An International Monetary Fund (IMF) team led by Mr. Geoffrey Bannister visited Samoa during March 31- April 4 to hold discussions with the Samoan authorities and other stakeholders in advance of the 2014 Article IV Consultation mission, which will be held during September 29 – October 10, 2014.1 The team met with CEO of the Ministry of Finance Tupa'imatuna Iulai Lavea, Central Bank of Samoa (CBS) Governor Atalina Ainuu Enari, and other senior officials, as well as representatives from the private sector and development partners. Staff from the Asian Development Bank joined the mission. The team expresses its appreciation to the authorities and other stakeholders for the open and constructive discussions. Mr. Bannister issued the following statement today in Apia:
“The Samoan economy is recovering from the effects of Cyclone Evan, helped in part by IMF emergency assistance disbursed under the Rapid Credit Facility (RCF) last year (see Press Release 13/178). After a slight decline in fiscal year 2012/13, real GDP is expected to grow at around 1½ percent in fiscal year 2013/14, led by a strong recovery in agriculture, reconstruction activity and preparations for the United Nations Third International Conference on Small Island Developing States (SIDS), which will be held in Apia from September 1-4, 2014. Over the medium-term, growth could rise to around 2½ percent as tourism investments mature. However, this outlook is subject to downside risks related to the protracted slow growth in the global economy, uncertainty over the revival of agriculture, and diminished prospects for the manufacturing export sector. Plentiful agricultural supply and a stable exchange rate have led to subdued inflation, and prices are expected to remain stable in the medium-term.
“The Samoan government has reacted appropriately to increase expenditure for recovery and reconstruction in the face of recent external shocks, including the global financial crisis, the tsunami and cyclone. However, public debt has risen rapidly in recent years, raising risks to sustainability and leaving little fiscal space to address future disasters. It is thus necessary to begin a process of gradual fiscal consolidation, once the recovery has taken hold. The mission welcomes the government’s intention to gradually reduce the fiscal deficit to 3½ percent of GDP in the medium-term, but cautions that further consolidation may be necessary if growth potential over the medium-term is lower than expected.
“The government has developed a number of initiatives to facilitate the flow of credit to the economy, including the establishment of the Unit Trust of Samoa and subsidized lending through the Development Bank of Samoa and the Samoa Housing Corporation. While these initiatives have provided resources and breathing space to the private sector and state owned enterprises, they may also result in the transfer of risk to the government’s finances and subsequent contingent liabilities that could increase the public debt in the future. Enhanced financial sector supervision by the CBS, covering all financial institutions, will thus be important to minimize a potential build up of risk in the financial system.
“The Central Bank of Samoa has maintained an appropriately accommodative monetary stance to support the recovery of the economy, while maintaining exchange rate stability. As economic growth takes hold, the CBS should stand ready to review its policy stance at regular intervals and make the necessary policy adjustments to ensure export competitiveness and maintain an adequate level of foreign reserves.
“Continued structural reforms will be critical to restore Samoa’s strong growth record of the past. The mission welcomes the government’s continued efforts to increase the accountability and efficiency of public enterprises, improve public financial management, strengthen the soundness and accessibility of the financial sector, and increase the use of customary land for more productive purposes.”
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members. A staff team visits the country (typically on an annual basis) to collect economic and financial information and hold discussions with officials on the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.