Recession, the right priorities and the need for common sense
At any other time, a headline such as “Samoa’s economy in record crash” as featured on the front page of Friday’s Samoa Observer would have been quite an event.
The people entrusted with running the nation’s economy would have come under enormous scrutiny and they would have quite a lot of questions to answer. There would be a massive uproar from members of the public and critics who would be quite relentless in their crusade to find where and how things went wrong. And understandably so.
A recession is not something to be taken lightly. When economic activity declines because of a huge drop in spending, the knock on effect starting from richest to the poorest in any country is quite acute. The consequences do not discriminate and people are placed in a precarious position where fear and anxiety dictates behaviour, decision-making. The potential loss of jobs, businesses shutting down and the consequences of those developments would have on the public at large are extremely worrying.
Which is precisely what we are beginning to see. But given the unfavourable circumstances and challenges of 2020, especially the impact of the coronavirus pandemic, the news about the economy’s record crash hardly generated a ripple.
It wasn’t a question of whether the economy would slump into a recession; it was inevitable and it felt like people were bracing themselves for it. The key questions are how bad it would be and how long it would last. And when can we begin to recover?
Now let’s be realistic, it is too early to be able to draw any definitive conclusions. Besides, the drop in economic output is not really news to anyone anymore given the fact that most countries around the world are experiencing a recession of some sort. Samoa does not operate in a vacuum and we are no exception.
So just how bad are things? Well from what we’ve been told by the Samoa Bureau of Statistics, Samoa’s Gross Domestic Product (G.D.P.) contracted by 11.6 per cent for the second quarter of this year. The drop follows economic contractions of 3.8 per cent drop in the three months to March, and 3.7 per cent in the final quarter of 2019 in the wake of the measles epidemic.
Samoa’s G.D.P. for the quarter is now $453.3 million, the Statistics Bureau said, when measured in constant prices, making it the lowest it has been since December 2014. The numbers are quite scary; they definitely represent an economy that is in a free fall.
But we hardly needed these statistics to prove what we cautioned would happen. The writing has been on the wall with the restrictions on business activities and border shutdown coming at a huge cost.
It wasn’t that long ago a United Nations survey revealed that over two-thirds of Samoans have reported losing income and experiencing difficulties repaying their debts, as a result of the economic downturn caused by the pandemic. The survey also found that not only 68 per cent of Samoans had lost income due to the public health crisis, a significant number were also forced to eat less. The worry is that things will only get worse especially given the uncertain nature of the coronavirus pandemic.
So where to from now? What do we do?
This is where the Government’s fiscal policy becomes critically important, especially in managing spending and making sure our priorities are correct. It means any expenses and costs that are unnecessarily and non-essential should be at the bottom of the list.
And as we have advocated before, the Government has got to create an environment that is conducive to allow local businesses and people to stimulate the economy and generate much-needed revenue internally. Without a case of the coronavirus, Samoa should be thriving domestically in terms of businesses.
But it seems like we have shot ourselves on the foot with all these restrictions – including Sunday closures and trading bans - when we don’t even have a case of coronavirus. In the eyes of the outside world, it seems really bizarre. For instance, the Chair of the Economics of Disasters and Climate Change at Victoria University, Professor Ilan Noy, reiterated that maintaining trade restrictions without a case of coronavirus is illogical.
“I don’t understand why the Government has decided on these policies which are causing a recession when the policies don’t make sense from a public health perspective. It seems like a recession that is intentional,” he said. “(The restrictions) made sense initially but by now you know COVID-19 is not in Samoa. Why are they doing that?”
He went to say that without restrictions the economy could, in principle and except for tourism, “go back to normal.”
“Samoa shouldn’t be experiencing that big a recession. A lot of the recession seems to be something that could easily be reversed in the next quarter if policy were to change,” the Professor said. “Continuing this incredibly cautious approach where you are restricting a lot of economic activities that actually don’t pose any risk then you will continue with decline in the economy.”
We hope the powers that be would listen. The question is; would things be this bad if the Government had exercised common sense during the past six months in terms of the economy? Without a case of the coronavirus, what are we doing to ourselves with all these restrictions?
Have a peaceful Sunday Samoa, God bless!