P.M. on debt forgiveness and loans
The Press Secretary of the Ministry of Prime Minister and Cabinet released the following interview with Prime Minister on the issue of debt forgiveness, loans and the Pacific Island Forum. The interview was carried out by the Government-run Savali Newspaper. It is published in verbatim:
Question: It was raised by the PM of Tonga as an issue for the next PIF meeting in Nauru that Development Loans to the Pacific Islands be considered for forgiveness by Donor partners. What do you think?
Answer: This question was posed to me last week by the Observer and as usual their published article did not accurately reflect my response. This is not therefore a new issue. Many leaders of developing nations have made the same call at International Conferences but with mixed successes. There is therefore no harm in raising the same subject again in Nauru in connection with climate change and the enormous efforts needed by all our Frontline States in the Pacific in carrying out adaptation and mitigation projects to counter the impacts of climate change.
Question: You stated in another earlier interview with the Media that asking a donor to forgive a development loan is in fact embarrassing. Can you elaborate?
Answer: That response was merely intended to look at the whole question of national development loans in simplicity terms within the context of an ordinary request as an example, of a $1,000 loan appeal from a neighbour payable in a week. The loan is granted and two weeks later the loan remains unpaid and the neighbour turns up again to request forgiveness. One possible outcome Samoan style is to clobber him on the head to make him a better borrower next time around! That is the usual reaction in the real world we live in and we are not living in the Garden of Eden! In brief, forgiveness requests could signal the beginning of the end of a happy relationship!
Question: So, if it is raised at the Forum, will you support it?
Answer: Of course, I will support it as a forum issue. That’s the beauty of concerted action at the Regional Level rather than going alone. I note that soft loans from PRC were specifically mentioned. It should be recalled that at our widely publicised meeting some three years ago, between President Xi Jinping of the Peoples Republic of China and Leaders of those countries within PIF with special relationships with China that was held in Fiji, which also included officials from Australia and New Zealand, the President of the Peoples’ Republic of China announced a total of 4 billion US dollars package of Chinese assistance available to the Leaders of PIF with special relationships with China divided into US$2 billion in grants and US$2 billion in soft loans to fund projects submitted for China’s consideration. Our next Grant Aid is the construction of the Police Academy and our recently completed Airport Terminals was funded from the soft loan component. The old principle of “Union is strength” suggests that Samoa should also be proactive in supporting regional integration as another cost effective way to secure additional assistance from our donor partners in addition to assistance given to Samoa directly.
Question: Did we ever receive any debt forgiveness for our own National Development Loans from any of our partners?
Answer: Oh, yes we did. And I had referred to those kinds of assistance many times in my interviews in the past. And the catalyst for that favourable reaction from our partners was our continuing good economic performance and political stability.
Question: How’s our national debt situation?
Answer: Manageable. Samoa funds its yearly outgoings from three main sources of revenue. (i) Pay as you earn income tax; Corporate Tax on profits and Customs Duties on imports; (ii) Grants; and (iii) Development Loans. No country even the wealthiest countries in the world like the United States, etc., can wholly depend on its own internal revenue sources – So they also borrow to expedite development. And since no country in the world has unlimited revenue sources, every country must choose and prioritise what to do this year and leave the rest to next year and the years after to kingdom come. That is why our Government must perpetually look for more funding sources to create more jobs for our newly born babies turned adults after schooling to look for jobs. That is why everyone must contribute through tax, etc., etc., etc., and no one including the Head of State, Me, the Leader of Government, the almighty chiefs of Samoa with gainful employment and the non-matais who earn handsome wages and salaries to pay their “Pay as you Earn Income Tax”!! No one is above our tax laws.
All our loans are from cheap sources (referred to technically as soft loans). These soft loans have long repayment periods – where we are given up to 10 years before we start loan repayments (grace periods) and up to 30 years to pay the loan principals at very low interest rates (even as low at less than 1%). Our own local home grown financial watchdogs at our Ministry of Finance and Central Bank keep a very careful watch over our debt levels to ensure that we don’t repeat the stupidity of previous Government’s before the HRPP took over some thirty six years ago, when our country was virtually insolvent – that is, the Government of the day could not pay its debts nor financed its own development, etc., etc. And this government is perpetually conscious of its duty to deliver on its promises to provide services to our people. We have a huge mandate to honour.
In servicing our loans every year, we need to ensure that we meet Samoa’s annual debts repayments (debt service capacity). This measures our ability to pay our debt obligations yearly and there is still enough revenue remaining to keep the Government going and also continue with our developments. Developments lead to future growth – and therefore we must ensure that we continuously control wasteful ordinary expenditure in case it eats up our remaining revenue balance and thus cut our developments essential to future expansion. Critics often forget that our loans are not all paid immediately tomorrow or next year. No. Our debts repayment periods are spread over long periods of time and by the time they are fully paid off, the projects themselves have produced enough returns to pay off the loan many times over and are therefore continuing to contribute to the development of other Sectors of the economy like education and health. It is therefore the constant responsibility of our Financial Ministries/Agencies, namely, the Ministry of Finance and Central Bank to have the top brains in the country to keep a careful watch over our finances to ensure that we don’t over-borrow – beyond our capacity to pay our yearly obligations.
Question: So we are still okay?
Answer: You have said it.