Economy in record crash

Samoa’s economy has been hit by the biggest drop in the country’s economic output on record, new figures show. 

And at least one expert says trading restrictions have made a bad situation worse. 

The Samoa Bureau of Statistics released this week figures showing the nation’s economy is not only in recession but that its decline is gathering speed.

Samoa’s Gross Domestic Product (G.D.P.) contracted by 11.6 per cent for the second quarter of this year, when compared to the same period last year.

That represents the single largest quarterly decline since current measurements of economic activity were introduced in 1998. 

The precipitous drop in June follows statistical revisions showing more modest 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.

But the country now has now undergone three quarters in a row of negative growth. 

The news comes as the global coronavirus-led economic downturn continues; New Zealand was overnight plunged into recession, with economists on Thursday declaring that country in its worst recession in a decade. 

The ongoing restrictions on trade have made a bad economic situation worse, the Chair of the Economics of Disasters and Climate Change Professor Ilan Noy says.

Professor Noy, who is an expert in economics and economic policy at Victoria University of Wellington, said Samoa’s data of the three months to June should have shown the economy bouncing back from cautious social distancing measures in March and April.

But to see Samoa’s largest economic driver, the commerce sector, register a significant decline this quarter shocked him.

That drop is largely driven by the commerce sector being down 12.5 per cent from June last year. The sector includes retail activities in food and beverages, petrol products, and the vehicle market, among other routine trade activities.

“What surprised me is the large decline in commerce which suggests there are restrictions to commerce throughout the quarter, but I would have expected there to be restrictions only in the beginning, and for commerce to rebound,” said Professor Noy. 

In neighbouring New Zealand, when the country’s rules were relaxed economic activity surged back.

Professor Noy said Samoa maintaining restrictions on trade after the threat of a COVID-19 outbreak is gone is not logical.

“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,” he said. 

“It seems like a recession that is intentional.”

Prime Minister Tuilaepa Dr. Sailele Malielegaoi has defended his Government's decision to keep Samoa under not only a state of emergency, and border restrictions, but also under various trade and activity restrictions.

In August, the Samoa Law Society suggested that some of the restrictions which have contributed to significant economic losses across Samoa could be found to be unconstitutional if taken to the Supreme Court.

Asked about the challenge during his routine interview with the state-owned broadcaster Radio 2AP, Tuilaepa stood by the ongoing restrictions.

"Remember, the restrictions are based upon the protection of people’s health and their already dented wealth due to COVID-19," he said in mid-August. 

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 country’s early and severe state of emergency restrictions made sense, Professor Noy said. Many countries acted similarly, putting in place strict lockdown measures to limit public movement until the country could be sure there were no cases of COVID-19.

But a month later, if there were no cases and the borders remained closed, those restrictions should have been lifted to let economic activity resume as close to normal as possible.

“That made sense initially but by now you know COVID-19 is not in Samoa,” he said. 

For Samoa to still maintain lockdown measures is “incredibly puzzling,” Professor Noy said. “Why are they doing that?”

“That is not the case in Samoa so without restrictions the economy can, in principle and except for tourism, go back to normal.”

He said if the drop in the commerce sector is, as he suspects, caused by the restrictions, and those restrictions are maintained into next year, the next quarters will be as dire when compared to last year's figures. 

From April to the end of June, most gatherings were banned, with weddings only permitted from mid-June and restricted 100 people with a 10pm curfew. 

Trade was limited too, with markets that used to stay open overnight, and supermarkets forced to close at 6pm and for them both to close completely on Sundays, and closing times imposed on restaurants and hotels up until now.

Today’s restrictions allow for more cultural gatherings but they are still limited to 100 people with a 10pm curfew, and supermarket hours and dining hours are all determined under the state of emergency orders.

Asked to what extent these measures will affect the economy into the next quarter, Professor Noy said a significant impact is certain, especially on how much income people make and spend.

“Some things might not make such a big change, like when people buy in the supermarket, but you are employing people in the supermarket and employing them for fewer hours.

“Somebody loses some of their income, then they don’t spend as much, which means somebody else loses some of their income. Every change like that is magnified because of this multiplier effect.

“Even though each [restriction] doesn’t seem to be such a big deal, together they will move the dial.”

He said Samoa falls squarely into the middle of how much risk the Pacific Island countries are in.  Samoa is less reliant on tourism than some of its neighbours, and has fewer risk factors than others.

Given this, the country’s economy should really be doing far better than the latest data reveals. 

“Samoa shouldn’t be experiencing that big a recession," he said. 

All sectors of the economy are in free fall, with accommodation and restaurants among the worst hit, bringing in just $1.7 million this quarter: the lowest ever figure since 1998. It is an 86 per cent drop on last year’s earnings. 

Data from the first quarter of the year, which ended just as Samoa closed its borders along with the rest of the world, shows the industry was off to a strong start, recording $8.9 million (just shy of March 2019’s $10.5 million).

This fall was to be expected, and continuing to keep tourists out is a sound COVID-19 prevention policy, Professor Noy said. 

But another quarter of low commercial activity could be avoided if unnecessary restrictions inside the country are lifted.

“A lot of the recession seems to be something that could easily be reversed in the next quarter if policy were to change. 

“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.”

He said if restrictive measures continue for much longer than they really have to, economic recovery is in danger. 

“Recovery has to be paid for, right?”

The pandemic has been a sting to Samoa’s run of unprecedented growth in 2019, with the Pacific Games helping the country record its highest quarterly run in two decades. 

Agriculture, among the industries touted to lead the country’s recovery, is not immune to the pandemic’s impacts on the economy, but is growing its share of the economy slightly from 8.5 per cent to nine per cent, and compared to 2019 has grown nearly two per cent.

But fisheries have taken a tumble, with value dropping by 29.5 per cent from last year. Despite registering a slight growth since the three months to March, fisheries only account for two per cent of the economy.

Professor Noy said fisheries should have hardly dropped at all, with no clear COVID-19 public health reason to see less fishing earlier this year.

But with the price of fishing licenses going up in the region, so too the price of fish is rising, he added. So it will be a logical sector to grow in the recovery efforts. 

The Asian Development Bank in its latest regional economic forecasts revealed the economy across developing Asia will contract for the first time in 60 years, by 0.7 per cent, driven by 75 per cent of the region’s economies expecting to contract.

Samoa is no exception. The Bank forecast shows Samoa’s economy contracting by five per cent this year and falling even further in 2021 by 9.7 per cent. 

It is expected to be one of the hardest hit economies in the region, with only Papua New Guinea and Tuvalu expecting the biggest significant growth in the region next year: 2.5 per cent. 

On Thursday, New Zealand’s gross domestic product reports revealed the country has fallen into its first recession since 2009, with G.D.P. contracting by 12.2 per cent. 

Macroeconomist at the Victoria University of Wellington Robert Kirkby said the pandemic has caused much higher levels of uncertainty around forecasts such as these.

“I expect the A.D.B. forecasts are reasonable, but the uncertainty around forecasts is much higher than usual,” he said.

“All forecasts for the rest of this year and next are heavily dependent on whether a vaccine becomes available and on both how long travel restrictions remain in place and their severity.

“This will determine the possibility of a resumption of tourism, and the possibility of opportunities for working in Australia and New Zealand.”

So far work opportunities in both options are slim, and Samoa has yet to suggest it will be lobbying for the 2000 or so people across Samoa hoping to travel for seasonal work to be able to do so.

It has also not publically asked for either New Zealand or Australia to negotiate future travel agreements the way Fiji and the Cook Islands have. 

Jonathan Pryke, Director of the Pacific Islands Programme in the Lowy Institute said Samoa must prioritise keeping businesses going and people employed for as long as possible. 

He said there is little hope for Samoa’s economy to recover until Australia and New Zealand’s economies can begin to bounce back because of how interconnected they are. 

“The entire Pacific region, including Australia and New Zealand, will fall into recession this year if they haven’t already,” he said.

“Further support should be sought from international funders like the International Monetary Fund through incredibly concessional lending. 

“Priority should be placed on cash transfers, welfare support, and cash or loans to keep businesses on life support through the downturn in order to keep people in jobs for as long as possible.

But Professor Noy is concerned that as the entire world faces down the same barrel, international funders and donor partners will see their own recessions too and start to cut down their lending or grant-giving.

He said Samoa needs to do more to activate its own economic recovery rather than rely on grants.

“The likelihood of donors becoming more generous is becoming pretty low, I think.

“Not only are they experiencing recession but they are also experiencing an overwhelming need for loans and grants. It is not just Samoa entering recession but every country in the world, including some who are much poorer.”

When a country experiences a unique disaster, like Samoa’s 2009 tsunami, donors can respond appropriately, Professor Noy said. This global situation is putting a strain on everyone.

New Zealand, one of Samoa’s biggest donors, may be doubling its debt levels in the coming years and running a deficit to recover from the pandemic.

“In that kind of environment with strong electoral pressure to reduce debt they are not going to increase aid to the Pacific.”

With G.D.P. for the entire year (since June 2019) down 3.1 per cent reaching just $1,975.5 million, Samoa is recording its lowest figures since the 2014/15 financial year.

Professor of Economics at the Crawford School of Public Policy at the Australian National University Stephen Howes said the Government is limited in what it can do to help its suffering economy. 

“First, the government needs to stimulate the economy as much as possible, and needs to seek the external financing to make this possible,” Professor Howes said.

“Our analysis of the Samoan budget shows that adjusting for inflation, total expenditure is set to fall this year. The government needs to counter this by raising more aid from donors and by borrowing more.”

Professor Howes is also the Director of the Development Policy Centre, which has been closely tracking the region’s response and capacity to respond to the pandemic.

“We can compare Fiji and Samoa: Fiji is planning a deficit of some 20 per cent of G.D.P.; Samoa’s budgeted deficit is only about 3 per cent of G.D.P.,” he said.

“These are extraordinary times, and higher levels of borrowing are warranted to protect livelihoods in Samoa.”

He said Samoa’s biggest silver lining so far is that remittances have increased, as they have in Fiji and Tonga too.

The S.B.S. figures show remittances for the June quarter were up by 14.7 per cent on the same time last year.

“We are not sure whether this is because the Samoan diaspora is sending more money home or simply because, as people can’t travel, they are using official channels more,” the Professor said.

“Nevertheless, remittances are very important for Samoa, and the government should encourage the diaspora to continue to support friends and family at home during this time of difficulty.”

The Lowy Institute’s Mr. Pryke said one issue with remittances remains the high cost of sending money around the region. He suggested the Pacific Islands mobilise together to bring down the cost of this essential revenue stream.

“A consortium of nations, perhaps led by the Pacific Island Forum, should look to create their own not-for-profit model to compete with commercial remittance retailers in the Pacific.”