Stimulus should continue through 2024: I.M.F.
Samoa should extend economic stimulus measures until 2024 to best recover from the global pandemic, says the International Monetary Fund (I.M.F.).
In its report on its recent mission in Samoa, I.M.F. staff say while Samoa managed to defend itself against the worst health impacts of the pandemic the economy will not recover for at least four more years.
The report predicts Samoa’s real gross domestic product (G.D.P.) to contract 8.5 per cent this year, and for recovery to only begin in 2022, with G.D.P. growing 2.9 per cent.
Despite the country’s best efforts, the local and global situation has meant Samoa’s economy is at levels not seen since 2014.
And weak domestic activities limited by the state of emergency, coupled with significant flooding in December dealt separate blows to the economy, the report says.
I.M.F. says policies that encourage job creation and mobility will make the economic recovery more durable, and help keep stimulus measures up as long as possible.
“Under-execution and premature withdrawal of economic stimulus measures could impede the pace and durability of the economic recovery and strain financial stability,” the I.M.F. warns.
“The staff recommends extending stimulus measures until end-FY2024, harnessed by a commitment to stronger medium-term fiscal consolidation that helps limit scarring effects of the pandemic, and promotes inclusive, durable recovery, while ensuring debt sustainability.
“Private sector credit growth continued to decline, reaching 1.5 percent [year on year] in November 2020 (the lowest since 2013).”
The report suggests inflation will be -2.5 per cent this year, partly due to global commodity prices and domestic utilities, but also increased agricultural production.
The international institution also wants Samoa to try and get off the European Union’s tax-avoidance blacklist this year, and to improve governance and transparency in procurement contracts.
It also highlighted that state-owned enterprises need “adequate” budget support, especially those directly helping affected households and businesses.
“Such assistance must be well balanced with the overall objective of enhancing governance and transparency, as well as productivity over the medium term.”
To continue to manage the pandemic and possible other natural disasters, Samoa’s reserves need to grow, the I.M.F. said.
According to the report, reserves covered eight months of prospective imports at the end of November.
“But they are expected to decline closer to the lower bound of the desirable range (4.1 to 6.4 months of prospective imports) over the medium term once Samoa’s vulnerability to natural disasters is considered.
“The mission advises the authorities to build reserve buffers to an adequate medium-term import cover of at least 5 months, including through donor support.”
Structural reforms should help boost growth, however, especially when it comes to helping the predominantly women and youth no longer employed by the ailing tourism sector.
I.M.F. suggests focusing on agriculture, fisheries and micro, small and medium enterprises as a way to boost the economy, and acknowledged Samoa’s efforts across these areas to date.
“Improving credit access and facilitating the provision of insurance to promote these sectors will lead to job creation in rural areas, and promote female labour force participation,” the report states.
“Establishment of apprentice programs can help reduce skills mismatch and nurture industries. Training programs need to be offered to the tourism sector at a pace consistent with the sector’s resumption.”
The report also recommends ramping up the business environment in the export sector to take advantage of the regional trade agreement PACER Plus, ratified late last year.
“The mission encourages the authorities to actively engage with the private sector for disseminating information, and continue making efforts to address key challenges of meeting regulations and standards under the PACER-Plus.
“Developing a business-friendly investment platform could help enhancing the business environment and engagement with stakeholders, nurturing seeds of new opportunities for growth.”
The Ministry of Finance has been approached for comment.