A team from the International Monetary Fund (IMF) led by Mr. Andrew Swiston met with Samoan officials and other stakeholders in Apia from January 16 to February 1, 2023. Mr. Swiston issued the following statement following his visit:
The Samoan economy has begun to recover after a three-year slump caused by the Covid-19 pandemic. The removal of domestic Covid-19 limitations in July, along with an increase in tourist inflows when borders reopened in August, resulted in a resurgence in economic activity, with real GDP increasing 4.7 percent year on year in Q3-2022. Tourism is returning, remittances are increasing, and public investment is increasing. As a result, the team anticipates 5.0 percent real economic growth in FY2023. [1]
The recent increase in the expense of living has begun to subside. In August-September 2022, inflation accelerated to more than 15% year on year, owing primarily to an increase in import prices. Lower food and energy prices in recent months, however, have driven inflation down to 7.5 percent year on year in December, and the team expects inflation to decline further, albeit gradually.
The team anticipates that economic growth will stay above trend in FY2024 and FY2025 as tourism inflows and the domestic economy normalise.
Higher tourism receipts and remittances are also expected to help reduce the current account deficit. Reserve coverage, which was more than 8 months of imports in FY2022, is expected to stay above sufficient levels in the medium term, with 6 months of potential imports covered.
The financial system has remained resilient despite the increase in systemic risks during the pandemic, and risks are abating as the economic recovery improves borrower repayment capacity. With the economy improving and inflation remaining high, the team believes the time has come for the Central Bank of Samoa to begin normalizing its excessively accommodating monetary policy. This would help to maintain financial stability by limiting future increases in private borrowing and creating policy space to respond to future shocks.
