Economy Report

[Source: Central Bank of Samoa]

THE SAMOAN ECONOMY
1. Gross Domestic Product (GDP)1 Nominal GDP Quarter (March 2020 quarter) $541.42 million, 2.9 percent lower than $557.47 million in the March 2019 quarter.

Annual (12 months to end March 2020) $2,225.28 million or 1.7 percent higher than $2,188.72 million for the same period up to March 2019.

GDP per capita (12 months to March 2020) $11,056.3 per capita, 0.9 percent higher than $10,962.5 for the same period up to March 2019.

Real GDP Quarter (March 2020 quarter) $486.67 million, 4.2 percent lower than $507.76 million in March 2019 quarter.

Annual (12 months to end March 2020) $2,033.27 million, 0.7 percent higher than $2,018.73 million for the same period up to March 2019.

2. Inflation The annual average headline Consumer Price Index inflation rate edged down to 1.7 percent in May 2020, from 2.2 percent in June 2019 and 2.6 percent in the same month of last year. The decline over May 2019 highlighted the decline in imported inflation to 1.0 percent (from 1.7 percent) as well as local inflation at 2.4 percent (from 3.7 percent).

3. Agricultural produce sold at Market outlets around Apia According to the Samoa Bureau of Statistics (SBS) survey, the volume of agricultural produce supplied to the local markets fell by 14.4 percent in eleven months to May 2020, over the same period last year. The drop reflected the reduction in supplies for taamu and coconuts as well as vegetables (head cabbages, tomatoes, cucumber and pumpkin). Consequently, the average price index of agricultural produce sold at the local markets rose by 9.7 percent.

4. Balance of Payment External Trade: i. Total Exports of Goods (first eleven months to May 2020) $117.17 million; 0.1 percent higher than $117.00 million, in the first eleven months to May 2019.
1 Effective April 2019, the Sāmoa Bureau of Statistics (SBS) have published the rebased national accounts data with new base year 2013 (2013=100), starting with the December 2018 quarter. The latest update on national account is September 2019.

Export Composition The shares of the main exports were as follow: Re-exports – 36.0 percent ($42.13 million) Domestically produced exports – 64.0 percent ($74.97 million) Of which;
Fresh Fish – 57.3 percent ($43.55 million) Taro – 9.4 percent ($6.92 million) Beer – 4.3 percent ($3.23 million) Nonu Juice – 3.8 percent ($2.88 million) Crude coconut oil – 4.6 percent ($2.12 million) Cigarettes – 2.4 percent ($1.85 million) Coconuts – 1.8 percent ($1.24 million) Scrap Metal – 1.1 percent ($0.86 million) Kava – 0.9 percent ($0.68 million) Others – 14.4 percent ($11.64 million)

ii. Total Imports of Goods (first eleven months to May 2020) $799.01 million, 4.4 percent lower than $836.11 million in same period up to May 2019.  Government imports dropped by 34.4 percent to $55.98 million  Non-petroleum private sector edged down by 1.0 percent to $598.92 million  Petroleum decreased by 1.2 percent to $144.11 million (reduced fuel demand)

iii. Net Trade of Goods Deficit (first eleven months to May 2020) $681.14 million, 5.2 percent lower than $719.12 million in eleven months to May 2019

iv. Visitor Arrivals and Receipts (first eleven months to May 2020) Total Arrivals 124,399 visitors, 23.4 percent lower than 162,372 visitors in May 2019. Total Receipts $375.26 million, 23.9 percent lower than $493.27 million in May 2019.

v. Private Remittances (first eleven months to May 2020) $511.74 million, 3.0 percent higher than $496.76 million in May 2020.

vi. Gross Official Foreign Reserves2 $572.79 million at end May 2020, 21.1 percent higher than $473.18 million in the same month last year. At this level, this was sufficient to cover 7.8 months of imports, which was significantly higher than 6.3 months in May 2019.

2 Comprised of reserves held by the CBS and the Ministry of Finance (MOF), excludes commercial banks’ foreign assets.
5. External Debt Outstanding (at end March 2020) Debt Stock $1,075.7 million (around 45.6 percent of nominal GDP), 2.1 percent higher than $1,053.6 million at end March 2019 (48.3 percent of nominal GDP).

Annual Debt Servicing (at end March 2020) $71.43 million, which was 0.4 percent lower than $71.70 million in the year up to December 2018. This was equivalent to  14.76 percent of recurrent revenue3;  14.68 percent of foreign reserves4; or  9.41 percent of total exports of goods and services5.

C. ISSUES AND CHALLENGES

1. Inflationary pressures continue to ease with headline inflation falling to 1.7 percent in May 2020 (after peaking at 4.7 percent in October 2018) and from 2.7 percent in May of last year, while the underlying inflation was at 1.8 percent. Inflationary expectations have come down in the short term with the current significant drop in global fuel prices given impacts of COVID19 but risks of natural disasters and climatic changes are always a constant threat to price stability, especially from the agriculture production prices.

2. The latest update on GDP statistics is up to March 2020 quarter, which points to an annual Real GDP growth of 0.7 percent which was well below the 2.3 percent growth in December 2019, but the same as the growth in December 2018. Despite the positive results of the Pacific Games in the September 2019 quarter, the slowdown in quarterly growths accounted for the adverse impacts of the Measles Outbreak in November-December 2019 that put the country in two days of lockdown, followed by the sudden back-to-back introduction of the COVID-19 outbreak.

3. With the continuous rise in number of deaths globally from the pandemic and its impacts on the local economy, given the lockdown of international borders and travel restrictions and containment measures in-place to protect and safeguard the Samoan people, the economy has been adversely affected with Samoa Bureau Statistics (SBS) pointing to a 0.7 percent growth at end March 2020. The adverse impact resulted to some extent, from lower monthly tourist arrivals recorded for January to March of 2020 with zero arrivals since April 2020, as well as the slowdown in tourism related businesses activities. The economy will be facing challenging times especially the tourism sector and its related services.

3 What this means is that for every tala that is earned by Government (Recurrent) Revenue, approximately 11 sene is used to pay off Samoa’s foreign debt. 4 For every tala that is saved as the country’s foreign reserves, 15 sene is used to pay for our external debt. 5 For every tala that we earn from the export of our goods (export earnings from fish, taro, nonu juice etc…) and services (mainly tourism earnings), we use around 8 sene of those earnings to repay our foreign loans.
4. Gross official foreign reserves stands at $572.79 million in May 2020, or around 7.8 months of imports cover, which is well above the Central Bank minimum benchmark of 4.0 months of imports and 6.3 month in May of last year. This high level of official reserves reflected the influx of government’s inflows of financial assistance that have been received March and April for COVID-19 and project funds for targeted sectors from development partners. The receipt of Sāmoa’s Rapid Credit Facility funds from the IMF in April has provided further support to the country’s official foreign reserve levels. However, with the uncertainty of the effects of the pandemic and the unpredictability of when a vaccine could be effective and mass produced, there are several factors that could dwindle foreign reserves going forward if not managed properly. Close monitoring and managing of international reserves by the Central Bank will continue especially at this time. Appropriate actions will be taken to ensure reserves are adequately invested in relevant currency compositions and maturities to cater for Samoa’s international trade and other foreign payment commitments.

D. RECOMMENDATIONS

1. The Committee is kindly requested to note that the Central Bank is continuing with its easing monetary policy stance.

2. Like the rest of the world, Sāmoa is in unchartered waters, with our domestic economy facing challenging times ahead. Given the current economic situation and outlook it is therefore vital that with fiscal consolidation being implemented, monetary policy remains accommodative to support economic recovery in the short term and sustainable economic growth over the medium term.

a. Thus, it is important that Government ministries continue to implement their budgeted expenditures and program on time, as outlined in the 2020/21 Government Budget already approved by Parliament which cover the expenditures to minimize adverse impacts of COVID19. b. Critical for construction efforts to be timely in securing grants and concessional loan financing resources from multilateral financial institutions and development partners. c. A short to medium term consideration for government to frontload grant financed development projects with higher local components as remedial measures – for development partners as an act of good governance to transparently post annual funding (planned and actual) that will stay incountry of grants and concessional loans. d. That all government foreign funding are received into the Central Bank of Samoa (CBS) foreign accounts abroad while CBS will pay the Samoan equivalent into the government’s local accounts using the CBS prevailing bank’s exchange rates. (best public finance management practice for Small Island Developing States).

3. For the Government be well prepared and continue through the: a. Ministry of Commerce, Industry and Labour (MCIL)
– To closely cooperate and collaborate with the commerce industry to ensure that they have sufficient stock at hand to cater for any change in public demands and for wholesalers and retailers to consider rationing where necessary. – To ensure business activities and operations are vibrant and conducive in supporting the domestic economy during these challenging times, given the prominent contribution (1/3) of the commerce industry in driving Sāmoa’s GDP. b. Ministry of Communications and Information Technology (MCIT): – To work closely and collaboratively with the Ministry of Education, Sports and Culture (MESC) to explore practical ways and affordable means nationally to effectively deliver education programmes and/or syllabus to the students in an event of a health emergency outbreak. – To encourage the use of teleconference to participate in priority and important international meetings

c. Samoa Tourism Authority (STA): – to work closely with the industry to develop a policy package for the industry to cope with the adverse effects of the COVID19, especially from the closure of international border and containment measures in place by the government. – Given the uncertainty on when international tourism may resume due to COVID-19 international travel restrictions, to encourage accommodation providers to charge accordingly to local market conditions to enhance the domestic tourism activities where appropriate to support their financial viability in the short run, and continue employing staff especially at this point in time. d. Ministry of Health (MOH) to: – Continue to engage in more awareness campaigns for health promotions and social distancing;

5. Inspire public sector employees and members of the public who can afford to share what they have through spending generously to stimulate the economy and keep the working population employed.

6. The Central Bank of Samoa a. to continuously monitor the domestic economy and its outlook and provide the adequate economic advise to Government where appropriate; b. to continuously monitor the quality of assets of the commercial banks and nonbank financial institutions (NFIs) to ensure their soundness and stability in the financial system;
c. to encourage Government and government bodies: i. to continue to use the Central Bank to channel through any large foreign receipts (financial inflows) to assist with building and maintaining an adequate level of the country’s foreign reserves. ii. to continue to make payments (financial outflows) through the Central Bank for favourable exchange rate gains consistent with good public finance management practice. d. while mindful of SNPF, ACC and UTOS’ roles and responsibilities, encourage these institutions to invest locally given the current growth level and also to ensure domestic employment for today and the future. This action may also assist Samoa to be more resilient on the impact of an exogenous shock such as to be pandemic resilient.

[Click to view pdf file] THE-SAMOAN-ECONOMY

WORLD ECONOMY
The outset of the Covid-19 Pandemic since January 2020 has intensified downside risks on the global economy, which is now expected to be severely hit, much worse than that experienced in the 2009 Global Financial Crisis, the 1987 Stock Market Crash or even any other natural and/or climatic disaster known to mankind in modern history. The immediate worldwide travel restrictions, lockdowns and containment measures by most countries have resulted in the sudden halt in economic activities across the globe, notably Asia, Europe, the United States and including the Pacific region. According to the International Monetary Fund (IMF)’s June 2020 World Economic Outlook, the global economy is now projected to track deeper into a recession, contracting sharply by -4.9 percent in 2020 (1.9 percentage points lower than the April WEO), from a 2.9 percent growth estimate for 2019 (or on a fiscal year basis, equivalent to -1.00 percent in FY2019/2020, from 3.25 percent in FY2018/2019). On the assumption that the pandemic eases in the second half of 2020, global containment measures are gradually lifted and with appropriate policy support, the global economy is projected to recover by 5.4 percent in 2021, a 0.4 percent downward revision from April 2020 (or on a fiscal year basis, to grow by 0.25 percent in FY2020/2021). This global growth outlook has a higher than normal degree of uncertainty given the pandemic evolution and timing of when these lockdowns may be eased. Adding to this downside risk is the renewed trade tensions by the two global powerhouses (US and China) and civil disruptions in these two countries, which will weigh further on the global growth trajectory over the next year. Given this gloomy economic outlook, most central banks worldwide swiftly reduced their policy interest rates to historically low levels of near zero percent and undertook significant quantitative easing programs to support their respective economies.
Of Samoa’s trading partners,  The second release of GDP estimates for the USA in the first quarter of 2020 points to a 5.0 percent contraction, more than initially expected (of -4.8 percent) and ending the country’s longest period of expansion, possibly since the Great Recession. This was the largest drop in US’ GDP since the last quarter of 2008 at the outset of the Global Financial Crisis, with the current outcome reflecting the economic costs of the Covid-19 pandemic which forced several state lockdowns and millions of job losses. The latest economic releases for the second quarter indicate a worse outcome with as much as 40 percent contraction estimated as containment measures take full effect. Adding further downward pressure on the major economy is the reigniting of trade tensions with China relating to Covid-19 and Hong Kong, as well as the damaging effects of recent civil protests across the US.  NZ’s real GDP shrank 1.6 percent in the March 2020 quarter, more than the 1.0 percent contraction expected by the markets and the largest decline in 29 years as the
immediate impact of Covid-19 took hold following travel restrictions and national lockdowns in the latter part of March. The country’s statistical authorities also noted this quarterly decline had exceeded the quarterly reduction during the Global Financial Crisis. While the country’s lockdown has eased with the recent move to Level 1 in its Covid-19 restrictions, the country’s border remains shut similar to most other countries worldwide. The trade risks remain high for NZ given recent developments in China particularly with political tensions relating to the Covid-19 pandemic. The markets forecast NZ’s economy to contract by -3.0 percent in June, and to shrink further to -6.3 percent by December 2020.  The Australian economy continued to lose its growth momentum, ending its longest expansionary period with concerns of a pending recession for the first time since the 1930s. Shrinking to 0.3 percent in the March 2020 quarter (from a 0.5 percent growth in the previous quarter), the Australian economy suffered its first contraction since the March quarter of 2011 as a culmination of devastating events (bushfires, drought and the Covid-19 pandemic) severely impacted business activities, with household consumption and business sentiments decreasing and mounting job losses adding to further pressures. While recent indicators in June indicated a quick recovery than initially expected, as partial lock-downs across various states gradually open up, business conditions and confidence remain in extreme lows when compared to preCovid times. The full economic impact from Covid-19 containment measures will be reflected in the June quarter numbers, with the markets predicting around -6.3 percent annual contraction in real GDP, with modest recoveries towards a -4.0 percent contraction at end December 2020.

With the weak outlook on our main trading partners’ economies, the external pressures on the Samoan economy will likely be felt in its full effects in the first half of FY2020/21. These outlooks (globally and domestically) are highly uncertain and will depend on the magnitude and speed in which Covid-19 containment measures and international travel restrictions may be lifted across most countries.

Given the weak economic prospects amidst the rising downside risks, the subdued inflationary pressures and weak labour market conditions, central banks worldwide are expected to continue with their easing monetary policies to support their economies out of their recessionary outlooks. As a result, the unprecedentedly low global interest rate environment of near zero percent is expected to be maintained for up to the next two years alongside substantial quantitative easing programs.

[Click to view pdf file] World-Economy

economy is the reigniting of trade tensions with China relating to Covid-19 and Hong Kong, as well as the damaging effects of recent civil protests across the US.  NZ’s real GDP shrank 1.6 percent in the March 2020 quarter, more than the 1.0 percent contraction expected by the markets and the largest decline in 29 years as the immediate impact of Covid-19 took hold following travel restrictions and national lockdowns in the latter part of March. The country’s statistical authorities also noted this quarterly decline had exceeded the quarterly reduction during the Global Financial Crisis. While the country’s lockdown has eased with the recent move to Level 1 in its Covid-19 restrictions, the country’s border remains shut similar to most other countries worldwide. The trade risks remain high for NZ given recent developments in China particularly with political tensions relating to the Covid-19 pandemic. The markets forecast NZ’s economy to contract by -3.0 percent in June, and to shrink further to -6.3 percent by December 2020.  The Australian economy continued to lose its growth momentum, ending its longest expansionary period with concerns of a pending recession for the first time since the 1930s. Shrinking to 0.3 percent in the March 2020 quarter (from a 0.5 percent growth in the previous quarter), the Australian economy suffered its first contraction since the March quarter of 2011 as a culmination of devastating events (bushfires, drought and the Covid-19 pandemic) severely impacted business activities, with household consumption and business sentiments decreasing and mounting job losses adding to further pressures. While recent indicators in June indicate a quick recovery than initially expected, as partial lock-downs across various states gradually open up, business conditions and confidence remain in extreme lows when compared to pre-Covid times. The full economic impact from Covid-19 containment measures will be reflected in the June quarter numbers, with the markets predicting around -6.3 percent annual contraction in real GDP, with modest recoveries towards a -4.0 percent contraction at end December 2020.

B. DOMESTIC ECONOMIC DEVELOPMENTS I. POLICY INSTRUMENTS AND DEVELOPMENTS 1. The Government’s net financial position in May 2020 recorded a huge surplus of $67.14 million over the same month last year, in-light of government’s inflows of budget support funds and those for COVID-19.
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2. On exchange rates, the average nominal value of the Tala in the first eleven months to May 2020, strengthened by 0.03 percent when compared to the same period last year. This increase was underpinned by the appreciation of Tala against AUD dollar (up 3.9 percent), New Zealand dollar (up by 2.5 percent) and the Euro (up 0.2 percent) which outweighed the 3.1 percent depreciation of Tala against the US dollar.
3. The banking system’s average liquidity in the first eleven months to May 2020 expanded by 17.1 percent (or $43.48 million) to $297.37 million compared its average level in the same period of 2019. The bulk of this expansion was due mainly to a significant increase in commercial banks’ average exchange settlement accounts (up $50.81 million) and a slight pickup in vault cash (up $3.07 million) while their average holdings of CBS securities fell by $10.41 million.

4. On interest rates, the overall weighted average yield on CBS securities (or official interest rate) registered zero rate in May 2020 from 0.18 percent in the same month of the previous year. Commercial banks’ weighted average deposit rate increased to 2.75 percent from 2.51 percent last year while the weighted average lending rate dropped to 8.60 percent in May 2020 from 8.97 percent last year. As a result, the weighted average interest rate margin narrowed to 5.85 percent from 6.46 percent margin a year ago.

5. The commercial banks’ total lending to the private sector and public institutions combined increased by 4.2 percent to $1,180.66 million in May 2020, compared to the same month last year. As a result, the total bank credit grew by 4.9 percent slightly lower than its growth of 5.0 percent in May of 2019.

6. Overall, total money supply (M2) contracted by $34.48 million (or 2.8 percent) in May 2020 to $1,217.85 million from end May 2019. As a result, the annual average growth rate of M2 was at 2.7 percent at end May 2020, way below 13.8 percent growth in the same month last year.

II. MACRO-ECONOMIC OUTCOMES AND RESULTS – FIRST ELEVEN MONTHS OF FY2019/20 TO MAY 2020

7. Visitor arrivals in the eleven months to May 2020 declined by 23.4 percent to 124,399 visitors over the same time last year. As a result, total visitor earnings dropped by 23.9 percent to $375.26 million.

8. On the other hand, private remittances increased by 3.0 percent to $511.74 million in eleven months to May 2020, compared to the same period last year.

9. Total export earnings jumped by 0.1 percent to $117.17 million in the first eleven months of 2019/20 over the same period last year. The current overall expansion was due to increases in re-exports (up 1.9 percent) while domestically produced exports declined by 0.8 percent.

10. On imports, total import payments decline by 4.4 percent to $799.01 million in eleven months to May 2020. This was mainly due to lower levels recorded for government imports (down by 34.4 percent), petroleum imports (down 1.2 percent) and private sector non-petroleum imports (also down 1.0 percent). As a result, the merchandise
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trade deficit narrowed by 5.3 percent to $681.14 million in eleven months of 2019/20 compared to the same period last year.

11. The balance of payments posted a surplus of $99.61 million (to $572.79 million) in May 2020 over the same period last year. This is in-light of government inflows of external funds for budget support and COVID19. The current level of gross official reserves was sufficient to cover 7.8 months of imports; which was significantly higher than 6.3 months in May of 2019.

12. The average volume of agricultural produce supplied to local produce markets around the Apia area recorded a drop of 14.4 percent in the eleven months to May 2020. This reduction in supplies was mainly due to lower supplies of ta’amū and coconut as well as vegetable items such as head cabbage, tomatoes, cucumber, and pumpkin. As a result the overall price level increased by 9.7 percent in the reviewed period.

13. The annual average headline inflation rate stood at 1.7 percent at end May 2020 from 2.2 percent in June 2019, which was much lower than 3.1 percent in the same month last year. Underpinning this decrease was a further reduction in both its imported components (to 1.0 percent from 1.7 last year) and local component inflation to 2.4 percent from 3.7 percent last year.

14. The underlying inflation rate, (excluding the adjusted and cyclic price movements from the headline CPI) increased to 1.8 percent at end May 2020 compared to 0.1 percent in June 2019 and 0.8 percent in May 2019.
15. Latest update on Real GDP1 is March 2020 quarter, saw a drop by 2.6 percent to $486.67 million from the previous quarter and also 4.2 percent lower compared to the same quarter last year.

16. For the whole year up to March 2020, real GDP grew by 0.7 percent, compared to 1.6 percent annual growth at end March 2019.

17. The annual nominal GDP per capita up to March 2020 increased to $11,056; which was 0.9 percent higher than $10,962 for the twelve months up to March 2019.

18. Total outstanding external debt at end March 2020 stood at $1,075.7 million, or roughly 48.3 percent of nominal GDP. This was 2.1 percent higher than its level ($1,053.6 million) at end March 2019.

19. Total debt servicing in the twelve months to March 2020 amounted to $80.91 million which was 7.4 percent higher than its level in the same period last year. The current level was equivalent to 14.76 percent of recurrent government revenue, 14.68 percent of gross foreign reserves or 9.41 percent of total exports of goods and services.

1 Effective April 2019, the Sāmoa Bureau of Statistics (SBS) have published the rebased national accounts data with new base year 2013 (2013=100).

[Click to view pdf file] ECONOMY-REPORT

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