Only major stimulus can keep private sector turning
As the world’s Governments announce massive economic policy responses to the corona-led global economic downturn, all eyes will now turn to the size Samoa’s stimulus measures.
The stakes, we know, are incredibly high.
Private research by the A.N.Z. bank paints a disastrous economic year for the country, when global tourism falls to a complete standstill.
According to the estimates, Samoa is looking a year-on-year contraction of its total economic output of 18.7 per cent.
A $429 million decline in our tourism revenue will result in a loss of nearly 4,900 jobs - or roughly one in five people employed in the entire country.
The release of yesterday’s updated Gross Domestic Product (G.D.P.) figures suggest we are only beginning to see the impact with a decline of 3.7 per cent for the final quarter of last year.
There’s only one way to reverse this downward cycle, the bank figures, and that involves major spending.
The bank diagnosed the answer as a fiscal rescue package worth as much as 10 per cent of our Gross Domestic Product to keep these sectors alive while global tourism is given time to return to normality.
Only such drastic action, by the bank’s reckoning, would be enough to contain double-digit losses to just a few per cent.
The sheer size of such a measure would be difficult to overstate.
New Zealand’s NZD$12 billion stimulus package, the largest single measure announced during Jacinda Ardern’s tenure as Prime Minister, was praised as decisive and bold action in the face of crisis. But it amounted to only four per cent of the country’s G.D.P.
For Samoa, a package of 10 per cent of our economic output this would equate to spending of more than $230 million.
The Chief Executive Officer of the Ministry of Finance (M.O.F.), Leasiosiofa’asisina Oscar Malielegaoi, said on Monday that the Government was preparing a stimulus measure in response to a recent request for assistance from the Chamber of Commerce.
That is welcome news. But the question is just how far is the Government willing and able to go to keep the economy turning while the coronavirus pandemic wreaks havoc globally.
And while we commend the Chamber of Commerce for making representations on the private sector’s behalf, it must be noted that it has acted far too slowly.
As Governments worldover have been announcing stimulus measures designed to protect the economy, the Finance Ministry says it was only approached in the past few days. As at mid-March the Chamber had told the Samoa Observer that it was yet to broach the measure of economic stimulus with the Government despite all the warning signs of a potential economic meltdown being apparent.
Leasiosio would not be drawn on whether the stimulus package would be equal to the size of the measures posed by the bank’s modelling.
That does not fill us with confidence.
After all, Samoa’s ability to spend money on countercyclical economic measures are limited by the current state of our national debt.
We are ranked by the Asian Development Bank and the International Monetary Fund as a highly debt distressed country and with debts of $1 billion and substantial repayment obligations it is not difficult to see why.
If the Government’s economic cupboard is bare in the wake of the expenditure measles epidemic and Pacific Games expenditure we must still consider furthering our deficits.
As Governments around the world try to stimulate their economies with interest rate cuts, the cost of borrowing is cheaper than ever.
On Friday, Fiji, which has a similar ratio of debt to G.D.P. as Samoa, announced a US$400 million package, equivalent to some 33 per cent of its economic output.
So far the only hard figures that have been publicly canvassed are the proposed stimulus measures from the Samoa National Provident Fund (S.N.P.F.), said to amount to $8.4 million.
While these measures are welcome they do not appear to begin to approach the scale of response needed.
Some of the S.N.P.F.’s proposed measures, such as a month’s contribution refund, also stand in stark contrast to what other countries have done for their private sectors such as underwriting employees’ wages and long-term mortgage waivers.
We can only hope that the Government’s total stimulus package is of a scale that meets the looming challenges of the coronavirus downturn, and answers the difficulties faced by employees and businesses alike.
Government spending on the economy and its public servants contributes about nine per cent to Samoa’s economy.
A choice between taking measures that constrain this part of our economy in favour of keeping our tourism and agriculture sectors alive while the world awaits a return to normality should not be a difficult one.