An International Monetary Fund (IMF) team that visited the country last month and met with local authorities says Samoa's economy is on a recovery path following a three-year recession.

The IMF team visited Samoa from 16 January to 1 February 2023 and met and held discussions with Samoan authorities and other stakeholders and were led by IMF economist Andrew Swiston. 

At the conclusion of their two-week visit to the island nation, Mr. Swiston released a statement declaring that the local economy has started to recover after the recession triggered by the Covid-19 pandemic.

“The Samoan economy has begun recovering after a three-year recession driven by the Covid-19 pandemic. The lifting of domestic Covid-19 restrictions in July and the pickup in visitor inflows when borders reopened in August led to a rebound in economic activity, with real GDP rising 4.7 percent y/y in Q3-2022," Mr. Swiston said.

"The economy is being boosted by the return of tourism, rising remittances, and increased public investment. As a result, the team projects real economic growth of 5.0 percent in FY2023."

The recent spike in the cost of living has also started to ease, according to the IMF team with Mr. Swiston saying that the increase in import prices drove up the cost of living.

“The recent spike in the cost of living has started to ease. Inflation was driven to over 15 percent y/y in August-September 2022, mainly due to a surge in import prices. 

"However, lower food and energy prices in recent months have brought down inflation to 7.5 percent y/y in December, and the team expects inflation to ease further, at a gradual pace."

In terms of the outlook for Samoa for the next two years, Mr. Swiston said the team was positive in its forecast, and point to income that could potentially be generated from rising tourism activities as well as remittances.

“The team expects economic growth to remain above trend in FY2024 and FY2025 as tourism inflows and the domestic economy normalize. 

"Higher tourism receipts and resilient remittances are also projected to narrow the current account deficit. Reserve coverage, which was over 8 months of imports in FY2022, is projected to remain above adequate levels in the medium term, with coverage of 6 months of prospective imports."

While the collapse of Samoa's tourism-dependent economy has put the spotlight on the country's financial system, the IMF economist said his team's diagnosis following the pandemic is that it remains "resilient".

“The financial system has remained resilient despite the increase of systemic risks during the pandemic, and risks are abating as the economic recovery improves borrower repayment capacity," Mr. Swiston said.

"With the economy recovering and inflation still high, the team sees it as an opportune time for the Central Bank of Samoa to begin normalizing its highly accommodative monetary stance.

"This would contribute to financial stability by containing further increases in private borrowing and build up policy space to respond to future shocks. Removal of accommodation could be gradual, with the pace dependent on the strength of the economic recovery."

Mr. Swiston added that "recent central government surpluses despite the pandemic have helped maintain Samoa’s fiscal sustainability".

"Buoyant tax revenue—including due to improvements in tax administration—and grant inflows helped the central government run a surplus of 5.4 percent of GDP and lowered debt to 43.7 percent of GDP in FY2022. However, under-execution of public investment was a headwind to growth.

“For FY2023, the team views an expansionary fiscal stance as appropriate, provided there is an increase in public investment to improve productivity growth and help the economy return to pre-pandemic activity levels."