Economy vulnerable to natural disaster — A.D.B. report
Samoa's debt-exposed economy will be left financially vulnerable should a major natural disaster hit the country in coming years, states a recently released Asia Development Bank (A.D.B.) report.
The Pacific Economic Monitor report made that analysis when it looked at the damages from a decade ago from the 2009 earthquake and tsunami as well as Cyclone Evan in 2012 and their effect on economic productivity and the Government's debt.
In 2009, 143 lives were lost in the tsunami and 2.5 per cent of the population were displaced with an estimated 20 per cent of the nation's economy or Gross Domestic Product (G.D.P.) hit. A total of 14 lives were lost in the 2012 cyclone and damages were equivalent to about 30 per cent of GDP.
The two disasters pushed Samoa’s public debt from 41.3 per cent of G.D.P. in 2010 to 58.9 per cent of G.D.P. by 2015, which is well beyond the Government’s 50 per cent target.
“In terms of Government expenditure following the twin disasters, the Government of Samoa invested in a series of large construction projects funded through foreign loans and grants,” the report states.
“From an average of $29.6 million in capital spending between Fiscal Year (F.Y.) 2007 and F.Y. 2009, total Government spending on fixed assets increased from an average of $41.1 million in the 3 years following the tsunami (F.Y. 2010–F.Y. 2012), to an average of $52.2 million a year in the aftermath of cyclone Evan (F.Y. 2013–F.Y. 2015).
“The two years immediately following Cyclone Evan were particularly significant: F.Y. 2013 at $59.5 million and F.Y. 2014 at $62.8 million.”
And although the Government’s fiscal consolidation reduced Government debt to 47.6 per cent of G.D.P. by the end of financial year 2019 plus reduce pressure from A.D.B. and World Bank, Samoa’s debt-to-GDP ratio is still higher than International Monetary Fund’s recommended 40 per cent ceiling.
“The 2011 Pacific Catastrophe Risk Assessment and Financing Initiative (P.C.R.A.F.I.) risk assessment notes that in the next 50 years there is a 40 per cent chance of a natural hazard event (earthquake and tsunami, or cyclone) causing damages equivalent to 27 per cent of G.D.P. and an additional $35.1 million (15.7 per cent of Government expenditures) in emergency costs," it reads.
“Over the next 25 years, these figures are 19.4 per cent of GDP and 11.2 per cent of Government expenditure.
“With climate change potentially increasing the intensity of cyclones, aggregate indicators could suggest that Samoa is at a financial disadvantage should another major natural hazard event occur in the next few years.
The A.D.B. report recommended that the long-term debt target to 40 per cent would contribute to ensuring that any future reconstruction efforts would not come at the sacrifice of existing development priorities: "Disasters of the magnitude of the 2009 tsunami and Cyclone Evan will always present a significant strain on national resources, but the combination of the right financial and non-financial tools will help mitigate the impacts of, and recovery from, any future disasters.”