Recession hangs on Australia, N.Z fortunes: economist

The accuracy of the Government’s forecast of the Samoan economy going into recession will be  determined by the rate at which tourism and remittances rebound, an economist has projected. 

A macroeconomist at the Victoria University in Wellington, Robert Kirkby, said that while the projected economic contraction of around 3 per cent of G.D.P. for the fiscal year is smaller than most countries, the predicted fall is substantial when compared to an earlier forecast of 3.7 per cent growth. 

"How accurate and reasonable this [forecast fall] is will depend heavily on when tourism can resume and what happens to remittances. Remittances are mostly from Australia and New Zealand and since both of these countries appear to be emerging okay from their lockdowns, it seems reasonable that remittances will resume,” Dr. Kirkby told the Samoa Observer in an interview. 

“But this will partly depend on travel and the ability of Samoans to visit on working visas. The predicted size of [Samoa’s] recession appears to assume that travel resumes, at least to Australia and New Zealand, in the near future.”

Last week the Minister of Finance, Sili Epa Tuioti, announced that while the global economy is expected to contract by no less than 5 per cent, Samoa's alone is expected to contract by 3.3 per cent this fiscal year to June 30. 

This comes after the Central Bank of Samoa (C.B.S.) revealed that the month of April 2020 – for the first time in Samoa’s history – did not register any departing or arriving international visitors.

Also announced with the 2020-21 Financial Year budget last week was the Government’s ‘Phase II Response Plan for the COVID19'. The $80 million tala private-sector relief programme followed an initial million stimulus package response of more than $40 million tala in relief and $20 million tala in other spending announced in April. 

Commenting on the Government’s fiscal stimulus,  Dr. Kirkby said: "The fiscal stimulus, at a total of $146 million tala, is much smaller as a percentage of G.D.P. than those in countries like Australia and New Zealand, but this reflects that the predicted recession is also smaller. So if the size of the predicted G.D.P. loss for the year turns out to be correct then this is appropriate. It also reflects that Samoa starts with a higher ratio of Government debt-to-G.D.P. so has less room to borrow."

Dr. Kirkby noted that while other parts of the stimulus are better designed, other elements could have been included to directly invigorate the economy. 

"A substantial part of the fiscal stimulus takes the form of one-off payments - the National Provident fund dividend payout for all contributors has a total value of $35 million tala, and there is a one-off pension of $100 tala per pensioner," he added.

"Evidence shows that most of this will be saved, not spent, and so provide little actual stimulus. Most households tend to smooth consumption over time, rather than spend a one-off [payment] all at once. More targeted spending at households that are likely to immediately spend a high fraction of the payments, such as [to] the poor and the young, would provide more economic stimulus per tala spent."

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