## _cr07185

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### Executive Summary — Background and Medium-Term Outlook
- Real per capita GDP has increased by over 3 percent per year on average over the last decade and a half.
- External public debt has fallen below 40 percent of GDP.
- Samoa has graduated from LDC status in two of the three U.N. LDC criteria (Human Assets Index and per capita Gross National Income Index); formal graduation will be in 2009 following a three year transition period.
- Macroeconomic conditions:
  - Growth: rebounding to its 3-3½ percent historical pace.
  - Inflation: remains low (core measures around 2½ percent year-on-year excluding excise and VAT changes).
  - External position: weakened in 2006 but recovered after fiscal and monetary tightening.
- Medium-term projections:
  - Growth expected to remain at around 3½ percent until 2010/11.
  - Current account expected to improve gradually.
  - External debt expected to decline to around 34 percent of GDP by 2010/11.

### I. Success Story and Structural Change
- Transformation and drivers:
  - Real per capita GDP growth exceeded 3 percent per year on average, outpacing other Pacific and small island regions.
  - Structural shift toward services, notably commerce and tourism.
  - Rapid growth of remittances and tourism receipts; expatriate population estimated at around Samoa’s current population of 179,000.
- Reforms since early 1990s:
  - VAT introduced in 1994.
  - Civil service reform contributed to sizable reduction in public debt.
  - Lowered external tariffs; privatization of several SOEs.
  - Liberalized interest rates, eliminated credit ceilings, moved to indirect monetary policy instruments.
- Political context:
  - Human Rights Protection Party (HRPP) in power for the past 25 years; reelected after March 2006 Parliamentary elections.

### II. Recent Performance and Short-Term Outlook
- Growth and sectoral notes:
  - 2005/06: growth decelerated to 1¾ percent, largely due to decline in production of the major manufacturer undergoing restructuring; rest of economy grew 4 percent driven by services, notably tourism and construction (SPG-related).
  - 2006/07: growth expected to rebound to 3 percent.
  - 2007/08: growth expected around 3½ percent due to SPG construction and rising tourist arrivals.
- Inflation and policy effects:
  - Headline inflation picked up reflecting excise changes in July 2006 and a 2½ percentage point increase in VAT in October.
  - Excluding those elements, inflation around 2½ percent (year-on-year).
  - Headline inflation expected around 5¼ percent through 2006/07 and to revert to 3 percent in 2007/08.
- Fiscal developments:
  - Pre-election civil service pay increases: a 42 percent general increase over 3 years starting July 2005; first step cost 1¼ percent of GDP.
  - Polynesian Airlines restructuring costs estimated at 2½ percent of GDP.
  - Overall 2005/06 deficit limited to ½ percent of GDP (lower than the 4¼ percent budget target) after post-election tightening.
- Monetary and external:
  - Private sector credit growth rapid in 2005/06, led by construction and tourism lending.
  - CBS tightened policy: rates on CBS securities rose from 2 to 6½ percent between June and October 2006.
  - Imports surged by 23 percent in Q1 2006; reserves fell below 3 months of imports in May 2006, then rose to about 3½ months of imports by January 2007.

### II.B Medium-Term Baseline and Risks
- Baseline projections:
  - Annual per capita growth to remain at around 3-3½ percent until 2010/11.
  - Current account projected to reach a surplus of 1½ percent of GDP in 2010/11.
  - Reserves projected to reach 5 months of imports by 2010/11.
  - External debt projected to decline from around 40 percent of GDP to 34 percent in 2010/11.
  - Net present value of debt expected to decline to 20–22 percent of GDP by FY2010/11 (text references both "20 percent" and "around 22 percent").
- Vulnerabilities and shock scenarios:
  - Cyclone risk: Samoa hit by 3 major cyclones since 1990; a future cyclone could destroy agriculture, slow tourism, raise inflation and deteriorate the balance of payments.
  - Other shocks: adverse movements in regional tourism or remittances.
  - Reform dividend: removing impediments (notably restriction on leasing customary land) and addressing finance and infrastructure costs could raise average real per capita growth by ½ to 1 percentage point over the medium term.

### III. Policy Discussions and Recommendations
- Overarching objectives:
  - Sustain rapid per capita income growth while limiting vulnerability; focus on fiscal sustainability, stronger monetary framework, and structural reforms.
- A. Fiscal prudence
  - Rationale: under a basket peg and with sizable government influence on the balance of payments, prudent fiscal policy is essential; 2005/06 episode showed reserves can quickly evaporate if fiscal situation deteriorates.
  - Fiscal strategy goals:
    - Ensure sustainability of public and external debt; current public debt around 39 percent of GDP (all external).
    - Maintain overall fiscal position around balance over the medium-term to reduce debt to 34 percent by 2010/11.
    - In a strong cyclone, public debt would rise to more than 40 percent by 2010/11; repeated strong cyclones would worsen the debt profile.
  - Staff recommendations:
    - A broadly unchanged fiscal deficit from 2005/06 (½ percent of GDP) is appropriate.
    - Authorities had budgeted a 1¼ percent of GDP deficit in FY2006/07, including revenue measures (VAT rise from 12½ percent to 15 percent and some excise increases) and supplementary budget cuts to finance SPG-related capital spending.
    - Staff suggested cutting an additional 3 percent of current spending to maintain the broadly unchanged deficit and recommended a broadly balanced budget for FY2007/08.
  - Medium-term pressures and fiscal composition:
    - External grants averaged around 8 percent of GDP in recent years; donors generally did not link assistance to LDC graduation decisions, but authorities should prepare for lower assistance.
    - Revenue-to-GDP around 30 percent.
    - Illustration: halving of grants by 2010/11 would require reducing current spending from around 25 percent of GDP to 23 percent to keep development expenditure constant.
    - Health and education spending amount to around 40 percent of current expenditures.
    - SOE subsidies and transfers have cost an average of 2½ percent of GDP per annum since 2000; cutting these is a recommended source of restraint.
    - Staff view: fiscal pressures should be handled primarily through current expenditure restraint; saving surpluses would create a cushion for unforeseen expenditure (e.g., natural disasters).
  - Public wages and civil service reform:
    - Staff argued for restraining public wage growth.
    - Authorities moving toward implementing a salary structure more closely aligned with performance over the next two years.
    - Recommendation: any general public wage increase should be consistent with medium-term fiscal plans and integrated with civil service reform.

- B. Monetary policy and reserves
  - Recent stance and assessment:
    - Staff and authorities agreed a pause in recent monetary tightening was justified.
    - Tightening slowed private sector credit growth; risks remain from SPG construction and the last step in phased public wage increases in July 2007.
    - Lacking open-market like instruments to inject liquidity, the central bank found it difficult to steer short-term rates and relied on moral suasion.
  - Recommendations to improve effectiveness:
    - Develop the short-term money market; active interbank market development welcomed.
    - Encourage more active involvement of the National Pension Fund (NPF) in CBS securities auctions and the interbank market given its structurally long cash position.
    - Consider issuance of government securities; if insufficient, CBS could rely more on the Statutory Reserve Deposit (SRD) requirement rate.
    - CBS should clarify its primary policy target and enhance dialogue with the private sector:
      - ultimate objective: maintenance of the exchange rate peg as a credible anchor;
      - intermediate target: reserve-import coverage ratio;
      - stable inflation treated as an outcome of the basket peg and its credibility;
      - more regular CBS presentations suggested to guide market expectations on interest rates.
  - Reserves target:
    - Staff and authorities agreed that raising the CBS’s target import coverage ratio to five months would be desirable.

- C. Land, private sector and SOE reform
  - Land and private sector constraints:
    - 81 percent of land in Samoa is customary; customary land cannot be sold, leases are legally possible but difficult and expensive to arrange—seen as a major impediment to tourism and intensive agriculture.
    - Authorities intend to develop a reform plan, with AsDB support, to ease leasing processes and allow customary leases as collateral; public consultations have begun.
    - Facilitating economic use of land, improving public services, business start-up processes, and financing (property registry, credit bureau) would reduce business costs and boost private sector development.
  - SOE reform and privatization:
    - Restructuring Polynesian Airlines into Polynesian Blue reduced airfares by around half, significantly increased tourist arrivals, and removed an average annual cost of 1 percent of GDP from the budget.
    - Deregulation of mobile telecommunications triggered a sizable fall in call costs.
    - Authorities plan to privatize Samoa Broadcasting Corporation, Agriculture Store Corporation and Samoa Shipping Services this year.
    - Staff recommended:
      - follow these sales with the sale of government’s stake in other non-strategic SOEs (SamoaTel mentioned by authorities as a likely candidate);
      - review the list of strategic SOEs regularly with the objective of gradually reducing public sector involvement;
      - increase number of independent directors on SOE boards, make managers more accountable, and enforce the 50 percent rule on dividend payments by profitable SOEs.

- D. Financial sector reforms and supervision
  - System soundness and indicators:
    - Banking system remains sound despite rapid credit growth and narrowing interest margins.
    - Non performing loans around 4 percent of total loans; provisioning level adequate.
    - All four banks, including two subsidiaries of major Australian banks, are adequately capitalized; supervisory framework appears adequate.
  - Recommendations to boost access to finance:
    - Improve credit information (establish a credit bureau reporting positive information).
    - Facilitate leasing of customary land and streamline use of leases as collateral.
  - NPF improvements and staff suggestions:
    - NPF lending guidelines strengthened; debt management unit established; improved management of non-performing assets.
    - NPF has started investing a portion of assets in foreign safe assets; staff suggest NPF also invest in domestic risk-free assets such as CBS securities.
    - Present NPF rules allow members to borrow up to half of their accumulated funds; staff recommends the 50 percent borrowing cap be gradually lowered and/or borrowing restricted to housing, education or other investment projects.
  - Supervisory improvements needed:
    - Strengthen supervision of banks’ credit policies, connected lending, and large exposures.
    - CBS still has to implement new AML/CFT legislation.
    - For international banks, improve SIFA’s operational independence by transferring the Minister of Finance’s remaining powers to SIFA and introduce prudential guidance on lending and other risk-taking activities.

- E. External integration and trade policy
  - Staff welcomes efforts to conclude WTO accession negotiations.
  - Integration and further opening could yield significant benefits; rapid conclusion important as graduation from LDC status could affect preferential market access.
  - Discussions with the EU on an Economic Partnership Agreement (EPA) are ongoing with hope negotiations will be completed early next year.
  - Staff view: remaining barriers to foreign investment should be eased; Samoa has traditionally received relatively little FDI compared with peers.
  - A coming review of the Foreign Investment Act of 2000 and Regulations of 2003, supported by the World Bank, could ease foreign investor access.

### IV. Staff Appraisal, Debt Sustainability, and Vulnerabilities
- Staff appraisal summary:
  - Samoa’s transformation over the past decade has been impressive; growth made Samoa a middle-income country.
  - Samoa remains small, isolated and vulnerable, but benefits from broad-based reforms, sound macro policy, and stable politics.
  - Near-term growth set to rebound reflecting SPG construction and tourism; core inflation expected to remain muted; remittances and tourist arrivals should further accumulate reserves.
- Debt sustainability (baseline findings):
  - Conclusion: baseline and scenario analysis suggest Samoa is at low risk of debt distress.
  - Baseline assumptions:
    - Medium-term growth around 3½ percent a year.
    - Spending restraint to generate a broadly balanced fiscal position.
    - Current account to improve to around 1½ percent of GDP by 2010/11.
    - Reserves to rise to around 5 months of imports by 2010/11.
  - Debt dynamics highlights:
    - Nominal public debt: 47.8, 39.3, 39.4, 37.9, 39.4, 39.0, 37.0, 34.0 (2003/04–2010/11).
    - NPV of external debt (percent of GDP, selected): 28.9, 26.8, 26.4, 25.8, 24.3, 22.4, 20.6, 11.8 (table progression); narrative notes expected decline to around 22 percent of GDP by FY2010/11.
    - Under baseline, public debt and debt service indicators remain well below stress levels for countries with strong institutions and governance.
- Sensitivity and stress tests:
  - General result: scenarios and bound tests do not suggest significant risks; most scenarios produce at most a temporary rise in the debt burden.
  - Historical scenario: a permanent "historical" shock would see a rising debt burden over time, reflecting a high average non-interest current account deficit (3.5 percent of GDP) and low average FDI inflows (0.2 percent of GDP) over the past eight years; even so, indicators remain below distress thresholds.
  - Adjusted historical scenario: if current account and net FDI are between historical average and baseline, debt burden generally declines.
  - Cyclone scenario: assuming a “cyclone” every five years from 2007/08, reducing GDP growth to zero and export growth to 60 percent of baseline, results in a relatively flat NPV of debt path and rising debt service relative to exports; indicators remain below distress levels.
  - All additional financing in scenarios assumed on concessional terms.

### Key Macro Indicators and Tables (selected figures and projections)
- Population (2006): 179,186
- Main Exports: Tourism, Fish
- GDP per capita (2005/06): US$ 2,301
- Quota: SDR 11.6 million

- Real GDP growth (2003/04–2007/08): 2.4, 6.0, 1.8, 3.0, 3.5
- Change in CPI (end period, 2003/04–2007/08): 17.2, 1.0, 2.2, 5.3, 2.9
- Core CPI (end period): 17.2, 1.0, 2.2, 2.5, 2.7

- Broad money (M2, 2003/04–2007/08): 12.7, 15.0, 13.0, 16.9, 10.2
- Private sector credit (2003/04–2007/08): 17.1, 6.8, 28.2, 13.2, 10.2
- Three-month CBS rate (percent): 4.9, 4.3, 2.5, 5.0, 4.5

- Current account (US$ millions, 2003/04–2007/08): -5.5, -18.7, -26.1, -36.8, -38.0
- Current account (percent of GDP): -1.6, -4.6, -6.1, -8.1, -7.8
- Merchandise exports, f.o.b. (US$ millions): 14.1, 12.9, 10.7, 9.9, 11.9
- Merchandise imports, c.i.f. (US$ millions): 137.3, 170.6, 198.8, 225.1, 260.7
- Current transfers (US$ millions): 75.9, 103.2, 102.4, 108.7, 120.0

- Gross official reserves (US$ millions): 67.1, 82.7, 65.8, 78.4, 93.2
- Reserves (months of next year's imports): 3.8, 3.9, 2.8, 3.0, 3.5
- Public debt (millions of tala): 166.7, 160.0, 168.2, 172.2, 190.7
- Public debt (percent of GDP): 47.8, 39.3, 39.4, 37.9, 39.4

- Medium-term projections (selected, 2003/04–2010/11):
  - Real GDP growth series: 2.4, 6.0, 1.8, 3.0, 3.5, 3.0, 3.5, 3.5
  - CPI inflation (period average): 7.9, 7.8, 3.3, 4.4, 4.1, 3.0, 3.0, 3.0
  - Current account (percent of GDP): -1.6, -4.6, -6.1, -8.1, -7.8, -6.8, -1.7, 1.5
  - Gross external public debt (percent of GDP): 47.8, 39.3, 39.4, 37.9, 39.4, 39.0, 37.0, 34.0
  - Gross official reserves (US$ millions): 67.1, 82.7, 65.8, 78.4, 93.2, 92.6, 100.7, 110.7
  - Reserves (months of next year's merchandise imports): 4.7, 5.0, 3.5, 3.6, 4.2, 4.3, 4.7, 5.0

### Data, Technical Assistance, and Fund Relations
- Membership status: Joined 12/28/1971; Article VIII.
- Quota: SDR 11.60; Fund holdings of currency: 10.92; Reserve position in Fund: 0.69.
- SDR Department: Net cumulative allocation: 1.14; Holdings: 2.53.
- Outstanding purchases and loans: None.
- Latest financial arrangements: Stand-by 07/09/1984 (3.38 SDR, drawn); Stand-by 06/27/1983 (3.38 SDR, drawn).
- Exchange rate arrangement: tala pegged to a trade and payments weighted basket within a ±2 percent band; period average exchange rate for March 2007: SAT 1.00 = US$0.37.
- Technical assistance:
  - PFTAC assisted on budgetary management, tax administration, financial sector supervision, balance of payments statistics; MCM, STA, and FAD provided assistance on monetary policy, reserves management, supervision, national accounts, and tax administration.
  - Transition to BPM5 finalized in 2005 with PFTAC assistance.
  - PFTAC plans missions on GFS, balance of payments, and national accounts in 2008.
- Statistical notes:
  - CPI rebased in 2005 based on the 2002 Household Income and Expenditure Survey.
  - Quarterly and annual GDP estimates prepared on a production basis; national accounts not yet compiled on an expenditure basis.
  - GFS currently based on 1986 manual; authorities plan to move to GFSM 2001 (cash basis) over the next two years.
  - Samoa compiled first draft GDDS metadata in 2006 with PFTAC assistance.

### Relations with Other Donors and Development Partners (selected)
- World Bank Group:
  - Since June 1974, 15 IDA credits totaling US$87.8 million.
  - Samoa eligible for an IDA 14 allocation of SDR 7 million (indicative) over FY2006–08.
  - Current projects include Health Sector Management (IDA US$5 million), Infrastructure Asset Management Phase 2 (US$12.8 million), Cyclone Emergency Recovery Project (US$4.5 million), Telecommunications and Postal Sector Reform (US$4.48 million), among others.
  - Total IDA amount: 87.8 (In millions of U.S. dollar equivalent); Undisbursed balance: 12.4.
- Asian Development Bank (AsDB):
  - Up to 2006, 32 loans totaling $131.0 million and TA totaling $23.427 million.
  - Education Sector Project II approved in 2005 with AusAID and NZAID co-financing totaling $30 million; ADB’s approved ADF lending $8.06 million.
  - AsDB loan approvals and disbursements (selected years) and cumulative balances reported through 2006.

### Calendar and Consultations
- It is recommended that the Article IV consultation with Samoa take place on a 24-month cycle.
- The authorities would welcome an interim staff visit in early 2008.
- The 2005 Article IV consultation discussions were held in Apia during March 9–22, 2005; the Executive Board concluded the consultation on June 17, 2005.

*Source: IMF staff Executive Summary and annex materials from document _cr07185 (Article IV Consultation and annexes, April–June 2007).*

### Executive Summary ......................................................................................................

### _cr07185 - Executive Summary

### Background
- Real per capita GDP has increased by over 3 percent per year on average over the last decade and a half.
- External public debt has fallen below 40 percent of GDP.
- Samoa has graduated from LDC status, exceeding two of the three U.N. LDC criteria: the Human Assets Index and the per capita Gross National Income Index; formal graduation will be in 2009 following a three year transition period.
- Macroeconomic conditions:
  - Growth: rebounding to its 3-3½ percent historical pace.
  - Inflation: remains low (core measures around 2½ percent year-on-year excluding excise and VAT changes).
  - External position: weakened in 2006 but recovered after fiscal and monetary tightening.
- Medium-term projections:
  - Growth expected to remain at around 3½ percent until 2010/11.
  - Current account expected to improve gradually.
  - External debt expected to decline to around 34 percent of GDP by 2010/11.

### I. Success Story of the Pacific
- Transformation:
  - Real per capita GDP increased by over 3 percent per year on average, faster than elsewhere in the Pacific and other small island regions.
  - Structural shift toward service activity, especially commerce and tourism.
- Reforms since the early 1990s:
  - Introduction of a value added tax (VAT) in 1994.
  - Civil service reform that contributed to a sizable reduction in public debt.
  - Lowered external tariffs and privatization of several State-owned Enterprises (SOEs).
  - Liberalized interest rates, eliminated credit ceilings, and moved to indirect monetary policy instruments.
- Political context:
  - Human Rights Protection Party (HRPP) in power for the past 25 years; reelected following the March 2006 Parliamentary elections.
- External drivers:
  - Rapid growth of remittances and tourism receipts; expatriate population estimated at around Samoa’s current population of 179,000.
  - Tourism developing as a destination for Australians and New Zealanders.

### II. Recent Economic Performance and Outlook
#### A. Recent Developments
- Growth:
  - 2005/06: growth decelerated to 1¾ percent, mainly due to decline in production of the only major manufacturer undergoing restructuring.
  - Rest of economy: growth reached 4 percent driven by services, notably tourism and construction (SPG-related).
  - 2006/07: momentum continuing; growth expected to rebound to 3 percent.
- Inflation:
  - Recent pick-up in headline and underlying measures reflected changes to excise rates in July 2006 and a 2½ percentage point increase in the VAT in October.
  - Excluding those elements, inflation around 2½ percent (year-on-year).
  - Headline inflation expected around 5¼ percent through 2006/07 and to revert to 3 percent in 2007/08.
- Fiscal policy:
  - Pre-election civil service pay increases: a 42 percent general increase over 3 years starting July 2005; first step cost 1¼ percent of GDP.
  - Polynesian Airlines restructuring costs estimated at 2½ percent of GDP.
  - Overall 2005/06 deficit limited to ½ percent of GDP (much lower than the 4¼ percent budget target) after tightening post-election.
- Monetary and credit conditions:
  - Private sector credit growth was rapid in 2005/06, driven by construction and tourism-related lending.
  - CBS tightened monetary policy: rates on CBS securities rose from 2 to 6½ percent between June and October 2006.
  - Lending rates rose relatively little; moral suasion used to curb lending.
- External position:
  - Imports surged by 23 percent in the first quarter of 2006.
  - Reserves fell below 3 months of imports in May 2006, then rose to about 3½ months of imports by January 2007 after policy tightening.

#### B. Outlook and Risks
- Short-term outlook:
  - 2006/07 growth expected to rebound to 3 percent.
  - 2007/08 growth expected around 3½ percent due to construction (SPG) and rising tourist arrivals.
  - Headline inflation: around 5¼ percent through 2006/07; core low; headline to revert to 3 percent in 2007/08.
  - Reserves projected to rise to almost 3¾ months of imports by mid-2008.
- Medium-term baseline projections:
  - Annual per capita growth to remain at around 3-3½ percent until 2010/11.
  - Current account projected to reach a surplus of 1½ percent of GDP in 2010/11.
  - Reserves projected to reach 5 months of imports by 2010/11.
  - External debt projected to decline from around 40 percent of GDP to 34 percent in 2010/11.
  - Net present value of debt expected to decline to 20 percent of GDP (all external debt concessional).
- Vulnerabilities and risks:
  - Cyclones: Samoa hit by 3 major cyclones since 1990; a future cyclone could destroy agriculture, slow tourism, reduce growth, raise inflation and deteriorate the balance of payments.
  - Other shocks: adverse movements in regional tourism or remittances.
- Reform dividend:
  - Removing impediments (notably restriction on leasing customary land) and addressing cost of finance and infrastructure could raise average real per capita growth by ½ to 1 percentage point over the medium term through additional tourism and investment.

### III. Policy Discussions: Sustaining the Strong Performance
- Objectives: sustain rapid per capita income growth while limiting vulnerability to risks and pressures; focus on fiscal sustainability, stronger monetary framework, and deepening structural reforms.

#### A. Maintaining Fiscal Prudence
- Rationale:
  - With a basket peg regime and significant government impact on the balance of payments, prudent fiscal policy is essential.
  - The 2005/06 episode showed reserves can quickly evaporate if fiscal situation deteriorates.
- Fiscal strategy goals:
  - Ensure sustainability of public and external debt and create fiscal space for shocks.
  - Current public debt: around 39 percent of GDP (all external).
  - Maintain overall fiscal position around balance over the medium-term to reduce debt to 34 percent by 2010/11.
  - In the event of a strong cyclone, public debt would rise to more than 40 percent by 2010/11; repeated strong cyclones would deteriorate debt profile further.
- Staff recommendations:
  - A broadly unchanged fiscal deficit from 2005/06 (½ percent of GDP) is appropriate.
  - Authorities had budgeted a 1¼ percent of GDP deficit in FY2006/07, including revenue measures (VAT rise from 12½ percent to 15 percent and some excise increases) and supplementary budget cuts to finance SPG-related capital spending.
  - Staff suggested cutting an additional 3 percent of current spending to maintain the broadly unchanged deficit and recommended a broadly balanced budget for FY2007/08.
- Medium-term fiscal pressures:
  - Aging population: share of over 60-year-old in total population projected to rise (chart references); rising life expectancy will increase public health expenditures.
  - Authorities’ intentions to increase spending on education will add to social spending pressures.

#### B. Improving the Effectiveness of Monetary Policy
- (Discussion points referenced in the Executive Summary: develop money markets; enhance CBS communication strategy; use indirect instruments to better deal with shocks.)
- Recent actions:
  - CBS raised rates on CBS securities from 2 to 6½ percent (June–October 2006).
  - Use of moral suasion to supplement policy rate increases.

#### C. Promoting the Economic Use of Land and Fostering Private Sector Development
- Key constraint: restriction on leasing customary land for productive uses limits potential, notably for tourism and intensive agriculture.
- Private sector development needs:
  - Further privatization of SOEs.
  - Improve business climate.
  - Develop financial sector.
- Evidence of reform benefits:
  - Successful restructuring of Polynesian Airlines.
  - Fall in telecom tariffs after introduction of competition.

#### D. Developing and Strengthening the Financial Sector
- (Executive Summary emphasizes developing the financial sector as part of private sector promotion; detailed measures appear in the main report.)

#### E. Further Integrating Samoa into the Global Economy
- (Executive Summary recommends further integration through trade, investment, tourism and facilitating remittances; detailed measures appear in the main report.)

### IV. Staff Appraisal
- (Summary notes staff appraisal; specific text not included in the supplied excerpt.)

- Scenario and sensitivity notes:
  - Public debt projections under scenarios include: baseline, high growth, and zero growth every five years from 2007/08 (graphs referenced).
  - Cyclone shock scenarios would raise public debt above baseline paths.

*Source: IMF staff Executive Summary (document _cr07185 - Executive Summary).*

### 18.      Samoa’s anticipated graduation could also put pressure on the fiscal accounts by

### _cr07185 - 18.      Samoa’s anticipated graduation could also put pressure on the fiscal accounts by

### Fiscal pressures and budgetary stance
- External grants have averaged around 8 percent of GDP in recent years.
- Donors generally did not link assistance decisions to the LDC graduation decision; authorities should prepare for lower levels of assistance.
- Revenue to GDP is around 30 percent—slightly above the average for tourism-based islands.
- Staff recommendation: continued balanced budgets with overall expenditure restraint.
- Staff view: fiscal pressures should be handled primarily through current expenditure restraint.
- Illustration: a halving of grants by 2010/11 would require reducing current spending from around 25 percent of GDP to 23 percent so as to keep development expenditure constant.
- Health and education spending amount to around 40 percent of current expenditures.
- SOE subsidies and transfers have cost an average of 2½ percent of GDP per annum since 2000; cutting these is a recommended source of non-priority spending restraint.
- Saving any surpluses would create a cushion for unforeseen expenditure, such as after a natural disaster.

### Public wages and civil service reform
- Staff argued for restraining the growth of public wages.
- Authorities are moving towards implementing a salary structure more closely aligned with performance over the next two years.
- Staff supported that any general public wage increase should be consistent with budgetary constraints set by medium-term fiscal plans, and integrated with any civil service reform.
- Recommendation: integrate wage policy with medium-term fiscal plans and civil service reform.

### Monetary policy stance and framework
- Staff and authorities agreed a pause in recent monetary tightening was justified.
- Tightening succeeded in slowing private sector credit growth, but risks remain from the final boost in construction for the SPG and the last step in the phased public wage increases in July 2007; monetary policy should remain on hold for the time being.
- When reserves fell below their four-month import coverage target, the central bank tightened its stance.
- Lacking open-market like instruments to inject liquidity, the central bank had difficulties steering short-term interest rates and relied on moral suasion.
- Development of the short-term money market could improve monetary policy effectiveness:
  - recent development of an active inter-bank market welcomed;
  - further development requires more active involvement of the National Pension Fund (NPF) in CBS securities auctions and the interbank market given its structurally long cash position;
  - further developments could include issuance of government securities;
  - if insufficient, CBS could rely more on the Statutory Reserve Deposit (SRD) requirement rate.
- Staff recommended CBS clarify its primary policy target and enhance dialogue with the private sector:
  - ultimate objective: maintenance of the exchange rate peg as a credible anchor;
  - intermediate target: reserve-import coverage ratio;
  - stable inflation is treated as an outcome of the basket peg and its credibility;
  - suggestion: more regular presentations from the central bank to guide market expectations on interest rates.

### Reserves and exchange rate regime
- Staff and authorities agreed that raising the CBS’s target import coverage ratio to five months would be desirable.
- Rationale: Samoa’s vulnerability to shocks that can lead to rapid erosion of reserves; gradually raising import coverage to five months would provide an important additional buffer.
- The current exchange rate regime (basket peg) remains appropriate and should be maintained.
- The basket is composed of six currencies of Samoa’s main trading partners and reflects tourism and remittance flows.
- Reflecting recent strength of the Australian and New Zealand dollars, the tala has appreciated vis-à-vis large Asian economies.
- Staff assessment: the tala is appropriately valued; Samoa’s real effective exchange rate has remained relatively stable since the one-time jump of late 2003 consecutive to cyclone Heta.
- Staff view: given Samoa’s record of structural reforms and growth, the economy may have recorded faster productivity growth than regional peers.

### External sector developments
- Recent weak performance of merchandise exports largely due to “El Nino” effects on fishing; as El Nino effects reverse and Apia fishing harbor facilities are modernized, fish exports are rebounding.
- Improved access to Samoa and cheaper airfares following the restructuring of Polynesian Airlines are expanding the tourism industry.

### Economic use of land and private sector development
- Long-term growth prospects depend on the economic use of customary land.
- At present, 81 percent of the land in Samoa is customary, owned by extended families represented by chiefs (“Matai”).
- Customary land cannot be sold; leases are legally possible but difficult and expensive to arrange—seen as a major impediment to tourism development and intensive agriculture.
- Authorities intend to develop a reform plan, with AsDB support, aimed at easing processes for leasing customary land and allowing the use of customary leases for collateral; public consultations have begun.
- Box summary: facilitating economic use of land and progress in public services, business start-up processes, and financing (property registry, credit bureau) would reduce business costs and boost private sector development.
- Selected indicators from Doing Business (2006) shown in the source emphasize areas for improvement (e.g., days to start a business, time to register property, investor protection index).

### SOE reform and privatization
- Restructuring international services of Polynesian Airlines into Polynesian Blue reduced airfares by around half, significantly increased tourist arrivals, and removed an average annual cost of one percent of GDP from the budget.
- Deregulation of mobile telecommunications triggered a sizable fall in call costs.
- Authorities plan to privatize Samoa Broadcasting Corporation, Agriculture Store Corporation and Samoa Shipping Services this year.
- Staff recommended:
  - follow these sales with the sale of government’s stake in other non-strategic SOEs (SamoaTel mentioned by authorities as a likely candidate);
  - review the list of strategic SOEs regularly with objective of gradually reducing public sector involvement;
  - increase number of independent directors on SOE boards, make managers more accountable, and more strictly enforce the 50 percent rule on dividend payments by profitable SOEs.

### Financial sector soundness and reforms
- Banking system remains sound despite rapid growth in private sector credit and reduction in interest margin.
- Non performing loans as a share of total loans have increased to around 4 percent; provisioning level is adequate.
- Bank profitability remains high, though tight liquidity has increased cost of funds and some decline in profits could be expected as lending margin declines and credit growth decelerates.
- All four banks, including two subsidiaries of major Australian banks, are adequately capitalized; supervisory framework appears adequate.
- Recommendations to boost access to financing:
  - improve credit information (establish a credit bureau reporting positive information);
  - facilitate leasing of customary land and streamline process to use leases as collateral.
- NPF improvements welcomed:
  - lending guidelines strengthened; debt management unit established; improved management of non-performing assets;
  - NPF has started investing a portion of assets in foreign safe assets;
  - staff suggestion: NPF also invest in domestic risk-free assets such as CBS securities;
  - present NPF rules allow members to borrow up to half of their accumulated funds for any purpose; staff recommends the 50 percent borrowing cap gradually be lowered and/or borrowing be restricted to housing, education or other investment projects.
- Regulation and supervision improvements since the offshore center assessment of 2002:
  - compliance with Basel Core Principles for domestic and international banking supervision has improved versus previous assessment;
  - on-site examinations of credit risk management and AML/CFT have been conducted at all domestic banks;
  - international banks required to establish a physical presence and maintain records in Samoa; on-site inspection introduced;
  - Samoa International Finance Authority (SIFA) established in 2005 as autonomous supervisory agency for the offshore sector.
- Remaining supervisory improvements needed:
  - strengthen supervision of banks’ credit policies, connected lending, and large exposures;
  - CBS still has to implement new AML/CFT legislation;
  - for international banks, improve SIFA’s operational independence by transferring the Minister of Finance’s remaining powers to SIFA and introduce prudential guidance on lending and other risk-taking activities.

### Further integration into the global economy
- Staff welcomes efforts to conclude WTO accession negotiations.
- Integration and further opening could yield significant benefits; rapid conclusion important as graduation from LDC status could affect preferential market access.
- Discussions with the EU on an Economic Partnership Agreement (EPA) are ongoing with hope negotiations will be completed early next year.
- Staff view: remaining barriers to foreign investment should be eased; Samoa has traditionally received relatively little foreign direct investment compared with peers in the Caribbean and Indian Ocean.
- Coming review of the Foreign Investment Act of 2000 and Regulations of 2003, supported by the World Bank, could lead to concrete measures to ease foreign investor access.

### Staff appraisal (summary)
- Samoa’s economic transformation over the past decade has been impressive, including significant development of the service sector and growth that made Samoa a middle-income country.
- Samoa remains small, isolated and vulnerable, but benefits from broad-based reform program, sound macroeconomic policy, and stable political environment.
- Near-term growth is set to rebound: following the manufacturing slowdown in 2005/06, growth is expected to accelerate over the near term reflecting increased activity in construction leading up to the SPG and associated tourism.
- Core inflation is expected to remain muted in the near term.
- Continued remittance flows and strong tourist arrivals should result in a further accumulation of reserves.

*Source: IMF staff report content provided in the supplied document excerpt.*

### 43.      Nonetheless, Samoa remains a vulnerable economy, highlighting the importance

### _cr07185 - 43.      Nonetheless, Samoa remains a vulnerable economy, highlighting the importance

### Vulnerabilities and outlook
- Natural disasters, such as cyclones, remain an ongoing risk, as do sudden swings in commodity prices.
- Given the aging of the population and prospective LDC graduation, Samoa is expected to face rising fiscal pressures over coming years.
- Samoa remains a vulnerable economy, highlighting the importance of prudent policy.

### Fiscal policy guidance
- Continuation of prudent fiscal policy is essential.
- With revenue collections already relatively high, expenditure restraint is the most appropriate way to deal with fiscal pressures.
- Spending restraint will sharpen the need for government to prioritize expenditure into areas that would boost growth opportunities (infrastructure and education), and address the needs of an aging population.
- Among other measures, the authorities should ease work permits for foreign workers and managers.

### External buffers and monetary framework
- Samoa’s vulnerabilities argue for additional reserves and a stronger framework for monetary policy instruments.
- The episode of 2005/06 showed how quickly reserves can evaporate.
- Consequently, Samoa should aim to maintain reserves to cover around 5 months of imports over the medium-term.
- Deepening money markets would help enhance the effectiveness of monetary policy.

### Exchange rate regime
- The basket peg exchange rate regime remains appropriate.
- This regime has provided a credible nominal anchor, and has contributed to low inflation.
- The basket weights are appropriately based on foreign trade, tourism and remittance flows.
- The recent weakness of merchandise exports reflects specific non-price factors.

### Structural reform and growth
- The benefits of structural reform have been clearly demonstrated:
  - Restructuring of air services resulted in a sharp increase of tourists.
  - Introduction of competition in the telecommunications sector generated a fall in call costs.
- Similar benefits are likely from reforms in other utility and infrastructure areas, such as electricity provision.
- Efforts to strengthen management and accountability of SOEs and promoting the transparency of SOE pricing are likely to significantly improve the business environment.
- Expected continuation of wide-ranging structural reform efforts will be important to maintain high and sustainable medium-term growth.
- Making the leasing of customary land easier promises significantly higher growth as it remains the most binding constraint to further development.
- The government’s reform process holds the promise of improving both the allocation of land as well as prospects for project financing if leases can be accepted as effective collateral.

### Statistics and capacity building
- The quality of statistics is continuing to improve.
- Fund staff, including PFTAC, will continue to assist in this area.
- Samoa refers to 2006/07 data.

*Source: IMF staff report excerpt (text provided).*

### 50.      It is recommended that the Article IV consultation with Samoa take place on a

### _cr07185 - 50.      It is recommended that the Article IV consultation with Samoa take place on a

### Recommendation and calendar
- It is recommended that the Article IV consultation with Samoa take place on a 24-month cycle.
- The authorities would welcome an interim staff visit in early 2008.

### Key macroeconomic context and indicators (selected)
- Population (2006): 179,186
- Main Exports: Tourism, Fish
- GDP per capita (2005/06): US$ 2,301
- Quota: SDR 11.6 million

- Output and inflation (2003/04–2007/08)
  - Real GDP growth: 2.4, 6.0, 1.8, 3.0, 3.5 (2003/04–2007/08)
  - Nominal GDP: 8.9, 10.9, 8.0, 7.1, 6.6
  - Change in CPI (end period): 17.2, 1.0, 2.2, 5.3, 2.9
  - Change in core CPI (end period): 17.2, 1.0, 2.2, 2.5, 2.7
  - Change in CPI (period average): 7.9, 7.8, 3.3, 4.4, 4.1

- Monetary and credit (2003/04–2007/08)
  - Broad money (M2): 12.7, 15.0, 13.0, 16.9, 10.2
  - Net foreign assets (percent change of beginning period broad money): 4.0, 34.4, -20.2, 25.2, 4.1
  - Net domestic assets (percent change): 0.9, -0.7, 49.5, 12.0, 14.2
  - Private sector credit: 17.1, 6.8, 28.2, 13.2, 10.2
  - Three-month CBS rate (percent): 4.9, 4.3, 2.5, 5.0, 4.5

- Balance of payments (2003/04–2007/08)
  - Current account balance (US$ millions): -5.5, -18.7, -26.1, -36.8, -38.0
  - Current account (In percent of GDP): -1.6, -4.6, -6.1, -8.1, -7.8
  - Merchandise exports, f.o.b.: 14.1, 12.9, 10.7, 9.9, 11.9
  - Merchandise imports, c.i.f.: 137.3, 170.6, 198.8, 225.1, 260.7
  - Current transfers: 75.9, 103.2, 102.4, 108.7, 120.0

- External reserves and debt (2003/04–2007/08)
  - Gross official reserves (US$ millions): 67.1, 82.7, 65.8, 78.4, 93.2
  - Reserves (In months of next year's imports of goods and NFS): 3.8, 3.9, 2.8, 3.0, 3.5
  - Public debt (in millions): 166.7, 160.0, 168.2, 172.2, 190.7
  - Public debt (In percent of GDP): 47.8, 39.3, 39.4, 37.9, 39.4
  - Public external debt-service ratio (in percent): 7.8, 10.5, 11.1, 6.5, 4.1

### Fiscal operations and outlook (central government)
- Fiscal years and selected aggregates (2003/04–2007/08, millions of tala and percent of GDP)
  - Total revenue and grants (millions): 317.7, 524.4, 387.2, 481.8, 481.8, 505.2 (table shows later years as projections)
  - Total revenue (millions): 246.5, 283.0, 315.4, 383.3, 383.3, 409.8
  - Tax revenue (millions): 219.7, 242.2, 273.1, 325.9, 325.9, 352.8
  - Nontax revenue (millions): 26.8, 40.9, 42.2, 57.5, 57.5, 56.9
  - External grants (millions): 71.2, 241.4, 71.8, 98.5, 98.5, 95.4
  - Total expenditure and net lending (millions): 326.6, 521.4, 391.7, 496.9, 488.4, 508.7
  - Current expenditure (millions): 204.5, 236.6, 281.9, 329.8, 319.3, 348.4
  - Development expenditure (millions): 86.6, 263.8, 86.1, 162.0, 164.0, 155.2
  - Net lending (millions): 35.5, 21.0, 23.7, 5.1, 5.1, 5.1

- Fiscal balances (percent of GDP)
  - Current balance: 4.2, 4.2, 2.8, 5.0, 4.0, 4.5
  - Overall fiscal balance: -0.9, 0.3, -0.4, -0.5, -0.3
  - Overall balance (excluding grants): -8.0, -21.6, -6.4, -8.9, -8.2, -7.3

- Financing (percent of GDP)
  - External financing, net: 0.0, 1.4, 0.5, 0.9, 3.9
  - Domestic financing, net: 0.9, -1.7, -0.1, -0.4, -3.6
  - Banking system contribution: 1.8, 1.7, -0.9, -0.2, -0.3

### Balance of payments detail (2003/04–2007/08)
- Trade balance (US$ millions): -123.1, -157.7, -188.1, -215.2, -248.8
- Exports f.o.b. (US$ millions): 14.1, 12.9, 10.7, 9.9, 11.9
  - Fish: 4.5, 5.0, 4.6, 5.3, 5.9
  - Travel: 57.9, 63.6, 73.2, 89.9, 114.2 (services and income component)
- Imports, c.i.f. (US$ millions): -137.3, -170.6, -198.8, -225.1, -260.7
  - Oil: -22.6, -31.1, -37.8, -42.4, -44.1
  - Non-oil: -114.6, -139.5, -161.0, -182.7, -216.6
- Current transfers: 75.9, 103.2, 102.4, 108.7, 120.0
  - Official transfers: 2.9, 14.2, 1.5, 4.8, 7.0
  - Private transfers: 73.0, 89.0, 100.9, 103.9, 113.0

### Medium-term baseline projections (2003/04–2010/11)
- Growth and inflation
  - Real GDP growth projection series: 2.4, 6.0, 1.8, 3.0, 3.5, 3.0, 3.5, 3.5 (2003/04–2010/11)
  - CPI inflation (period average): 7.9, 7.8, 3.3, 4.4, 4.1, 3.0, 3.0, 3.0

- Fiscal accounts (percent of GDP)
  - Total revenue and grants: 31.9, 47.5, 32.5, 37.7, 37.1, 36.7, 36.2, 35.6
  - Total expenditure and net lending: 32.8, 47.2, 32.8, 38.2, 37.3, 36.5, 36.1, 35.7
  - Overall balance (including grants): -0.9, 0.2, -0.4, -0.5, -0.3, 0.2, 0.1, -0.1

- Monetary survey
  - Broad money: 12.7, 15.0, 13.0, 16.9, 10.2, 6.1, 11.4, 13.4
  - Private sector credit (1/ includes credit extended by nonbank financial institutions): 17.1, 6.8, 28.2, 13.2, 10.2, 9.9, 10.9, 10.9

- Balance of payments (percent of GDP)
  - Current account: -1.6, -4.6, -6.1, -8.1, -7.8, -6.8, -1.7, 1.5 (2003/04–2010/11)
  - Merchandise trade balance: -21.4, -24.4, -28.9, -32.1, -32.6, -31.6, -26.9, -23.4
  - Exports, f.o.b. (US$ millions): 14.1, 12.9, 10.7, 9.9, 11.9, 12.1, 12.2, 12.3
  - Imports, c.i.f. (percent changes): 10.5, 24.3, 16.5, 13.2, 15.8, 1.9, -2.6, -1.0

- External debt and reserves (projections)
  - Gross external public debt (percent of GDP): 47.8, 39.3, 39.4, 37.9, 39.4, 39.0, 37.0, 34.0 (2003/04–2010/11)
  - NPV of external debt expected to decline to around 22 percent of GDP by FY2010/11 (Table text: "expected to decline monotonically to around 22 percent of GDP by FY2010/11.")
  - Gross official reserves (US$ millions): 67.1, 82.7, 65.8, 78.4, 93.2, 92.6, 100.7, 110.7
  - Reserves (In months of next year's merchandise imports): 4.7, 5.0, 3.5, 3.6, 4.2, 4.3, 4.7, 5.0

### Debt sustainability analysis — baseline findings
- Conclusion: The baseline and scenario analysis suggest that Samoa is at low risk of debt distress.
- Baseline assumptions (text summary):
  - Medium-term growth expected at around 3½ percent a year.
  - Growth driven by step-up in tourism and foreign investment as reforms filter through.
  - Structural reforms, including increased use of customary land, expected to raise foreign investment.
  - Spending restraint expected to generate a broadly balanced fiscal position.
  - Current account expected to improve to around 1½ percent of GDP by 2010/11.
  - Foreign reserves expected to rise to around 5 months of imports by 2010/11.

- Debt dynamics (selected projections and statements)
  - Nominal public debt expected to rise slightly to 39½ percent of GDP in FY2007/08, then gradually fall to 34 percent of GDP by FY2010/11.
  - All public debt concessional; NPV of external debt was less than 30 percent of GDP at end FY2005/06 and is projected to decline to around 22 percent of GDP by FY2010/11.
  - Under the baseline, public debt and debt service indicators are all well below levels typically associated with stress for countries with strong institutions and governance.

### Sensitivity analysis, scenarios, and stress tests
- General result: Scenarios and bound tests do not suggest significant risks to Samoa’s debt sustainability; most scenarios produce at most a temporary rise in the debt burden.
- Historical scenario:
  - A permanent "historical" shock (growth, inflation, current account, net FDI equal to past eight-year averages) would see a rising debt burden over time, reflecting a high average non-interest current account deficit (3.5 percent of GDP) and low average FDI inflows (0.2 percent of GDP) over the past eight years.
  - Even under the unadjusted historical scenario, indicators remain below debt-distress thresholds for countries with strong institutions and governance.
- Adjusted historical scenario:
  - If current account and net FDI are assumed between historical average and baseline values, debt burden generally declines over the horizon.
- Cyclone scenario:
  - A scenario assuming a “cyclone” every five years starting from 2007/08, reducing GDP growth to zero and export growth to 60 percent of its baseline value (i.e., export growth falls by 40 percent), results in a relatively flat NPV of debt path and rising debt service relative to exports over time.
  - Nevertheless, all indicators in the cyclone scenario remain below levels associated with debt distress.
- Stress test assumptions:
  - Additional financing required under these scenarios is assumed to be on concessional terms.
  - Residual/projected historical financing is smaller than historical patterns, acknowledging large historical “residual” debt accumulation due to capital transfers and balance of payments data deficiencies.

### Quantitative highlights from External Debt Sustainability Framework (baseline, selected)
- External debt (nominal, percent of GDP): 47.8 (2003/04), 39.3 (2004/05), 39.4 (2005/06), 37.9 (2006/07), 39.4 (2007/08), 39.0 (2008/09), 37.0 (2009/10), 34.0 (2010/11)
- Identified net debt-creating flows (selected years): -8.2, -1.8, 5.2, 3.8, 4.3, 3.5, -0.8, -3.9
- NPV of external debt (percent of GDP, selected): 28.9, 26.8, 26.4, 25.8, 24.3, 22.4, 20.6, 11.8 (table shows progression; narrative states decline to around 22 percent by FY2010/11)
- NPV of debt (in percent of exports, selected): 92.5, 89.3, 80.8, 82.8, 78.6, 73.2, 67.8, 41.0
- Debt service-to-exports ratio (percent, selected): 10.5, 11.1, 6.5, 4.1, 4.2, 4.6, 4.9, 4.7

### Analytical conclusion and vulnerability
- The analysis suggests Samoa is at low risk of debt distress because standard debt indicators remain well below thresholds associated with potential distress for countries with strong institutions and governance, even under standard stress tests through FY2026/27.
- Samoa remains vulnerable to natural disasters; cyclone scenarios materially affect indicators but do not push them above distress thresholds in the simulations.

*Prepared by Asian and Pacific Department — Annexes to the 2007 Article IV Consultation (Informational Annex).*

### ANNEX II: SAMOA––FUND RELATIONS

### ANNEX II: SAMOA––FUND RELATIONS

### I. Membership Status
- Joined: 12/28/1971
- Article VIII

### II. General Resources Account
- SDR Million
  - Quota: 11.60 100.0
  - Fund Holdings of Currency: 10.92 94.12
  - Reserve position in Fund: 0.69 5.98

### III. SDR Department
- SDR Million
  - Net cumulative allocation: 1.14 100.00
  - Holdings: 2.53 221.64

### IV. Outstanding Purchases and Loans
- None

### V. Latest Financial Arrangements
- Approval Type / Date / Expiration Date / Amount Approved (SDR million) / Amount Drawn (SDR million)
  - Stand-by 07/09/1984 07/08/1985 3.38 3.38
  - Stand-by 06/27/1983 06/26/1984 3.38 3.38

### VI. Projected Obligations to Fund
- None

### VII. Exchange Rate Arrangement
- The exchange rate of the tala is pegged to a trade and payments weighted basket of currencies formally within a ±2 percent band.
- The basket is a composite of the currencies of Samoa’s most important trading partners and countries that are major sources of private transfers from abroad––New Zealand, Australia, the United States, Fiji, and Euro countries.
- The period average exchange rate for March 2007 was SAT 1.00 = US$0.37.

### VIII. Article IV Consultation
- The 2005 Article IV consultation discussions were held in Apia during March 9–22, 2005.
- The Executive Board discussed the staff report (SM/05/169) and concluded the consultation on June 17, 2005.

### IX. Technical Assistance
- The Pacific Financial Technical Assistance Centre (PFTAC) has provided assistance on budgetary management, tax administration, financial sector supervision and balance of payments statistics.
- MCM has provided assistance on monetary policy operations, foreign reserves management, banking and insurance supervision and other central banking issues.
- STA has provided help with national accounts statistics, and FAD with tax administration.

### X. Resident Representative
- None

*Source: ANNEX II: SAMOA––FUND RELATIONS (As of March 31, 2007).*

### introduction of a single tax identification number. Samoa is an inaugural member of the Pacific

### _cr07185 - introduction of a single tax identification number. Samoa is an inaugural member of the Pacific

### Tax administration and regional cooperation
- Samoa is an inaugural member of the Pacific Islands Tax Administrators Association (PITAA) and hosted the second annual meeting on October 2005.

### Financial sector regulation and supervision
- PFTAC advisor visited the CBS and SIFA in June 2005.
- Mission activities and recommendations:
  - Provided training to bank supervisors in both the domestic and offshore banking sectors in the areas of AML/CFT and the Basel Core Principles for Effective Bank Supervision.
  - Recommended the need for the CBS to strengthen supervision of the pension fund.
  - Advised SIFA on the need to strengthen supervision of the trust and company service provider sector.
- Executive Board assessment notes:
  - Significant improvements in supervision of both domestic and offshore banking sectors.
  - All offshore banks have now established a physical presence.
  - On-site examinations of credit risk management and assessments of AML/CFT have been conducted at domestic banks.
  - Directors look forward to further strengthening of the AML/CFT framework under the new legislation.

### Economic and financial statistics — implementation and technical assistance
- Balance of Payments (BPM5) and related activity:
  - CBS started working on a BPM5 basis for Balance of Payments estimates in 2003.
  - June 2004: PFTAC Statistics advisor visited to review implementation progress.
  - April 2005: CBS BOP compiler attended a regional training course in Fiji.
  - December 2005: Short term expert mission arranged to improve monetary statistics (jointly with Solomon Islands and Fiji).
  - April 2006: PFTAC advisor visited to assess TA needs and arranged a short-term expert mission to continue progress on BOP implementation.
  - Transition to the BPM5 methodology was finalized in 2005 with assistance from PFTAC.
  - Service exports classified as export processing (principally automotive parts manufactures) are considered under-reported.
  - Direct investment data may be under-reported; authorities are implementing a direct investment survey to address this.
- Monetary and financial statistics:
  - Comprehensive monetary sector data published monthly in the Selected Economic Indicators and quarterly in the Central Bank of Samoa Bulletin.
  - Transition plan to move to the standardized report form (SRF) developed with PFTAC; initial report in SRF expected in November 2006 but delayed.
  - An expert from PFTAC expected to visit Samoa within a year to provide technical assistance on monetary statistics.
  - Monthly data published on lending activities of other credit institutions; no data on offshore financial institutions supervised by the Samoan International Finance Authority are published.
- Real sector and national accounts:
  - CPI rebased in 2005 based on the 2002 Household Income and Expenditure Survey.
  - Headline and underlying CPI released monthly.
  - Quarterly and annual GDP estimates prepared on a production basis (SIC) and compiled in nominal and real terms; estimates available around three months after quarter end.
  - Inconsistency remains in treatment of the automotive parts plant between national accounts and balance of payments.
  - National accounts not currently compiled on an expenditure basis; authorities intend to report expenditure-side estimates within the next two years.
  - Quarterly employment and average earnings statistics compiled and published annually using National Provident Fund records; authorities intend more frequent publication in the near future.
- Government finance statistics (GFS):
  - GFS based on the 1986 GFS manual are published quarterly.
  - Data quality hampered by misclassification of accounts, particularly net lending and external grants, and current and development expenditure.
  - Underlying budgetary system is not coded to GFS headings.
  - Authorities plan, with PFTAC assistance, to move to GFSM 2001 (on a cash basis) over the next two years.
  - Samoa does not report government finance statistics to STA for publication in the IFS or the GFS Yearbook.
- Cooperation and TA plans:
  - PFTAC provided technical assistance; latest mission was in 2006.
  - PFTAC plans several missions on the GFS, balance of payments statistics and/or the national account statistics in 2008.
  - SPC and AsDB provided assistance with surveys, national accounts and the CPI.
  - Fund and PFTAC staff recommended closer coordination between the CBS, the Statistics Department and the Treasury Department to improve data quality.

### Relations with the World Bank Group (as of April 2007)
- Since Samoa became a Bank member in June 1974, 15 IDA credits totaling US$87.8 million have been made covering agriculture, power, telecommunication, finance, transport, and health sectors.
- Samoa is eligible for an IDA 14 allocation of SDR 7 million (indicative only) over FY2006–08. The IDA allocation for FY07 is SDR 6.4 million (with carryover from FY06), with 45 percent on a grant-financed basis.
- Bank assistance guided by the Strategy for the Development of Samoa (2005–07) and the Pacific Regional Strategy FY2006–09 focusing on (1) strengthening government capabilities, and (2) improving incentives for the private sector.
- Current World Bank activities and projects (selected):
  - Health Sector Management (approved 14/09/2000, IDA US$5 million) — supports reform for equitable access to health services; implementation within sector coordination involving AusAID.
  - Infrastructure Asset Management Phase 2 (approved 29/12/2003, US$12.8 million) — eight-year objective to enhance sustainability of transport and coastal infrastructure; additional finance of approximately US$8.2 million being finalized.
  - Cyclone Emergency Recovery Project (approved 29/4/2004, US$4.5 million) — recovery from Cyclone Heta and reduce vulnerability through coastal resilience, ecosystem recovery, and transport rehabilitation.
  - Procurement Reforms and Capacity Development — IDF grant (signed 06/10/2004, US$176,000) for revising Procurement Guidelines, manuals, and training.
  - Telecommunications and Postal Sector Reform (approved 17/12/2002, US$4.48 million) — increased competition and private participation; number of overall customers (GSM and fixed line) exceeds 60,000, which is a four-fold increase from the beginning of the project.
  - Private Sector Development — FIAS reviewing Foreign Investment Act; IFC assisting Samoa Venture Capital Facility with support of US$400,000.
- Samoa: IDA Lending Operations (as of April 3, 2007) — totals:
  - Total IDA amount: 87.8 (In millions of U.S. dollar equivalent)
  - Undisbursed balance: 12.4
- Selected project entries (year of approval, original amount, undisbursed balance):
  - Health sector management 2000 5.0 0.635
  - Telecommunications and Postal Reform 2002 4.5 3.6
  - Second Infrastructure Asset Mgmt. 2003 12.8 5.7
  - Cyclone ERP 2004 4.5 2.5

### Relations with the Asian Development Bank (AsDB)
- AsDB operations in Samoa started in 1969.
- Up to 2006, 32 loans totaling $131.0 million for 29 projects and technical assistance totaling $23.427 million for 82 projects have been provided.
- Previous CSPU 2005–06 aimed to enhance access to and quality of basic social services and improve the environment for the private sector.
- An Education Sector Project II was approved in 2005 with AusAID and NZAID co-financing for a total amount of $30 million; ADB’s approved ADF lending for this project is $8.06 million.
- Four TA grants approved from 2005 for a total of US$1.8 million, including US$0.75 million approved in May 2006 for preparing the power sector expansion program.
- AsDB loan approvals and disbursements, 2000–2006 (selected figures in millions of U.S. dollars):
  - Loan approvals by year: 2000: 10.5; 2001: 6.0; 2002: 0.0; 2003: 8.0; 2004: 0.0; 2005: 8.1; 2006: 0.0
  - Loan disbursements by year: 2000: 0.3; 2001: 3.6; 2002: 0.8; 2003: 1.9; 2004: 2.8; 2005: 2.7; 2006: 1.6
  - Cumulative loan amount available (balance as of December 2006): 2000: 104.4; 2001: 109.8; 2002: 111.0; 2003: 120.8; 2004: 121.6; 2005: 120.0; 2006: 122.8
  - Cumulative disbursements: 2000: 90.9; 2001: 94.5; 2002: 95.3; 2003: 97.2; 2004: 100.0; 2005: 102.7; 2006: 104.3
  - Net loan amount undisbursed: 2000: 13.5; 2001: 15.3; 2002: 15.7; 2003: 23.6; 2004: 21.0; 2005: 17.3; 2006: 18.5

### Statistical issues and data dissemination
- Improvements in compilation of macroeconomic data due to technical assistance from the Fund, PFTAC, SPC and AsDB.
- Coverage broadly adequate for surveillance; statistics compare well with other Pacific Island countries.
- Institutional responsibilities:
  - National accounts and GFS: special statistics unit within the Treasury (possible move to independent Statistics Department).
  - Balance of payments and financial statistics: Central Bank.
  - CPI and monthly merchandise trade: Statistics Department using Customs records.
- Samoa has not yet participated in GDDS; first draft GDDS metadata compiled in 2006 with PFTAC assistance.
- Official reserves compiled in a standard manner since 2005.
- Fund and PFTAC staff recommend closer coordination between CBS, Statistics Department and Treasury Department.

### IMF 2007 Article IV consultation — background, assessment, and policy recommendations
- Background findings:
  - Real per capita GDP has increased by over 3 percent per year on average over the last decade and a half.
  - External public debt has fallen below 40 percent of GDP.
  - External position benefited from rapid growth of remittances and tourism receipts.
  - Real GDP growth decelerated to 1¾ percent in 2005/06 due to a slowdown in manufacturing; tourism and commerce remained vibrant.
  - For 2006/07, real GDP growth is expected to accelerate to 3 percent.
  - Inflationary pressures remain muted despite recent pickup in headline inflation reflecting increases in tax rates.
  - Reserves rose to about 3½ months of imports following tightening of fiscal and monetary policies.
- Structural reforms and outcomes:
  - International operations of Polynesian Airlines restructured into a joint venture, reducing airfares by around half and increasing tourist arrivals.
  - Deregulation of the mobile telecommunications sector triggered a sizable fall in calling costs.
  - Governance of public enterprises strengthened by introduction of business plans.
  - National pension fund operations improved following stronger lending guidelines.
  - Consultations begun to promote economic use of customary land.
- Executive Directors' assessment and recommendations:
  - Congratulated authorities on growth and transformation; cautioned Samoa remains small, remote, and vulnerable.
  - Urged maintenance of prudent fiscal policy stance.
  - With revenue collection already relatively high, suggested expenditure restraint would be most effective against fiscal pressures (natural disasters, aging population, possible reductions in aid flows as Samoa graduates from LDC status).
  - Emphasized need to prioritize expenditure for education, health, and infrastructure.
  - Supported efforts toward a stronger monetary policy framework; development of interbank markets would help conduct monetary policy and advance financial sector development.
  - Supported Samoa’s current basket peg exchange rate regime as a credible nominal anchor contributing to low inflation; recommended increased reserve holdings to cushion against external shocks.
  - Welcomed recent public enterprise reforms and encouraged continuation of wide-ranging reform efforts (leasing of customary land, accelerate privatization, improve business climate, strengthen management and accountability of public enterprises).

### Selected economic and financial indicators (selected entries)
- Real GDP growth (12-month percent change): 2003/04: 2.4; 2004/05: 6.0; 2005/06: 1.8; 2006/07 (Est.): 3.0; 2007/08 (Proj.): 3.5
- Change in CPI (end period): 2003/04: 17.2; 2004/05: 1.0; 2005/06: 2.2; 2006/07: 5.3; 2007/08: 2.9
- Central government budget (In percent of GDP):
  - Revenue and grants: 2003/04: 31.9; 2004/05: 47.5; 2005/06: 32.5; 2006/07: 37.7; 2007/08: 37.1
  - Expenditure and net lending: 2003/04: 32.8; 2004/05: 47.2; 2005/06: 32.8; 2006/07: 38.2; 2007/08: 37.3
  - Overall balance: 2003/04: -0.9; 2004/05: 0.3; 2005/06: -0.4; 2006/07: -0.5; 2007/08: -0.3
- Money and credit (12-month percent change):
  - Broad money (M2): 2003/04: 12.7; 2004/05: 15.0; 2005/06: 13.0; 2006/07: 16.9; 2007/08: 10.2
  - Private sector credit: 2003/04: 17.1; 2004/05: 6.8; 2005/06: 28.2; 2006/07: 13.2; 2007/08: 10.2
  - Three-month CBS rate (in percent): 2003/04: 4.9; 2004/05: 4.3; 2005/06: 2.5; 2006/07: 5.0; 2007/08: 4.5
- Balance of payments (in millions of U.S. dollars):
  - Current account balance: 2003/04: -5.5; 2004/05: -18.7; 2005/06: -26.1; 2006/07: -36.8; 2007/08: -38.0
  - (In percent of GDP): -1.6; -4.6; -6.1; -8.1; -7.8
  - Merchandise exports, f.o.b.: 2003/04: 14.1; 2004/05: 12.9; 2005/06: 10.7; 2006/07: 9.9; 2007/08: 11.9
  - Merchandise imports, c.i.f.: 2003/04: 137.3; 2004/05: 170.6; 2005/06: 198.8; 2006/07: 225.1; 2007/08: 260.7
  - Current transfers: 2003/04: 75.9; 2004/05: 103.2; 2005/06: 102.4; 2006/07: 108.7; 2007/08: 120.0
  - Overall balance (in millions): 2003/04: 12.5; 2004/05: 13.2; 2005/06: -16.9; 2006/07: 12.6; 2007/08: 3.3
- External reserves and debt:
  - Gross official reserves (in millions): 2003/04: 67.1; 2004/05: 82.7; 2005/06: 65.8; 2006/07: 78.4; 2007/08: 93.2
  - Reserves (months of next year's imports of goods and NFS): 3.8; 3.9; 2.8; 3.0; 3.5
  - External Public debt (In millions): 2003/04: 166.7; 2004/05: 160.0; 2005/06: 168.2; 2006/07: 172.2; 2007/08: 190.7
  - External Public debt (In percent of GDP): 47.8; 39.3; 39.4; 37.9; 39.4
  - External Public debt-service ratio (in percent): 7.8; 10.5; 11.1; 6.5; 4.1
- Memorandum items:
  - Nominal GDP (In millions of tala): 2003/04: 996; 2004/05: 1,105; 2005/06: 1,193; 2006/07: 1,278; 2007/08: 1,363
  - GDP per capita (US$): 2003/04: 1,935; 2004/05: 2,227; 2005/06: 2,301; 2006/07: 2,410; 2007/08: 2,532

*Prepared from IMF staff and annex materials in the document _cr07185 (Article IV Consultation and annexes, April–June 2007).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07185.pdf_