The Samoan economy is expected to move beyond the worst days of the pandemic-led recession and begin a move to recovery, new forecasts from the Central Bank project. 

The economy, which has steadily declined over the past two years, is forecast to rise by 1.7 per cent this current financial year up from -8.1 per cent in 2020/21.

The forecasts are contained in the Central Bank of Samoa’s (C.B.S.) Monetary Policy Statement (M.P.S.) for the Financial Year (F.Y.), 2021/2022.

(The M.P.S.’ goal is to effectively communicate the bank’s monetary policy stance in a transparent and accountable manner to improve public awareness.)

“This expected rebound reflects the positive outlook for remittances, coupled with expected pickup in domestic demand for goods and services as the domestic economy normalises without visitor arrivals,” read the statement. 

“These will boost sectors like ‘Commerce’, ‘Communications’, ‘Personal & other services’, ‘Food & Beverage manufacturing’ and ‘Agriculture’. 

“In addition, directed Government assistance to families or households, non-government organisations, small-medium business and several government construction projects earmarked for F.Y. 2021/22 and beyond will drive the recovery in ‘Construction’, ‘Public Administration’, ‘Transport’ and ‘Ownership of dwellings’ to name a few.”

It was also revealed that following a -2.6 per cent decline in real GDP in F.Y. 2019/20 due to the detrimental effects of the 2019 measkes followed by the onset of Coronavirus (COVID-19) pandemic in 2020, the Samoan economy contracted further by -8.1 per cent in F.Y. 2020/21. 

This reflected the loss of visitor arrivals for over a year due to the closure of its international borders coupled with weak demand conditions, which later created local supply shocks that compounded the decline in economic activity.

“On the monetary sector, commercial banks’ average liquidity improved further during the course of the year in light of strong external inflows mainly through government budget support funds while the banking system remained well capitalised with nonperforming loans at low levels and were also well provisioned for.

“On the external sector side, these large budget support funds and external grants saw gross foreign reserves increase to record levels (above $700 million) with the import cover rising to 10.7 months of imports.

“On the fiscal side, the Government budget remained expansionary in light of the sharp slowdown in economy activity, with the Budget deficit sitting at around an estimated -3.2 per cent fiscal deficit.”

Furthermore, much of this deficit involved fiscal stimulus spending in the face of rising economic and social hardships for both businesses and families, while still prioritising key sectors such as education and health.

“With the adverse effects of the COVID-19 pandemic peaking in 2020/21, the Government rolled out two stimulus packages to provide some relief and assistance to struggling local businesses (including hotels and accommodations) and households (especially low income families) to cope with the prolonged effects of the pandemic.

“This saw the Government budget deficit rise out to -3.5 per cent of GDP in F.Y. 2020/21 after containing the deficit within its medium term target of -1 per cent in the past three years.

“Even with the fiscal stimulus spending, the Budget still managed to prioritise its expenditures on critically important sectors such as health, education and infrastructure while maintaining its external debt target at less than 50.0 per cent of GDP.”

Also, the statement as part of the overall Government policy mix to alleviate and mitigate the pandemic induced recession and its tangible effects on the Samoan economy, monetary policy also remained expansionary by encouraging the financial sector to provide much needed finance in order to spur economic activity.

“The decline in both economic output and weak demand has seen the annual inflation rate drop (or deflation) in F.Y. 2020/21.

“Since 2008, the C.B.S. has pursued an accommodative or easing monetary policy stance given the many challenges the economy has gone through starting from the Global Financial crisis (GFC), the 2009 tsunami, 2012 Cyclone Evans, 2nd round effects of the GFC (2014), closure of Yazaki and Cyclone Gita in 2018, the Measles Outbreak in 2019 and the ongoing COVID-19 pandemic since the start of 2020.

“However… despite the easing stance adopted by the C.B.S., there were periods where monetary policy were in fact, tightening or contractionary due to periods where the hikes in the headline inflation rate managed to more than offset the low official interest rates levels, which are currently just above 0.10 per cent.”

The statement also revealed that with a change in Government in June 2021, the F.Y. 2021/22 Budget objectives were modified slightly with more focus on social welling and protection amidst the economic downturn the country is facing, as well as building resilience and recovery going forward.

“Total Government revenue is expected to increase by 4.6 per cent in F.Y. 2021/22 largely coming from an 18.6 per cent pickup in tax collection.

“Although total Government expenses are forecast to increase slightly by 0.2 per cent to $703.8 million, there are several new government assistance initiatives for the social, health and education sector.

“In addition, the Budget is estimating a 10.1 per cent increase in its spending on non-financial assets (e.g. infrastructure spending), resulting in a $53 million net borrowing or a budget deficit of -2.5 per cent of GDP. This is compared to a budget deficit of 72.6 million in F.Y. 2020/21 or -3.2 per cent of GDP.”

The Central Bank also said past years’ experiences reveal that persistent sharp hikes in international prices such as crude oil and imported food prices had exerted significant pressures on the domestic prices of petroleum and food items.

“During such periods, the focus was mainly on the underlying (core) inflation rate,” the report said. 

The bank says its chief monetary policy aim is to achieve and maintain price stability as well as fostering and maintaining a stable financial system in order to achieve a sustainable real economic growth and a comfortable level of international reserves.