The Central Bank of Samoa has released an update on the world and Samoan economy for the first nine months to March 2018. The update was released by the Government through the Press Secretary. It is published below:
The International Monetary Fund’s (IMF) World Economic Outlook (WEO) released in April 2018 reported that world growth strengthened in 2017 to 3.8 percent, up from the 3.7 percent estimated in January this year and up from 3.2 percent growth in 2016. Stronger growth in 2017 was an investment-and-trade-led recovery in the second half of 2017, mostly across advanced economies.
Continued strong growth in emerging Asia and emerging Europe coupled with signs of recovery in several commodity exporting economies also lent support to the growth momentum amid loose monetary conditions, robust labour markets and higher commodity prices.
According to the IMF’s April WEO, global growth seems on track to reach 3.9 percent in 2018 and 2019 as previously forecasted, and will be supported by faster rates of growth in the Euro area, Japan, China and the USA which grew above expectations in the past year.
The USA’s recently approved tax policy changes and significant government spending for 2018; continued accommodative monetary policies for the Eurozone and Japan, falling unemployment, high consumer and business sentiments consistent with strong global demand and growing trade and investment, are expected to power this global growth upswing.
THE SAMOAN ECONOMY
I. SUMMARY OF MAJOR ECONOMIC INDICATORS FOR THE FIRST NINE MONTHS OF FY2017/18
1. Gross Domestic Product (GDP)
Quarter (December 2017 quarter)
$564.2 million, 4.5 percent, higher than $539.6 million in December quarter 2016.
Annual (12 months to end December 2017)
$2,163.5 million or 2.6 percent higher than $2,108.6 million for the same period up to December 2016
GDP per capita (12 months to December 2017)
$11,020 per capita, 2.4 percent higher than $10,759 in December 2016.
Quarter (December 2017 quarter)
$484.6 million, 0.1 percent higher than $484.5 million in December quarter 2016.
Annual (12 months to end December 2017)
$1,874.4 million, was 0.4 percent lower than $1,881.9 million in December 2016.
The annual average headline inflation rate increased further to 2.7 percent in March 2018 from 2.4 percent in the previous month and 1.2 percent in March last year. Contributing to the increase was pick-up in local component inflation to 0.4 percent from -0.1 percent last month while imported inflation slowed to 4.7 percent from 4.9 percent in the previous month. Similarly, the underlying inflation rate edged up to 2.5 percent from 2.4 percent a month ago, which was also higher than 0.9 percent in March 2017.
3. Agricultural Produce sold at the Fugalei Market
The average supply of agricultural produce supplied to the Produce Market outlets around Apia in the nine months to March 2018 was 4.2 percent lower than in the same period last year. The overall reduction was due to decreases in supplies of staple crops such as banana, breadfruit and yams as well as vegetable items such as head cabbage, Chinese cabbage and pumpkin. The contraction of supplies in the period under review partly reflects the adverse impact of Cyclone Gita in February 2018, which have seen shortage of banana and breadfruit and resulted in elevated prices for those items including vegetables like tomatoes and cabbages. Consequently, the overall price index edged up by 6.6 percent in the reviewed period.
4. Balance of Payment
i. Total Exports of Goods
$67.69 million; 3.6 percent lower than $70.19 million in the first nine months of 2016/17.
The shares of the main exports were as follow:
Re-exports – 41.1 percent ($27.82 million)
Domestically produced exports – 58.9 percent ($39.87 million)
Fresh Fish – 33.0 percent ($22.32 million)
Taro – 7.7 percent ($5.19 million)
Beer – 6.2 percent ($4.18 million)
Nonu Juice – 4.5 percent ($3.06 million)
Coconuts – 1.8 percent ($1.19 million)
Scrap metal – 1.1 percent ($0.74 million)
Coconut cream – 0.6 percent ($0.45 million)
Coconut Oil – 0.2 percent ($0.16 million)
Virgin Oil – 0.2 percent ($0.16 million)
ii. Total Imports of Goods
$620.01 million, 4.8 percent higher than $591.60 million in the first nine months of 2016/17.
iii. Trade Deficit
$552.32 million, 5.9 percent higher than $521.41 million in the first nine months to March 2017.
iv. Visitor Arrivals and Receipts
121,192 visitors, 10.9 percent higher than 109,264 visitors in the first nine months to March 2017.
$332.05 million, 14.8 percent higher than $284.38 million in the nine months to end March 2017.
v. Private Remittances
$361.34 million, 19.4 percent higher than $302.58 million in the first nine months of 2016/17.
vi. Gross Official Foreign Reserves
$368.16 million at end March 2018, 31.0 percent higher than $281.14 million in the same month last year. Sufficient to cover 5.4 months of imports, compared to 4.2 months in March 2017.
5. External Debt Outstanding (at end March 2018)
$1,079.7 million (49.9 percent of nominal GDP ), 6.6 percent higher than $1,012.8 million at end March 2017 (47.5 percent of nominal GDP).
Debt Servicing (12 months to March 2018)
$66.6 million (equivalent to 11.4 percent of recurrent revenue , 18.1 percent of foreign reserves or 9.4 percent of total exports of goods and services ) was 25.0 percent higher than $53.3 million in the year up to March 2017.
ISSUES AND CHALLENGES
1. Gross official foreign reserves have remained buoyant so far in FY 2017/18 at $368.16 million as at March 2018 or equivalent to 5.4 months of imports, recovering from 3.6 months cover in October 2016 and 4.3 months cover at end June 2016. The Central Bank will continue to monitor and take appropriate actions to ensure a viable level of international reserves is maintained while also facilitating the foreign payments obligations of the country.
2. Remittances have improved so far, up 19.4 percent in the first 9 months of the year given the strengthening of both US and New Zealand dollars contributing to strong growth for these markets. Nevertheless, concerns remain for future trends with the ongoing de-banking of the local Money Transfer Operators (MTO) agents’ accounts by the New Zealand and Australian owned banks, as well as the risk for local banks in holding US accounts abroad (correspondent banking relationships).
3. In the aftermath of Cyclone Gita, there is a possibility of short term buildup in inflationary pressures from shortage of local agricultural supplies. Headline inflation is currently at 2.7 percent in March 2018, but depending on the level of damages to local crops and vegetables, inflation could go as high as 3.2 percent by end June 2018. However, the expectation is that local food prices could start to normalize as soon as June 2018 if replanting efforts are well under way.
1. The Committee is kindly requested to note that the Central Bank has continued with its easing monetary policy stance.
2. Whilst the economy grew significantly by 7.1 percent in the twelve months to June 2016, latest available data have shown a sharp slowdown to -0.4 percent at end December 2017. It is therefore vital that with fiscal consolidation, monetary policy will continue to be accommodative to support sustainable economic growth.
a. Thus, it is important that Government ministries continue to implement their budgeted expenditures and program on time, as outlined in the 2017/18 Government Budget.
b. Critical for construction efforts to be timely in securing grants and concessional loan financing resources from multilateral financial institutions and development partners.
c. While we go through these challenging times to vigorously search for alternative replacements for Yazaki and American Samoa tuna cannery operations, one short to medium term consideration for government is to frontload grant financed development projects with higher local components as remedial measures – for development partners as an act of good governance to transparently post annual funding (planned and actual) that will stay in-country or grants and concessional loans.
d. That all government foreign funding sources are paid into the Central Bank of Samoa (CBS) accounts abroad while the CBS will pay the Samoan equivalent into the government’s local accounts using the prevailing bank’s exchange rates. (best public finance management practice for Small Island Developing States).
3. Encourage private sector investments (foreign and domestic) as they are much needed new money to sustain future economic growth through the creation of economic activities and employment in a small economy like Samoa.
4. The Central Bank of Samoa
a. to continue to assist local money transfer operators (MTOs) in finding sustainable avenues to remit funds back to Samoa. Given that most of the MTO accounts in NZ and Australia are now closed, it is imperative that the CBS research and implement other possibilities of ensuring Samoa continues to receive this important source of income for low income families at a very affordable cost.
b. To implement the national payment system (International Finance Corporation (IFC)) and its regulations to provide a better and instantaneous clearance of transactions among banks with up-to-date due diligence features (including the KYC utilities technical assistance provided by the IMF).
c. To pursue the implementation of a national credit bureau database to give much needed confidence to the financial system users and providers of these financial services.
d. to encourage Government and government bodies:
i. to continue to use the Central Bank to channel through any large foreign receipts (financial inflows) to assist with building and maintaining adequate level of the country’s foreign reserves.
ii. to continue to make payments (financial outflows) through the Central Bank for favourable exchange rate gains consistent with good public finance management practice.
e. while mindful of SNPF, ACC and UTOS’ role and responsibility, encourage these institutions to invest locally given the current growth level and also to ensure domestic employment today and the future. This action may also assist Samoa to be more resilient on the impact of an exogenous shock.