Samoa's remarkable economic recovery faces medium-term risks, with climate action and fiscal prudence at the forefront of policy recommendations. 

The nation has demonstrated impressive resilience, not only recovering from the three-year contraction caused by COVID-19 but also strengthening its fiscal health and economic buffers. 

The International Monetary Fund (IMF) has lauded the country's rebound, with strong growth, inflation control, and enhanced economic stability, noting that “Samoa’s economic performance in recent years has been remarkable,” as stated by Siddharth Kothari, head of the IMF mission to Samoa in November 2024.

However, despite these impressive short-term gains, the IMF has issued a stark warning: significant risks remain on the horizon, threatening to undermine the nation’s long-term growth potential. 

Key among these risks are global uncertainties, inflationary pressures, and vulnerabilities exacerbated by Samoa’s size and exposure to climate-related shocks. 

In light of these concerns, the IMF has underscored the need for Samoa to pursue fiscal policies that prioritize climate-related investments, while also preserving fiscal buffers to protect against future economic shocks.

At the core of the IMF’s recommendations is the call for Samoa’s fiscal policy to focus on climate resilience. Given the country’s susceptibility to climate change and extreme weather events, the IMF stresses that climate-related investments should take precedence in the nation’s fiscal planning. 

The IMF’s statement on this matter is unequivocal: “Going forward, fiscal policy should prioritize climate-related investments while preserving fiscal buffers and enhancing public finance management.”

This recommendation underscores the need for Samoa to balance long-term climate adaptation goals with prudent fiscal management. 

While Samoa has made strides in reducing public debt and bolstering foreign reserves, the IMF emphasises that continued fiscal discipline is crucial to ensure the country is well-prepared for future challenges, particularly in the face of climate-related disruptions. 

Maintaining fiscal buffers will enable Samoa to weather unexpected economic shocks, such as those triggered by natural disasters or global financial crises.

Samoa’s recovery has been driven primarily by a robust rebound in tourism, with GDP growth surging by 9.4 per cent in the 2024 fiscal year. 

Inflation which spiked in the wake of the pandemic has also eased significantly, dropping to a manageable 2.9 per cent by October 2024. These signs of stability are encouraging, and the IMF projects a continued positive short-term outlook, forecasting GDP growth of 5.5 per cent in FY2025.

However, the IMF warns that this optimism must be tempered with caution. 

The medium-term outlook remains uncertain, with growth expected to slow to around 2 per cent per year, which is closer to the historical average for Samoa. Several risks threaten to derail this trajectory, including global economic uncertainties, rising inflationary pressures, and excess liquidity in Samoa’s banking system, which could fuel inflation further.

As Mr Kothari aptly noted, “While the near-term outlook remains favourable, risks are skewed to the downside amid heightened global uncertainties and potential pressures on inflation.”

Beyond climate and fiscal policy, the IMF also highlights other medium-term challenges that could impede Samoa’s economic growth. These include the country’s small size, the impact of outward migration, and vulnerabilities related to money laundering and terrorist financing.

Delays in public investment and the need for structural reforms are also cited as critical issues. The IMF stresses that a continued focus on expanding public investment is crucial to sustain growth in the near term, while also boosting the country’s productive capacity in the medium term. 

“An expansionary fiscal stance in FY2025 focused on executing public investment is appropriate and will support growth in the near term and boost the economy’s productive capacity in the medium term,” the IMF states.

Further recommendations for structural reforms include attracting foreign investment, reducing trade facilitation costs, and enhancing Samoa’s seasonal worker programs, which have seen notable success in recent years. 

These reforms, along with efforts to enhance human capital and increase labor force participation, could help address the broader structural issues holding back the country’s economic potential.

While Samoa’s financial sector has shown improvements since the pandemic, the IMF stresses the need for continued vigilance, particularly in terms of financial supervision. Strengthening regulatory frameworks, especially in relation to anti-money laundering (AML) and combating the financing of terrorism (CFT), remains a priority. The IMF recommends that the Samoan authorities continue enhancing financial supervision and work towards improving Samoa’s correspondent banking relationships, which are essential for international trade and finance.