Stimulus a prelude to tough questions
This won’t be enough to right the ship. But nor should we have ever expected it to be.
An economic challenge of the magnitude posed by COVID-19, especially to economies such as Samoa’s, comes around perhaps once in a generation.
The economic response required has been fairly compared to post-war reconstruction.
There are only so many options available to the Samoan Government after a year in which the treasury has already been stretched by crisis.
And the stimulus policy the Government unveiled yesterday, a $66 million supplementary budget including $40 million in measures for consumers and businesses, reflected the relative weakness of our financial position.
The package is welcome. But realistically, spending worth less than two per cent of our Gross Domestic Product is unlikely to be enough to jumpstart an economy facing a crisis on such a scale, or even keep it ticking.
In his speech to Parliament yesterday, the Finance Minister Sili Epa Tuioti analogised the pandemic to an economic tsunami not seen since the end of the Second World War.
Analysis by the A.N.Z. obtained by the Samoa Observer earlier this month suggested we were facing an economic contraction of 18 per cent and up to one-in-five people losing their jobs.
Despite these measures falling well short of what is needed to meet such drastic forecasts we cannot fault the Government for the scale of its response.
Calls from analysts for a stimulus of between 20 per cent to up to one-third of our economic output, while more likely to be adequately sized for economic recovery were simply unfeasible.
But even at $40 million yesterday’s relief package had less substance than the headline figure suggested.
Broken down line-by-line much of the package involves deferrals of payments, waivers and forgiveness measures. But there is not much that involves the Government releasing money directly into the economy to counter its downward slide, which is the entire idea behind stimulus.
Nonetheless many measures are creditable - and will make a difference to household and business budgets. We applaud them.
The subsidising of small businesses’ local production and a moratorium on mandatory payments towards the Samoa National Provident Fund and the Accident Compensation Commission might provide some relief to some bottom lines.
On the consumer side, too, the special one-off $300 pension and the reduction of fees and interest payments on loans and the dropping of utilities charges will be welcomed by households struggling to make ends meet.
But some measures seem like padding.
This was an occasion for doing everything possible to help an economy that is staring down the total grinding to a halt of its biggest export in tourism.
So it’s highly questionable whether the $1 million dedicated to the state owned enterprise Samoa Airways - currently not able to fly anywhere - and which lost more $20 million last Financial Year raises questions about priorities.
That this measure falls under the heading of ‘enabling the private sector’ in Government documents is, to borrow a phrase recently favoured by the Prime Minister, cheeky.
Other measures seem more like padding.
Those few private sector tenants fortunate enough to rent out their premises at the Samoa National Provident Fund, the Development Bank of Samoa or the Airport will enjoy rent breaks. But a strategic piece of economic policy these measures are not.
But even if estimates of a contraction in the order of 20 per cent are highly exaggerated it would be difficult to overstate the difficulties Samoa is likely to face while waiting for the global economy to reassert itself.
But all across the Pacific Governments are in the same canoe and their policy responses have been similarly muted.
A few Governments have announced substantial stimulus packages but all have been special cases.
Fiji has famously maintained a pool of national savings to be drawn upon in emergencies; Papua New Guinea has been vague about the source of its stimulus funds but it has been given emergency access to US$185 million in cheap loans from the I.M.F.; and the Cook Islands has been bailed out by New Zealand for more than NZD$50 million.
Otherwise, as small island states we do not have the means of raising money on the international markets that larger countries do.
Our Government can only be so proactive when it comes to engineering such a package when it does not have access to extra funds.
There is a long queue of nations seeking assistance from multilateral institutions such as the World Bank; the G20 group of nations; the Asian Development Bank and countries such as New Zealand, Australia and China.
We are not likely towards the front of this crush for support.
Indeed, most of those prospective donor nations are still dealing with the fallout of COVID-19 on their own economies.
But when the offers of extra financial support do come in we should have already debated the extent to which we accept it. The advice of the A.N.Z. was for a stimulus package in the order of more than ten times what was announced today.
The only way that is going to happen is for Samoa to go further into debt.
There’s a great deal of anxiety about the $1.1 billion in existing public debt, much of which is owed to China.
As the Tautua Samoa Party said yesterday (“Govt. urged to turn to donors”) help of the scale we need is only going to come from outside.
We should begin to ponder the terms on which we might accept offers of debt finance, from which countries we would seek help and, most importantly, what terms come attached to these assistance measures.
Going further into deficit is going to require breaking Samoa’s policy of not allowing debt to exceed 50 per cent of our economic output.
Sili alluded to a second supplementary budget in six months’ time.
Rather than simply waiting for a later announcement of a second package, we should foster an open public discussion about what measures we are prepared to take and on what terms.
For the meantime much of what we can do lies out of our hands.
But we can start preparing for the difficult decisions that lie in wait.