Govt. deficit could save tourism: Economist

The Government should consider racking up its budget deficit to support the struggling tourism and hospitality industries during the coronavirus-led economic downturn, an independent Economist, Benje Patterson, has said.

This week, the Government of Samoa has declared a state of emergency with orders restricting public movement and gatherings for a fortnight. But for the last months, severely restricted travel in and out of Samoa to prevent the transmission of the new virus into the country has dented the tourism industry.

It is a global problem, Mr. Patterson said, and each Government will need to manage it within their means. 

Neighbouring New Zealand’s response has included wage subsidies for employers with a proven drop in income to help them keep their staff, as well as removing a waiting period for accessing the work and income benefit for people who lost their jobs because of the pandemic.

“Now I know those policies perhaps, there is a risk they go beyond the means of a Government not in such a strong fiscal position,” Mr. Patterson said of Samoa.

“But there are other things to be done that can support people if there is not enough cash to give large cash payments, it can be in the form of food subsidies or on other goods, deferring tax payments and that kind of thing.”

To finance those measures, Mr. Patterson said the Samoan Government might consider a deficit, where it reduces its own ability to bring revenue from the private sector.

For tourism, which employs around ten per cent of the country and accounts for 20 per cent of gross domestic product, it would be well worth doing, the economist said.

“There will be some effects from it for unemployment for Samoa and it is going to necessitate, where possible, additional support from the Government to act as a safety net to help people that rely on tourism to feed their families get by.”

Robert Kirkby, Macroeconomist from Victoria University of Wellington agreed.

“A major fall in tourist numbers […] would lead to large losses of income and jobs for many Samoans,” he told the Samoa Observer.

“If COVID-19 does begin to spread in Samoa then in the face of containment measures businesses will face difficulty paying their workers and servicing their debts.

“Hopefully Samoan banks would offer delayed repayment and extended credit lines to help them through this, as is currently occurring with many banks in Australia and New Zealand.”

On Friday, the Central Bank of Samoa said it was preparing to deal with the economic consequences of the pandemic.

Governor Maiava Atalina Ainuu-Enari said the bank has gone to an International Monetary Fund credit facility to cushion losses in foreign currency from tourism and remittances. 

It has also met with the local commercial banks, which told C.B.S. they are “considering emergency response plans for business continuity” in the face of COVID-19 as well as considering how to work with clients in need of help, Maiava said. 

In the future, neighbouring development partners like Australia and New Zealand may look to spend their aid budget on helping repair the Samoan economy, Mr. Patterson suggested.

““The other avenue which is a real possibility, and not to rely on in the very short term, but   Governments like in Australia and New Zealand already give a significant amount of aid to the Pacific,” he said.

“I am sure they would look to alleviate any undue hardship if they see Governments in the region not being able to fully cope but I guess the first duty obviously falls to the local Government to support Samoans in this situation.”

Those countries could also help in the short term by purchasing debt for Samoa to finance its deficit, he added.

“Governments across the globe can usually borrow at relatively low rates of interest. 

“I know it’s challenging for a smaller government to access these global markets but that is perhaps a role for bigger governments in New Zealand and Australia to purchase some of the debt of the Samoan Government, if it is to implement policies to provide a social safety net to Samoans during these times of need. 

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