPEX contributed to a large fiscal surplus. - Samoa’s public debt remains high by regional standards and fiscal space is limited compared to other PICs. - Central government budget (Table 1 & Table 3 highlights): - Revenue and grants (in percent of GDP): 30.7 (2016/17), 32.1 (2017/18), 35.7 (2018/19), 38.5 (2019/20), 37.0 (2020/21), 32.3 (2021/22), 33.9 (2022/23), 35.5 (2023/24), 35.9 (2024/25), 36.0 (2025/26) - Grants (in percent of GDP): 3.4 (2016/17), 4.4 (2017/18), 6.0 (2018/19), 9.4 (2019/20), 11.2 (2020/21), 5.5 (2021/22), 5.6 (2022/23), 5.6 (2023/24), 5.6 (2024/25), 5.6 (2025/26) - Expenditure (in percent of GDP): 32.8 (2016/17), 32.1 (2017/18), 32.9 (2018/19), 32.3 (2019/20), 40.4 (2020/21), 39.0 (2021/22), 39.1 (2022/23), 38.2 (2023/24), 38.1 (2024/25), 38.0 (2025/26) - Overall fiscal balance (in percent of GDP): -2.1 (2016/17), 0.1 (2017/18), 2.7 (2018/19), 6.2 (2019/20), -3.4 (2020/21), -6.7 (2021/22), -5.2 (2022/23), -2.7 (2023/24), -2.2 (2024/25), -2.0 (2025/26) - Overall fiscal balance excluding grants (in percent of GDP): -5.5 (2016/17), -4.3 (2017/18), -3.3 (2018/19), -3.2 (2019/20), -14.6 (2020/21), -12.2 (2021/22), -10.8 (2022/23), -8.3 (2023/24), -7.9 (2024/25), -7.6 (2025/26) - Public debt (in percent of GDP): 49.6 (2016/17), 52.8 (2017/18), 47.4 (2018/19), 46.7 (2019/20), 49.0 (2020/21), 54.1 (2021/22), 56.8 (2022/23), 56.4 (2023/24), 56.0 (2024/25), 55.6 (2025/26) - Staff projection note: Staff projection includes grants of US$20 million from ADB and US$15 million from the World Bank. ### Monetary and financial sector developments - The policy rate has remained accommodative; the lending rate marginally declined since March 2020, while inflation-adjusted deposit rates increased and remain high compared to peers. - Excess reserves remain ample and continue to grow; deposits plateaued and private credit-to-deposit ratio declined with weak credit demand. - Credit provided by commercial banks is lower than in some regional peers; balance sheets of public financial institutions (PFIs) continue to grow with their credit expansion. - Monetary statistics (Table 4 highlights): - Broad money (M2) annual growth: 7.8 (2016/17), 16.5 (2017/18), 9.9 (2018/19), -0.9 (2019/20), 1.8 (2020 (Nov.)), 6.7 (2020 (Nov.) conflicting series present) - Private sector credit, Commercial banks (percent): 6.9 (2016/17), 1.6 (2017/18), 6.1 (2018/19), 5.8 (2019/20), 3.5 (2020), 5.6 (2021/22), 6.0 (2022/23), 5.4 (2023/24), 5.3 (2024/25), 5.2 (2025/26) - Gross reserves (Central Bank, millions of Tala): 311 (2014/15), 256 (2015/16), 290 (2016/17), 399 (2017/18), 491 (2018/19), 594 (2019/20), 690 (2020 Nov.) - Lending rate (weighted average): 9.6 (2014/15), 9.0 (2015/16), 8.6 (2016/17), 9.0 (2017/18), 9.0 (2018/19), 8.6 (2019/20), 8.7 (2020 Nov.) - Deposit rate (weighted average): 2.4 (2014/15), 2.3 (2015/16), 2.7 (2016/17), 2.7 (2017/18), 2.8 (2018/19), 2.7 (2019/20), 2.6 (2020 Nov.) ### Financial soundness indicators - Capital adequacy indicators (Table 5): - Regulatory Capital to Risk-Weighted Assets, Ratio: 27.1 (2014/15), 24.5 (2015/16), 25.1 (2016/17), 27.3 (2017/18), 27.5 (2018/19), 28.7 (2019/20), 29.4 (Sep. 2020) - Non-performing Loans to Total Gross Loans, Ratio: 7.1 (2014/15), 5.2 (2015/16), 4.1 (2016/17), 4.3 (2017/18), 3.9 (2018/19), 2.9 (2019/20), 2.9 (Sep. 2020) - Return on Assets: 1.8 (2014/15), 8.5 (2015/16), 4.2 (2016/17), 3.1 (2017/18), 3.9 (2018/19), 2.4 (2019/20), 2.5 (Sep. 2020) - Liquidity and asset distribution: - Liquid Assets to Total Assets (Liquid Asset Ratio): 14.5 (2014/15), 8.1 (2015/16), 9.7 (2016/17), 13.8 (2017/18), 16.3 (2018/19), 16.4 (2019/20), 17.8 (Sep. 2020) - Total loans to total domestic deposits: 116.0 (2014/15), 130.6 (2015/16), 117.9 (2016/17), 108.9 (2017/18), 100.2 (2018/19), 85.6 (2019/20), 82.1 (Sep. 2020) ### Role of remittances - Tourism earnings disappeared with the border closure, yet remittances account for 30 percent of GDP in presented discussion. - Remittances are primarily channeled through non-banks, including money transfer operators. - Remittances provide a vital source of income to families; average cost of remittance transfers has been falling but remains above the G20 objective of 5 percent. - Australia and New Zealand are the two main countries of origin for remittance inflows to Samoa; remittances from Australia, New Zealand, and American Samoa proved resilient during the pandemic. - Table 2/BOP memorandum: Remittances (in percent of GDP) shown as 18.5 (2016/17), 22.7 (2017/18), 23.4 (2018/19), 25.7 (2019/20), 28.4 (2020/21), 23.9 (2021/22), 24.1 (2022/23), 23.3 (2023/24), 24.3 (2024/25), 24.2 (2025/26) ### Demographics and labor markets - Samoa has a large share of working age population, with rapid increases in the number of retired; female labor force participation lags behind male. - Female labor force participation is particularly low compared to other countries in the region. - Share of people with jobs remains low relative to population size; jobs are particularly scarce and the economy can take advantage of a high share of young generations in NEET. - Labor force participation (by age and sex, 2019) and cross-country comparisons are presented in Figure 6 (data sources: country authorities; ILO modelled estimates (Nov. 2020); UN Population Division, World Population Prospects (2019)). ### COVID-19 stimulus measures and implementation status - Total stimulus measures (Tables 6 concluded): - Total (millions of Tala): Phase 1 = 66.3; Phase 2 = 83.1 - Total (percent of GDP): Phase 1 = 3.1; Phase 2 = 4.2 - Major measures and statuses (selected): - Health sector (31% Phase 1, 4% Phase 2): Preparedness, prevention, isolation facility, quarantine, medical, testing, tracing, reporting; SAT 20.3 (Ongoing). Frontline workers risk benefits and hospital upgrades: SAT 3.5 (Pending). - Businesses (33.7% Phase 1, 16.3% Phase 2): Guarantee for small businesses (SAT355K X 3 months) SAT 1.1 (Completed); Interest relief by Development Bank of Samoa (2 months) SAT 1.9 (Completed); Capital injection to Samoa Airways SAT 1.0 (Completed); On-lending (revenues to state foregone - 7 sene) SAT 4.9 (Completed); Interest relief (two percent per annum) for household loans with commercial banks (3 months) SAT 3.9 (Completed). - Households (31% Phase 1, 75% Phase 2): Assistance to households - $50 per person SAT 12.1 (Completed); Dividend payouts by the Samoa National Provident Fund SAT 35.0 (Completed); Loan repayment refund by the Samoa National Provident Fund SAT 5.5 (Completed); Pension increase and other subsidies (various statuses: Completed/Initiated/Partially completed). - Food security and multisectoral measures: SAT 1.0 (Completed) and online learning facilitation SAT 0.5 (Ongoing). - Notes: A “Completed” status implies activity completion though actual amount spent may vary from the budget; sources include authorities' response to the 2021 Article IV questionnaire; Government of Samoa, "COVID19 Response Plan - Phase 1," Progress Report (December 2020); and IMF staff estimates. ### Integration matrix of surveillance issues and capacity building - The matrix (Table 7) maps past and planned/ongoing work across sectors and partners (ADB, IMF, World Bank). Areas covered include: - Fiscal sector: Public Financial Management, Expenditure framework, Revenue framework. - Macro-financial issues: Financial supervision and regulation, Financial market development, Correspondent Banking Relationships. - Macro-structural issues: Infrastructure, Private sector development, Governance issues. - Social and resilience: Poverty/Gender/Inequality, Climate change, Natural Disaster Management, Financial inclusion. - Statistics: Data enhancement. - The matrix indicates multi-partner engagement (Asian Development Bank; IMF; World Bank) across these areas. *Sources: Country authorities; IMF staff calculations; Central Bank of Samoa; Financial Soundness Indicators database; World Bank, Remittance Prices Worldwide; Government of Samoa COVID-19 Response Plan - Phase 1 Progress Report; IMF staff estimates and projections.* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Domestic risks — Higher frequency and severity of natural disasters including related to climate change - Relative Likelihood: High: "On average, Samoa has been hit by a major natural disaster once every five years." - Expected Impact: High: "Natural disasters cause widespread damage to infrastructure and agriculture, resulting in increased public debt and trade disruptions, while raising domestic commodity prices." - Policy Recommendations: - "Build fiscal and external buffers; increase resilience to natural disasters by implementing policies under the Strategy for the Development of Samoa." ### Domestic risks — Loss of Correspondent Banking Relationships (CBRs) - Relative Likelihood: High: "The tight global regulatory landscape could result in increased pressures on CBRs. Banks face exorbitant penalty over breaching anti-money laundering laws, which could limit correspondent banking services." - Expected Impact: High: "Closure of correspondent bank accounts held by MTOs and the Samoan local banks could limit flows of USD (dominant currency), hamper economic activities (including remittance flows), reduce international reserves, and create foreign exchange (FX) mismatches." - Policy Recommendations: - "Increase reserve coverage; reduce FX mismatch risks; strengthen the AML/CFT regime in line with APG/FATF recommendations; enhance customer identification facilities (by leveraging the Office of Electoral Commission (OEC) database to help AML/CFT compliance by MTOs)." ### External risks — Unexpected shift in the Covid-19 pandemic: Prolonged pandemic - Relative Likelihood: Medium: "The disease proves harder to eradicate (e.g., due to new virus strains, short effectiveness of vaccines, or widespread unwillingness to take them), requiring costly containment efforts and prompting persistent behavioral changes rendering many activities unviable." - Expected Impact: High: "Longer containment and uncertainty about the intensity and duration of the outbreak adversely impact economic activity and prompt costly reallocation of resources. With limited fiscal and external buffers, policy support is insufficient." - Policy Recommendations: - "Contain the virus spread with effective measures; seek early procurement and distribution of vaccines; continue fiscal stimulus with better targeting; keep supportive monetary and financial policy measures, while maintaining financial stability; and seek concessional loans and grants for BOP and budget support." ### External risks — Widespread social discontent and political instability - Relative Likelihood: Medium: "Social tensions erupt as the pandemic and inadequate policy response cause socio-economic hardship or due to unequal access to vaccines." - Expected Impact: High: "Beyond immediate economic disruption and adverse confidence effects, the resulting political polarization and instability complicate implementation of policy needed for a sustained economic recovery." - Policy Recommendations: - "Continue to support most vulnerable households and businesses by targeted fiscal and financial measures; ramp up efforts to attain SDGs with structural reforms and support by the international community." ### External risks — Accelerating de-globalization - Relative Likelihood: Medium: "Despite renewed efforts to reach multilateral solutions to existing tensions, geopolitical competition leads to further fragmentation." - Expected Impact: Medium/High: "Reshoring and less trade reduces potential growth and lead to a sharp decline in exports, tourism earnings, and remittances, worsening the current account balance and reducing fiscal revenues." - Policy Recommendations: - "Improve business environment and connectivity to create a conducive environment for private sector development; improve financial inclusion to help cushion the most vulnerable against negative shocks; explore opportunities for broadening export base." ### External risks — Intensified geopolitical tensions and security risks - Relative Likelihood: High: "(Geo)political tensions in selected countries/regions cause economic/political disruption, disorderly migration, higher volatility in commodity prices, and lower confidence." - Expected Impact: Medium: "Increased geopolitical and security risks could further dampen tourism, adversely affecting the current account." - Policy Recommendations: - "Implement fiscal stimulus consistent with available space to help lift aggregate demand; further reduce or postpone non-essential spending; and seek concessional external assistance." ### External risks — Oversupply and volatility in the oil market - Relative Likelihood: Medium: "Higher supply (due to, e.g., OPEC+ disagreements) and lower demand lead to renewed weakness in energy prices. Uncertainty leads to bouts of volatility." - Expected Impact: Medium: "Sharp swings in inflation could cause a slowdown in lending activity and output. Higher uncertainty in commodity prices would make management of FX reserves more difficult." - Policy Recommendations: - "Improve FX liquidity forecasting; diversify the export base; expand efforts to deepen and develop the financial sector, and improve monetary transmission." ### Notes on the Risk Assessment Matrix - "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). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline ('low' is meant to indicate a probability below 10 percent, 'medium' a probability between 10 and 30 percent, and 'high' a probability of 30 percent or more). 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 (as provided).* ### Annex III. Promoting Efficiency in Financial Markets for an Inclusive, ### Annex III. Promoting Efficiency in Financial Markets for an Inclusive, Sustained Recovery ### Overview and context - Despite prolonged accommodative monetary policies by the Central Bank of Samoa (CBS), lending rates remain high and credit provision by commercial banks to private sector has been limited due to demand and supply constraints and structural impediments in financial markets. - Public financial institutions (PFIs) and other non-bank financial institutions cater to niche markets and contribute to improving financial inclusion, but active participation of PFIs may dampen effective allocation of financial resources and increase fiscal risks. - Weak regulatory framework for microlenders and credit unions could increase financial vulnerability. - Continued efforts to enhance financial inclusion, strengthen regulatory and supervisory frameworks and reform PFIs can help create a level playing field for an inclusive and sustained economic recovery. ### Bank credit, lending rates, and transmission - Credit growth of commercial banks averaged 4.1 percent in real term during FY2010-FY2019. - Credit cycles follow business cycles closely with a 3-4 quarter lag; serial correlation between credit growth and real GDP growth is highest (0.72) when pairing credit growth (t) with GDP growth (t+3). Sample period is 2010Q1-2019Q2. - The credit-to-GDP ratio increased from 38 percent in FY2010 to 48 percent during the last decade with stagnant economic growth compared to the decade earlier. - CBS policy rate kept around 17 basis points, yet lending rates remain high at 9.0 percent, albeit declined by 3.2 percentage points during FY2010-FY2019. - The spread (lending minus deposit) has been as high as 8.8 percent, reflecting weak transmission in credit market. - About half of commercial bank loans are to relatively large corporates in construction and trade-related sectors with acceptable collaterals; loans to individuals have recently picked up to around 25 percent of total commercial bank lending but remain low. ### Supply-side constraints and structural impediments - Limited competition among commercial banks and limited availability of borrowers’ credit information have restrained lending to individuals and businesses. - Supply-side factors include: - Limited capacity in implementing good accounting practices and corporate governance. - Absence of a national credit bureau or registry, leading to information asymmetry. - Complicated land ownership: approximately 80 percent of land in Samoa is customary land with collective ownership; banks often do not accept leases on such land as collateral for loans. - Limited availability of agricultural insurance amid frequent natural disasters and climate risks; banks require proof of insurance, raising hurdles for farmers and MSMEs. ### PFIs, mandates, and market effects - There are four PFIs in Samoa: Samoa National Provident Fund (SNPF), Development Bank of Samoa (DBS), Samoa Housing Corporation (SHC), and Unit Trust of Samoa (UTOS). Three (SNPF, DBS, SHC) are under CBS supervision; UTOS is under Ministry of Finance and monitored by Ministry of Public Enterprises. - PFIs engage in policy lending to MSMEs, SOEs and low-income households. PFIs’ balance sheets have grown: total private credit to GDP ratio from PFIs increased from 20 percent in FY2012 to 31 percent in FY2019. - SNPF: compulsory retirement savings scheme with a minimum 8 percent contribution paid by employees and employers; provides personal loans to members against collateral up to 50 percent of total contributions; offers commercial and community loans. - DBS: established to provide development assistance to agriculture projects; provides concessional finance (CBS manages a credit line facility (CLF) for DBS to on-lend), disaster assistance, and operates microlending including pilot microcredit for women and youth; prioritizes small-size loans (below WST250,000), but the value of loans to MSMEs was 18 percent of total loan portfolio as of Dec 2019 while large corporates (mostly tourism) accounted for approximately 82 percent of loan value in 2017. - SHC: provides mortgages and administers public housing for rent for lower income persons and families. - UTOS: investment vehicle established in 2010 for local Samoans and Samoan businesses, and those based overseas. - PFIs’ policy lending contributed to rapid balance sheet growth under implicit and explicit government guarantees; SNPF liabilities continue to grow with accumulation of mandatory contributions. - Operational linkages between commercial banks and PFIs/SOEs influence lending rates and interest rate differentials; PFIs’ deposit behavior can keep deposit rates high and crowd out private-sector lending. - Potential conflict of interest concerns when SNPF engages in quasi-fiscal operations. - Government-directed lending and concessional financing to PFIs for on-lending can dampen effective allocation of financial resources and increase fiscal risks. ### Role of microlenders and credit unions; financial inclusion - Microlenders and credit unions have small lending share: total lending value of credit unions and microlenders amounts to less than 1 percent of GDP; outstanding loans of credit unions and deposit-taking microfinance institutions amount to 1.6 percent of commercial bank loans (as of 2018). - South Pacific Business Development (SPBD) is the only licensed microfinance institution offering deposit and lending services, focusing on microlending to women with interest rates ranging 10-24 percent. - More than 13 credit unions and credit cooperatives licensed by the Ministry of Commerce, Industry and Labor (MCIL). Samoa Teachers Credit Union lends to members at 12 percent interest rate; loan amount about WST6.3 million in FY2018; loans extendable up to members’ shares plus 80 percent. - The number of borrowers from credit unions and microlenders is about 48 percent of the number of borrowers from commercial banks. - Draft legislation for regulating microfinance institutions, credit unions, and money lenders expected to be prepared by the CBS during 2021. - Limited capacity of MCIL to analyze financial statements and compile financial soundness indicators needs to be addressed. - Bank branches and ATMs are concentrated in urban areas; credit unions and microlenders help serve rural populations and contribute to financial inclusion. ### Key recommendations to improve credit access and market efficiency - Continue implementing financial inclusion reforms, including: - Re-establishing a credit bureau to facilitate credit risk assessments. - Enhancing bankruptcy laws (e.g., introducing a cost-effective insolvency regime). - Improving financial literacy. - Strengthen regulatory and supervisory frameworks to better monitor activities of credit unions, microlenders, and other informal lending arrangements. - Mitigate credit risks from natural disasters by making disaster risk insurance available to farmers or developing financial products that address these risks. - Facilitate the use of customary land leases as collateral by reforming legislation to promote economic use of such land while protecting communal ownership. - Reform mandates of PFIs for defined policy objectives based on cost-benefit assessments to create a level playing field and healthy competition among commercial banks; enhance transparency and governance of PFIs. - Unwind CBS lending to DBS and SHC to improve financial stability and contain fiscal risks from contingent liabilities. *Prepared by Seohyun Lee (APD).* ### 3. The EBA-Lite current account approach assesses Samoa’s external position in FY2020 ### 3. The EBA-Lite current account approach assesses Samoa’s external position in FY2020 ### EBA-Lite current account assessment and key figures - Current account gap: 1.6 percent of GDP (multilaterally-consistent CA norm of a 0.5 percent of GDP surplus; assessed against a cyclically-adjusted current account of 2.1 percent of GDP). - Adjustments and model components (text table, Samoa: Results from EBA-lite models, 2020): - CA-Actual: 1.2 - Cyclical Contributions (from model): -0.9 - Additional temporary/statistical factors: 0.0 - Adjusted CA: 2.1 - CA Norm (from model) 1/: 0.5 - Adjustments to the norm: 0.0 - Adjusted CA Norm: 0.5 - CA Gap: 1.6 - o/w Policy gap: 5.6 - Elasticity: -0.29 - REER Gap (in percent): -5.4 - The external position is assessed as moderately stronger than fundamentals, predominantly driven by a policy gap of 5.6 percent of GDP. - Fiscal contribution to the policy gap: - Fiscal surplus in FY2020: 6.2 percent of GDP (the highest contributor to the policy gap). - Key driver: under-execution of CAPEX — outturn of 1.7 percent of GDP compared to 8.9 percent of GDP in the revised budget. ### Data gaps and implications for alternative approaches - Data limitations: - International Investment Position (IIP) data required for the external sustainability approach are not currently published by the authorities. - The Index Real Effective Exchange Rate (IREER) approach has limited usefulness given limited quality and unavailability of reliable longer time series data required for the model. - Transfers and exchange-rate sensitivity: - Current transfers are the main contributors to the current account and are less sensitive to exchange rate developments. - Remittances: around 26 percent of GDP in FY2020 compared to 21 percent of GDP on average between FY2015-19. - Authorities’ progress: - The authorities successfully disseminated initial estimates of the IIP to the Statistics Department in 2020 and are working on further improvements. ### Exchange rate assessment and REER developments - Exchange arrangement: conventional peg against a basket of trade-weighted currencies (AUD, NZD, USD, EUR). - Tala movements in FY2020: - Depreciated against the Australian dollar and the Euro. - Appreciated against the N.Z. dollar. - Generally depreciated against the U.S. dollar for most of FY2020, more pronounced by end March 2020, then appreciated towards the end of FY2020 and into FY2021 as demand for the U.S. dollar in Samoa fell following border closures and collapse of tourism. - Overall marginal appreciation of the Tala against the U.S. dollar. - REER: - The REER generally remained stable over the past few years but marginally declined in FY2020. - EBA-Lite current account approach result: REER gap of -5.9 percent (based on elasticity of -0.3) as reported in the narrative. - Table-based model values: Elasticity -0.29 and REER Gap (in percent) -5.4. - REER continued to decline in more recent months reflecting continuous negative inflation in Samoa relative to trading partners. ### Reserve coverage, projections, and adequacy - Observed reserve coverage: - Reserves rose from 5.4 months of import cover at the end of FY2019 to 7.0 months in FY2020. - Staff note the high level in FY2020 reflects improvement in the current account surplus driven by the economic fallout of the domestic measles outbreak and the global COVID-19 pandemic, and is considered temporary. - Revised reserves coverage (computing FY2020 reserves against imports in FY2019 to discount temporary import compression): 6.3 months. - Staff projections: - Reserves projected to drop to 6.5 months at the end of FY2021. - Reserves projected to fall below 5.0 months of imports during FY2022-FY2024. - Medium-term projection: coverage will fall to around 4 months given the projected path of the current account balance in the baseline (average of -5.0 percent of GDP from FY2021-26 compared to 1.2 percent of GDP in FY2020). - Baseline assumes the border reopens by end-FY2022 (ending June 2022). - Deficit closure drivers (medium-term): recovery in tourism sector and a pickup in remittances, more than offsetting a pickup in import demand amid expected normalization in foreign grants. - Reserve adequacy metrics: - Reserves coverage of 7.0 months in FY2020 is considered adequate according to the ARA metric for credit constrained economies. - ARA metric yields an optimal level of reserves between 2.8 to 4.6 months of imports, depending on assumed opportunity cost of holding reserves. - Incorporating natural disaster vulnerability moves the optimal reserves range to between 4.1 to 6.4 months of imports. - Sensitivity to opportunity cost example: if opportunity cost is assumed at 4 percent, adequate level is 6.4 months; if opportunity cost is 6.2 percent, adequate level falls to 4.1 months. - Policy caution: - Staff consider FY2020 reserve levels temporary and warn a BOP financing gap will re-emerge in FY2022 and beyond. - Further shocks to remittances could put added pressure on reserves, requiring a higher buffer of at least 5 months of prospective imports. ### Policy implications, outlook, and structural priorities - Short-term outlook: - Staff project the economy to bottom in FY2021 with a gradual recovery commencing FY2022. - Growth recovery will translate into additional import demand and lower reserve coverage over the medium term. - Structural and policy priorities (post-pandemic): - Support job creation and participation of women and youth in the formal labor market. - Help the most vulnerable cope with adversity. - Enhance climate-resilience and food security. - Build capacity for evidence-based policies and improve data quality (including publication and improvement of IIP data). - Fiscal and investment execution: - Address under-execution of CAPEX to avoid large fiscal surpluses driven by investment shortfalls and to support recovery. - Reserve buffer and external preparedness: - Maintain awareness that reserves adequacy is sensitive to assumptions; consider maintaining a buffer of at least 5 months of prospective imports to guard against remittance shocks and BOP financing gaps. *Source: IMF staff estimates and IMF staff analysis as presented in the chapter "3. The EBA-Lite current account approach assesses Samoa’s external position in FY2020."* ### 4. Promoting agriculture and fishery with resilience to climate could help support the ### 4. Promoting agriculture and fishery with resilience to climate could help support the economic recovery and food security (Box 1) ### Agriculture and fishery: pre-pandemic context and pandemic response - Prior to the pandemic, initiatives included the Samoa Agriculture Competitiveness Enhancement Project (SACEP), Samoa-China Agricultural Technical Aid Project (SCATAP), and the Samoa Agriculture and Fisheries Productivity and Marketing Project (SAFPROM). - Since the onset of the pandemic, authorities implemented stimulus measures to further promote the sectors to help households who lost their jobs and turned to agriculture to make up for their income loss. - Household engagement in agriculture and fishery (2015 data): - 97 percent of households grew crops. - 17 percent reported growing crops as the main source of income. - 54 percent engaged in mainly subsistence agriculture. - 21 percent of households engaged in fishing. - 70 percent of fishers reported home consumption as the main purpose for fishing. - Policy considerations: - Facilitate market access and provide business assistance to food producers to support income generation. - Consider Samoa’s cultural and historical heritage (i.e. the communal ties to land tenure), environmental sustainability, and climate-resilience to crops and agricultural infrastructure. ### Box 1 — Ensure Food Security - Findings: - The recent pandemic exacerbated concerns of food insecurity. - Food insecure households tend to be poorer, and rely more on own food production (Troubat et al., 2020). - Implications: - Strengthening agriculture and fishery could positively impact growth and access to safe and nutritious food, supporting SDG No. 2. - Poverty in rural areas should be closely monitored. - Policy recommendations: - Increase climate resilience measures (e.g. adequate insurance coverage) to help protect vulnerable households. ### Labor market, upskilling, and informality (Box 2) - Pandemic and labor market impacts: - As part of the stimulus package, Samoa introduced a guarantee scheme to foster retention of workers in the tourism sector and provided training to tourism sector workers. - Formal employment decreased by 0.3 percent in the September quarter of 2020, driven by job losses in accommodation and restaurants, commerce, and transport. - An ILO Rapid Assessment Survey (RAS) found 56 percent of workers indicated reduction in income up to 50 percent. - The final figures of the impact of the pandemic on the tourism sector for FY2021 are likely to be higher. - Structural issues: - Long-term challenges: high levels of informality and gender disparities in employment, limiting options for young generations. - Policy recommendations: - Promote transitions from informal to formal-sector jobs, particularly for youth and female workers. - Facilitate re-training and upskilling to support resumption of tourism activities after border reopening. - Promote vocational training, knowledge transfers, enhanced education quality, digital literacy, and ICT infrastructure to address skill mismatch, enhance labor mobility, and support economic diversification. - Measures support SDGs No. 1, 2, 4, 5, 8. ### MSMEs and financial inclusion (Box 3) - Pre-existing challenges: - Lack of adequate financial access, financial literacy, and entrepreneurship skills among MSMEs. - Pandemic impacts on MSMEs: - Survey of 119 enterprises (59 percent “micro”, 34 percent “small”) via ILO RAS found declining sales and cash flow since the onset of the pandemic. - Majority of enterprises were not insured, had adequate cash flow for only up to three months, laid-off or reduced working hours for employees, and postponed investment plans. - Impacts may be higher when including informal MSMEs. - Samoa-specific MSME statistics: - Small and medium enterprises comprise the majority of enterprises: 88 percent of all businesses and 75 percent of private sector employment (UNESCAP, 2020). - Gender considerations: - Research by the United Nations: 40 percent of women are banked, compared to 38 percent of men, but women may face more barriers in securing collateral for commercial finance (UNESCAP, 2020). - Policy recommendations: - Foster MSME development by advancing the NFIS with due consideration of challenges faced by women entrepreneurs. - Monitor bankruptcy and loan repayment difficulties in the near term. - Promote financial inclusion, financial literacy, and entrepreneurship skills to foster job creation and recovery. - Efforts address SDGs No. 1, 2, 8, 10. ### Social protection and climate resilience - Social protection: - Samoa lacks an integrated social protection framework; informal workers are particularly exposed without well-targeted schemes. - With UN assistance, Samoa will establish a social protection floor. - The digital national ID project could promote efficient public services and better target social protection policies, supporting SDGs No. 1, 5, 10. - International experiences indicate possible use of emergency cash transfer for vulnerable groups and fast enrollment of beneficiaries in social programs (IMF, 2020). - Climate resilience: - Samoa is highly susceptible to climate change risks with significant socioeconomic costs. - Priority actions: - Upgrade physical infrastructure. - Strengthen emergency response. - Mainstream climate resilience into all sector plans, in line with the National Disaster Management Plan 2017-2020. - Monitor effectiveness and implementation of adaptation plans; obtain more granular data to assess economic costs of natural disasters. - Recent measures taken by Samoan authorities include: - Establishment of the National Emergency Operation Centre in October 2020 for emergency operations. - Planned rollout of the Self-Insurance Scheme in 2021 to supply insurance to government buildings against natural disasters, including schools and hospitals. - These efforts support a green recovery and SDGs No. 13, 14, 15. ### Capacity building, data, and SDG monitoring - Capacity building: - Samoa has continued building institutional capacity through technical assistance from the international community. - Further focus needed on statistical capacity: granular, quality, and timely data and information sharing across agencies. - Policy priorities: - Ensure policies are transparent, appropriately prioritized, and evidence-based to support SDGs No. 17. - Improve understanding of SDG progress, evaluate policy effectiveness, and identify emerging issues to enable agile policymaking. *International Monetary Fund — Samoa country chapter content* ### References ### 1wsmea2021001 - References ### References Cited - International Finance Corporation (IFC), 2011, “Enterprise Finance Gap Database.” (https://www.enterprisesurveys.org/en/data/exploreeconomies/2009/samoa#1). - International Labour Organization (ILO), 2019, “Samoa – Labour Market Monitoring Report.” (https://www.ilo.org/suva/publications/WCMS_754596/lang--en/index.htm). - International Labour Organization (ILO), 2020, “Impact of COVID19 on Employment and Business in the Pacific.” (http://www.ilo.org/suva/publications/WCMS_751883/lang--en/index.htm). - International Monetary Fund (IMF), 2020, “Digital Solutions for Direct Cash Transfers in Emergencies, Special Series on Fiscal Policies to Response to COVID-19.” (https://www.imf.org/~/media/Files/Publications/covid19-special-notes/en-special-series-on-covid-19-digital-solutions-for-direct-cash-transfers-in-emergencies.ashx). - Samoa Bureau of Statistics (SBS) and UNICEF, 2019, “Samoa Demographic and Health Survey-Multiple Indicator Cluster (DHS-MICS) 2019-20 - Preliminary Results - July 2020.” - Samoa Bureau of Statistics (SBS), 2017, Samoa Labour Force Survey, 2017, (https://www.sbs.gov.ws/digi/2017-Social%20Statistics-Samoa%20LFS%20Report%202017.pdf). - Troubat, N., Faaola, E. and Aliyeva, R., 2020. “Food Security and Food Consumption in Samoa,” FAO and SBS, 2020. (https://doi.org/10.4060/cb0613en). - United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), 2020, “Micro, Small and Medium-sized Enterprises’ Access to Finance in Samoa – COVID-19 Supplementary Report and Recommendations.” United Nations. (https://www.unescap.org/resources/msmes-access-finance-samoa-covid-19-supplementary-report-and-recommendations). ### Fund Relations — Key Facts (As of December 31, 2020) - Membership Status: Joined: December 28, 1971; Article VIII. - General Resources Account: - Quota: 16.20 SDR Million; Percent Quota: 100.00. - Fund holdings of currency: 14.37 SDR Million; Percent Quota: 88.69. - Reserve position in Fund: 1.84 SDR Million; Percent Quota: 11.38. - SDR Department: - Net cumulative allocation: 11.09 SDR Million; Percent Allocation: 100.00. - Holdings: 2.72 SDR Million; Percent Allocation: 24.51. - Outstanding Purchases and Loans: - RCF Loans: 19.10 SDR Million; Percent Quota: 117.90. - Latest Financial Arrangements — Stand-by: - Stand-by approved 7/9/1984, expiration 7/8/1985, Amount Approved 3.38 SDR million, Amount Drawn 3.38 SDR million. - Stand-by approved 6/27/1983, expiration 6/26/1984, Amount Approved 3.38 SDR million, Amount Drawn 3.38 SDR million. - Stand-by approved 8/17/1979, expiration 8/16/1980, Amount Approved 0.75 SDR million, Amount Drawn 0.00 SDR million. - Outright Loans — RCF: - RCF commitment 4/24/2020, drawn 4/28/2020, Amount Approved 16.20 SDR million, Amount Drawn 16.20 SDR million. - RCF commitment 5/15/2013, drawn 5/24/2013, Amount Approved 5.80 SDR million, Amount Drawn 5.80 SDR million. - Overdue Obligations and Projected Payments to Fund (SDR million; based on existing use of resources and present holding of SDRs): - Forthcoming Principal: 2021: 1.16; 2022: 1.16; 2023: 0.58. - Charges/interest: 2021: 0.01; 2022: 0.01; 2023: 0.01; 2024: 0.01; 2025: 0.01. - Total: 2021: 1.17; 2022: 1.17; 2023: 0.59; 2024: 0.01; 2025: 1.63. ### Exchange Rate Arrangement and Article IV Consultations - Exchange rate: The tala is pegged to a trade and payments weighted basket of currencies; pegged rate adjustable within a ±2 percent band. - Basket composition: currencies of New Zealand, Australia, the United States, and Euro countries. - Article IV: Samoa is on a 12-month consultation cycle. The 2020 consultation discussions took place in Apia, Samoa during February 12-25, 2020, but the consultation was not concluded by the Executive Board due to the COVID-19 pandemic. The 2019 consultation was concluded on May 8, 2019 (IMF Country Report No. 19/138). ### Safeguards, AML/CFT, and Technical Assistance - Safeguards Assessment: - An update safeguards assessment mission scheduled for March 2021. The previous update was completed in June 2014. - Assessment found concerns over CBS autonomy and governance, audit quality, and staff capacity; CBS enacted a new central bank law in 2015 and improved governance and autonomy; financial statements and management letter are made available within three months of the FY year-end and are published. - Further steps needed to enhance oversight of audit functions. - AML/CFT: - Samoa’s AML/CFT regime was assessed in 2015 by the Asia Pacific Group on Money Laundering (APG) under the revised 2012 FATF standard. - APG found significant shortcomings: low or moderately effective in 10 out of the 11 immediate outcomes on effectiveness; non-compliant or partially compliant in 23 of the 40 technical recommendations. - Authorities developed the 2016-2020 national AML/CFT strategy; amendments to the Money Laundering Prevention Act passed in 2018; Trustee Companies Amendment Act and Foundations Amendment Act enacted in 2019. - Samoa remains under the APG’s enhanced follow-up process, with next report due in June 2021; CBS coordinating with an AML consultant to prepare the APG follow-up assessment. - Technical Assistance (selected): - PFTAC assistance on public financial management (PFM), macroeconomic programming and analysis, revenue administration, financial sector supervision. - STA assistance on government finance statistics and balance of payments statistics in collaboration with PFTAC and the Capacity Development Office of Thailand (CDOT). - FAD assistance with tax administration and revenue mobilization to address Pacer Plus. - MCM assistance with insurance regulatory reforms and cyber risk regulation. - Samoa is an IMF pilot on Correspondent Banking Relationships (CBR); received technical assistance from LEG and MCM in 2017 and follow-up from LEG during 2019 Article IV mission. - APD organized High-level Conference with Pacific Islands and Pacific Island Forum Secretariat during the Annual Meeting in October 2020. ### PFTAC and IMF Technical Work Program (FY 2020 and FY 2021) — Selected Items - FY 2020: - National Accounts — PFTAC. - Government Finance Statistics — PFTAC. - Strengthening External Sector Statistics compilation and dissemination — STA via CDOT. - Supporting the use of the Samoa Economic and Revenue Forecasting (SERF) Model — PFTAC. - Developing PFM roadmap — PFTAC. - Planning and reporting a risk-based procurement audit — PFTAC. - Improving financial reporting — PFTAC. - Reviewing an industry partnership strategy to improve compliance — PFTAC. - Supporting the Pacific Agreement on Closer Economic Relations Plus (PACER Plus) compensation program — PFTAC and FAD. - Reviewing progress and facilitate further improvements of on-time filing and management of outstanding tax returns — PFTAC. - Reviewing progress and facilitate further improvements of on-time payment and tax arrears — PFTAC. - Improving taxpayer services — PFTAC. - Review audit modernization plan — PFTAC. - Insurance regulatory reforms — PFTAC and MCM. - FY 2021: - National Accounts — PFTAC. - Government Finance Statistics — PFTAC. - External Sector Statistics — STA via CDOT. - Risk-based Internal Audit — PFTAC. - PEFA Climate Assessment. - Cash Management. - Strengthening Taxpayer Audit. - Revenue Administration. - Business Continuity Planning. - Revenue Compliance Improvement Strategy. - Territorial Tax Legislation — PFTAC and LEG. - Insurance Regulatory Reforms — PFTAC and MCM. ### Resident Representative - Regional Resident Representative Office for Pacific Island countries based in Suva, Fiji opened on September 13, 2010; office covers Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu. - Ms. Leni Hunter is the current Resident Representative. ### Relations with Other International Financial Institutions - World Bank Group: reference provided for projects search. - Asian Development Bank: reference provided for Samoa country page. - Pacific Financial Technical Assistance Center: reference provided for reports. ### Statistical Issues — Assessment and Data Adequacy (As of February 2021) - General: Data provision has some shortcomings but is broadly adequate for surveillance. Core macroeconomic and monetary data are regularly reported to the IMF and published on official websites. Weaknesses in national accounts, monetary and financial, and external sector statistics. - National Accounts: - Improvements over last three years. - GDP by production compiled quarterly, predominantly using value-added tax data. - Rebased GDP at 2013 prices published in April 2019. - Estimates of GDP by expenditure at current and constant prices for 2018:Q1 to 2020:Q3 were refined during a PFTAC mission in February 2021. - Price Statistics: - CPI compiled monthly with a less than one-month lag. - Current weights derived from the 2013-14 Household Income and Expenditure Survey (HIES); expected to be updated in 2021 based on results of the 2018 HIES. - Quarterly import price index with 2018 weights published with a lag of about six weeks. - Government Finance Statistics (GFS): - Samoa compiles GFS for general government and reports data to the IMF’s annual GFS database; latest submission includes data for FY2019. - SBS compiles quarterly GFS for the budgetary central government; Ministry of Finance produces central government debt data. - Data disseminated through Samoa enhanced General Data Dissemination System (e-GDDS) National Summary Data Page. - Authorities intend to expand coverage for GFS and debt statistics beyond general government to include the rest of the public sector. - Monetary and Financial Statistics (MFS): - Samoa reports monetary data for central bank, other depository corporations and other financial corporations (OFC) through standardized report forms (SRF). - Following MFS TA mission 2015, data for OFCs, including coverage, could be further improved. - Samoa reports several indicators of the Financial Access Survey (FAS), including commercial bank branches per 100,000 adults and ATMs per 100,000 adults. - Financial Sector Surveillance: - Samoa began reporting Financial Soundness Indicators (FSIs) to the IMF in March 2016. - Authorities report all 12 core and 7 encouraged FSIs for deposit takers, two FSIs for other financial corporations, and two FSIs for real estate markets, with quarterly frequency. - External Sector Statistics (ESS): - CBS compiles quarterly balance of payments. - Project to Improve ESS in the Asia–Pacific Region (funded by Government of Japan, managed by STA and CDOT) has been successful. - Source of data on exports and imports changed to Customs data; 2018 International Visitors Survey incorporated with STA/CDOT assistance. - Remote mission in January 2021 validated selected balance of payments components affected by the pandemic and proposed revisions; assisted in setting up procedure for recording exceptional financing transactions; suggested institutional changes to support ESS compilation. - Mission noted need for more granular external debt data to record below-the-line transactions and advised on recording various debt relief transactions, including the G20 Debt Service Suspension Initiative. - Offshore financial and non-financial companies not currently included in Samoa’s balance of payments due to lack of detailed data. - Authorities should continue developing source data mainly from non-financial corporations to improve IIP data; initial estimates of IIP disseminated to the Statistics Department in 2020; work ongoing on further improvements. - Institutional issues remain, including interagency data sharing. - Data Standards and Quality: - Samoa implemented the enhanced General Data Dissemination System (e-GDDS) in 2017 and disseminates key macroeconomic and financial statistics through a National Summary Data Page according to an advance release calendar. - No data module ROSC has been conducted in Samoa. ### Table of Common Indicators Required for Surveillance (As of February 2021) — Selected Dates and Frequencies - Exchange Rates: Date of latest observation 2/4/21; Date received 2/4/21; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation 12/20; Date received 1/14/21; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M. - Reserve/Base Money: Date of latest observation 12/20; Date received 2/4/21; Frequency M/M/M. - Broad Money: Date of latest observation 12/20; Date received 2/4/21; Frequency M/M/M. - Central Bank Balance Sheet: Date of latest observation 12/20; Date received 2/4/21; Frequency M/M/M. - Consolidated Balance Sheet of the Banking System: Date of latest observation 12/20; Date received 2/4/21; Frequency M/M/M. - Interest Rates: Date of latest observation 12/20; Date received 2/4/21; Frequency M/M/M. - Consumer Price Index: Date of latest observation 12/20; Date received 2/4/20; Frequency M/M/M. - Revenue, Expenditure, Balance and Composition of Financing – Central Budgetary Government: Date of latest observation 2020: Q3; Date received 12/1/20; Frequency Q/Q/Q. - Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation 2020: Q3; Date received 12/1/20; Frequency Q/Q/N/A. - External Current Account Balance: Date of latest observation 2020: Q3; Date received 1/11/21; Frequency Q/Q/Q. - Exports and Imports of Goods and Services: Date of latest observation 2020: M10; Date received 1/11/21; Frequency M/M/M. - GDP: Date of latest observation 2020: Q3; Date received 2/4/21; Frequency Q/Q/Q. - Gross External Debt: Date of latest observation 2020: Q3; Date received 12/1/20; Frequency Q/Q/Q. - International Investment Position (IIP): Date of latest observation 2019: Q4; Date received 6/4/20; Frequency Q/Q/Q. (Note: Frequency codes — Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA). Data obtained directly from the Central Bank of Samoa where indicated.) ### Debt Sustainability Analysis — Key Findings (Staff Report for the 2021 Article IV Consultation) - Risk assessments: - Risk of external debt distress: High. - Overall risk of debt distress: High. - Granularity in the risk rating: Sustainable. - Application of judgment: Yes. The projection horizon was extended to 20 years to capture the impact of natural disasters on debt dynamics. - Summary findings: - Samoa remains at high risk of external and overall debt distress, unchanged from the previous DSA published in April 2020. - Judgment was applied to arrive at the high-risk rating, given that the mechanical external and overall risk rating from the model was assessed as moderate. - Projection horizon extended to 20 years (FY2027-2041) to include average long-term costs of natural disasters and climate change by incorporating their impacts on economic growth, the fiscal position, and the current account balance in the baseline scenario over the long term. - Combination of factors results in a breach of the threshold under the baseline scenario for the present value (PV) of the public debt-to-GDP ratio from 2034 onwards, and for the PV of the external public and publicly guaranteed (PPG) debt-to-GDP ratio from 2038 onwards. - The debt service-to-revenue ratio does not breach its indicative target because of the large share of concessional loans in external debt and the temporary relief provided by the G-20 Debt Service Suspension Initiative (DSSI). - A tailored natural disaster shock, assumed to strike in FY2022 and similar in scale to the median impact of natural disasters in Samoa’s history, leads to further worsening of debt dynamics. - Given Samoa’s vulnerability to natural disasters and external shocks, debt sustainability hinges upon the government’s efforts to build fiscal and external buffers and enhance resilience. - Policy recommendations and priorities: - Focus on a mix of expenditure prioritization and PFM reforms including improvements in budget planning, monitoring, and execution to help promote an inclusive economic recovery. - Once the economy has recovered from the effects of COVID-19, strengthen revenue mobilization efforts. - Note: Domestic debt remains small; government-guaranteed debt accounted for 7.1 percent of GDP in FY2020, a reduction from FY2019. - Methodology notes: - DSA prepared jointly by IMF and World Bank following the revised LIC-DSF Framework and Guidance Note (2017) in effect as of July 1, 2018. - Samoa Composite Indicator (CI) calculated based on October 2020 WEO and World Bank’s 2019 CPIA index is 3.22, indicating the country’s debt-carrying capacity is strong. - Thresholds for debt burden indicators are those established in the revised LIC-DSF framework. - Samoa’s fiscal year runs from July 1 to June 30. *Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA), March 2, 2021.* ### 1. This D ebt Sustainability Analysis (DSA) covers central government and central government- ### 1wsmea2021001 - 1. This D ebt Sustainability Analysis (DSA) covers central government and central government- ### Debt coverage and definition - Covers central government and central government-guaranteed debts (Text Table 1). - Public and Publicly Guaranteed (PPG) debt: 53.8 percent of GDP in FY2020. - Central government debt: 46.7 percent of GDP in FY2020. - Central government-guaranteed SOE debt: 7.1 percent of GDP in FY2020. - No sub-national government structure in Samoa. - Central Bank of Samoa (CBS) is not allowed to contract debt on behalf of the government. - SOEs must seek government approval annually for all new loans. - Authorities began reporting non-guaranteed SOE debt from FY2020 (estimated at around 1.1 percent of GDP in FY2020); this is not included in the debt definition but is captured in the contingent liability stress test. - Definition of external and domestic debt is based on residency; in Samoa residency-based classification is equivalent to currency-based classification since all domestic debt is in tala and all external debt is in foreign currency. - Authorities working to strengthen monitoring and disclosing of fiscal risks with PFTAC assistance. ### Background on public debt levels and composition - Central government (public) debt: 46.7 percent of GDP in FY2020, a decline of 0.8 percentage point of GDP from FY2019. - FY2020 fiscal outcome: overall fiscal surplus of 6.2 percent of GDP compared to 2.7 percent of GDP in FY2019, driven by under-execution of CAPEX and growth in total revenue largely from increased grants. - Public external debt: US$375 million (46.3 percent of GDP) at end-FY2020, a decline of 0.4 percentage point of GDP compared to FY2019. - 54 percent of outstanding public external debt at end-FY2020 from multilateral creditors (including IDA and AsDB). - 46 percent from bilateral creditors (including China and Japan). - Domestic debt: declining gradually and remains below 1 percent of GDP; all domestic public debt issued in local currency. ### Debt stock and creditor breakdown (FY2020 and related figures preserved) - Text Table 2 (selected figures as presented): - Total public debt: 1012.3 (in percent of GDP context; tables show amounts in millions of SAT and US$ across years). - External: 1004.6 / 375.0 / 99.2 / 46.3 (table columns reflect multiple units and shares). - Multilateral: 540.6 / 201.8 / 53.4 / 24.9 - IDA: 294.9 / 110.1 / 29.1 / 13.6 - ADB: 218.3 / 81.5 / 21.6 / 10.1 - OPEC: 20.9 / 7.8 / 2.1 / 1.0 - Other: 6.5 / 2.4 / 0.6 / 0.3 - Bilateral: 463.9 / 173.2 / 45.8 / 21.4 - Exim Bank (China): 377.3 / 140.8 / 37.3 / 17.4 - Japan: 86.7 / 32.4 / 8.6 / 4.0 - Domestic: 7.8 / 2.9 / 0.8 / 0.4 - Memorandum items: - Nominal GDP (millions of SAT): 2168.0 - Market rate (tala/U.S. dollar, end period): 2.7 (Note: the source tables present multi-year and multi-unit breakdowns; the figures above are preserved exactly as they appear in the source excerpts.) ### Government guarantees and SOE exposure - Public and publicly guaranteed (PPG) debt totaled 53.8 percent of GDP in FY2020; guarantees were 7.1 percent of GDP. - Government-guaranteed debt declined by 0.2 percentage point of GDP to 7.1 percent of GDP. - More than half of total guaranteed debt (about 54 percent in FY2020) originated from the Central Bank of Samoa (CBS) through the Credit Line Facility (CLF) to support SOEs (mainly DBS). - CBS CLF disbursements and balances (from footnote context): - Total disbursements SAT 135 million; outstanding balance declining to SAT 96 million in FY2019 and SAT 87 million in FY2020. - DBS and other public financial institutions received the bulk of CLF on-lending; DBS operations account for the largest share of government guarantees, holding around 65 percent of the total in FY2020. - Text Table 4 (government guarantees, in millions of Tala, FY2017–FY2020) preserves creditor and borrower line items and amounts as presented: - By Creditor examples: Central Bank of Samoa 99.1$ (FY2017), 96.6$ (FY2018), 95.7$ (FY2019), 86.6$ (FY2020); Unit Trust of Samoa 10.7$, 10.8$, 25.6$, 19.4$; Samoa National Provident Fund 17.6$, 16.7$, 15.4$, 14.3$. - By Borrower examples: Development Bank of Samoa 124.0$ (FY2017), 119.9$ (FY2018), 115.5$ (FY2019), 103.4$ (FY2020); Polynesian Airlines/Samoa Airways 6.8$, 5.1$, 24.3$, 35.8$; Samoa Housing Corporation 14.2$, 12.8$, 11.5$, 10.1$. ### Country classification and debt thresholds - Composite Indicator (CI) index: 3.22 (based on October 2020 WEO and World Bank 2019 CPIA), indicating "Strong" debt-carrying capacity in the LIC-DSA framework. - CI was 3.29 in the April 2020 DSA. - CI components and contributions (Text Table 5 preserved): - CPIA: coefficient 0.385, 10-year average value 3.98, component contribution 1.53 (48% of CI). - Real growth rate (in percent): coefficient 2.71, 10-year average 1.52, contribution 0.04 (1%). - Import coverage of reserves (in percent): coefficient 4.05, 10-year average 35.45, contribution 1.44 (45%). - Import coverage of reserves^2 (in percent): coefficient -3.99, 10-year average 12.57, contribution -0.50 (-16%). - Remittances (in percent): coefficient 2.02, 10-year average 15.49, contribution 0.31 (10%). - World economic growth (in percent): coefficient 13.52, 10-year average 2.92, contribution 0.40 (12%). - Indicative thresholds for countries with a strong CI rating (Text Table 6): - PV of PPG external debt-to-GDP: 55 percent. - PV of PPG external debt-to-exports: 240 percent. - PPG external debt service-to-exports ratio: 21 percent. - External debt service-to-revenue ratio: 23 percent. - Benchmark for PV of total public debt under strong capacity: 70 percent. ### Baseline scenario, methodology, and main macroeconomic assumptions - Baseline incorporates effects of natural disasters and climate change. - Medium-term (FY2021–26) assumed disaster free for policy discussion. - From FY2027 onwards baseline adjusted to reflect historical experience and average long-term effects of natural disasters and climate change: - Lowers GDP growth by 1.3 percentage points (pp). - Raises current account deficit by 3.5 pp of GDP. - Increases fiscal deficit by 3.5 pp of GDP on average each year during FY2027-41 vis-à-vis disaster-free projections during FY2021-26. - Discount rate for NPV of external debt: 5 percent. - Key assumptions and staff projections: - Real GDP: decline of 7.8 percent in FY2021; rebound to growth of 1.7 percent in FY2022; normalize at around 2.1 percent by end of medium term (FY2026). Real GDP growth lower in FY2027-31 due to pandemic scarring; higher in FY2032-41 with structural reforms. - When disaster average is taken into account, GDP growth lowered by 1.3 pp on average during FY2027-41. - Inflation: projected to fall to -2.5 percent in FY2021; projected to pick up but remain below 3 percent over medium term. - Current account balance: recorded a surplus of 1.2 percent of GDP in FY2020. - Projected current account deficit: 6.5 percent of GDP in FY2021 and 10.9 percent of GDP in FY2022; improve gradually to 2.0 percent of GDP over the medium term. - To account for average impact of natural disasters, deficit increased by 3.5 pp of GDP on average during FY2027-41. - Overall fiscal balance: surplus of 6.2 percent of GDP in FY2020. - Projected overall fiscal deficit: 3.4 percent of GDP in FY2021 and 6.7 percent of GDP in FY2022. - Expected to improve to 3.0 percent of GDP on average over the medium-term (FY2023-26). - To account for average annual impact of natural disasters, the deficit is widened by 3.5 pp of GDP on average during FY2027-41. - Baseline financing and debt assumptions: - Continued eligibility for concessional borrowing from MDBs assumed. - Baseline incorporates cashflows (from delayed debt service) of around 2.3 percent of GDP in FY2021 obtained under the Debt Service Suspension Initiative (DSSI). - All external financing assumed concessional. - In addition to IDA financing, 20 percent of remaining financing need assumed from AsDB and 80 percent from other multilateral partners. - Grant element of all new loans: 48 percent on average. - Borrowing from IDA, AsDB, and other multilaterals assumed on full credit terms for DSAs. ### Realism tools, stress testing, and methodological notes - Realism tools suggest macroeconomic and fiscal assumptions are reasonable. - The external and public PPG debt trajectory in the current DSA differs from April 2020 DSA due to a lower debt outturn in FY2020 (46.8 percent of GDP) versus the April 2020 projection (55.6 percent of GDP). - Underlying indicators for external debt dynamics remain broadly in line with historical contributions except the current account, which is highly volatile. - Primary balance projected to deteriorate between FY2021 and FY2022; assumed revenue path discounts collection of tax arrears in FY2020 and includes expected revenue losses from COVID-19 impacts on tourism and lower grants; primary expenditure projected to increase driven by capital projects including disaster-resilient infrastructure. - CAPEX implementation: FY2020 very low at 3.5 percent of GDP due to border closures, weather, and limited implementation capacity; expected to pick up gradually. - Cash financing in FY2021: negative residuals associated with asset liquidation to cover financing needs; authorities’ FY2021 Budget and staff projections assume no borrowing in FY2021 and financing met by drawdown of cash deposits accumulated from surpluses in FY2019 and FY2020. - Fiscal adjustment examples used in realism tool context: - Fiscal adjustment of -10.1 percent (-3.9 in FY2021 minus 6.2 in FY2020) in FY2021 and -1.4 percent (-5.4 in FY2022 minus -3.9 in FY2021) in FY2022. - Notes on DSSI savings: includes savings from DSSI extension; savings without the extension was around half of the total savings. *Source: IMF staff Debt Sustainability Analysis excerpts for Samoa (content unit 1wsmea2021001).* ### 10. There are six standardized stress tests in the DSF, each applied to both the external ### 10. There are six standardized stress tests in the DSF, each applied to both the external ### Standardized stress tests (methodology) - Six standardized stress tests in the DSF, each applied to both the external and the public DSA. - Standardized stress tests capture shocks to: - real GDP growth, - the primary fiscal balance, - exports, - other flows (includes official and private transfers and FDI), - exchange rate depreciation, - a combination of these shocks. - In standardized stress tests, a variable is subject to a shock, and the post-shock values of the stressed variables are set to the baseline projection minus one standard deviation. - If the historical average is lower than the baseline projection, then the post-shock values are instead set to the historical average minus one standard deviation. ### Tailored Stress Tests — Natural Disaster Stress Test (medium-term scenario) - Rationale: Given the severity and frequency of natural disasters in Samoa, a tailored natural disaster shock in the medium term was conducted to assess debt sustainability. - Tailored shock design: - Proxied by the median size of damages caused by natural disasters in the past: equal to 21 percent of GDP. - Adversely impacts GDP and exports growth in the second year of the projection period (FY2022 for this DSA). - Default setting (from staff research) modified: default setting (10 percent of GDP increase in debt stock, 1.5 percent decline in real GDP growth, and 3 percent decline in exports growth) adjusted to Samoa-specific factors. - Tailored assumptions: - Increases the public debt-to-GDP ratio by 21 percent in FY2022 (assumes a natural disaster occurs in FY2022 and new debt is contracted to finance damages). - Real GDP growth declines by 3 percent in FY2022. - Exports growth declines by 6 percent in FY2022. - Historical context from staff research: - The maximum damage Samoa has suffered from natural disasters is 161.8 percent of GDP while average damage amounted to 47.7 percent of GDP (Lee et al, 2018). - Samoa’s median impact is the highest in the sample of 12 Pacific island countries using data from 1980-2016. - Although the probability that at least one disaster occurs in a given year is relatively low compared to the sample, the probability per year for Samoa being exposed to a severe natural disaster is second highest in the sample. ### Contingent Liability Stress Test - Purpose: Captures combined contingent liabilities, accounting for implicit liabilities and a potential financial market shock. - Composition of the combined contingent liability shock: - Total amounting to 7 percent of GDP, comprising: - 2 percent of GDP of non-guaranteed SOE debt, - 5 percent of GDP of financial market shock (the default value of 5 percent of GDP is the minimum value). - Note on default shock for SOE debt: - The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. ### External Debt Sustainability Analysis (findings) - Baseline projection for PV of external debt-to-GDP ratio: - 37 percent of GDP in 2021, - 41 percent in 2030, - 64 percent in 2041. - Breach of indicative threshold: - The PV of the external debt-to-GDP ratio breaches the indicative threshold of 55 percent of GDP in 2038 and remains above the threshold through 2041. - Drivers: Increased external borrowing to meet fiscal financing needs, finance new planned infrastructure projects, and reconstruction projects resulting from future natural disasters. - Debt service-to-revenue ratio: Given a large share of concessional loans in external debt, the debt service-to-revenue ratio does not breach the indicative threshold. - Stress-test impacts: - All standard stress tests breach the threshold for the PV of external debt-GDP-ratio. - The exports shock causes the earliest breach, commencing 2032 (reflecting lower base for exports in FY2021 due to COVID-19 impact on tourism earnings). - Tailored natural disaster shock causes a protracted breach commencing in FY2030. - Tailored contingent liability shock breaches the PV of external debt-to-GDP ratio threshold from 2036. ### Public Sector Debt Sustainability Analysis (findings) - Total public sector debt closely follows external debt dynamics. - Baseline projection for PV of public debt-to-GDP ratio breaches the benchmark in 2034. - Stress-test impacts on public debt benchmark: - Most standard stress tests cause a breach to the benchmark level of the PV of public debt-to-GDP ratio. - Real GDP stress test causes an earlier breach in 2026. - Natural disaster shock results in threshold breach in 2028. - Contingent liability shock results in threshold breach in 2032. ### Risk Rating and Vulnerabilities - Mechanical risk rating: Samoa’s mechanical risk rating is moderate for both external and overall debt. - Judgement: Applied to arrive at a high risk of debt distress by extending the projection horizon beyond ten years given: - High probability of a large and protracted breach of the threshold under the baseline scenario over the long-run due to Samoa’s exposure to frequent natural disasters and the effects of climate change. - Paragraph 87 of the LIC DSF Guidance Note (2018) allows rating change when breaches are expected to be large, persistent, and occur with high probability despite occurring in the distant future. - Overall conclusion: Samoa remains at high-risk of debt distress. - The PV of the external debt-to-GDP ratio and the PV of the public-debt-to-GDP ratio breach their indicative debt benchmark under the baseline scenario in 2038 and 2034, respectively. - Another major natural disaster, external shock to exports, or materialization of implicit guarantees shock could substantially worsen debt dynamics. - Applying a natural disaster stress test results in a protracted breach of the PV of public-debt-to-GDP ratio as early as 2028. ### Policy implications and recommendations - Samoa’s debt sustainability hinges upon government efforts to: - Build fiscal and external buffers, - Enhance resilience over the medium term. - Financing and fiscal management needs: - Authorities need to determine an appropriate financing mix to meet projected financing needs in the staff baseline scenario. - Preserve cash deposits for future “rainy days”. - Secure adequate financing on highly concessional terms. - Additional budget support grants, revenue mobilization, spending prioritization, and PFM reforms are essential to ensure debt sustainability and pave the road for an inclusive economic recovery. - Near-term fiscal policy stance: - Well-timed, targeted, and temporary fiscal stimulus measures, if planned and executed properly, can help moderate the economic fallout of the COVID-19 pandemic. - This requires running modest deficit levels with growth-promoting fiscal measures in the near term. - Growth-promoting, inclusive policies (including structural reforms) could raise public debt in the near term but are expected to raise growth and fiscal revenues over the medium term, building fiscal buffers and bringing the public debt trajectory downward. - International support: - Further support from the international community to help finance the deficit with budget support grants and concessional loans is crucial for building adequate buffers and maintaining debt sustainability. - Data transparency: - Critical for the authorities to widen coverage of public-sector debt data by producing and disseminating aggregate data for extra-budgetary units, social security funds, and public corporations. *Source: IMF staff estimates* ### 21. The authorities agreed with staff’s recommendation to remain sufficiently ### 1wsmea2021001 - 21. The authorities agreed with staff’s recommendation to remain sufficiently ### Fiscal stance and policy commitments - Authorities agreed with staff’s recommendation to remain sufficiently accommodative in the near term and showed strong commitment for medium-term consolidation to ensure debt sustainability. - Plan to maintain an expansionary fiscal stance in the near term by extending temporary stimulus measures with better targeting and gradual withdrawal to help stimulate the economy and ensure an inclusive, durable recovery. - While an expansionary fiscal policy may breach the authorities’ fiscal deficit target of 2 percent of GDP in the near term, they remain committed to fiscal consolidation over the medium term. ### Debt sustainability assessment and risk - Staff and authorities agreed that Samoa’s debt is sustainable but remains at high risk of debt distress, given the country’s high vulnerability to natural disasters. - Stress-test framework highlights natural disaster shocks among the most severe: the document presents a “Natural disaster” tailored stress test and identifies it as the most extreme shock in several indicators. - The external DSA assumes that all additional financing needs generated by shocks under stress tests are covered by PPG external MLT debt; default terms of marginal debt are based on baseline 10-year projections. ### Stress tests, scenarios, and indicators - The DSA presents multiple standardized and tailored stress tests (including commodity price shocks, one-time depreciation, export shocks, combined contingent liabilities, and natural disaster shocks); the “most extreme shock” is defined as the test yielding the highest ratio in or before 2031. - Thresholds and benchmark lines are shown for key indicators such as: - PV of PPG external debt-to-GDP ratio (benchmark values and projected paths presented). - Debt service-to-exports ratio and debt service-to-revenue ratio (with scenario and bound tests). - Tailored stress-test results indicate notable increases in vulnerabilities under: - Natural disaster scenarios (presented as a tailored stress test and shown to produce larger breaches of thresholds across several indicators). - Combined contingent-liability scenarios. ### Key projections and macro-fiscal context (selected) - Real GDP growth (historical and projections, in percent): -2.1, 3.6, -3.2, -7.8, 1.7, 3.0, 3.5, 2.5, 2.1, 0.7, 1.2, 1.1, 0.8. - Government revenues (excluding grants, in percent of GDP) (selected series): 27.7, 29.7, 29.1, 25.8, 26.8, 28.3, 29.8, 30.2, 30.3, 30.3, 30.3. - Aid flows (in Million of U.S. dollars) (selected series): 78.0, 185.0, 278.5, 84.0, 78.9, 81.7, 76.8, 82.0, 84.0, 107.7, 154.3. - Grant-equivalent financing (in percent of GDP) (selected series): 10.1, 9.7, 8.5, 8.4, 8.2, 9.8, 10.7 (series presented in the DSA). - Nominal GDP (Million of US dollars) (selected entries): 837, 852, 804, 752, 777, 815, 862, 904, 943, 1,081, 1,532. - Gross external financing need (Million of U.S. dollars) (selected series): 27.4, -3.4, 5.3, 65.4, 112.5, 80.1, 55.4, 50.7, 51.5, 89.7, 148.6. ### Analysis implications and policy direction - Near-term: Use temporary, better-targeted stimulus and gradual withdrawal to support recovery, accepting a possible near-term breach of the fiscal deficit target of 2 percent of GDP. - Medium-term: Commit to fiscal consolidation to restore and preserve debt sustainability given high disaster vulnerability. - Risk management: Prioritize resilience to natural disasters (the most extreme stress test in many indicators) and plan borrowing/financing strategies consistent with the assumption that additional financing needs from shocks are met with concessional external MLT debt where possible. *Source: IMF staff report extract (Samoa): authorities agreed to remain sufficiently accommodative in the near term and commit to medium-term consolidation; DSA tables and figures on external and public debt, stress tests, and macroeconomic projections as provided in the source content.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1wsmea2021001.pdf_