The COVID-19 pandemic and its crippling effects led to the shrinking of Samoa's economy but the Asian Development Bank (A.D.B.) is forecasting a possible rebound.

The country's economic performance was put under the microscope in one of the bank's flagship publications Asian Development Outlook - April 2023 published recently.

In its analysis, the regional development bank said Samoa's economy shrunk for a third year in FY2022 by 6 per cent with the contributing factors including the closed international borders and community transmission of COVID-19 which affected tourism receipts. 

According to the A.D.B. report, prior to the pandemic in early 2020, tourism receipts for Samoa represented 24.2 per cent of GDP in FY2019. However, the pandemic constrained mobilisation for many public sector capital projects to also impact the economy. GDP in FY2022 was 15.4 per cent lower than in FY2019, added the report.

Despite the economic downturn, the A.D.B. report believes the country's GDP "may rebound in FY2023 from a low base, but medium-term prospects are mixed". Pointing to the mobilisation of public investment projects, the report said it could start from a "low base and the initial return of visitor arrivals will likely support GDP growth of 4.8 per cent in FY2023."

"However, difficulties in rebuilding tourism services and fierce international competition may limit the ability to sustain visitor growth currently supported by visiting friends and relatives, back after lengthy separations."

"These factors are forecast to limit growth to 2.5 per cent in FY2024."

However, the A.D.B. report foresees inflation continuing to persist "well above trend" and projects it increasing to 10.2 per cent in this financial year.

"Inflation is forecast to increase from 8.8 per cent in FY2022 to 10.2 per cent in FY2023. Monthly inflation from July 2022 to January 2023 averaged 12.2 per cent year-on-year, with prices of imported goods up by an average of 16.0 per cent in the same period. The major increases were for food, transportation, communications, and restaurants."

Remittances and the return of tourism receipts in FY2023 are also expected to "narrow the current account deficit", according to the A.D.B. report.

The regional development bank said remittance growth remains strong, increasing by 22.2 per cent over a 12 month period to December 2022, as the seasonal work programs continued to expand as well as "sustained engagement by Samoan diaspora".

As tourism receipts recover in the short term, the A.D.B. report said the current account deficit is forecast to narrow sharply from the equivalent of 12.4 per cent of GDP in FY2022 to 1.3 per cent in FY2023.

"Official foreign currency reserves are sound, as of December 2022 covering 9.6 months of goods imports, well above the 4.0 months targeted by the Central Bank of Samoa," the A.D.B. report added.

In terms of the Samoa Government's fiscal performance, the ADB report said the Government achieved "fiscal surplus" equivalent to 6.4 per cent of GDP in FY2022 due to "improved tax compliance, grant inflows, and deferred implementation of planned public investment".

"With borders open, some capital works delayed in FY2022 will be able to commence, though the major construction phases for some larger projects will likely occur in FY2024."