Waiting for business to bounce back is no stimulus strategy
The COVID-19 pandemic has posed the most unique mix of challenges to the world’s economies of any event in living memory.
The Samoan Government may well claim credit for keeping the disease off our shores.
Some would argue geography and our relative isolation have played their part in that achievement too. (It is surely no coincidence that of the eight nation-states without the disease all are islands in the Pacific.)
But what we have definitively not seen from the Government is leadership on the other main threat of COVID-19: the near total collapse of our private sector.
As this newspaper reported on Sunday, the Country Manager for ANZ in Samoa, Bernie Poort said Government assistance to the private sector has been long-awaited by businesses (“Bank calls for private sector assistance; closes Vaitele branch”).
But that anticipation of assistance has simply been disappointed.
“Nothing seems to be forthcoming,” he said.
“Looking around other Pacific Islands, like Australia and New Zealand their Governments are spending large amounts of money to keep people employed and their economies moving forward, in Samoa we just haven’t seen that.”
Even the ANZ, a business with more than half a century of reliable business in Samoa has seen revenues at its Vaitele branch drop by some 50 per cent, forcing the branch’s closure.
Several other businesses with revenue models not nearly as stable or well supported as the ANZ’s are shuttering their doors, too.
Where, then, is the support from our Government?
Perhaps only one event in living memory parallels COVID-19 for its sheer economic impact and that is the Second World War.
The sheer scope of the loss of human life it precipitated and its impact on the course of history mean it cannot be possibly compared to COVID-19.
Except in one way.
The average national debt to Gross Domestic Product ratio of the world’s advanced and emerging economies, according to analysis published by Goldman Sachs in June, has now reached 120 per cent.
That put the amount of debt the world’s countries are now carrying at just a fraction below the level incurred in the aftermath of the Second World War.
That analysis is now six months old.
With no return to normality in sight and major economies such as Britain reverting to hard lockdown measures this month, it seems eminently possible that this pandemic will now even surpass global war in terms of its effects on Government’s treasuries.
Government’s are, of course, following textbook theory. When economies are in a tailspin the only course of action is to offset that decline by pumping money into the economy.
Despite remaining free from the reach of COVID-19, the Central Bank of Samoa is acutely aware of just how bad things have become for Samoa.
According to a letter written by the Governor of the Central Bank, Maiava Atalina Ainu’u-Auelua to the nation’s private banks in late September, she forecast a long economic winter for the country.
"The economy is moving into a depression (at least 8 consecutive quarters of negative growths or at least negative 10 per cent of a decline in real Gross Domestic Product,” she said in a letter obtained by the Weekend Observer.
“We, therefore, need to do more to minimise these impacts on our people and their livelihoods.”
But what have we seen from the Samoan Government to arrest this economic slide; to support private businesses; and to provide support to the many thousands of people who have lost their jobs?
Almost nothing when compared to the enormous spending of other economies in the region cited by Mr. Poort, such as Australia, which has increased its spending by 32 per cent.
The Samoan Government has passed two economic stimulus packages. The first, passed in April, included $40 million in relief measures for consumers and businesses, as part of a supplementary budget. The second “phase 2 stimulus”, was included in the nation’s budget and was said to amount to $83 million worth of assistance.
When compared to the size of our more than $2-billion tala economy that figure is ridiculously low.
But even worse, much of what the Government calls stimulus is not worthy of the title.
Much of the Government’s rescue package involved deferrals of payments, waivers and forgiveness measures such as reduced utilities bills for businesses.
It goes without saying that there is not much use for offering a discount on an electricity bill to a business that has turned off its lights.
If there was one statistic that drove home the futility of the Government’s stimulus measures it was the revelation in June that of the 140 tourism operators in Samoa only 10 could even qualify for lowered electricity prices.
So what has Samoa been doing while other countries in the world have been boldly raiding their treasuries and pumping money into their economies?
We are in fact one of the few nations on earth to be reducing our Government spending this Financial Year.
In August two Australian economic researchers compared the approach of three Governments in the Pacific to the COVID-19 downturn.
Tonga was the only one found to have increased its Government spending aggressively, upping it by some 15 per cent.
Even that, when compared to the 32 per cent increase in Government spending Australia is planning to disburse seems modest.
But Samoa’s Government spending was projected to in fact shrink by 8 per cent.
“All Pacific governments need to be able to increase their aggregate expenditure to respond to the COVID-19 crisis,” the economists found.
But we seemingly cannot, as an aid-dependent economy and one which is laden with more than $1 billion of tala in debt and cannot raise money on the international markets.
The Government’s financial management in the recent past does not appear prudent, to say the least, in the light of this crisis.
But we have seen money pouring into Samoa to help with COVID-19.
In August this year alone, the Asian Development Bank committed USD$20 million in aid to protect the health and the economy of the nation.
Other donations have been made too, by institutions such as the World Bank.
So where, then, is the help for a private sector slowly suffocating before our eyes?
Simply continuing to wait is not an option. Time is running out and fast.