Remittances were 'safety nets' in Samoa, Tonga

By Alexander Rheeney 06 January 2023, 7:00AM

An Asian Development Bank (ADB) report has highlighted the importance of remittances to household incomes in Samoa and Tonga and described it as "safety nets" during the pandemic.

The report authored by the Manila-based regional development bank titled "Pacific Economic Monitor" was published in December and looked at the current economic status of Nauru, Marshall Islands, Solomon Islands, Cook Islands, Fiji, Vanuatu, Papua New Guinea, Tuvalu, Tonga, Samoa, Federated States of Micronesia and Palau amid their attempts to live with the Covid-19 pandemic and strengthen social protection systems.

Looking at the region, the ADB report said they forecast faster growth, but it is "expected to be relative to the Asian Development Outlook 2022" with economic activity in the subregion expandy by 5.3 per cent this year (2022).

"The brighter outlook is mainly because of a stronger-than-expected recovery in tourism in Fiji and an upward adjustment to the growth forecast for Papua New Guinea owing to a recovery in the minerals sector and election-related spending," reads the report.

"The adjustment in the subregional forecast masks downward revisions in the outlook for several economies, however: Tonga, because the impact of the volcanic eruption in January 2022 has been more severe than expected; Palau, owing to a slower recovery in tourism; and the Marshall Islands, Samoa, and Solomon Islands, all affected by COVID-19 restrictions."

In terms of the regional bank's forecast for 2023, the ADB report said the growth outlook has been revised downward to 4.8 per cent from 5.4 per cent, "as the recovery in Fiji stabilizes following the stronger-than anticipated tourism performance in 2022."

Specifically on Samoa and Tonga, the ADB report highlighted the impact of remittances on household income as well as becoming "informal safety nets" in the two neighbouring Polynesian states.

"The recent increase in remittances has been a key mitigating factor against the socioeconomic impacts of the Covid-19 pandemic," reads the report.

"With the reopening of borders by Samoa and Tonga, labor migration has resumed, bringing with it the opportunity for further remittance growth. 

"Labor mobility programs and diaspora links will continue to be central to the development of these countries. Migration has played a hugely important role, but comes with challenges that must be managed."

Compared to the 12 months that ended in March 2020 when borders closed, the report said that remittances in Samoa were 44.3 per cent higher in the 12 months to September 2022 and 35.0 per cent higher in the 12 months to June 2022 in Tonga.

"Despite the large uptick in inflation in 2022, even in real terms, remittances increased 26.7 per cent in Samoa between FY2020 (ended 30 June 2020 for both Samoa and Tonga) and FY2022 and 29.9 per cent in Tonga, resuming the upward trend in remittances growth that had slowed in FY2019.

"While some of this increase may have been a transition from informal transfer mechanisms (such as hand-carrying cash across borders) to more formal mechanisms (like money transfer operators), the scale of the increase suggests a significant net increase."

The ADB report said that remittances reached the equivalent of 36.2 per cent of GDP in Samoa and 41.1 per cent in Tonga in FY2022. 

"In nominal terms, across FY2021 and FY2022 combined, this equated to an additional $262.9 million in household income in Samoa and $238.6 million in Tonga, a far larger increase to household income than all other sources of nonwage income growth combined, including government Covid-19 support schemes."

The ADB report than said that remittances had a "large moderating effect" on the macroeconomic positions of both countries and ensured that more serious economic declines in both nations were avoided.

By Alexander Rheeney 06 January 2023, 7:00AM
Samoa Observer

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