## _cr1046

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---

### Executive Summary — Background and Impact
- Earthquake and tsunami of September 29, 2009: described as the worst natural disaster since Samoa’s independence in 1962.
- Human and physical impact:
  - Death toll: 143.
  - Almost 5,300 people—some 2½ percent of Samoa’s population—have lost their homes.
  - Physical damage estimated by the UNDP and World Bank at US$60 million (over 10 percent of GDP).
- Broader recovery needs (infrastructure rehabilitation, strengthening social safety nets, resettlement, disaster protection) expected to be significantly higher than the initial damage estimate.
- Government disaster response:
  - Immediate humanitarian relief coordinated by the Disaster Advisory Council with international aid agency support.
  - National Disaster Management Office working with international donors on a recovery framework integrated with the Strategy for the Development of Samoa (SDS) 2008–12.
- Fund request and rationale:
  - Authorities requested a disbursement equivalent to 50 percent of quota (SDR 5.8 million) under the Rapid-Access Component of the Fund’s Exogenous Shocks Facility (ESF-RAC).
  - Purpose: bolster external reserves and catalyze donor support by signaling commitment to sound macroeconomic policies.

### Economic Performance Prior to the Tsunami
- Long-run performance and policy anchors:
  - Real per-capita income growth since the mid-1990s higher than peers.
  - Fiscal policy guided by annual targets for deficit (3½ percent of GDP) and net debt (40 percent of GDP).
- Impact of the global recession:
  - Manufacturing output and processing trade collapsed.
  - Real GDP fell 5½ percent in FY 2008/09 (official estimate).
- External and monetary indicators:
  - Remittances and tourism receipts equivalent to about ⅓ and ¼ of GDP, respectively.
  - Official reserves remained above the central bank’s target of four months of current goods’ imports.
  - CBS lowered policy rates by nearly 300 bps since August 2008; limited pass-through to commercial lending rates.
- Fiscal stance before the tsunami:
  - 2008/09 budget moved to expansionary stance; deficit budgeted to double to over 10 percent of GDP in FY 2009/10, largely financed by grants and concessional loans.

### Economic Outlook and Policy Framework — Impact of the Tsunami (A)
- Sectoral and macro impact on tourism:
  - Tourism accounted for 65 percent of all export earnings in FY 2008/09 and contributes directly and indirectly about 14 percent of GDP.
  - About a quarter of the tourism sector’s capacity destroyed by the tsunami.
- Short-term GDP and balance of payments impact:
  - Real GDP likely to contract in 2010 by about 3 percent.
  - Tentative staff estimates indicate GDP growth could fall up to 5 percentage points short of the pre-tsunami baseline.
  - Shortfalls in tourism receipts of about US$20 million in FY 2009/10 are estimated.
  - Current account deficit expected to widen as reconstruction imports more than offset any decline in tourism-related imports.
- Key downside risks and data limitations:
  - Reputational damage to Samoa as a safe destination and risk of another natural disaster.
  - Outlook subject to considerable uncertainty given unprecedented damage and weaknesses in national accounts data.

### Fiscal Management: Rebuilding and Maintaining Sustainability (B)
- Scale of fiscal needs and recovery framework:
  - Government recovery framework fiscal cost about US$100 million (18 percent of GDP).
  - UNDP/World Bank damage estimate: US$60 million (over 10 percent of GDP); recovery plan higher due to resettlement, social safety nets, and disaster risk reduction.
- Near-term fiscal impact and priorities:
  - Supplementary budget for FY 2009/10 could bring overall fiscal deficit to nearly 12 percent of GDP; government expects this to be fully funded by grants and concessional loans.
  - Highest spending priority: infrastructure key to resuscitating growth (utilities, tourism) and basic social needs (humanitarian relief, road repair, water, electricity, priority social services).
- Financing and prioritization:
  - Government identified 60 percent of funding needs for the recovery framework in new grants and concessional financing.
  - Authorities committed to finance remaining gap through external grants and concessional borrowing; review medium-term development spending with donors to re-direct funds to rehabilitation.
  - Donor technical assistance welcomed given capacity constraints.
- Fiscal projections and debt sustainability:
  - Widening of the fiscal deficit to 12 percent of GDP in FY 2009/10 considered unavoidable.
  - Public Debt Management Strategy results: public debt fell to about 30 percent of GDP between FY 2001/02 and FY 2007/08.
  - Net present value of public debt stood at 28 percent of GDP as of June 2009.
  - Publicly guaranteed debt may be about 4 percent of GDP (partial data).
  - Staff DSA suggests debt outlook remains favorable even after large deficits envisaged in 2009/10 through 2011/12.

- Samoa: Fiscal cost of tsunami and financing (In percent of post-tsunami GDP)
  - Fiscal cost of tsunami: 2009/10 6.1; 2010/11 5.0; 2011/12 3.4; 2012/13 3.0
  - Revenue impact: 2009/10 1.7; 2010/11 0.5; 2011/12 -0.2; 2012/13 -0.7
  - Cost of recovery plan: 2009/10 4.4; 2010/11 4.5; 2011/12 3.6; 2012/13 3.7
  - Current aid pledges: 2009/10 4.4; 2010/11 4.5; 2011/12 0.9; 2012/13 0.0
  - Grants: 2009/10 2.2; 2010/11 1.1; 2011/12 0.0; 2012/13 0.0
  - Concessional external financing: 2009/10 2.2; 2010/11 3.5; 2011/12 0.9; 2012/13 0.0
  - Change in domestic financing: 2009/10 1.7; 2010/11 0.0; 2011/12 0.0; 2012/13 0.0
  - Remaining financing need: 2009/10 0.00; 2010/11 0.52; 2011/12 2.53; 2012/13 3.0
  - Memorandum item — Overall fiscal deficit (including grants): 2009/10 11.7; 2010/11 8.8; 2011/12 5.9; 2012/13 5.7

### Monetary and Exchange Rate Policy (C)
- CBS actions and conditions:
  - CBS lowered policy rates by nearly 300 bps since August 2008.
  - Pass-through to commercial lending rates limited; banks tightened risk management and built excess liquidity.
  - Exchange-rate basket peg credibility remained intact and inflation expectations stayed well anchored.
- Tala exchange-rate basket peg:
  - Basket composed of six currencies with weights reflecting tourism and remittance flows.
  - Over the last 12 months the bilateral tala exchange rate experienced large swings in nominal and real terms, including relative to the Australian dollar.
  - Over a longer horizon, the tala does not appear out of line with economic fundamentals, although the real effective exchange rate has appreciated over the last 12 months.
  - Assessment assumes the shock to tourism from the 2009 tsunami is transitory.

### Structural Reform and Financial Sector (D)
- Private sector enabling measures:
  - Emphasis on restoring infrastructure, supporting tourism recovery, and mitigating capacity constraints.
  - Recovery to be integrated with SDS priorities to support poverty reduction and medium-term growth.
- State-owned enterprises (SOEs):
  - Commercial SOEs employ 10 percent of the workforce.
  - Adjusted for interest rate subsidies, return on equity of SOEs averaged -4 percent since 2002; government target is 7 percent.
  - Government actions: enhancing corporate governance, 2007 Cabinet decision to identify cost and contract community service obligations.
- Financial system depth and transmission:
  - Financial system stable with improved supervision but lacks depth.
  - Staff estimates long-run interest rate pass-through at 0.42 (2005–09), compared with East Asia range 0.3–1.2.
  - Banks’ excess reserves tripled in the 12 months after the Lehman collapse.
  - Structural weaknesses: enforcement of land-related collateral, lack of information sharing among creditors.
  - Reforms and measures:
    - Electronic land-registry set up in August 2009.
    - Samoan Bankers’ Association working to establish a credit information bureau.
    - Subsidized loan program through the Development Bank of Samoa, funded by borrowing from the CBS against collateral, to help businesses hurt by the tsunami.
    - Priority to strengthen financial system supervision and regulation in line with 2007 IMF assessment recommendations.

### Access, Fund Assistance, and Risks
- Fund assistance:
  - Authorities requested ESF-RAC emergency assistance equivalent to 50 percent of quota (SDR 5.8 million); staff supports the request given low public debt and credible policy commitments.
  - ESF-RAC disbursement approved: SDR 5.8 million (about US$9.3 million).
  - Fund financing would help keep official reserves at about 3½ months of prospective imports (central bank usual target: greater than 4 months of current imports).
  - The amount represents about 1¾ percent of GDP and covers about one tenth of the tsunami’s cumulative gross impact on the balance of payments during FY 2009/10–2012/13.
- Risks and vulnerabilities:
  - Large uncertainty about the scale and duration of tourism disruptions and remittance responses.
  - Reputational risk for Samoa as a tourism destination and risk of further natural disasters.
  - Capacity constraints in government administration and the economy to implement a large recovery program.
  - Publicly guaranteed debt (partial data suggests about 4 percent of GDP) poses an additional fiscal risk.

### Staff Appraisal and Policy Recommendations
- Support for immediate financing and policy stance:
  - Staff supports the authorities’ request for rapid-access ESF assistance to bolster reserves and catalyze donor support.
- Policy recommendations and priorities:
  - Prioritize spending on infrastructure key to resuscitating growth (utilities, tourism) and on protecting the most vulnerable through social services and safety nets.
  - Finance the supplementary FY 2009/10 budget largely with grants and concessional loans; minimize domestic financing.
  - Carefully review and reprioritize medium-term development spending with donors to identify synergies and reduce capacity pressures.
  - Maintain focus on fiscal sustainability with an objective to reduce the fiscal deficit to less than 3 percent over the medium term to stabilize public debt at prudent levels.
  - Use donor technical assistance to ensure effective prioritization and implementation given capacity constraints.
  - Continue discussions on SOE reform, deepening the financial system, and enhancing financial supervision during the 2009 Article IV consultation.

### International Experience, Tourism Scenarios, and Projections
- International experience and confidence effects:
  - Based on Thai, Indonesian and Maldives post-tsunami experience, confidence may take 4–6 quarters to return.
  - Some Samoan hotels reported booking cancellations of around 60–70 percent for the rest of 2009.
- Tourism scenarios and assumptions:
  - Baseline: assumes the long-run industry growth trend.
  - Scenario 1 (medium confidence effect): recovery over four quarters.
  - Scenario 2 (strong confidence effect): slower recovery after six quarters.
  - Visitor assumptions:
    - Scenario 1: peak reduction of 50 percent (y/y) in the first quarter after the tsunami of non-VFR visitors.
    - Scenario 2: peak reduction of 75 percent (y/y) in the first quarter after the tsunami of non-VFR visitors.
    - In all scenarios, VFR arrivals assumed unaffected; tourism spending per head constant in real terms.
- Projected impacts on tourism earnings, GDP, and current account:
  - Loss in tourism earnings in FY 2009/10 varies between US$15–30 million.
  - Tourism earnings loss takes about 1½–3½ percent off Samoa’s GDP in FY 2009/10.
  - Around 30 percent of receipts are related to imported intermediate goods; net current account effect ranges from US$10–20 million in FY 2009/10.

### Fiscal, BOP, and Key Modeled Aggregates (selected exact figures)
- Population (2008): 219,998
- GDP per capita (2007/08): US$ 2,794
- Quota: SDR 11.6 million
- Real GDP growth:
  - 2004/05: 8.6
  - 2005/06: 2.2
  - 2006/07: 2.3
  - 2007/08: 5.0
  - 2008/09: -5.5
  - 2009/10 Est. Pre-tsunami: 1.5
  - 2009/10 Post-tsunami: -3.0
- Nominal GDP (millions of U.S. dollars):
  - 2004/05: 407
  - 2005/06: 455
  - 2006/07: 522
  - 2007/08: 507
  - 2008/09: 555
  - 2009/10 Est.: 588
  - 2009/10 Proj. Pre-tsunami: 560
- Current account balance (millions of U.S. dollars):
  - 2004/05: -39.1
  - 2005/06: -50.3
  - 2006/07: -83.1
  - 2007/08: -31.3
  - 2008/09: -11.4
  - 2009/10 Est.: -74.8
  - 2009/10 Proj. Pre-tsunami: -112.7
- Current account balance (percent of GDP):
  - 2004/05: -9.6
  - 2005/06: -11.1
  - 2006/07: -15.9
  - 2007/08: -6.2
  - 2008/09: -2.1
  - 2009/10 Est.: -12.7
  - 2009/10 Proj. Pre-tsunami: -20.1
- Tourism and visitor composition (2008):
  - business, 8.3%
  - VFR, 40.2%
  - holiday, 43.1%
  - others, 8.4%

- Key modeled fiscal aggregates (millions of tala):
  - Total revenue and grants:
    - 2005/06: 388.2
    - 2006/07: 486.7
    - 2007/08: 454.9
    - 2008/09: 510.8
    - 2009/10 Budget Pre-Tsunami: 492.0
    - 2009/10 Est. Post-Tsunami: 511.0
  - Total expenditure and net lending:
    - 2005/06: 394.6
    - 2006/07: 478.3
    - 2007/08: 481.9
    - 2008/09: 594.8
    - 2009/10 Budget Pre-Tsunami: 551.0
    - 2009/10 Est. Post-Tsunami: 671.8
  - Overall fiscal balance:
    - 2005/06: -6.3
    - 2006/07: 8.4
    - 2007/08: -27.0
    - 2008/09: -84.0
    - 2009/10 Budget Pre-Tsunami: -59.0
    - 2009/10 Est. Post-Tsunami: -160.8

### Public and External Debt — Stock, Outlook, and Policy
- Stock of external public debt (as of June 2009):
  - Total public debt: US$212.8 million; 38.3 percent of GDP; NPV in percent of GDP: 28.2
  - Multilaterals: US$178.5 million; 32.2 percent of GDP; NPV in percent of GDP: 23.2
    - IMF: US$0.0; 0.0 percent of GDP; NPV in percent of GDP: 0.0
    - World Bank: US$79.6 million; 14.3 percent of GDP; NPV in percent of GDP: 9.3
    - AsDB: US$87.1 million; 15.7 percent of GDP; NPV in percent of GDP: 12.2
    - Other multilaterals: US$11.8 million; 2.1 percent of GDP; NPV in percent of GDP: 1.8
  - Official bilateral: US$34.3 million; 6.2 percent of GDP; NPV in percent of GDP: 5.0
    - Paris Club: US$0.7 million; 0.1 percent of GDP; NPV in percent of GDP: 0.1
    - Non-Paris Club: US$33.6 million; 6.1 percent of GDP; NPV in percent of GDP: 4.9
  - Commercial: US$0.0; 0.0 percent of GDP; NPV in percent of GDP: 0.0
  - Note: External private debt statistics are non available. Partial information suggests publicly guaranteed debt to SOEs could amount to about 4 percent of GDP.
  - About 85 percent of public debt contracted with multilateral creditors on concessional terms.
- Historical evolution (2002–08):
  - External debt fell from over 60 percent of GDP to 30 percent of GDP.
  - Debt service-to-exports ratio dropped to 4 percent in 2008 from over 10 percent in 2002.
- Baseline/pre-tsunami debt outlook (2010–2030):
  - Projected peak: NPV of external debt expected to peak at 35 percent of GDP in 2011 before moderating to 23 percent in 2030.
  - Under baseline, all external debt and debt service indicators remain below sustainability thresholds.
- Post-tsunami debt-sustainability: preliminary assessment:
  - Assumed financing package includes:
    - IMF ESF-RAC: US$9 million (SDR 5.8 million).
    - World Bank: up to US$40 million.
    - Asian Development Bank: accelerated disbursement of US$26 million budget support.
    - Bilateral donors (Australia, New Zealand, EU): about US$7 million each.
  - Authorities may temporarily lower reserve-to-import cover to about three months.
  - Bound tests suggest external debt would remain manageable assuming remaining financing gap filled by concessional lending and grants.
- Public Debt Management Strategy targets:
  - Avoid a fiscal deficit in excess of 3.5 percent of GDP.
  - Keep public net debt at less then 40 percent of GDP.
  - Borrow with grant element of at least 35 percent.

### Domestic Debt Market Development and Sustainability Metrics
- Domestic public debt:
  - 0.4 percent of Samoa’s public debt is domestic.
  - Government set up a working group to design a treasury-bill program for 2009–10 and introduce a bond program over the medium term.
- Key projected public sector debt indicators (percent of GDP, selected):
  - Public sector debt: 2007 37.1; 2008 30.3; 2009 38.5; 2010 52.9; 2011 58.0; 2012 59.5; 2013 59.7; 2014 57.8; 2015 56.3; 2020 47.1; 2030 36.9.
  - Gross financing need (percent of GDP): 2007 0.3; 2008 2.8; 2009 4.9; 2010 12.9; 2011 11.3; 2012 7.1; 2013 7.0; 2014 3.9; 2015 3.5; 2020 3.7; 2030 3.3.
  - PV of public sector debt (selected years): 2009 28.3; 2010 36.7; 2011 39.1; 2012 39.9; 2013 39.9; 2014 38.8; 2015 38.0; 2020 32.4; 2030 25.4.
- Sensitivity and stress tests:
  - Most extreme stress corresponds to a one-time 30 percent real depreciation in some tests; other tests combine GDP growth and primary balance shocks.
  - Table 2a PV of Debt-to-GDP Ratio (baseline): 2010 = 37; 2011 = 39; 2012 = 40; 2013 = 40; 2014 = 39; 2015 = 38; 2020 = 32; 2030 = 25.
- Policy implications:
  - Develop domestic treasury-bill and bond market to diversify funding.
  - Leverage commercial banks and National Provident Fund support.
  - Monitor gross financing needs and PV debt-to-revenue ratios, particularly in 2010–2015 when peaks occur.

### IMF Press Release and Support After the Tsunami (Press Release No. 09/446; December 7, 2009)
- ESF disbursement:
  - IMF Executive Board approved disbursement of SDR 5.8 million (about US$9.3 million) under the ESF-RAC.
  - Purpose: help Samoa recover from the September 29, 2009 earthquake and tsunami; support external reserves amid shortfalls in export earnings and increased import costs; catalyze donor support and signal commitment to sound macroeconomic policies.
- Key statements:
  - Disaster undercut recovery prospects from the global recession; adverse impact on tourism and sizable reconstruction needs will sharply widen fiscal and current account deficits.
  - Public expenditure on recovery will total around USD 100 million or 18 percent of GDP over the next 3 fiscal years.
  - Fiscal deficit after grants: 11.7 percent of GDP this year and just under 9 percent in 2010/11; eases back towards 2 ½ percent by 2013/14 (in line with Public Debt Management Strategy targets).
  - Cumulative financing gap out to 2012/13 likely around USD 75 million larger than without the tsunami.
  - ESF-RAC disbursement would help support official reserves at levels above 3½ months of prospective imports.

*Source: _cr1046 — Executive Summary and associated sections (IMF staff report content provided in the source content).*

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

### Executive Summary

### Background
- The earthquake and tsunami of September 29, 2009, is described as the worst natural disaster since Samoa’s independence in 1962.
- Human and physical impact:
  - Death toll: 143.
  - Almost 5,300 people—some 2½ percent of Samoa’s population—have lost their homes.
  - Physical damage estimated by the UNDP and World Bank at US$60 million (over 10 percent of GDP).
- Broader recovery needs (infrastructure rehabilitation, strengthening social safety nets, resettlement, disaster protection) are expected to be significantly higher than the initial damage estimate.
- Government disaster response:
  - Immediate humanitarian relief coordinated by the Disaster Advisory Council with international aid agency support.
  - National Disaster Management Office working with international donors on a recovery framework integrated with the Strategy for the Development of Samoa (SDS) 2008–12.
- Fund request and rationale:
  - Authorities requested a disbursement equivalent to 50 percent of quota (SDR 5.8 million) under the Rapid-Access Component of the Fund’s Exogenous Shocks Facility (ESF-RAC).
  - The Fund’s emergency assistance is intended to bolster external reserves and catalyze donor support by signaling commitment to sound macroeconomic policies.

### Economic Performance Prior to the Tsunami
- Long-run performance:
  - Real per-capita income growth since the mid-1990s was significantly higher than peers, particularly other Pacific Islands.
  - Prudent fiscal policies guided by annual targets for deficit (3½ percent of GDP) and net debt (40 percent of GDP) supported resilient performance.
- Impact of the global recession:
  - Manufacturing output and processing trade collapsed; downsizing of an automotive parts plant led to a collapse in output and formal sector employment.
  - Real GDP fell 5½ percent in FY 2008/09 (official estimate), the worst slump in two decades.
- External and monetary indicators:
  - Remittances and tourism receipts (equivalent to about ⅓ and ¼ of GDP, respectively) helped narrow the current account deficit.
  - Official reserves remained stable, above the central bank’s target of four months of current goods’ imports.
  - CBS lowered policy rates by nearly 300 bps since August 2008; pass-through to commercial lending rates was limited.
- Fiscal stance before the tsunami:
  - With the 2008/09 budget, the authorities shifted to an expansionary fiscal stance, increasing development spending.
  - The deficit was budgeted to double to over 10 percent of GDP in FY 2009/10, largely financed by grants and concessional loans.

### Economic Outlook and Policy Framework

#### A. Impact of the Tsunami
- Sectoral and macro impact:
  - Tourism is the main commercial FX earner; tourism receipts in FY 2008/09 accounted for 65 percent of all export earnings and the sector contributes directly and indirectly about 14 percent of GDP.
  - About a quarter of the tourism sector’s capacity has been destroyed by the tsunami.
  - Based on cross-country recovery experience and Samoa-specific patterns, about 1½–3½ percent of GDP could be lost in the first year after the tsunami.
- Growth projections and uncertainty:
  - Real GDP is likely to contract in 2010 by about 3 percent.
  - Tentative staff estimates indicate GDP growth could fall up to 5 percentage points short of the pre-tsunami baseline.
  - With rehabilitation spending, growth could exceed the baseline by 2 percentage points in 2011 before converging to potential.
  - Shortfalls in tourism receipts of about US$20 million in FY 2009/10 are estimated (subject to wide margins of error).
  - Current account deficit expected to widen due to increased imports for reconstruction more than offsetting any decline in tourism-related imports.
  - Key downside risk: prolonged reputational damage to Samoa’s image as a safe destination and the possibility of another natural disaster.
- Data limitations: outlook is subject to considerable uncertainty given unprecedented damage and weaknesses in national accounts data.

#### B. Fiscal Management: From Rebuilding to Maintaining Sustainability
- Scale of fiscal needs:
  - Government recovery framework considered with a fiscal cost of about US$100 million (18 percent of GDP).
  - Based on UNDP/World Bank estimates, damage to existing infrastructure is US$60 million (over 10 percent of GDP), but recovery framework costs are higher because they include resettlement, social safety nets, and disaster risk reduction.
- Near-term fiscal impact:
  - A supplementary budget for FY 2009/10 could bring the overall fiscal deficit to nearly 12 percent of GDP; the government expects this to be fully funded by grants and concessional loans.
  - Staff and authorities agreed highest spending priority should be infrastructure key to resuscitating growth (utilities, tourism) and basic social needs (humanitarian relief, road repair, water, electricity, priority social services).
- Financing and prioritization:
  - Government has identified 60 percent of funding needs for the recovery framework in new grants and concessional financing.
  - Authorities committed to finance any remaining financing gap through external grants and concessional borrowing.
  - Government will carefully review medium-term development spending plans with donors to identify synergies and re-direct funds to infrastructure rehabilitation where possible.
  - Donor technical assistance offers welcomed to prioritize and implement the recovery framework given capacity constraints.
- Fiscal projections and debt sustainability:
  - Widening of the fiscal deficit to 12 percent of GDP in FY 2009/10 is deemed unavoidable to accommodate rehabilitation needs.
  - Debt trajectory:
    - Public Debt Management Strategy resulted in public debt falling to about 30 percent of GDP between FY 2001/02 and FY 2007/08.
    - Net present value of public debt stood at 28 percent of GDP as of June 2009, significantly below sustainability thresholds for low income countries.
    - Publicly guaranteed debt may be about 4 percent of GDP on partial data and is an additional risk.
  - Staff debt sustainability analysis suggests debt outlook remains favorable even after large deficits envisaged in 2009/10 through 2011/12.

- Samoa: Fiscal cost of tsunami and financing (In percent of post-tsunami GDP)
  - Fiscal cost of tsunami: 2009/10 6.1; 2010/11 5.0; 2011/12 3.4; 2012/13 3.0
  - Revenue impact: 2009/10 1.7; 2010/11 0.5; 2011/12 -0.2; 2012/13 -0.7
  - Cost of recovery plan: 2009/10 4.4; 2010/11 4.5; 2011/12 3.6; 2012/13 3.7
  - Current aid pledges: 2009/10 4.4; 2010/11 4.5; 2011/12 0.9; 2012/13 0.0
  - Grants: 2009/10 2.2; 2010/11 1.1; 2011/12 0.0; 2012/13 0.0
  - Concessional external financing: 2009/10 2.2; 2010/11 3.5; 2011/12 0.9; 2012/13 0.0
  - Change in domestic financing: 2009/10 1.7; 2010/11 0.0; 2011/12 0.0; 2012/13 0.0
  - Remaining financing need: 2009/10 0.00; 2010/11 0.52; 2011/12 2.53; 2012/13 3.0
  - Memorandum item — Overall fiscal deficit (including grants): 2009/10 11.7; 2010/11 8.8; 2011/12 5.9; 2012/13 5.7

#### C. Monetary and Exchange Rate Policy: Maintaining a Sound Framework
- CBS actions and conditions:
  - CBS lowered policy rates by nearly 300 bps since August 2008.
  - Pass-through to commercial lending rates was limited due to banks tightening risk management and building excess liquidity.
  - Exchange-rate basket peg credibility remained intact and inflation expectations stayed well anchored.

#### D. Structural Reform: Enabling the Private Sector
- Emphasis on restoring infrastructure, supporting tourism recovery, and mitigating capacity constraints to enable private sector activity.
- Authorities plan to integrate recovery with SDS priorities to support poverty reduction and medium-term growth.

### Access and Risks
- Fund assistance:
  - Authorities requested ESF-RAC emergency assistance equivalent to 50 percent of quota (SDR 5.8 million); staff supports the request given low public debt and credible policy commitments.
- Risks and vulnerabilities:
  - Large uncertainty about the scale and duration of tourism disruptions and remittance responses.
  - Reputational risk for Samoa as a tourism destination and risk of further natural disasters.
  - Capacity constraints in government administration and the economy to implement a large recovery program.
  - Publicly guaranteed debt (partial data suggests about 4 percent of GDP) poses an additional fiscal risk.

### Staff Appraisal
- Support for immediate financing and policy stance:
  - Staff supports the authorities’ request for rapid-access ESF assistance to bolster reserves and catalyze donor support.
- Policy recommendations and priorities:
  - Prioritize spending on infrastructure that is key to resuscitating growth (utilities, tourism) and on protecting the most vulnerable through social services and safety nets.
  - Finance the supplementary FY 2009/10 budget largely with grants and concessional loans; minimize domestic financing.
  - Carefully review and reprioritize medium-term development spending with donors to identify synergies and reduce capacity pressures.
  - Maintain focus on fiscal sustainability with an objective to reduce the fiscal deficit to less than 3 percent over the medium term to stabilize public debt at prudent levels.
  - Use donor technical assistance to ensure effective prioritization and implementation given capacity constraints.

*Source: _cr1046 - Executive Summary_*

### 15.      In order to ensure fiscal sustainability, the government and the staff team

### _cr1046 - 15.      In order to ensure fiscal sustainability, the government and the staff team

### Fiscal sustainability and public debt
- Any remaining financing needs should be met primarily through external grants or highly concessional borrowing.
- Authorities intend to reduce the fiscal deficit to less than 3 percent of GDP over the medium term once tsunami-related reconstruction is completed.
- This would stabilize the net present value of public debt below 40 percent of GDP.
- Post-reconstruction expenditure restraint is emphasized, given Samoa’s already high revenue-to-GDP ratio.

### Monetary and exchange rate policy
- The tala exchange-rate basket peg is viewed as an effective anchor of long-term competitiveness; the basket is composed of six currencies with weights reflecting tourism and remittance flows.
- Over the last 12 months the bilateral tala exchange rate experienced large swings in nominal and real terms, including relative to the Australian dollar.
- Over a longer horizon, the tala does not appear out of line with economic fundamentals, although the real effective exchange rate has appreciated over the last 12 months.
- Assessment assumes the shock to tourism from the 2009 tsunami is transitory.

### Structural reform and state-owned enterprises (SOEs)
- The State plays a substantial role in the Samoan economy, with commercial SOEs employing 10 percent of the workforce.
- Despite past SOE reforms (including divestiture of 21 companies during 1987–96), public enterprises continue to be a drag on the budget and can crowd out private-sector activity.
- Adjusted for interest rate subsidies, the return on equity of SOEs has averaged -4 percent since 2002, well below the government’s target of 7 percent.
- Government actions noted: enhancing corporate governance and accountability, and a 2007 Cabinet decision to identify cost and contract community services obligations.

### Financial system depth, transmission, and policy measures
- Samoa’s financial system appears stable and supervision has improved, but it lacks depth.
- Based on data for 2005–09, staff estimates the long-run interest rate pass-through at 0.42, compared with a range for East Asia of 0.3–1.2.
- The degree of interest rate pass-through in the latest easing cycle has been low; banks’ excess reserves rose sharply, tripling in the 12 months after the Lehman collapse.
- Structural weaknesses hampering credit intermediation include uncertainties in enforcement of land-related collateral and lack of adequate information sharing among creditors.
- Government reforms and actions:
  - Setting up an electronic land-registry in August 2009.
  - Working with the Samoan Bankers’ Association to establish a credit information bureau.
  - Preparing a subsidized loan program through the Development Bank of Samoa, funded by borrowing from the CBS against collateral to help businesses hurt by the tsunami, notably in the tourism sector.
  - Further strengthening financial system supervision and regulation in line with the recommendations of the 2007 IMF assessment is a priority.

### Data, statistics, and transparency
- Samoa disseminates monthly and quarterly economic statistics through government websites (unique among Pacific islands), but data are subject to frequent revisions because of weaknesses in compilation and coverage.
- Staff and government agreed that full use of STA technical assistance, including through PFTAC, to improve national accounts and enhance coverage of BOP data are key priorities.

### Fund financing, reserves, and risk assessment
- Authorities requested Fund financing of SDR 5.8 million (50 percent of quota) under the RAC-ESF.
- The Fund financing would help keep Samoa’s official reserves at about 3½ months of prospective imports, in line with past trends and the official target of 4 months of current imports.
- The amount represents about 1¾ percent of GDP and covers about one tenth of the tsunami’s cumulative gross impact on the balance of payments during FY 2009/10–2012/13.
- The SDR allocation in 2009 (10 million) is intended to bolster Samoa’s official reserves and is not considered a substitute for concessional loans and grants.
- Preliminary indications: a further increase of donor assistance in line with remaining fiscal financing needs in 2011/12 and 2012/13, and a further temporary lowering of the reserves target to 3 months of imports, would be sufficient to close the financing gap.
- Samoa’s capacity to repay the Fund is judged adequate; Samoa has an exemplary debt servicing record and no pre-existing commitments to the Fund, so debt service obligations to the Fund will remain small.
- Authorities committed to undergo a safeguards assessment and the CBS has authorized its external auditor to hold discussions with Fund staff and give access to the most recent external audit reports.

### Staff appraisal and policy recommendations
- The September 2009 earthquake and tsunami caused a severe economic and social shock; economic growth could fall several percentage points short of the pre-tsunami baseline in FY 2009/10.
- Authorities’ recovery plans are consistent with safeguarding social and economic progress and macroeconomic stability; the National Disaster Management Office is coordinating recovery with international donors and integrating it with the Strategy for the Development of Samoa (SDS) 2008–12.
- Fiscal policy priorities: allocate development spending to infrastructure rehabilitation and prioritize basic social services in current spending.
- Authorities’ commitment to fill remaining financing needs primarily through concessional external financing and grants is an anchor for macroeconomic stability; nonetheless, with significant unidentified fiscal financing over the medium term, additional fiscal adjustment may be required if concessional resources are not forthcoming.
- Staff supports the authorities’ request for Fund financing under the RAC-ESF in the amount of SDR 5.8 million (50 percent of quota), based on the severity of the disaster, balance of payments impact, and the authorities’ track record of prudent fiscal policies and structural reform.
- The staff looks forward to further discussion of strategies for SOE reform, deepening the financial system, and enhancing financial supervision during the 2009 Article IV consultation.

### Box I — Impact of the 2009 tsunami on tourism and the economy (key points)
- Tourism is the single largest commercial earner of foreign exchange; visitor arrivals increased nearly 80 percent to over 120,000 in 2008, with tourism receipts growing to about 20 percent of GDP.
- The estimated total contribution to GDP (directly from hotels and restaurants and indirectly from related sectors) is around 14 percent.
- The impact of the tsunami on tourism depends on:
  - Damage to capacity: About 25 percent of hotels and lodges, concentrated in one popular destination, have been destroyed; the airport remained intact.
  - Demand patterns: Tourism consists of visiting friends and relatives (VFR) and holiday makers; the tsunami struck after the June/July holiday peak but before the December festive VFR peak.

*Source: _cr1046 - 15.      In order to ensure fiscal sustainability, the government and the staff team*

### 3. International experience. Beyond the damage to physical infrastructure, Samoa’s desirability as a

### _cr1046 - 3. International experience. Beyond the damage to physical infrastructure, Samoa’s desirability as a

### International experience and confidence effects
- Based on the Thai, Indonesian and the Maldives post-tsunami experience, it may take 4–6 quarters for confidence to return.
- Some Samoan hotels reported booking cancellations of around 60–70 percent for the rest of 2009.

### Tourism scenarios and assumptions
- Two alternative scenarios considered:
  - Baseline: assumes the long-run industry growth trend.
  - Scenario 1 (medium confidence effect): recovery over four quarters.
  - Scenario 2 (strong confidence effect): slower recovery after six quarters.
- Visitor assumptions:
  - A peak reduction of 50 percent (y/y) in the first quarter after the tsunami of non-VFR visitors is assumed in Scenario 1.
  - A peak reduction of 75 percent (y/y) in the first quarter after the tsunami of non-VFR visitors is assumed in Scenario 2.
  - In all scenarios, VFR arrivals are assumed to be unaffected.
  - Tourism spending per head remains constant in real terms across all categories.

### Projected impacts on tourism earnings, GDP, and current account
- Loss in tourism earnings in FY 2009/10 varies between US$15–30 million.
- The tourism earnings loss takes about 1½–3½ percent off Samoa’s GDP in FY 2009/10.
- Around 30 percent of receipts are related to imported intermediate goods; therefore the current account deficit would widen, but not by the full amount of the projected shortfall in tourism receipts.
- The net effect on the current account would range from US$10–20 million in FY 2009/10.

### Fiscal, balance of payments, and macroeconomic context (selected figures preserved exactly)
- Population (2008): 219,998
- Main Exports: Tourism, Fish
- GDP per capita (2007/08): US$ 2,794
- Quota: SDR 11.6 million
- Real GDP growth (selected periods and projections):
  - 2004/05: 8.6
  - 2005/06: 2.2
  - 2006/07: 2.3
  - 2007/08: 5.0
  - 2008/09: -5.5
  - 2009/10 Est. Pre-tsunami: 1.5
  - 2009/10 Post-tsunami: -3.0
- Nominal GDP (in millions of U.S. dollars) (selected years):
  - 2004/05: 407
  - 2005/06: 455
  - 2006/07: 522
  - 2007/08: 507
  - 2008/09: 555
  - 2009/10 Est.: 588
  - 2009/10 Proj. Pre-tsunami: 560
- Current account balance (in millions of U.S. dollars):
  - 2004/05: -39.1
  - 2005/06: -50.3
  - 2006/07: -83.1
  - 2007/08: -31.3
  - 2008/09: -11.4
  - 2009/10 Est.: -74.8
  - 2009/10 Proj. Pre-tsunami: -112.7
- Current account balance (In percent of GDP) (selected):
  - 2004/05: -9.6
  - 2005/06: -11.1
  - 2006/07: -15.9
  - 2007/08: -6.2
  - 2008/09: -2.1
  - 2009/10 Est.: -12.7
  - 2009/10 Proj. Pre-tsunami: -20.1
- Tourism and visitor composition (as of 2008):
  - business, 8.3%
  - VFR, 40.2%
  - holiday, 43.1%
  - others, 8.4%

### Government response, financing needs, and commitments (excerpts)
- The government's recovery framework total cost for rebuilding and resettlement: US$120 million to be phased over four years with import content of about two-thirds. (Table 3 note)
- Letter of Intent highlights:
  - Nearly 150 people were killed; about 5,300 made homeless, which is 2½ percent of the population.
  - Damage to physical infrastructure estimated at Tala 160 million (over 10 percent of GDP).
  - The government anticipates the total fiscal cost of the recovery framework would amount to about Tala 270 million, about 18 percent of GDP.
  - Pledges and identified funding in grants and concessional financing so far: about Tala 160 million, expected to cover Tsunami-related financing needs through FY 2010/11.
  - Government plans to cover about a quarter of the recovery framework cost in a supplementary budget for the fiscal year to address humanitarian relief, road repair, continued access to health and education, water and electricity.
  - The Government requests a disbursement of SDR 5.8 million (50 percent of quota) under the rapid access component of the Fund’s Exogenous Shocks Facility.

### Key modeled fiscal aggregates (selected)
- Total revenue and grants (in millions of tala) (selected):
  - 2005/06: 388.2
  - 2006/07: 486.7
  - 2007/08: 454.9
  - 2008/09: 510.8
  - 2009/10 Budget Pre-Tsunami: 492.0
  - 2009/10 Est. Post-Tsunami: 511.0
- Total expenditure and net lending (in millions of tala) (selected):
  - 2005/06: 394.6
  - 2006/07: 478.3
  - 2007/08: 481.9
  - 2008/09: 594.8
  - 2009/10 Budget Pre-Tsunami: 551.0
  - 2009/10 Est. Post-Tsunami: 671.8
- Overall fiscal balance (in millions of tala) (selected):
  - 2005/06: -6.3
  - 2006/07: 8.4
  - 2007/08: -27.0
  - 2008/09: -84.0
  - 2009/10 Budget Pre-Tsunami: -59.0
  - 2009/10 Est. Post-Tsunami: -160.8

*Source: IMF staff calculations and data provided by the Samoan authorities (content from the referenced IMF document).*

### 1.      Samoa’s stock of external debt

### 1.      Samoa’s stock of external debt

### Key messages
- Samoa continues to be at low risk of external debt distress.
- Although the debt ratios will rise significantly over the next three to four years as the government receives foreign financing to recover from the recent tsunami, the debt outlook is expected to improve over the medium and long term.
- This scenario is predicated on the assumption that the government of Samoa continues to manage its existing debt well and contracts new debt on concessional terms.
- Going forward, it would also be important to develop a domestic treasury-bill and bond market.

### Stock of external public debt (as of June 2009)
- Total public debt: US$212.8 million; 38.3 percent of GDP; NPV in percent of GDP: 28.2
- Multilaterals: US$178.5 million; 32.2 percent of GDP; NPV in percent of GDP: 23.2
  - IMF: US$0.0; 0.0 percent of GDP; NPV in percent of GDP: 0.0
  - World Bank: US$79.6 million; 14.3 percent of GDP; NPV in percent of GDP: 9.3
  - AsDB: US$87.1 million; 15.7 percent of GDP; NPV in percent of GDP: 12.2
  - Other multilaterals: US$11.8 million; 2.1 percent of GDP; NPV in percent of GDP: 1.8
- Official bilateral: US$34.3 million; 6.2 percent of GDP; NPV in percent of GDP: 5.0
  - Paris Club: US$0.7 million; 0.1 percent of GDP; NPV in percent of GDP: 0.1
  - Non-Paris Club: US$33.6 million; 6.1 percent of GDP; NPV in percent of GDP: 4.9
- Commercial: US$0.0; 0.0 percent of GDP; NPV in percent of GDP: 0.0
- Note: External private debt statistics are non available. Newly received partial information suggests that publicly guaranteed debt to SOEs could amount to about 4 percent of GDP.
- Most of Samoa’s public debt is external, with about 85 percent contracted with multilateral creditors on concessional terms, and the remainder with official bilateral creditors.

### Historical evolution and recent improvements (2002–08)
- External debt fell from over 60 percent of GDP to 30 percent of GDP during 2002–08.
- Debt service-to-exports ratio dropped to 4 percent in 2008 from over 10 percent in 2002.
- Improvement reflects prudent fiscal and debt management policies and robust growth.

### Baseline / Pre-tsunami debt outlook (2010–2030)
- Pre-tsunami outlook envisaged a deterioration of debt indicators, both in nominal and in NPV terms through 2012, reflecting:
  - Large fiscal stimulus in the 2008/09 budget present before the global recession.
  - Additional fiscal stimulus envisaged in the 2009/10 budget, with the bulk delivered through higher development expenditure.
- Despite increased financing requirements, all debt burden indicators would remain well below sustainability thresholds in the baseline scenario and would decline in the medium and long run as the fiscal stimulus unwinds.
- Projected peak: NPV of external debt expected to peak at 35 percent of GDP in 2011 before moderating to 23 percent in 2030.
- All external debt and debt service indicators remained below the policy-dependent debt burden thresholds under the baseline scenario.
- Alternative scenarios: projected debt path particularly sensitive to key variables remaining at historical averages, mainly reflecting large current account deficits of recent years.

### Public Debt Management Strategy (Attachment Box 1)
- Key quantitative targets:
  - Avoid a fiscal deficit in excess of 3.5 percent of GDP.
  - Keep public net debt at less then 40 percent of GDP.
- Borrowing policy: government committed to obtaining concessional borrowing with a grant element of at least 35 percent.
- Objectives: maintain debt at prudent levels to provide a buffer against shocks and constrain the growth in debt service to maintain capacity for improving public service delivery.
- The DSA provided in Article IV Consultations serves as input to regular updates and reviews of Samoa’s attainment of the objectives set out in its debt management strategy.

### Post-tsunami debt-sustainability: preliminary assessment
- Near-term debt outlook adversely affected by the severe exogenous natural disaster shock.
- Assumed financing package and sources:
  - IMF Rapid-Access Component of the Exogenous Shocks Facility (ESF-RAC): US$9 million (SDR 5.8 million).
  - World Bank: up to US$40 million.
  - Asian Development Bank: accelerated disbursement of US$26 million budget support.
  - Bilateral donors (Australia, New Zealand, and the EU): about US$7 million each.
- Authorities’ additional measures to cover unidentified financing in 2009/10–2012/13:
  - Approach donors for additional support in the form of grants and concessional loans.
  - Consider temporarily lowering the reserve-to-import cover to about three months.
- Bound tests suggest external debt would remain manageable under the shocks considered, assuming the remaining financing gap will be filled by concessional lending and grants.
- Policy recommendation: develop a domestic bond market—current lack of a domestic government securities market is a major shortcoming.

*Source: Prepared by Patrizia Tumbarello (APD); Samoan Ministry of Finance, AsDB, World Bank; and Fund staff estimates.*

### 0.4 percent of Samoa’s public debt is domestic. Diversifying the government’s low risk

### _cr1046 - 0.4 percent of Samoa’s public debt is domestic. Diversifying the government’s low risk

### Domestic debt market development and financing needs
- 0.4 percent of Samoa’s public debt is domestic.
- Diversifying the government’s low risk funding options is increasingly important as Samoa may graduate from less-developed country status over the medium to long term.
- The potentially large financing needs arising from the 2009 tsunami increase the benefits of developing a domestic treasury-bill and bond market.
- Given support by commercial banks and the National Provident Fund to develop a domestic securities market, the government set up a working group earlier this year.
- Objective of the working group: reach agreement on the basic structure of a treasury-bill program for 2009–10, and introduce a bond program over the medium term.

### Debt sustainability: headline projections and stress-test framing
- The analysis presents baseline projections and alternative/stress scenarios for 2010-2030, with the “most extreme stress test” defined as the test that yields the highest ratio in 2020.
- In figures b. and d. the most extreme shock corresponds to a one-time depreciation shock (30 percent in real terms); in other tests it corresponds to a combination shock (GDP growth and the primary balance fall by 1 standard deviation from their historical average).
- Identified approach: multiple indicators are tracked including PV of Debt-to-GDP, PV of Debt-to-Exports, PV of Debt-to-Revenue, Debt Service-to-Exports, Debt Service-to-Revenue, and Gross financing need.

### Key historical and projected public sector debt indicators (selected series, in percent of GDP unless otherwise indicated)
- Public sector debt: 2007 = 37.1; 2008 = 30.3; 2009 = 38.5; 2010 = 52.9; 2011 = 58.0; 2012 = 59.5; 2013 = 59.7; 2014 = 57.8; 2015 = 56.3; 2020 = 47.1; 2030 = 36.9.
- Change in public sector debt: 2007 = -3.0; 2008 = -6.8; 2009 = 8.2; 2010 = 14.4; 2011 = 5.1; 2012 = 1.5; 2013 = 0.3; 2014 = -1.9; 2015 = -1.5; 2020 = -1.6; 2030 = -0.5.
- Identified debt-creating flows: 2007 = -6.2; 2008 = -1.2; 2009 = 3.9; 2010 = 11.3; 2011 = 5.6; 2012 = 2.5; 2013 = 2.0; 2014 = -1.4; 2015 = -0.9; 2020 = -1.0; 2030 = -0.2.
- Primary deficit: 2007 = -1.4; 2008 = 1.6; 2009 = 3.4; 2010 = 0.6; 2011 = 1.8; 2012 = 11.1; 2013 = 9.3; 2014 = 5.3; 2015 = 5.1; 2020 = 2.0; 2030 = 1.7.
- Revenue and grants: 2007 = 36.4; 2008 = 30.9; 2009 = 32.2; 2010 = 36.3; 2011 = 32.9; 2012 = 32.6; 2013 = 32.1; 2014 = 30.7; 2015 = 31.3; 2016-30 average = 31.3.
- Grants (component of revenue and grants): 2007 = 7.4; 2008 = 5.2; 2009 = 7.3; 2010 = 12.1; 2011 = 8.3; 2012 = 7.3; 2013 = 6.4; 2014 = 5.6; 2015 = 5.7; 2016-30 average = 5.7.

### Other debt dynamics and sustainability metrics (selected)
- Automatic debt dynamics contribution: 2007 = -4.8; 2008 = -2.8; 2009 = 0.6; 2010 = 0.2; 2011 = -3.7; 2012 = -2.9; 2013 = -3.1; 2014 = -3.4; 2015 = -2.6; 2020 = -2.8; 2030 = -2.1.
- Contribution from interest rate/growth differential: 2007 = -1.3; 2008 = -2.6; 2009 = 1.5; 2010 = 1.2; 2011 = -1.9; 2012 = -1.7; 2013 = -2.0; 2014 = -2.3; 2015 = -2.2; 2020 = -1.9; 2030 = -2.0.
- Gross financing need (in percent of GDP): 2007 = 0.3; 2008 = 2.8; 2009 = 4.9; 2010 = 12.9; 2011 = 11.3; 2012 = 7.1; 2013 = 7.0; 2014 = 3.9; 2015 = 3.5; 2020 = 3.7; 2030 = 3.3.
- PV of public sector debt-to-revenue and grants ratio: 2009 = 87.9; 2010 = 101.2; 2011 = 119.1; 2012 = 122.7; 2013 = 124.1; 2014 = 126.5; 2015 = 121.6; 2020 = 103.5; 2030 = 81.0.
- PV of public sector debt-to-revenue ratio (revenues excluding grants): 2009 = 113.5; 2010 = 151.9; 2011 = 159.4; 2012 = 158.2; 2013 = 155.0; 2014 = 154.7; 2015 = 148.6; 2020 = 126.5; 2030 = 99.0.
- Debt service-to-revenue and grants ratio (in percent): 2007 = 4.7; 2008 = 4.1; 2009 = 4.9; 2010 = 5.0; 2011 = 5.9; 2012 = 5.4; 2013 = 5.8; 2014 = 6.2; 2015 = 5.9; 2020 = 6.0; 2030 = 4.4.
- Debt service-to-revenue ratio (in percent): 2007 = 5.8; 2008 = 4.9; 2009 = 6.4; 2010 = 7.6; 2011 = 7.9; 2012 = 7.0; 2013 = 7.3; 2014 = 7.5; 2015 = 7.2; 2020 = 7.3; 2030 = 5.4.
- PV of public sector debt (selected years): 2009 = 28.3; 2010 = 36.7; 2011 = 39.1; 2012 = 39.9; 2013 = 39.9; 2014 = 38.8; 2015 = 38.0; 2020 = 32.4; 2030 = 25.4.

### Key macroeconomic and fiscal assumptions (selected)
- Real GDP growth (in percent): 2007 = 2.3; 2008 = 5.0; 2009 = -5.5; 2010 = 3.6; 2011 = 4.2; 2012 = -3.0; 2013 = 3.0; 2014 = 2.2; 2015 = 2.6; 2016-30 average = 3.0; 2020 = 3.0; 2030 = 1.8 (note: table includes multiple year entries and averages).
- Average nominal interest rate on forex debt (in percent): 2007 = 2.2; 2008 = 0.7; 2009 = 1.7; 2010 = 1.7; 2011 = 2.2; 2012 = 1.6; 2013 = 1.1; 2014 = 1.1; 2015 = 1.0; 2016-30 averages in table include 1.0 and 1.1 entries.
- Inflation rate (GDP deflator, in percent): 2007 = 7.0; 2008 = 4.9; 2009 = 9.8; 2010 = 3.9; 2011 = 4.6; 2012 = 4.1; 2013 = 5.6; 2014 = 4.0; 2015 = 4.0; 2020 = 4.0; 2030 = 2.7.
- Real exchange rate depreciation (in percent, + indicates depreciation): 2007 = -9.2; 2008 = -0.6; 2009 = -2.9; 2010 = -5.2; 2011 = 5.9; 2012 = -2.4.

### Sensitivity and scenario results (selected highlights)
- Table 2a sensitivity snapshots (PV of Debt-to-GDP Ratio): baseline 2010 = 37; 2011 = 39; 2012 = 40; 2013 = 40; 2014 = 39; 2015 = 38; 2020 = 32; 2030 = 25.
- Stress-test example outcomes: One-time 30 percent real depreciation in 2011 yields elevated PV and debt-service indicators (noted as a most extreme shock in some indicators).
- Alternative scenarios shown include A1 (real GDP growth and primary balance at historical averages), A2 (primary balance unchanged from 2010), A3 (permanently lower GDP growth), and bound tests B1–B5 (various one-standard-deviation and one-time shocks).

### Policy implications and recommended actions (implicit in analysis)
- Develop a domestic treasury-bill program for 2009–10 and introduce a bond program over the medium term to diversify low-risk government funding sources.
- Leverage support from commercial banks and the National Provident Fund and include private sector financial market participants in program design.
- Maintain attention to debt dynamics given post-tsunami financing needs and vulnerability to shocks (real depreciation, GDP growth and primary balance declines), as reflected in stress tests and projected debt-service ratios.
- Monitor gross financing needs and PV debt-to-revenue ratios to ensure sustainability, particularly in near term (2010–2015) when ratios and debt service indicators peak.

*Sources: Samoan authorities; and staff estimates and projections (figures and tables as provided in the source content).*

### ANNEX I: SAMOA––FUND RELATIONS

### ANNEX I: SAMOA––FUND RELATIONS

### Membership and IMF Financial Position
- Membership: Joined: 12/28/1971; Article VIII
- Quota: 11.60 SDR Million (100.0 percent)
  - Fund holdings of currency: 10.92 SDR Million (94.12 percent)
  - Reserve position in Fund: 0.69 SDR Million (5.98 percent)
- SDR Department
  - Net cumulative allocation: 11.09 SDR Million (100.00 percent)
  - Holdings: 12.60 SDR Million (113.59 percent)
- Outstanding purchases and loans: None
- Latest financial arrangements (Stand-by)
  - Stand-by approved 07/09/1984 – expiration 07/08/1985: Amount Approved 3.38 SDR million; Amount Drawn 3.38 SDR million
  - Stand-by approved 06/27/1983 – expiration 06/26/1984: Amount Approved 3.38 SDR million; Amount Drawn 3.38 SDR million

### 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.
- Basket composition: New Zealand, Australia, the United States, Fiji, the United Kingdom, and Euro countries.

### Surveillance and Consultations
- Article IV consultation: 2007 Article IV consultation discussions held in Apia during March 8–20, 2007. Executive Board concluded the consultation on May 18, 2007 (IMF Country Report No. 07/185).

### Technical Assistance and Safeguards
- Technical assistance providers and areas:
  - Pacific Financial Technical Assistance Centre: budgetary management, tax administration, financial sector supervision, balance of payments statistics.
  - MCM: monetary policy operations, foreign reserves management, banking and insurance supervision, central banking issues.
  - STA: national accounts and government finance statistics.
  - FAD: tax administration.
- Safeguards assessment:
  - Central Bank of Samoa is subject to an assessment with respect to the expected request for an ESF-RAC arrangement.
  - Authorities committed to undergo a safeguards assessment.
  - Central Bank has authorized its external auditor to hold discussions with Fund staff and give access to most recent external audit reports.
- Resident representative: None

### Projected obligations to Fund
- None

### IMF SUPPORT AFTER THE SEPTEMBER 29, 2009 TSUNAMI (Press Release No. 09/446; December 7, 2009)

### ESF Disbursement and Purpose
- IMF Executive Board approved a disbursement of SDR 5.8 million (about US$9.3 million) to Samoa under the rapid-access component of the Exogenous Shocks Facility (ESF-RAC).
- Purpose: to help Samoa recover from damage caused by the September 29, 2009 earthquake and tsunami; support external reserves amid shortfalls in export earnings and increased import costs related to disaster response; catalyze donor support and signal commitment to sound macroeconomic policies.

### Key IMF Statements and Guidance
- Deputy Managing Director (Acting Chair) Takatoshi Kato:
  - The disaster severely undercut prospects for a quick recovery from the global recession; adverse impact on tourism and sizable reconstruction needs will result in a sharp widening of fiscal and current account deficits.
  - Fiscal cost of emergency relief and rehabilitation is significant and will result in sharply higher fiscal deficits over the coming two to three years.
  - Important to prioritize spending to revive the economy and on basic social services.
  - Authorities committed to minimize overall fiscal burden by re-directing some development spending under existing plans to tsunami-related infrastructure rehabilitation.
  - Public debt should be stabilized at comfortable levels once reconstruction is completed; any remaining tsunami-related financing needs should be met primarily through grants and concessional borrowing.
  - Commitment to the exchange-rate basket peg is an effective anchor; further structural reform is key to enhancing private-sector led growth.

- Statement by Hi-Su Lee, Executive Director for Samoa (on behalf of Samoan authorities):
  - Authorities requested access to 50 per cent of quota – SDR 5.8 million (around USD 9 million) – under the ESF-RAC to meet Balance of Payments need and catalyze budget support from other partners.

### Economic Impact Assessments and Projections
- Staff estimates of near-term tourism and earnings impact:
  - Earnings primarily in tourism and related sectors expected to be around 1½–3½ per cent of GDP lower in FY2009/10 than without the tsunami.
  - Likely impact on tourism in FY2010/11; sector expected to return to full capacity from late 2011.
- Longer-term output impact:
  - Loss in GDP might be as much as five percentage points, accounting for recovery spending that partially offsets loss in earnings.
  - Staff expect GDP to fall around 3 per cent in the current fiscal year, grow at around 3 per cent in FY2010/11, and stabilize to 2.2 to 3 percent over the following three years.
- Monetary and fiscal context prior to and after the tsunami:
  - Economic stimulus already from development spending in fiscal year 2009/10 and monetary easing of around 3 percentage points since August 2008.
- Fiscal implications and financing:
  - Public expenditure on recovery will total around USD 100 million or 18 per cent of GDP over the next 3 fiscal years.
  - Fiscal deficit after grants: 11.7 per cent of GDP this year and just under 9 per cent in 2010/11; eases back towards 2 ½ per cent by 2013/14 (in line with Public Debt Management Strategy targets).
  - Authorities aim to complete urgent recovery work in the current fiscal year and to table a supplementary budget in the first half of December to clear all recovery costs.
  - Authorities have secured external concessional financing and grants to meet around 60 per cent of total estimated recovery spending (World Bank, Asian Development Bank, European Union, Australia, New Zealand, and other bilateral partners).
  - Intention to seek financing on similar terms for the remainder of spending need.
- Balance of Payments and reserves:
  - Cumulative financing gap out to 2012/13 likely around USD 75 million larger than it would have been without the tsunami.
  - Financing gap largely financed by concessional borrowing and grants already pledged; scope to meet part of the gap by allowing some run-down of official reserves while maintaining a prudent level.
  - ESF-RAC disbursement would help support official reserves at levels above 3½ months of prospective imports under the Fund’s definition.
  - Central Bank’s usual target: holding official reserves of greater than 4 months of current imports.

### ANNEX II: SAMOA––RELATIONS WITH THE WORLD BANK GROUP (As of November 2009)

### Overview and IDA Support
- Since joining the Bank in June 1974, 15 IDA credits totaling over $91 million have been committed.
- Samoa has an IDA-15 (FY09–FY11) allocation of $40 million; allocation more than doubled to respond to the September 29, 2009 tsunami.
- Bank finance focus: critical infrastructure, finance sector, agricultural production, cyclone reconstruction, health sector reform.
- Bank’s Pacific Regional Strategy FY2006–09 focus: (1) strengthening government capabilities, and (2) improving incentives for the private sector.

### Current and Recent World Bank Projects (selected)
- Infrastructure Asset Management Phase 2 (approved December 2003): US$12.8 million plus additional finance of US$8 million and trust fund support; eight-year program; private sector contracting capacity notable in tsunami recovery.
- Telecommunications and Postal Sector Reform (approved December 2002): US$4.5 million; project fostered competition in GSM mobile services; number of overall customers (GSM and fixed line) exceeds 110,000, a ten-fold increase from project start.
- Health Sector Management (approved June 2008): IDA US$5 million; supports preventative healthcare reforms and equitable access; Samoa broadly on track to meet health sector MDGs.
- IFC: invested US$18.5 million in Digicel; IFC investments encouraged over US$80 million in total private investment in telecoms sector.

### IDA Lending Operations (as of November 2009) — summary figures
- Total (listed): Original Amount total 99.1 (In millions of U.S. dollar equivalent); Undisbursed Balance total 12.5
- Current projects and undisbursed balances:
  - Telecommunications and Postal Reform (2002): 4.5 (Original Amount); Undisbursed 2.1
  - Second Infrastructure Asset Mgmt (+2007 Supplement) (2003): 21.1; Undisbursed 7.6
  - Health Sector Management (2008): 3.0; Undisbursed 2.8

### Planned Focus Post-Tsunami
- Likely new activities:
  - Joint donor budget support operation to assist government tsunami response and encourage medium-term fiscal sustainability and continued structural reforms (likely to take up approximately half of increased IDA-15 allocation).
  - Additional emergency investments for recovery and reconstruction in transport and health sectors.
  - Support to strengthen competitiveness of agricultural sector and increase private sector access to agricultural supply chains and tourist market.
- Bank opened a joint liaison office in Samoa in November 2009 (in conjunction with the Asian Development Bank).

### ANNEX III: SAMOA––RELATIONS WITH THE ASIAN DEVELOPMENT BANK (As of end-2008)

### Historical Engagement and CPS
- AsDB operations in Samoa began in 1969.
- Up to end-2008: 33 loans totaling US$159.4 million (30 projects) and technical assistance totaling US$27.08 million (85 projects).
- Country Partnership Strategy (CPS) 2008–12 focuses on poverty reduction with three pillars: (i) removal of infrastructure constraints, (ii) improvement of access and delivery of public services, (iii) promotion of private sector development.
- CPS priorities: power; water, sanitation, and drainage; private sector development.

### Major Projects and Financing
- Power Sector Expansion Project (approved 2007): total US$88 million with co-financing; AsDB approved ADF lending US$26.61 million.
- Three TA grants from 2007 totaling US$3.55 million (including US$1.2 million for Afulilo Environmental Enhancement Project approved September 2008).
- A US$1.00 million grant provided for immediate tsunami relief.

### AsDB Lending 2002–08 (selected figures)
- Loan approvals (2002–2008): reported yearly approvals including 2003: 8.0; 2005: 8.1; 2007: 26.6; 2008: 2.8 (in millions of U.S. dollars).
- Loan disbursements (2002–2008): reported yearly disbursements including 2002: 0.8; 2003: 1.9; 2004: 2.8; 2005: 2.7; 2006: 1.6; 2007: 1.4; 2008: 2.6 (in millions of U.S. dollars).
- Cumulative loan amount available (balance as of December 2008, cumulative since 1969): 152.6 (in millions of U.S. dollars).
- Cumulative disbursements (as of December 2008): 108.3 (in millions of U.S. dollars).
- Net loan amount undisbursed (as of December 2008): 18.0 (in millions of U.S. dollars).

*ANNEX I: SAMOA––FUND RELATIONS (As of October 31, 2009); ANNEX II: SAMOA––RELATIONS WITH THE WORLD BANK GROUP (As of November 2009); ANNEX III: SAMOA––RELATIONS WITH THE ASIAN DEVELOPMENT BANK (balance as of December 2008); IMF Press Release No. 09/446 (December 7, 2009).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr1046.pdf_