Washington, D.C.: An International Monetary Fund (IMF) mission led by Mr. Siddharth Kothari held discussions with the Samoan authorities and other stakeholders in Apia during November 18-27, 2024. At the conclusion of the mission, Mr. Kothari issued the following statement:
“Samoa’s economic recovery has been remarkable. Following three years of contraction during the pandemic, GDP growth has rebounded, reaching 9.4 percent in FY2024, aided by a swift recovery in tourism.[1] Inflation has declined from double digit levels in FY2023 to 2.9 percent year-on-year in October 2024. Significant fiscal surpluses in recent years, in part due to higher grant inflows and under-execution of investment projects amid capacity constraints, have helped reduce public debt levels significantly, while increasing foreign reserves.
“GDP growth is projected to remain robust at 5.5 percent in FY2025, driven by an anticipated pickup in public investment and the preparations and hosting of the Commonwealth Heads of Government Meeting. Inflation is expected to rise moderately amid the ongoing economic recovery. Growth is expected to slow to the historical average of around 2 percent in the medium term.
“While the near-term outlook remains favorable, risks are skewed to the downside amid heightened global uncertainties and potential pressures on inflation, including from significant excess liquidity in the banking system. Furthermore, longstanding and emerging factors—including Samoa’s small size, climate vulnerabilities, ML/TF concerns, delayed public investments, and rising outward migration—pose significant medium-term challenges, which will require sustained and strong policy efforts.
“An expansionary fiscal stance in FY2025 focused on executing public investment is appropriate and will support growth in the near term and boost the economy’s productive capacity in the medium term. While fiscal surpluses in recent years have significantly improved debt dynamics, climate vulnerabilities pose medium-term risks. Going forward, fiscal policy should prioritize climate-related investments while preserving fiscal buffers and enhancing public finance management.
“To guard against domestic inflation risks and build policy space to respond to future shocks, monetary policy should continue to reduce excess liquidity in the banking system and raise short-term interest rates. As rates increase, the pace of monetary policy normalization and potential terminal rates could be reassessed based on inflation and credit developments.
“Financial sector risks have declined relative to the pandemic but require continued monitoring. The central bank should continue to strengthen financial regulation and supervision, including for public financial institutions. The authorities should also continue to pursue a multi-pronged approach to mitigate Correspondent Banking Relationship pressures, including by improving the AML/CFT legal and supervisory regimes.
“Strong economic performance in recent years provides a window of opportunity to push forward structural reforms to boost medium term growth rates. Key priorities include attracting foreign investment, reducing trade facilitation costs, and mitigating the impact of the pickup in the seasonal workers program, including by enhancing human capital and raising labor force participation rates.
“The IMF team would like to thank the Samoan authorities and other stakeholders for their constructive discussions, excellent support, and generous hospitality during the mission.”
[1] Samoa’s fiscal year runs from July to June.
