A.D.B. report highlights surplus, warns of tourism vulnerabilities

The Asian Development Bank (A.D.B.) has highlighted Samoa’s first budget surplus in nine years – attributing it to the “rigorous expenditure control” and receipt of higher external grants – in a report card of the Government’s overall economic management performance in the 2018 fiscal year.

But the vulnerability of the country’s tourism industry to natural disasters continues to be an ongoing concern for Samoa and other Pacific Island economies, warned a report by the Manila-based regional development bank.

The economic assessment and vulnerabilities that currently plague small island economies were highlighted in a recently-published report titled Asian Development Outlook 2019, and had the theme “Strengthening Disaster Resilience”. It was prepared by A.D.B. staff.

“Samoa had a small fiscal surplus in FY2018, reversing a deficit equal to 1.1 per cent of G.D.P. in FY2017. This first surplus in nine years was achieved through rigorous expenditure control and higher external grants received after the International Monetary Fund assessed Samoa to be at high risk of debt distress because of its exposure to disasters,” the report read. 

“At the end of FY2018, external debt equaled 49.4 per cent of G.D.P., slightly higher than a year earlier because exchange rate movements were unfavorable and contracted loans continued to be disbursed for ongoing projects.”

The bank is projecting Samoa’s economic growth to accelerate in the 2019 financial year, largely driven by a spike in visitor numbers, growth in the tourism industry as well as the country’s hosting of the 2019 Pacific Games.

“In Samoa, growth is expected to accelerate in FY2019, driven up as higher visitor arrivals boost growth in commerce, hotels, transport, and other activities ancillary to tourism,” stated the report.

“Growth is forecast to increase further to 3.0 per cent in FY2020 on continued growth in tourism but also strengthening growth in communications. The 2019 Pacific Games, which Samoa will host in July 2019, are expected to provide further impetus.”

A growth of just 0.9 per cent last year was attributed to a slowdown and closure of Samoa’s manufacturing sector and a drop in fisheries, according to the report. 

“A steep fall in nonfood manufacturing was, however, offset by growth in hotels and restaurants, construction, and communications and business services. Visitor arrivals grew by 11.5 per cent, a six-fold improvement on average annual tourism growth in FY2010–FY2017 at 1.9 per cent. Agriculture, transport, and finance all declined.”

On tourism, the report lamented the constraining of the industry by “underdeveloped infrastructure”, and recommended that governments should consider formulating policies to use infrastructure development to encourage industry diversification.  

“Appropriate infrastructure development will catalyze private sector investment as it is attracted to new locations around the country. The Cook Islands in particular is in a favorable fiscal position to support infrastructure development to spread tourism to outer islands. Samoa and Tonga should incorporate facilitative infrastructure investments in their longer-term tourism development plans.”

According to the report, Pacific Island economies should consider factoring disaster resilience into investments in buildings and other infrastructure. 

“The Cook Islands has not had a major disaster recently, but Samoa struggled to expand its tourism industry after the 2009 tsunami, which pushed earnings to as low as the equivalent of 16.6 per cent of G.D.P. in the years that followed. This highlights the country’s vulnerability to natural disasters and the need for tourism to remain sustainable over the long run.”

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