Govt. told to reduce debt to more sustainable level

By Mata'afa Keni Lesa ,

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REDUCE PUBLIC DEBT: Prime Minister Tuilaepa Dr. Sa’ilele Malielegaoi.

REDUCE PUBLIC DEBT: Prime Minister Tuilaepa Dr. Sa’ilele Malielegaoi.

Prime Minister Tuilaepa Dr. Sa’ilele Malielegaoi’s administration has been told to do its best to reduce public debt to a more sustainable level.

The advice comes from the International Monetary Fund (I.M.F.) after its recent bilateral discussion with the Government. 

According to recent figures provided by the Central of Samoa, the Government’s total debt stands at $1.1 billion. The statistics also reveal that Samoa’s debt to China is $416 million, making China Samoa’s biggest creditor.

The Samoa Observer understands that the debt was one of the items on the agenda when the team from I.M.F. visited Samoa where they collected economic and financial information and discussed Samoa’s economic developments.

In its report, I.M.F. noted that “Samoa’s economy has shown resilience and continues to perform well.”

But there are risks, the I.M.F. warns.

“The outlook is subject to downside risks, including from the country’s high vulnerability to natural disasters and the partial withdrawal of correspondent banking relationships (C.B.R.'s),” the report reads. 

“Looking forward, Directors underscored the need to build fiscal space, continue efforts to mitigate spillovers from the loss of C.B.R.'s, and implement structural reforms to secure sustained, inclusive growth.”

On that note, I.M.F. also zeroed in on the issue of debt.

“Directors called for a strengthening of the fiscal framework to reduce public debt to a more sustainable level, including by considering the introduction of a lower public debt‑to‑GDP target, and a fiscal balance anchor consistent with the target,” the report continues. 

“Efforts can be made to improve tax administration and compliance. Ongoing efforts to improve the performance of public financial institutions (P.F.I.s) and state‑owned enterprises and to strengthen public financial management would help mitigate fiscal risks.”

The following is the I.M.F’s report in full:

On May 7, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the 2018 Article IV consultation [1] with Samoa.

Samoa’s economy has shown resilience and continues to perform well. Growth remained robust at 2.5 percent in 2016/17, driven by commerce, services and agriculture. Inflation picked up to 1.3 percent in 2016/17, compared to close to zero in the previous year, but remains well below the authorities’ target of 3 percent. The current account deficit narrowed to 2.3 percent, driven by temporary factors. The Samoan Tala appreciated against the U.S. dollar during 2016/17, although there was little change in the nominal and real effective exchange rates. Financial soundness indicators highlight that commercial banks are well capitalized and that earnings, profitability, and liquidity indicators are within historical norms.

Growth is projected to moderate to 1.8 percent in 2017/18, due to the negative impact of the closure of the Yazaki manufacturing plant in August 2017 and normalizing of fishing exports after two exceptionally good years, only partially offset by the impact of higher public infrastructure spending and Samoa’s hosting of regional meetings. 

Growth is expected to rebound in 2018/19, as two new businesses scale up operations at the old Yazaki plant and several infrastructure projects are completed. 

In 2019/20, growth is projected to accelerate to 5 percent, driven by tourism related sectors as Samoa hosts the Pacific Games in July 2019, before settling at just above 2 percent in the medium term.

 Inflation is expected to continue to pick up to about 3 percent in the medium term. The current account deficit is expected to widen to just above 4 percent of GDP in the next few years, driven by a rebound in imports to support investment for the Pacific Games and other infrastructure projects.

Executive Board Assessment 

Executive Directors commended the authorities for Samoa’s robust growth and resilience in the face of external shocks. 

However, the outlook is subject to downside risks, including from the country’s high vulnerability to natural disasters and the partial withdrawal of correspondent banking relationships (CBRs). Looking forward, Directors underscored the need to build fiscal space, continue efforts to mitigate spillovers from the loss of CBRs, and implement structural reforms to secure sustained, inclusive growth.

Directors called for a strengthening of the fiscal framework to reduce public debt to a more sustainable level, including by considering the introduction of a lower public debt‑to‑GDP target, and a fiscal balance anchor consistent with the target. Efforts can be made to improve tax administration and compliance. Ongoing efforts to improve the performance of public financial institutions (PFIs) and state‑owned enterprises and to strengthen public financial management would help mitigate fiscal risks.

Directors considered the current accommodative monetary policy stance to be appropriate, but noted the need to strengthen the monetary transmission mechanism. They considered the external position to be consistent with economic fundamentals. Directors noted that international reserves are broadly adequate, and emphasized that external donor and remittances flows remain an important source of financing to help address vulnerabilities to natural disasters.

Directors welcomed the measures being taken to mitigate vulnerability to a further withdrawal of CBRs. They encouraged the authorities to take additional measures to align the AML/CFT framework to international standards, and leverage technology solutions for customer identification and monitoring. Directors encouraged engagement with relevant stakeholders to achieve an industry‑led, regional solution to the withdrawal of CBRs.

Directors commended the authorities for the considerable progress made in implementing the 2015 Financial Sector Assessment Program recommendations. They emphasized that further progress should focus on upgrading the regulatory and supervisory framework to support corrective actions and resolution. They also agreed that formulating a coherent framework for governance and performance of PFIs, including a clear definition of their mandates, remains a key priority.

Directors encouraged the authorities to focus the structural reform agenda on broadening financial inclusion, enhancing resilience to natural disasters, and improving the business environment. In this context, they commended the adoption of a financial inclusion strategy and plans to upgrade infrastructure, and encouraged follow up on plans to introduce measures to improve access to finance for households and businesses.

© Samoa Observer 2016

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