Catalog

Samoa

GDP expanded by 4.0% in FY2007 (ended 30 June 2007) and accelerated in the third quarter of 2007 when Samoa hosted the South Pacific Games (Figure 3.34.21). In the 9 months to September 2007, the economy grew by 5.7% from the year-earlier period. An increase in visitor arrivals and growth in tourism-based projects spurred double-digit expansion in the hotels and restaurants, transport and communications, construction, and manufacturing (excluding food and beverages processing) subsectors in that 9-month period. More favorable weather and migratory patterns of tuna allowed fishing to continue recovering from recession.

The FY2007 budget projected an overall deficit of 1.4% of GDP, but the actual outcome was a surplus of 1.2%. This reflected unexpectedly strong growth in revenues, particularly from taxes. Total expenditures came in slightly under the budget estimate because of delays in public investment projects, whereas current expenditures were higher than estimated and covered a second stage of a three-stage 42% civil service pay rise begun in the previous fiscal year. For FY2008, an overall budget deficit of 1.0% of GDP is projected. The ratio of external debt to GDP has been gradually declining from 54.3% in 2002 to 35.9%. In net present value terms, the debt is expected to decline from less than 30% of GDP at end-FY2006 to around 22% by FY2011.

Inflation picked up to average 6.1% in 2007 (Figure 3.34.22), largely driven by a 2.5% rise in the value-added goods and services tax and a 9.9% price hike for alcohol and tobacco products. Domestic prices for petroleum products were also raised. Monetary policy was tightened slightly in the last quarter of 2007 to reduce demand-side inflation pressure. The Samoan tala, which is pegged to a basket of six currencies of major trading partners, depreciated by 4–5% against the Australian and New Zealand dollars and the euro in 2007, but appreciated by almost 6% against the US dollar, leaving the real effective exchange rate relatively stable.

Foreign reserves increased by 13.3% to SAT$212 million in the 12 months to November 2007, or 4.3 months of import cover. Comparing the first 5 months of FY2008 with a year earlier, exports rose by 28% because of increased fresh fish and nonu juice exports, which more than offset declines in exports of coconut products, taro, nonu fruit, and beer. Imports fell by 8% in the 5 months, narrowing the trade deficit by 14%. Earnings from tourism increased by 17%, which contributed significantly to an improvement in the current account balance, and remittances remained high (Figure 3.34.23).

GDP growth is projected to slow to 3–3.5% in FY2008 and FY2009 as the economy comes off the peak of pre-South Pacific Games construction activity and as manufacturing declines with cutbacks at an automotiveparts assembly plant, which employs about 2,000 people. Tourism and remittance flows will be the main drivers of growth, supplemented by fish exports. Inflation is expected to ease to 5.1% in FY2008 as the inflation effects of some tax increases dissipate.

The forecasts assume that the Government refocuses on economic and public sector reforms, particularly those that reduce the costs of doing business. These include reform of the commercial legal framework and facilitation of leasehold access to customary land, and ensuring access to reliable utility services at reasonable prices. Revamping state-owned enterprises has generally been slow and the enterprises have often failed to comply fully with new regulatory requirements. The merits of reform and of stimulating competition have been demonstrated by a reduction in airfares since the introduction in late 2005 of Polynesian Blue Airlines—a joint venture between Virgin Blue and government-owned Polynesian Airlines—and liberalization of the mobile telephone market in 2006, when a new entrant slashed the costs of international mobile phone calls by about 50%.