IMF Staff Completes 2018 Article IV Mission to Samoa

March 5, 2018

• Samoa’s economy is expected to rebound after a temporary moderation, boosted by infrastructure spending and preparations for the Pacific Games, which Samoa will host in 2019.
• Strengthening the fiscal framework would solidify gains from previous consolidation efforts. Monetary policy remains appropriately accommodative.
• Continued efforts to mitigate Samoa’s vulnerability to the withdrawal of correspondent banking relationships

An International Monetary Fund (IMF) team led by Giovanni Ganelli visited Samoa from February 21-March 5 to hold discussions with authorities on the 2018 Article IV Consultation. [1] The team met with Minister of Finance Sili Epa Tuioti, Chief Executive Officer of Ministry of Finance Lavea Tupa'imatuna Iulai Lavea, the Governor of the Central Bank of Samoa Atalina Ainuu-Enari, senior government officials, and representatives of the private sector. A Senior Advisor to the Executive Director for the Asia and Pacific Constituency also joined the meetings. At the conclusion of the meetings, Mr. Ganelli issued the following statement:

“The Samoan economy continues to perform well and has shown resilience. Growth was robust at 2.5 percent in the 2016/17 fiscal year (ending June 30), but is expected to temporarily moderate to 1.8 percent in 2017/18, mostly reflecting the closure of the Yazaki manufacturing plant. In the medium term, growth is projected to rebound—averaging around 3 percent in the next five years—supported by infrastructure spending, preparation for the Pacific Games (PG) that Samoa will host in 2019, and new business operations at the former Yazaki plant. Inflation is expected to remain within the Central Bank of Samoa (CBS) 3 percent target. This outlook is subject to downside risks related to natural disasters, and spillovers from the partial withdrawal of correspondent banking relationships.

“In recent years, the authorities have made progress toward fiscal consolidation, but, while the fiscal deficit remains well below the authorities’ 2 percent target, it widened to 1.1 percent of GDP in 2016/17, up from 0.4 percent of GDP in the previous year The fiscal position is projected to loosen further in the medium term, given limited scope for reductions in current spending, a projected increase in development expenditure, and uncertainties on the revenue impact of planned tax reforms. Strengthening the fiscal framework would solidify the gains from previous consolidation efforts. Specific measures in this regard should include targeting a debt-to-GDP ratio of 40 percent in the long term, and keeping the overall fiscal deficit under 2 percent of GDP. The level of international reserves is adequate according to the Fund’s metric for Assessing Reserves Adequacy for credit constrained economies. Monetary policy remains appropriately accommodative.

“The Samoan authorities have taken welcome steps to mitigate Samoa’s vulnerability to the partial withdrawal of correspondent banking relationships, including progress with the implementation of the national strategy for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), which should continue. Further progress in this area should also include establishing a database for customer identification and monitoring, and addressing risks from the offshore sector by aligning the laws governing it with international AML/CFT standards. The IMF is supporting the authorities’ efforts through technical assistance and by promoting dialogue between banks, Money Transfer Operators and regulators in the region.

“Financial stability indicators suggest that the banking system remains sound. Commercial banks are well capitalized and earnings, profitability and liquidity indicators are within historical norms.

“Structural reforms should focus on boosting growth prospects by increasing resilience to natural disasters, improving the business environment, and fostering financial inclusion. In this regard, the mission encouraged the authorities to speedily implement measures aimed at strengthening resilience and improve financial inclusion, including those laid out in the Strategy for the Development of Samoa 2016/17-2019/20 and in the National Financial Inclusion Strategy for Samoa 2017-2020.

“The IMF team would like to thank the Ministry of Finance, the Central Bank of Samoa, other ministries and government agencies, and private sector interlocutors for their open and constructive discussions and for their generous hospitality.”

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.