Is the govt. broke? Minister says no.

By Joyetter Feagaimaali’i-Luamanu ,

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FINANCE MINISTER: Sili Epa Tuioti.

FINANCE MINISTER: Sili Epa Tuioti. (Photo: Samoa Observer / File)

The Samoa government’s debts remained at $1.1 billion in December 2016, as the Samoa Bureau of Statistics Quarterly Report published on 13 April 2017, showed.

The financial report obtained by the Samoa Observer showed that loans granted based on multilateral agreements aggregated to $539.7 million, loans based on bilateral agreements with foreign governments amounted to $481.2 million, and domestic loans came up to $34.1million. 

Asked for a comment at the time, Minister of Finance, Sili Epa Tuioti, dismissed worries that the country was in financial trouble, saying “the government is not broke.”  

His denial was carried in the story that was published in the Samoa Observer, on 9 April 2017.

According to the financial report though, other outstanding total debt with institutions such as Asian Development Bank, World Bank, OPEC, FAO and the European Investment Bank, had been reduced by 5.3 percent or $30.5 million, with 94.4% of total multilateral debt, owed to the ADB and World Bank, respectively. 

The report says the loans to the People of the Republic of China, and Japanese International Cooperation Agency (JICA), decreased from December 2015 by $30.4 million, and that the drop in bilateral loans reflects the decrease of debt, owed to the Chinese government by $32.7 million. 

There is no information as to how much is owed. 

The report however says that the domestic debt amounted to $41.0 million, and the outstanding amount had been reduced by $7.5 million, from last year. 

Further, the report says the central budgetary government operations for the second quarter of the Fiscal Year 16/17 recorded a surplus in net lending/borrowing balance of $5.7 million. 

“The favorable outturn was primarily due to expenditures being contained at $140.2 million in December 2016. The amount was significantly dropped by $76.3 million and $49.0 million between December 2015 and September 2016 respectively.” 

The most contributing factor to the drop in expenditures was the decrease in acquisition of fixed assets by $56.2 million at $28.9 million from December 2015 due to the delay in disbursements of funds within the quarter under review. 

The net operating balance on the other hand continues to record surpluses with $34.6 million in December 2016, making it the seventh consecutive quarter of positive performances. Underpinning the result was the decline in operating expenses by $20.1 million on a y-o-y basis. Total operating expenses amounted to $111.4 million in the period under review. 

The expenses (excluding Acquisition of Fixed Assets) for the December 2016 quarter is considerably the lowest ever recorded when compared to previous December quarters. In addition, the average operating expenses of $121.7 million for the last five December quarters (December 2011 - December 2015) was $10.3 million higher than the aggregate expense in December 2016. 

The Net Operating Balance in December 2016 was 23.1% and 74.7% higher than its values in December 2015 and September 2016 respectively. 

“The two balancing items, Net operating Balance and Net Lending/Borrowing are represented in the chart below in terms of their respective balance’s percentage to aggregate GDP.”  

In any case, the claim that the government was broke surfaced, when the government revealed its plans to review tax laws, with the view of increasing the V.A.G.S.T – among other taxes – to shore up its coffers. 

That was when the Minister of Finance, Sili Epa Tuioti, was asked for a comment, and he denied the claim, saying the government was “not broke.” 

Explained Sili: “I don’t know how you got to that." 

“The reason why we are looking at increasing taxation is really not because we don’t have the money."

“There is so much demand for roads and water supply. If you have been listening to Parliament then there is a high demand for water supply, road access."  

He also said: “As you know we are also now increasing the funding of free education which New Zealand had provided money for. Over time the shares of that funding, has decreased so the government has to pick up from there. So really, if we don’t raise taxes, or borrow, where is that going to get us?"  

“It’s just going to take our economic development back but we are not broke.” 

Sili said the government has sufficient monies for its plans. 

But he admits that they need to be prudent with their spending and consolidate on cost cutting reforms. 

“We need to review our expenditures. We did promise that we’ll be reviewing our expenditures in health and education sectors."  

“We just have to make sure that we are spending them on the right areas and we are getting value for that money. It’s the same with all of our expenditures.”  

Asked about the tax review, the Minister said it is necessary. 

“It is something we need to look into after a couple of years, rather than waiting until things are really bad. I think it’s a very responsible move by government to do a review."  

“You know when we review it does not necessary mean that there will be an increase, we may need to rebalance and reset to make sure we continue to provide the enabling environment for private sectors to reinvest in the economy, and to provide jobs."  

“We are continuing to look at investing in health and education to make sure that everyone has access to education and health and to improve the quality of the services we provide.”  

Minister Sili was also asked about Samoa’s foreign debt, and whether it is true it has reached the $2billion tala mark. The Minister would not confirm or deny the figure. 

But he said: “Our foreign debt is now about 52-53 percent of our G.D.P. I think we need to make a point that historically our public debt as the percentage of our G.D.P is much lower than that, maybe 30 per cent.  

“But you know when we have natural disasters like the tsunami, flooding, and cyclones and obviously we need to borrow from the World Bank, A.D.B to rebuild our infrastructure because if we don’t, then it obviously it going to impact on the growth of the economy.” 

Sili said nobody could plan when natural disasters strike.  But when they do, they come at a cost. 

“We can’t leave our infrastructure in a damaged state. We need to make sure that businesses will be restored very quickly.  

“As the consequence of that, our public debt had increase in recent times. 

“Obviously we had to borrow money for the airport terminal development. There’s always a question of whether we allow our key infrastructure to deteriorate and not do anything. Tourism is the key driver of our economic growth obviously, but we have one international airport, which is a gateway to Samoa. So it’s very important.” 

The Minister added that the government has made a very wise decision to invest in facilities and infrastructure. 

“Obviously the government is always wanting for grant financing but given the cost involved, it’s not very easy to have it all totally funded.  

“So we borrow from the government of China, but we are in the medium term and we will look at reducing our external debt as the percentage of G.D.P to around 50 percent again.  

“It’s one of the reasons why we are looking at the budget to try and consolidate, keep a close eye on how we manage our expenditures. We want to make sure that we create surpluses that will help us to rehabilitate our infrastructure in the event of natural disasters.  

“Not only that but we also need to look at a situation that we will be able to fund a lot of our ongoing maintenance from our own budget.  

“As you know we are still borrowing from the World Bank and A.D.B for the funding of the four lane roads.  

“A lot of work is going into climate proofing our infrastructure, so we need to raise the level. And unfortunately we can’t fund it from our budget, we have had to borrow that from the World Bank and A.D.B. although the terms are fairly contentious; I wish we only had to build the infrastructure and not to worry about maintenance and rebuilding.  

“But that’s the reason why we are where we are today. We are quite confident that we can bring that down to 50 per cent which is to me it will be quite good.  

“If we are too ambitious, then obviously it’s nice to say that oh, our debt is gone down to thirty percent forty percent but the question is; is that practical? Is that realistic? I don’t think so.” 

Asked which country Samoa owes the most to, Sili said there was no particular country. 

“Most of our lending is from the multilateral institutions, the World Bank and Asian Development Bank and then of course we borrow from China. It’s mainly the Asian Development Bank and the World Bank that we do borrow from.” 

Looking at the future, Minister Sili said there is a lot of work to be done. 

“We have an agenda to try and continue to grow the economy. We are estimating or projecting that the next four to five years, the economy will be growing at about 2.1- 2.2 percent on average. 

“That’s pretty good by the standards of around the region. But we should be doing more and I think tourism is going to help us.” 

© Samoa Observer 2016

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