IMF Staff Completes 2023 Article IV Mission to Samoa

IMF News, February 2, 2023

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After a three-year recession driven by the Covid-19 pandemic, the Samoan economy is experiencing a strong recovery driven by the return of tourism.
Real GDP rose 4.7 percent y/y in Q3-2022.
The team projects real economic growth of 5.0 percent in FY2023.
The team expects economic growth to remain above trend in FY2024 and FY2025 as tourism inflows and the domestic economy normalize.

Inflation peaked at over 15 percent y/y in August-September 2022, mainly due to a surge in import prices.
Inflation fell to 7.5 percent y/y in December.
The team expects inflation to ease further, at a gradual pace.

Higher tourism receipts and resilient remittances are projected to narrow the current account deficit.
Reserve coverage was over 8 months of imports in FY2022.
Reserve coverage is projected to remain above adequate levels in the medium term, with coverage of 6 months of prospective imports.

With the economy recovering and inflation still high, a gradual normalization of the Central Bank of Samoa’s highly accommodative monetary stance is appropriate.
Normalization would help contain further increases in private borrowing and build up policy space to respond to future shocks.
Removal of accommodation could be gradual, with the pace dependent on the strength of the economic recovery.

Recent central government surpluses helped maintain Samoa’s fiscal sustainability.
Central government ran a surplus of 5.4 percent of GDP in FY2022.
Central government debt was lowered to 43.7 percent of GDP in FY2022.
An expansionary fiscal stance is viewed as appropriate for FY2023, provided it is directed toward higher public investment to improve productivity growth and help return the economy to pre-pandemic activity levels.
Under-execution of public investment was identified as a headwind to growth.
The team recommends raising utility company tariffs to a level sufficient to cover costs, phased over two to three years, with targeted support to vulnerable households to offset effects on inflation and household finances.
To create fiscal space in the medium term, the team recommends:
- Pursuing increased grant financing given Samoa’s limited fiscal space.
- Raising revenue through further gains in tax administration and reducing tax exemptions.
- Continued improvements to public financial management.

The financial system has remained resilient despite increased systemic risks during the pandemic.
Risks are abating as the economic recovery improves borrower repayment capacity.

The authorities’ Pathway for the Development of Samoa five-year plan aims to pursue inclusive growth.
Further developing human capital is a key priority to meet demands for skilled labor arising from the economic recovery.
Progress continues on initiatives with broad-based benefits for growth and inclusion, notably the national digital ID and the credit registry.

An IMF team led by Mr. Andrew Swiston held discussions in Apia during January 16-February 1, 2023.
End-of-Mission press releases convey preliminary findings; views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Fiscal years end in June.
Ratios are expressed in terms of nominal GDP after taxes less subsidies.

IMF Staff Completes 2023 Article IV Mission to Samoa (Press Release No. 23/29), February 2, 2023.