## _cr10214

## Source details

**Canonical URL:** [_cr10214](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10214.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10214.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10214.pdf.json)

---

### I. Staff appraisal and summary
- September 2009 tsunami undercut prospects for a quick recovery and saddled Samoa with massive private and public sector rebuilding costs.
- Authorities adopted a fully-costed rehabilitation plan and secured concessional financing; the Fund provided emergency assistance under the ESF/RAC of SDR5.8 million (50 percent of quota).
- Outlook:
  - Real GDP likely to contract this financial year due to the tsunami’s impact on tourism and faltering export earnings.
  - Reconstruction-related imports could result in a significant widening of the current account deficit.
  - Samoa remains exposed to severe natural disaster risks.
- Fiscal strategy guidance:
  - Continue to shoulder rebuilding costs while minimizing capacity risks and ensuring fiscal sustainability.
  - Prioritize concessional donor support and reconstruction spending; return to the public deficit target once reconstruction is completed to safeguard debt outlook and fiscal space.
  - Implement government public financial management reform plan effectively and timely.
- Monetary policy guidance:
  - Prudent management of monetary policy and the basket peg is critical.
  - Basket peg credible; tala exchange rate not out of line with fundamentals.
  - CBS should detect early signs of balance of payments pressures and make adjustments if necessary.
  - Policy rates historically low: CBS securities overall rate lowered by nearly 500bps since mid 2008 to ¼ percent; CBS should adopt a more neutral stance as recovery gains traction and regional central banks withdraw stimulus.
- Structural reform guidance:
  - Increase access to and economic use of customary land.
  - Pursue state-owned enterprise reform to attract private investment and improve economic efficiency.

### II. Background: weathering the global recession and 2009 tsunami
- Performance and shocks:
  - Real per-capita income growth since the mid-1990s significantly higher than most comparators owing to prudent policies and reforms.
  - Global recession hit manufacturing, construction, agriculture, and fishing.
  - Real GDP fell 5 percent in FY 2008/09; Q1 FY 2009/10 GDP declined 2.3 percent (y/y).
- External position and reserves:
  - Current account deficit narrowed in FY 2008/09 as remittances and tourism receipts continued to grow.
  - Official reserves remained stable and well above the central bank’s target.
- Tsunami impact and damages:
  - Physical damage estimated at US$60 million (over 10 percent of GDP); infrastructure rehabilitation, social safety nets, and disaster protection/resettlement costs expected to be significantly higher.
- Policy response:
  - Monetary and fiscal stimulus introduced early in the global recession.
  - CBS lowered policy rates by nearly 500bps since mid 2008 to ¼ percent; limited pass-through to commercial lending.
  - Economic stimulus package increased development spending in 2008.
  - Recovery framework integrated with the Strategy for the Development of Samoa (SDS) 2008–12.
  - Official reserves rose by about US$16 million between October 2009 and February 2010 to US$130 million (4 months of prospective import cover).

### III. Outlook and risks
- Near-term projections:
  - Real GDP expected to contract about 3 percent this financial year due to the tsunami.
  - Tourism shock: staff estimates that about 1½–3½ percent of GDP could be lost in the first year after the tsunami.
  - Commerce, transport, and communication also directly hit.
  - With activity returning to normal and infrastructure rehabilitation spending, growth could increase significantly in 2010/11 before converging to potential.
  - Current account deficit could widen to about 20 percent of GDP in 2009/10 and 2010/11 due to reconstruction imports and tourism shortfalls.
- Inflation and labor market:
  - Headline CPI inflation expected to decline further and likely remain close to zero for the remainder of FY2009/10.
  - Large share of underemployed and high import content of reconstruction inputs expected to mute inflationary pressures.
- Uncertainty sources:
  - Scale of damage, potential bottlenecks, damage to tourism image, ongoing natural disaster exposure, fragile global recovery.
  - National accounts weaknesses (2000 benchmark surveys likely outdated) may underestimate tourism and overstate manufacturing.

### IV. Policy discussions: returning to sustained growth
- Coordination across fiscal, monetary/exchange-rate, and structural policies emphasized.

- A. Fiscal management: from rebuilding to maintaining sustainability
  - Fiscal cost and financing:
    - Government recovery framework for four years through 2012/13 with a fiscal cost of about US$100 million (18 percent of GDP).
    - Government identified 60 percent of funding needs for the four-year recovery framework in new grants and concessional financing.
    - Supplementary budget for FY 2009/10 covers a quarter of the recovery framework, fully funded by grants and concessional loans.
  - Deficit and debt strategy:
    - Fiscal deficit widen to 10 percent of GDP in FY 2009/10 and average 7 percent of GDP the following 3 years of reconstruction is unavoidable.
    - Authorities intend to reduce the fiscal deficit to less than 3 percent of GDP once tsunami-related reconstruction is completed in 2013.
    - This would stabilize the net present value of public debt at about 40 percent of GDP.
  - Fiscal risks and financing gap:
    - Remaining tsunami-related fiscal financing gap is about 7 percent of GDP and needs to be filled from the 2010/11 budget onwards.
    - If filled on non-concessional terms, the NPV of public debt could increase by 5 percent of GDP over the current baseline.
  - Policy priorities:
    - Secure more grants and concessional loans.
    - Review medium-term development spending plans; redirect donor funds to rehabilitation where possible.
    - Restraint on recurrent non-priority expenditure and on any general public wage increase.
    - Implement public financial management reform: quick resolution of income tax arrears, timely application of new procurement guidelines.

- B. Monetary and exchange rate policy: managing a sound framework
  - Exchange rate and reserves:
    - Basket peg regime credible; official reserves increased and CPI inflation low.
    - Tala has appreciated markedly in real effective terms as nominal effective rate remained stable.
  - CBS recommendations:
    - Regularly assess weights in the basket and the level of the exchange rate to maintain external competitiveness.
    - Use legal discretion to make exchange-rate adjustments in response to terms of trade shocks or prolonged tourism impact to avoid undue fiscal tightening.
    - Remain vigilant for early signs of balance of payments pressures and adjust policy if necessary.

- Structural reform priorities:
  - Increase access to and economic use of customary land.
  - Pursue SOE reform to attract private investment and improve efficiency.

### V. Monetary stance, reserves, and exchange rate indicators
- Monetary stance:
  - Current monetary stance with historically low policy interest rates is appropriate to support recovery.
  - CBS agreed it should move to a more neutral stance as global recovery gains traction and regional central banks withdraw stimulus.
  - Balance needed between avoiding reserve pressures from negative interest-rate differentials and supporting recovery.
  - Capital controls afford limited influence over monetary conditions.
  - Pass-through of policy rate cuts since August 2008 to commercial lending rates has been low.
- Reserves and exchange rate findings:
  - Foreign reserves rose steadily and are about double their level from four years earlier.
  - Staff project reserves to remain around 3½–4 months of imports at the end of this fiscal year.
  - Tala stable in nominal effective terms; after a substantial real effective appreciation in 2008, the tala returned closer to trend since mid 2009.

### VI. Structural reform: land, SOEs, and financial sector
- Use of customary land:
  - Around 80 percent of all land in Samoa is customary land; lack of clear legal title inhibits economic use.
  - Legislation passed to allow banks to use capital improvements on leased customary land as collateral.
  - Continued community outreach necessary; avoid legislation to cap the rise in market value of freehold land.
  - Authorities agreed on pursuing further land-use reforms with careful calibration to cultural heritage.
- SOE reform:
  - SOEs strain the economy and government budget.
  - Combined book value of companies slated for privatization is about T70 million (FY2007/08) or 4½ percent of GDP.
  - Key reform elements: independence from political directives, hard budget constraints, exposure to competition, full accountability.
  - CSO framework vital but not clearly defined or enforced; Public Bodies (Performance and Accountability) Act provisions not enforced.
  - As of end FY2009, 121 out of 270 SOE board positions were held by public servants and members of parliament.
  - Proceeds from SOE sales agreed to be used for deficit reduction and filling tsunami financing gap.
- Financial sector and credit intermediation:
  - Nonperforming loans rose from 6 percent at end-2008 to over 8 percent at end-2009.
  - Structural weaknesses: uncertainties in enforcement of land-related collateral and lack of a credit bureau.
  - Credit growth to private sector remained on downward trend; bank intermediation low by international standards.
  - Government subsidized loan program for small tourism operators amounts to T5 million (½ percent of GDP); supported but recommended to be limited.
  - Importance of strengthening financial system supervision and regulation emphasized.

### VII. Data, statistics, and transparency
- Improvements in compilation and dissemination of key economic statistics will enhance policy credibility.
- Samoa is the only Pacific island that disseminates monthly and quarterly economic statistics through government websites.
- Data subject to frequent revisions due to compilation and coverage weaknesses.
- Technical assistance via PFTAC welcomed; priorities include national accounts and BOP coverage improvements.

### VIII. Exchange rate assessment (Box 1 summary)
- Excluding tsunami, current account deficit appears in line with Samoa’s structural savings-investment norm.
- Once recovery completed, current account deficit projected to decline to about 9 percent of GDP in 2013/14.
- Staff sample suggests a savings-investment norm of about 6–10 percent of GDP for Samoa.
- Tourism receipts equivalent to about 20 percent of GDP.
- Fish exports declined nearly 20 percent between 2007 and 2009 and are equivalent to 4 percent of tourism earnings.
- Remittances account for about 25 percent of GDP, reached an all time high in 2007/08, remained stable during the global financial crisis, and increased after the September 2009 tsunami.

### IX. Debt sustainability: assessment, scenarios, and recommendations
- Overall assessment: Samoa remains at low risk of debt distress.
- Baseline projections:
  - PV of external debt to GDP projected to peak at 40 percent under the baseline scenario.
  - Baseline PV of external debt to GDP peaks at slightly over 40 percent in 2013 and then gradually falls to 25 percent in 2030.
  - Public sector debt (percent of GDP) projections include: 2007 "37.1", 2008 "30.3", 2009 "40.4"; 2010-2015: "54.3", "59.7", "61.3", "61.5", "59.4", "57.1"; 2010-15 Average "47.7".
  - PV of public sector debt (percent of GDP, selected years): 2010 "30.2", 2011 "38.6", 2012 "41.0", 2013 "41.9", 2014 "41.8", 2015 "40.5", 2020 "39.0", 2030 "33.0".
- Non-concessional borrowing scenario:
  - Assumed borrow at 9.25 percent per annum for five years.
  - Non-concessional borrowing adds about five percentage points of GDP to the PV of external debt to GDP relative to baseline.
  - Table excerpt (PV of public sector debt under scenarios, percent of GDP):
    - PV of public sector debt under baseline scenario: 2009/10 38.6; 2010/11 41.0; 2011/12 41.9; 2012/13 41.8
    - PV of public sector debt under non-concessional borrowing scenario: 2009/10 38.6; 2010/11 41.4; 2011/12 44.3; 2012/13 46.6
  - Filling the remaining tsunami financing gap on non-concessional terms could reduce the borrowing cushion to less than four percent of GDP before breaching policy-dependent thresholds.
- Contingent liabilities and guarantees:
  - Government guarantees on 12 SOE loans equivalent to about 3.2 percent of GDP; creditors exercised guarantees on four loans.
  - Contingent liabilities related to existing guarantees on SOE debt amount to about 1.1 percent of GDP in nominal terms; with interest-only guarantees amount to about 1.2 percent of GDP in PV terms.
- Stress tests:
  - Combination shock using one-half standard deviation shocks for real GDP and export value growth and the U.S. dollar deflator is the most extreme shock.
  - Only the PV of debt-to-GDP peaks above its indicative threshold of 50 percent before falling back below by 2020.
  - Including remittances, the PV of debt-to-GDP-and-remittances ratio peaks above the lower modified threshold of 45 percent for four years before falling below in 2016.
- Policy implications:
  - Continue seeking concessional financing.
  - Avoid non-concessional borrowing to finance reconstruction where possible.
  - Maintain nominal net public debt target of less than 40 percent of GDP and sound public debt management (including establishing a single Treasury account).

### X. Key macroeconomic and fiscal statistics (selected exact figures)
- Population (2008): 0.18 million
- GDP per capita (2007/08): US$ 2,802
- Quota: SDR 11.6 million
- Real GDP growth (selected years): 2004/05: 7.0; 2007/08: 5.0; 2008/09: -4.9; 2009/10: -2.8; 2010/11: 3.0
- Nominal GDP (millions of tala): 2004/05: 1,124; 2007/08: 1,472; 2009/10: 1,485; 2010/11: 1,623
- Nominal GDP (millions of U.S. dollars): 2004/05: 407; 2007/08: 507; 2009/10: 540; 2010/11: 590
- Current account balance (percent of GDP): 2004/05: -9.6; 2007/08: -6.2; 2009/10: -20.1; 2010/11: -20.0
- Gross official reserves (millions of U.S. dollars): 2004/05: 84.2; 2007/08: 87.7; 2009/10: 119.6; 2010/11: 124.6
- External debt (percent of GDP): 2004/05: 39.5; 2007/08: 30.3; 2009/10: 52.4; 2010/11: 58.1
- Overall balance (central government, percent of GDP): 2004/05: 0.3; 2007/08: -1.8; 2009/10: -9.7; 2010/11: -9.5
- Total revenue and grants (percent of GDP): 2004/05: 36.3; 2007/08: 30.9; 2009/10: 39.5; 2010/11: 33.7
- Total expenditure and net lending (percent of GDP): 2004/05: 36.1; 2007/08: 32.7; 2009/10: 49.2; 2010/11: 43.2
- Development expenditure (percent of GDP): 2004/05: 13.1; 2007/08: 6.5; 2009/10: 21.4; 2010/11: 14.3

### XI. Fund relations and technical assistance (Annex I highlights)
- Membership: Joined 12/28/1971; Article VIII.
- Quota and balances:
  - Quota: 11.60 SDR million (100.0)
  - Fund holdings of currency: 10.92 SDR million (94.12)
  - Reserve position in Fund: 0.69 SDR million (5.98)
- SDR Department:
  - Net cumulative allocation: 11.09 SDR million (100.00)
  - Holdings: 12.60 SDR million (113.59)
- Outstanding Purchases and Loans:
  - ESF RAC Loan: 5.80 SDR million (50.00)
- Exchange rate arrangement:
  - Tala pegged to a trade and payments weighted basket of currencies within a ±2 percent band (basket includes New Zealand, Australia, the United States, and Euro countries).
- Technical assistance: PFTAC (budgetary management, tax administration, financial sector supervision, BOP statistics); MCM, STA, FAD engagement noted.
- Safeguards assessment: first-time safeguards assessment of the Central Bank of Samoa underway in relation to ESF-RAC arrangement approved 12/7/2009.

### XII. Authorities’ views and priorities (opening remarks)
- Authorities appreciated consultations and valued the Fund’s assessment.
- Macroeconomic context:
  - Recent shocks: registered a 4.9 percent fall in GDP over 2008-2009.
  - Real GDP for the year to December 2009: contraction of 1.8 percent over the corresponding 2008 period.
  - Core inflation: decline in prices of 2.7 percent in February 2010 over the same period last year.
  - Staff estimates headline inflation to increase to 3.0 percent in 2010/11 and 4.0 percent thereafter.
- Fiscal stance:
  - Main objective: return budget deficit to less than 3.0 percent after phased tsunami rehabilitation in 2013/14.
  - Remaining financing gap of 7.0 percent of GDP from 2010/11 onwards; authorities intensifying bilateral efforts to attract new grants.
  - Authorities favor prompt publication of staff report to enhance prospects for grants and concessional financing.
- Structural reforms:
  - Land: land registration changes, Strata Titles in 2009, emphasize public communication and bank confidence in lease collateral.
  - SOEs: cabinet committee reviewing removal of civil/public servants from SOE boards by 1 July 2010; privatization of SamoaTel planned with proceeds to provide fiscal space.
  - Agriculture: National Export Strategy 2009 and plans for sector plan formulation with World Bank assistance.
- Statistics:
  - Samoa disseminates monthly and quarterly economic statistics; plans to invest in Bureau of Statistics capacity; priority on national accounts and BOP coverage.

*Prepared by the staffs of the International Monetary Fund and the International Development Association (excerpts from the provided IMF/IDA document).*

### 1.   Samoa and Its Peers During the Global Recession ........................................................5

### 1.   Samoa and Its Peers During the Global Recession

### I. Staff appraisal and summary
- The September 2009 tsunami undercut prospects for a quick recovery from the global recession and saddled Samoa with massive private and public sector rebuilding costs.
- The authorities adopted a fully-costed rehabilitation plan and secured concessional financing; the Fund provided emergency assistance under the ESF/RAC of SDR5.8 million (50 percent of quota).
- Outlook is challenging and uncertain:
  - Real GDP likely to contract this financial year due to the tsunami’s impact on tourism and faltering export earnings.
  - Reconstruction-related imports could result in a significant widening of the current account deficit.
  - Samoa remains exposed to severe natural disaster risks.
- Fiscal strategy guidance:
  - Continue to shoulder rebuilding costs while minimizing capacity risks and ensuring fiscal sustainability.
  - Prioritize concessional donor support and reconstruction spending; return to the public deficit target once reconstruction is completed to safeguard debt outlook and fiscal space.
  - Implement government public financial management reform plan effectively and timely.
- Monetary policy guidance:
  - Prudent management of monetary policy and the basket peg is critical.
  - The basket peg has remained credible; tala exchange rate not out of line with fundamentals.
  - CBS should detect early signs of balance of payments pressures and make adjustments if necessary.
  - Current policy rates at historically low levels (CBS securities overall rate lowered by nearly 500bps since mid 2008 to ¼ percent); CBS should adopt a more neutral stance as recovery gains traction and regional central banks withdraw stimulus.
- Structural reform guidance:
  - Increase access to and economic use of customary land, and pursue state-owned enterprise reform to attract private investment and improve economic efficiency.

### II. Background: weathering the global recession and 2009 tsunami
- Performance and shocks:
  - Real per-capita income growth since the mid-1990s significantly higher than most comparator countries due to prudent fiscal and monetary policies and structural reforms.
  - Global recession hit manufacturing (downsizing of an automotive parts plant) and construction (decline in FY 2008/09), agriculture and fishing suffered poor harvests.
  - Real GDP fell 5 percent in FY 2008/09; Q1 FY 2009/10 GDP declined 2.3 percent (y/y).
- External position and reserves:
  - Current account deficit narrowed in FY 2008/09 as remittances and tourism receipts continued to grow.
  - Official reserves remained stable and well above the central bank’s target.
- Tsunami impact and estimated damages:
  - Physical damage estimated by the UNDP and the World Bank at US$60 million (over 10 percent of GDP); infrastructure rehabilitation, social safety nets, and disaster protection/resettlement costs expected to be significantly higher.
- Policy response:
  - Monetary and fiscal stimulus introduced early in the global recession.
  - CBS lowered policy rates by nearly 500bps since mid 2008 to ¼ percent; limited pass-through to commercial lending as banks tightened risk management and built excess liquidity.
  - Economic stimulus package increased development spending in 2008.
  - The government’s recovery framework focuses on maintaining access to basic health and education services, infrastructure rehabilitation, resettlement, and investments in disaster risk reduction; integrated with the Strategy for the Development of Samoa (SDS) 2008–12.
  - Official reserves rose by about US$16 million between October 2009 and February 2010 to US$130 million (4 months of prospective import cover).

### III. Outlook and risks
- Near-term projections and impacts:
  - As a result of the tsunami, real GDP is expected to contract about 3 percent this financial year.
  - Tourism sector shock: staff estimates that about 1½–3½ percent of GDP could be lost in the first year after the tsunami.
  - Other sectors directly hit include commerce, transport, and communication.
  - With activity returning to normal and infrastructure rehabilitation spending, growth could increase significantly in 2010/11 before converging to potential.
  - Shortfalls in tourism receipts and a sharp rise in capital goods and other reconstruction imports could widen the current account deficit to about 20 percent of GDP in 2009/10 and 2010/11.
- Inflation and labor market:
  - Headline CPI inflation expected to decline further and likely remain close to zero for the remainder of FY2009/10 due to base effects from lower global food and commodity prices and strong local food supply.
  - Large share of underemployed in the labor force and high import content of reconstruction inputs expected to mute inflationary pressures.
- Uncertainty sources:
  - Unprecedented scale of damage; unanticipated bottlenecks or adverse spillovers between sectors could affect recovery path.
  - Potential damage to Samoa’s image as a safe tourist destination and ongoing exposure to natural disasters.
  - Fragile global recovery; stronger regional recovery or favorable response to sporting events could increase remittances and tourism revenue.
  - Weaknesses in national accounts (2000 benchmark surveys likely outdated) may underestimate tourism contribution and overstate manufacturing.

### IV. Policy discussions: returning to sustained growth
- Overview:
  - Emphasis on coordinated policy efforts across fiscal management, monetary/exchange-rate policy, and structural reform to restore sustained growth.
- A. Fiscal management: from rebuilding to maintaining sustainability
  - Fiscal cost and financing:
    - Government recovery framework for four years through 2012/13 with a fiscal cost of about US$100 million (18 percent of GDP).
    - Fiscal cost covers resettlement, infrastructure repair, social safety nets, and disaster risk reduction investments.
    - Government identified 60 percent of funding needs for the four-year recovery framework in new grants and concessional financing.
    - Supplementary budget for FY 2009/10 covers a quarter of the recovery framework, fully funded by grants and concessional loans, focusing on utilities, tourism, and basic social needs.
  - Deficit and debt strategy:
    - Widening of fiscal deficit to 10 percent of GDP in FY 2009/10 and an average of 7 percent of GDP the following 3 years of reconstruction is unavoidable.
    - Authorities intend to reduce the fiscal deficit to less than 3 percent of GDP once tsunami-related reconstruction is completed in 2013.
    - This would stabilize the net present value of public debt at about 40 percent of GDP.
  - Fiscal risks and financing gap:
    - Remaining tsunami-related fiscal financing gap is about 7 percent of GDP and needs to be filled from the 2010/11 budget onwards.
    - If that gap is filled on non-concessional terms, the net present value of public debt could increase by 5 percent of GDP over the current baseline.
  - Policy priorities:
    - Every effort to secure more grants and concessional loans to fill the gap.
    - Review medium-term development spending plans and redirect donor funds to rehabilitation where possible.
    - Restraint on recurrent non-priority expenditure and on any general public wage increase.
    - Implement public financial management reform plan: quick resolution of income tax arrears, timely application of new procurement guidelines.
- B. Monetary and exchange rate policy: managing a sound framework
  - Exchange rate regime and reserves:
    - The basket peg regime remains credible; official reserves continued to increase and CPI inflation returned to low levels.
    - Tala exchange rate does not appear out of line with fundamentals but has appreciated markedly in real effective terms as nominal effective rate remained stable.
  - Policy recommendations for the CBS:
    - Continue practice of regularly assessing weights in the basket and the level of the exchange rate to maintain external competitiveness.
    - Use legal discretion to make exchange-rate adjustments in response to future terms of trade shocks or if the tsunami’s impact on tourism is more severe and long lasting—this flexibility helps avoid undue fiscal tightening during reconstruction.
    - Remain vigilant for early signs of balance of payments pressures and adjust policy if necessary.

*Source: Samoan authorities; and Fund staff estimates.*

### 17.      The current monetary stance with historically low policy interest rates is

### _cr10214 - 17.      The current monetary stance with historically low policy interest rates is

### Monetary stance and policy guidance
- The current monetary stance with historically low policy interest rates is appropriate, given the need to support the economic recovery.
- As the global recovery gains traction and regional central banks withdraw monetary stimulus, the CBS agreed with the team’s advice that it should in time move to a more neutral stance.
- A careful balance is required between avoiding pressures on foreign exchange reserves from negative interest-rate differentials and providing continued support to the economic recovery.
- Capital controls afford the CBS some influence over monetary conditions, but the benefits are limited.
- The pass-through of the CBS’ policy rate cuts since August 2008 to commercial lending rates has been low by international standards owing to structural impediments amplifying risk aversion of banks.

### Key exchange rate and reserve indicators (findings summarized)
- Foreign reserves rose steadily in recent years and are now about double their level just four years ago.
- Staff project reserves to remain around 3½–4 months of imports of goods and services at the end of this fiscal year.
- The tala has remained stable in nominal effective terms; after a substantial real effective appreciation in 2008, the tala has returned closer to trend since mid 2009.

### Structural reform: promoting private-sector led growth
- Reforms over the past two decades have made Samoa a more attractive place to do business; recent reforms to simplify company formation and business registration have lowered the overall cost of starting a new business by three quarters.
- Further reforms are needed to foster private-sector led economic growth, a key goal of the Strategy for Development of Samoa.

Policy recommendations and agreed priorities
- Use of customary land
  - Around 80 percent of all land in Samoa is customary land; lack of clear legal title and an inability to transfer ownership inhibit economic use.
  - The government has focused on reforms to ease land registration and passed legislation to allow banks to use capital improvements on leased customary land as collateral.
  - Continued community outreach is necessary to realize the full benefits of reforms.
  - The team noted that legislation to cap the rise in the market value of freehold land should be avoided.
  - Authorities agreed on pursuing further land-use reforms but emphasized careful calibration with Samoa’s cultural heritage and social traditions.
- SOE reform
  - SOEs place a significant strain on the Samoan economy and the government’s budget.
  - Further efforts are needed to enforce hard budget constraints and implement existing corporate governance legislation, including through more clearly defined community services obligations (CSO) met by SOEs.
  - Progress in bringing selected SOEs to privatization, including SamoaTel, was welcomed.
  - The authorities agreed that, given existing public debt is on concessional terms, proceeds from the sale of SOEs should go towards deficit reduction and filling the remaining tsunami-related fiscal financing gap.

### Financial sector, credit intermediation, and related measures
- Nonperforming loans rose from 6 percent at end-2008 to over 8 percent at end-2009.
- Structural weaknesses hampering credit intermediation and effective risk management include lingering uncertainties in enforcement of land-related collateral and the lack of a credit bureau.
- Credit growth to the private sector has remained on its downward trend; bank intermediation levels are still low by international standards.
- The team supported the government’s subsidized loan program for small operators in the tourism sector, while emphasizing such schemes should be strictly limited to avoid undue budgetary risks or distortions that hamper longer-term growth prospects.
  - The program amounts to T5 million (½ percent of GDP).
- Agreement on the importance of further strengthening financial system supervision and regulation to better gauge vulnerabilities of banks and nonbank financial institutions as the system evolves.

### Data, statistics, and transparency
- Improvements in compilation and dissemination of key economic statistics will enhance policy credibility and reduce uncertainty for the private sector.
- Samoa is the only Pacific island that disseminates monthly and quarterly economic statistics through government websites.
- Data are subject to frequent revisions owing to weaknesses in compilation and coverage, complicating economic analysis.
- The team welcomed the government’s use of technical assistance, including through PFTAC, and noted that improvements to national accounts and the coverage of BOP data are priorities.

### Exchange rate assessment (summary of Box 1 findings)
- Excluding the impact of the tsunami, the current account deficit appears to be in line with Samoa’s structural savings-investment norm.
- Once the tsunami-related recovery is completed, Samoa’s current account deficit is projected to decline to about 9 percent of GDP in 2013/14.
- Staff estimates based on a sample of 55 low-income countries suggest a savings-investment norm of about 6–10 percent of GDP for Samoa.
- Tourism receipts are equivalent to about 20 percent of GDP and have become Samoa’s most important commercial foreign exchange earner.
- Fish exports declined nearly 20 percent between 2007 and 2009 and are equivalent to 4 percent of tourism earnings.
- Remittances account for about 25 percent of GDP, reached an all time high in 2007/08, remained stable during the global financial crisis, and increased in the immediate aftermath of the September 2009 tsunami.

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

### 2010. The combined book value of companies slated for privatization is about

### 2010. The combined book value of companies slated for privatization is about 

### State-Owned Enterprise (SOE) reform: findings
- The combined book value of companies slated for privatization is about T70 million (FY2007/08) or 4½ percent of GDP.
- Key to successful SOE reform in Samoa: placing SOEs on a fully commercial footing with:
  - independence from political directives,
  - hard budget constraints,
  - exposure to competition,
  - full accountability.
- A functioning Community Service Obligation (CSO) framework is vital for commercialization of SOEs.
- The nature and magnitude of CSOs are not clearly and transparently defined.
- The Public Bodies (Performance and Accountability) Act enables SOEs to claim reimbursement from the Government for the cost of providing CSOs approved under the provisions of the Act and Regulations; those provisions are not enforced, resulting in conflicting interpretations of what constitutes a CSO.
- Poor CSO management depresses SOE profitability and reduces efficiency.
- SOEs lack capacity to prepare CSO contracts; the Government lacks capacity to effectively monitor CSO contracts.

### Corporate governance: findings
- Existing corporate governance legislation is based on international good practice, but implementation has been challenging.
- Only reporting and disclosure requirements are being fully met by the SOEs.
- As of end FY2009, 121 out of the 270 positions available on SOE boards were held by public servants and members of parliament, even though they are prohibited from serving as directors of SOEs in line with good international practice.
- Implementation of governance and accountability mechanisms is key to putting SOEs on a commercial footing and improving overall economic efficiency.

### Key macroeconomic and fiscal statistics (selected exact figures from source)
- Population (2008): 0.18 million
- GDP per capita (2007/08): US$ 2,802
- Quota: SDR 11.6 million
- Real GDP growth (selected years): 2004/05: 7.0; 2007/08: 5.0; 2008/09: -4.9; 2009/10: -2.8; 2010/11: 3.0
- Nominal GDP (in millions of tala) (memorandum items): 2004/05: 1,124; 2007/08: 1,472; 2009/10: 1,485; 2010/11: 1,623
- Nominal GDP (in millions of U.S. dollars): 2004/05: 407; 2007/08: 507; 2009/10: 540; 2010/11: 590
- Current account balance (in percent of GDP): 2004/05: -9.6; 2007/08: -6.2; 2009/10: -20.1; 2010/11: -20.0
- Gross official reserves (millions of U.S. dollars): 2004/05: 84.2; 2007/08: 87.7; 2009/10: 119.6; 2010/11: 124.6
- External debt (in percent of GDP): 2004/05: 39.5; 2007/08: 30.3; 2009/10: 52.4; 2010/11: 58.1
- Overall balance (central government, percent of GDP): 2004/05: 0.3; 2007/08: -1.8; 2009/10: -9.7; 2010/11: -9.5
- Total revenue and grants (percent of GDP): 2004/05: 36.3; 2007/08: 30.9; 2009/10: 39.5; 2010/11: 33.7
- Total expenditure and net lending (percent of GDP): 2004/05: 36.1; 2007/08: 32.7; 2009/10: 49.2; 2010/11: 43.2
- Development expenditure (percent of GDP): 2004/05: 13.1; 2007/08: 6.5; 2009/10: 21.4; 2010/11: 14.3

### Debt sustainability: assessment and baseline projections
- Joint IMF/World Bank DSA 2010: Samoa remains at low risk of debt distress.
- The present value (PV) of external debt to GDP is projected to peak at 40 percent under the baseline scenario; baseline PV of external debt to GDP peaks at slightly over 40 percent in 2013 and then gradually falls to 25 percent in 2030.
- Samoa’s external and public sector debt remains sustainable even after significant borrowing to finance post-tsunami reconstruction.
- Large worker remittance flows equivalent to 25 percent of GDP provide a further cushion.
- Samoa’s pre-tsunami stock of external debt as of June 2009: below 40 and 30 percent of GDP in nominal and present value terms, respectively.
- The stock of domestic public debt is around 2.3 percent of GDP in nominal terms.
- Contingent liabilities related to existing guarantees on SOE debt amount to about 1.1 percent of GDP in nominal terms; together with interest-only guarantees on SOE debt, contingent liabilities amount to about 1.2 percent of GDP on present value terms.
- Multilateral debt comprises the vast majority of the debt stock; the Asian Development Bank holds 41 percent of Samoa’s external debt stock; China holds 16 percent.
- Samoa targets keeping nominal net public debt at less than 40 percent of GDP and actively seeks concessional financing.

### BOX 1 — Key baseline assumptions (exact formulations)
- Real GDP growth: Real GDP is projected to contract about 3 percent in the first year after the September 2009 tsunami, which severely hit the tourism sector. However, with economic activity returning to normal and post-tsunami infrastructure rehabilitation spending providing a further boost, GDP growth could converge quickly to its long-run potential, which is assumed to be 3 percent, slightly below historical averages.
- Inflation: The change in the average CPI is expected to decline to around zero percent y/y at the end of FY 2009/10 on base effects from lower global food and commodity prices and unusually strong food supply before returning towards its long-run average as economic growth picks up in 2011 and beyond.
- Fiscal balance: The government’s post-tsunami economic recovery framework for the four years through 2012/13 has a fiscal cost of about 18 percent of GDP. As a result, the fiscal deficit is projected to widen to 10 percent of GDP in FY 2009/10 and average 7 percent of GDP the following three years of reconstruction. However, the government remains committed to reducing the fiscal deficit to less than three percent of GDP once reconstruction is completed in 2013.
- External sector: The non-interest current account deficit will also widen significantly in FY 2009/10 on the back of tsunami-related reconstruction imports and a fall in tourism receipts and remain elevated through 2013, when reconstruction is expected to be completed. Net FDI inflows as a percent of GDP is assumed to grow very gradually to 7 percent of GDP at the end of the projection period, as the tourism sector develops further and investment levels converge with those in other Pacific islands.
- Financing flows: The government has secured donor commitments to finance tsunami-related expenditures into FY 2010/11 and is committed to seeking concessional assistance to finance the remainder of the economic recovery framework. Remittances remained stable during the global financial crisis, and are expected to remain significant throughout the projection period, growing in line with source countries’ income. No financing from privatizations, commercial loans, or short-term loans is assumed throughout the period.

### Policy implications and recommendations (derived from findings)
- Enforce provisions of the Public Bodies (Performance and Accountability) Act and Regulations to define CSOs transparently and ensure timely reimbursement to SOEs.
- Strengthen SOE capacity to prepare CSO contracts and the Government’s capacity to monitor and manage CSO delivery and costs.
- Implement corporate governance and accountability mechanisms fully—beyond reporting and disclosure—to reduce political appointments (noting 121 of 270 board positions were held by public servants and MPs as of end FY2009) and align board composition with international good practice.
- Continue to seek concessional financing and donor support for reconstruction to preserve Samoa’s borrowing cushion and maintain low risk of debt distress.
- Maintain quantitative public debt targets (nominal net public debt < 40 percent of GDP) and pursue sound public debt management practices (including establishing a single Treasury account as noted).

*Prepared by the staffs of the International Monetary Fund and the International Development Association (excerpts from the provided IMF/IDA document).*

### 7.      Relative to the last staff report on the authorities’ ESF/RAC request after the

### _cr10214 - 7.      Relative to the last staff report on the authorities’ ESF/RAC request after the

### External debt and exports comparison with prior report
- The present value of external debt to GDP is a little higher due to a lower projected nominal GDP growth.
- The present value of external debt to exports is somewhat lower because of a greater concentration of grant financing in 2009 and 2010 than was assumed in IMF Country Report No. 10/46.
- Exports of services are projected to be slightly higher in FY2009/10 due to an unexpected temporary increase in volunteer arrivals in the first quarter of the year and additional sporting events.

### Bound tests and stress scenarios
- Under the various bound tests, the ratios remain manageable for the shocks considered (Table 2b and Figure 1).
- The combination shock using one-half standard deviation shocks for real GDP and export value growth and the U.S. dollar deflator is the most extreme shock.
- Only the PV of debt-to-GDP:
  - Peaks above its respective indicative threshold of 50 percent before falling back below the threshold by 2020.
- If remittances are included:
  - The PV of debt-to-GDP-and-remittances ratio peaks above the lower modified threshold of 45 percent for only four years before falling below the modified threshold in 2016 (Figure 3).
- All other indicators remain below, often by a wide margin, their thresholds.

### Non-concessional borrowing scenario
- Staff calculated the impact of filling the remaining tsunami-related financing gap on non-concessional terms to illustrate the appropriateness of seeking concessional assistance.
- Assumptions:
  - Borrow at 9.25 percent per annum for a term of five years, similar to the terms on Senegal’s euro-bond issued in December 2009.
- Impact:
  - Non-concessional borrowing adds about five percentage points of GDP to the present value of external debt to GDP relative to the baseline.
  - This would leave a cushion of less than four percent of GDP for additional borrowing in the event of shock before the present value of external debt-to-GDP ratio would breach the policy-dependent threshold.

### Samoa: Present value of public sector debt under baseline and non-concessional borrowing scenarios (In percent of GDP)
- 2009/10   2010/11   2011/12   2012/13
- Tsunami-related financing need-1.20.42.93.9
- PV of public sector debt under baseline scenario38.641.041.941.8
- PV of public sector debt under non-concessional borrowing scenario38.641.444.346.6
- Source: Fund staff estimates.

### Fiscal debt sustainability analysis
- The baseline scenario for the updated public sector debt sustainability now includes data on SOE debt.
- The government has guaranteed 12 SOE loans contracted with the Samoa National Provident Fund and two commercial banks.
- The guarantees are equivalent to about 3.2 percent of GDP.
- Creditors have exercised guarantees on four of the loans and the government has assumed responsibility for servicing the loans; the rest remain contingent liabilities of the government.

### Public sector debt under the baseline scenario
- Public sector debt under the baseline scenario is sustainable and in line with the authorities debt management strategy.
- The present value of public sector debt relative to GDP briefly exceeds the government’s target of 40 percent of GDP during the reconstruction period before falling below the target ceiling in 2015 (Table 1b and Figure 2).
- Under an alternative scenario in which the primary balance is held unchanged from 2010:
  - The PV of debt-to-GDP ratio breaches the policy-dependent threshold in 2014 and continues to rise thereafter and the PV of debt-to-exports ratio follows a similar trajectory.
  - This highlights the need for the government to follow through on its commitment to reduce the fiscal deficit to less than three percent of GDP once reconstruction is completed in 2013.
- Under all other shock scenarios, the public debt ratios remain below their policy dependent thresholds.

*Source: IMF staff estimates as presented in the provided content.*

### 12.      Samoa remains at low risk of debt distress. Although the debt ratios will rise

### 12.      Samoa remains at low risk of debt distress. Although the debt ratios will rise

### Assessment of debt distress
- Overall assessment: "not substantively different from the last joint DSA (IMF Country Report No. 07/185)."
- Debt distress rating: "low risk of debt distress."
- Rationale:
  - "low initial level of indebtedness"
  - "Samoa’s track record of prudent macroeconomic management"
  - assumption that "the tourism sector returns to trend growth"
- Cushion indicators:
  - PV of external debt to GDP projected to peak at "40 percent" under the baseline scenario, leaving a cushion relative to the policy-dependent threshold of "50 percent".
  - Large worker remittance flows equivalent to "25 percent of GDP" provide a further cushion.
  - Including remittances, the PV of debt-to-GDP-and-remittances ratio "remains below its lower modified threshold under all alternative shocks considered except for a very temporary breach of the threshold by a small margin in the combination shock."

### Baseline projections and key statistics (selected)
- Public sector debt (percent of GDP): 2007 "37.1", 2008 "30.3", 2009 "40.4"; projections 2010-2015: "54.3", "59.7", "61.3", "61.5", "59.4", "57.1"; 2010-15 Average "47.7"; 2020 "37.3".
- PV of public sector debt (percent of GDP, selected years): 2010 "30.2", 2011 "38.6", 2012 "41.0", 2013 "41.9", 2014 "41.8", 2015 "40.5", 2020 "39.0", 2030 "33.0", 2016-30 Average "25.5".
- PV of external debt (percent of GDP): 2010 "27.9", 2011 "36.7", 2012 "39.4", 2013 "40.4", 2014 "40.5", 2015 "39.4", 2020 "38.1", 2030 "32.6", 2016-30 Average "25.5".
- PV of contingent liabilities (not included in public sector debt): 2010 "1.2", 2011 "1.1", 2012 "0.9", 2013 "0.7", 2014 "0.6", 2015 "0.5", 2020 "0.4", 2030 "0.1", 2016-30 Average "0.0".
- Gross financing need (percent of GDP): 2010 "0.3", 2011 "2.8", 2012 "4.9", 2013 "11.0", 2014 "10.9", 2015 "6.9", 2020 "6.7", 2030 "3.5", 2016-30 Average "3.8".
- Debt service-to-revenue and grants ratio (percent): historical series includes "4.7", "4.1", "4.9", "5.9", and projected 2010-15 values "6.3", "6.2", "6.6", "6.8", "6.6", with 2010-15 Average "6.3" and 2020 "4.4".
- Debt service-to-revenue ratio (percent): historical includes "5.8", "4.9", "6.4", "9.5"; projected 2010-15 values "8.5", "8.0", "8.2", "8.4", "8.1", 2010-15 Average "7.6", 2020 "5.4".
- Primary deficit (percent of GDP, selected): 2007 "-1.4", 2008 "1.6", 2009 "3.3"; projected 2010 "0.6", 2011 "1.8", 2012 "8.6", 2013 "8.8", 2014 "4.8", 2015 "4.5".
- Revenue and grants (percent of GDP): 2007 "36.4", 2008 "30.9", 2009 "32.0"; projected 2010 "39.8", 2011 "33.7", 2012 "33.4", 2013 "32.9", 2014 "31.4", 2015 "31.3"; 2010-15 Average "31.3".
- Real GDP growth (percent): historical 2007 "2.3", 2008 "5.0", 2009 "-4.9"; projected 2010-2015: "3.7", "3.8", "-2.8", "3.0", "2.2", "2.6"; 2010-15 Average "3.0"; longer-run assumptions often "3.0".
- Average nominal interest rate on forex debt (percent): historical and projections include "2.2", "0.7", "1.7"; baseline forward values "1.7", "2.2", "1.5", "1.1", "1.0", "1.0", with many later-year entries "1.0".
- Grant element of new external borrowing (percent): projected values around "40.9", "44.9", "42.3", "44.8", "43.7", "43.1", "43.3", "43.1", "43.1".

### Stress tests, scenarios, and sensitivity analysis
- Most extreme stress tests: for some indicators (b. and d.) the most extreme shock is "a one-time depreciation shock (30 percent in real terms)"; for others it is "a combination shock (GDP growth and the primary balance fall by 1 standard deviation from their historical average)".
- Sensitivity analysis tables cover alternative scenarios and bound tests for PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, debt service-to-revenue, and debt service-to-exports for years 2010-2030.
- Selected scenario outcomes (PV of Debt-to-GDP Ratio, baseline and alternatives, percent):
  - Baseline: 2010 "39", 2011 "41", 2012 "42", 2013 "42", 2020 "40", 2030 "33", 2020 value shown "33".
  - A1 (Key variables at their historical averages in 2010-2030): 2010 "37", 2011 "33", 2012 "29", 2013 "26", 2020 "24", 2030 "38".
  - B4 (One-time 30 percent real depreciation in 2011): PV debt-to-GDP rises (examples show values like "39", "54", "53", "52" in 2010-2013 sequences in tables).
- Even under the most extreme stress test scenarios, "most indicators of debt sustainability, except for the PV of debt-to-GDP ratio, remain below their indicative thresholds, often by a wide margin."

### Policy recommendations and risks
- Financing strategy: "it will remain important for Samoa to continue seeking concessional financing."
- Risk of non-concessional borrowing: "Borrowing on non-concessional terms to finance reconstruction would significantly eat into the borrowing cushion."
- Implicit operational assumption in fiscal baseline: "The fiscal baseline assumes that creditors do not exercise existing guarantees on SOE debt."
- Note on PV threshold dynamics: "While the PV of debt-to-GDP ratio also exceeds its policy-dependent threshold initially due to a one-time real deprecation, it follows a downward trajectory and drops below 50 percent of GDP in 2015."

*Prepared by the Asia and Pacific Department (Informational Annex), April 22, 2010.*

### ANNEX I: SAMOA––FUND RELATIONS

### ANNEX I: SAMOA––FUND RELATIONS

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

### II. General Resources Account
- SDR Million / %Quota
  - 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 / %Allocation
  - Net cumulative allocation: 11.09 100.00
  - Holdings: 12.60 113.59

### IV. Outstanding Purchases and Loans
- SDR Million / %Quota
  - ESF RAC Loan 5.80 50.00

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

### VI. Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs)
- Forthcoming (2010–2014)
  - Charges/Interest: 0.00 0.00 0.02 0.02 0.02
  - Total: 0.00 0.00 0.02 0.02 0.02
- Note: When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

### 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 tourism revenue from abroad––New Zealand, Australia, the United States, and Euro countries.

### VIII. Article IV Consultation
- The 2007 Article IV consultation discussions were held in Apia during March 8–20, 2007.
- The Executive Board discussed the staff report (IMF Country Report No. 07/185) and concluded the consultation on May 18, 2007.

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

### X. Safeguards Assessment
- A first time safeguards assessment of the Central Bank of Samoa is underway.
- Authorities committed to undergo a safeguards assessment of the Central Bank of Samoa with respect to the ESF-RAC arrangement approved on 12/7/2009.
- The Central Bank of Samoa has authorized its external auditor to hold discussions with Fund staff and give access to the most recent external audit reports.

### XI. Resident Representative
- None

*ANNEX I: SAMOA––FUND RELATIONS (As of February 28, 2010)*

### 1. Our Samoan authorities wish to express their appreciation to the staff for the

### _cr10214 - 1. Our Samoan authorities wish to express their appreciation to the staff for the

### Opening remarks and context
- Authorities expressed appreciation for the "cordiality and frankness" of consultations and value the Fund’s assessment through the Article IV consultation process.
- Consultations helped assess progress under the Strategy for the Development of Samoa (SDS) 2008/09-2011/12 and post-September 2009 tsunami recovery, including the use of the ESF-RAC facility.
- Authorities welcome the next Article IV consultation in 24 months.

### Recent economic performance and outlook
- Long-run achievement: real per capita income in excess of $US 3,000 p.a., underpinned by political stability and structural reform efforts.
- Vulnerabilities: small size, population, geographic remoteness, narrow production base, terms of trade exposure, susceptibility to natural disasters.
- Recent shocks and impacts:
  - Samoa registered a 4.9 percent fall in GDP over 2008-2009 due to the global crisis and poor harvests.
  - The September 2009 tsunami increased private and public rebuilding costs and slowed recovery.
- Latest statistics:
  - Real GDP for the year to December 2009: contraction of 1.8 percent over the corresponding 2008 period.
  - Core inflation: decline in prices of 2.7 percent in February 2010 over the same period last year.
  - Staff estimates headline inflation to increase to 3.0 percent in 2010/11 and 4.0 percent thereafter.
- External sector and debt:
  - Official reserve cover likely to remain at 3.5 months of imports in the medium term.
  - Gross external debt expected to rise from 52.4 percent of GDP in 2009/10 to 58.3 percent in 2013/14 (38.1 percent in net present value terms).
  - Staff and authorities view Samoa’s debt level at this level as low risk.

### Macroeconomic policy
Fiscal policy
- Authorities remain committed to prudent fiscal policy but tsunami reconstruction and fiscal stimulus derailed meeting the usual medium-term fiscal target.
- Main fiscal objective: budget deficit to return to the medium-term target of less than 3.0 percent as set out under the SDS after phased tsunami rehabilitation activities in 2013/14.
- Debt sustainability and financing risks:
  - Authorities welcome Debt Sustainability Analysis finding of low risk of debt distress.
  - Caution regarding fiscal risks from a remaining financing gap if not filled timely, and pressures if financed by loans rather than grants.
  - World Bank and Asian Development Bank are front-loading budget support disbursements to mitigate a financing gap.
  - Authorities have a retrospective budget reimbursement arrangement with donors to allow timely implementation of rehabilitation work.
  - Option to adjust timing of public sector investment program consistent with administrative and implementation capacity.
- Financing gap and actions:
  - Remaining budget financing gap driven by tsunami rehabilitation program of 7.0 percent of GDP in total from 2010/11 onwards.
  - Authorities will intensify bilateral efforts to attract new grants from donors including the European Union, Australia, New Zealand and other potential development partners.
  - Authorities see merit in prompt publication of the staff report to enhance prospects of future grants and concessional financing.
- Public financial management:
  - Medium-Term Budget Framework established with forward estimates for 2009/10 – 2011/12 published.
  - Reactivation of the Macroeconomic Policy Coordination Committee (Ministry of Finance and Central Bank) to support credibility of forward estimates.
  - Public Finance Management Reform Plan (PFMRP) will involve the Ministry of Revenue to assess further tax and customs reforms; PFMRP process and institutional roles will be clearly articulated.

Monetary and exchange rate policy
- Authorities strongly committed to the current pegged exchange rate basket regime as anchor for the nominal economy, contributing to stable inflation and policy credibility.
- Staff found the exchange rate in line with fundamentals: nominal exchange rate remained stable while the real effective rate markedly appreciated.
- Central Bank of Samoa (CBS) discretion:
  - CBS discretion to adjust the exchange rate by +/- 2.0 percent against the currency basket is viewed as crucial to avoid undue fiscal tightening during reconstruction.
  - Exchange rate adjustment process controlled by internal accountability mechanisms; CBS will monitor to minimize risks to external position and inflationary pressures.
- Monetary stance:
  - CBS stands ready to withdraw current monetary stimulus and move to a neutral stance as global recovery gains traction.
  - Fund financing under the 2009 ESF-RAC used to bolster official reserves as remittances fell short of their annual growth trend.
  - Authorities agree to maintain reserve cover in the range of 3.5 - 4.0 months of imports in the medium term.
- Financial sector development:
  - Authorities note staff assessment on the effectiveness of the credit channel and monetary transmission; low pass-through partly explains a one-off subsidized loan program to small tourism operators.
  - CBS will consider staff recommendations for financial sector development and strengthening oversight and regulation; authorities look forward to future engagement with staff.

### Structural reforms
- Overall approach: consistent with the SDS and strategy to make the private sector the engine of growth; varying degrees of progress since last Article IV.

Economic use of land
- Land reform aims: ease leasing of customary land and allow land lease agreements to serve as collateral for borrowing.
- Actions to date:
  - Changed the land registration system and amended land legislation.
  - Introduction of Strata Titles in 2009 to provide flexibility for common ownership on leased land to attract foreign investment.
- Implementation considerations:
  - Public communication is fundamental to gain community support.
  - Banks’ confidence in using lease agreements as collateral is crucial.
  - Authorities note staff’s practical recommendations in Box 2 are consistent with their proposed strategy.

State-Owned Enterprises (SOEs)
- Reform principles: place SOEs on a fully commercial footing, independence from political directives, hard budget constraints, exposure to competition, and full accountability.
- Governance actions:
  - Cabinet-appointed committee reviewing feasibility of Cabinet decision to remove all civil and public servants from SOEs’ Boards by 1 July 2010; review will consider limited pool of directors and likely involve Institute of Directors in director preparation.
  - Preparation of mechanism for creating unit trusts to diversify ownership of privatized SOEs when momentum picks up.
  - Commitment to enforce Community Service Obligation (CSO) through improved CSO awareness and effective implementation and enforcement.
- Privatization:
  - Progress slow; authorities consider delay appropriate given global crisis effects on attainable prices.
  - Privatization of SamoaTel is planned, with proceeds expected to provide fiscal space.

Agriculture development
- Recent initiatives: National Export Strategy in 2009, strategy on fruit and vegetables sub-sector, research on agricultural processing.
- Gap: absence of a holistic sector planning framework.
- Planned actions:
  - Formulation of a sector plan to encapsulate agricultural policies and strategies for resource allocation.
  - World Bank assistance to focus on implementing policy requirements and strategies for revitalizing the sector and identifying Samoa's comparative advantage.

Economic statistics
- Samoa is the only Pacific island disseminating monthly and quarterly economic statistics through the government website.
- This capability resulted from investments in statistics officers via continuous Fund training, technical assistance from the Pacific Financial Technical Assistance Cooperation, and the Secretariat of the Pacific Community.
- Authorities plan investment to strengthen Bureau of Statistics capacity and capability, with high priority on improvements to national accounts and coverage of BOP data.

*Source: _cr10214 - 1. Our Samoan authorities wish to express their appreciation to the staff for the*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10214.pdf_