Countries and Regions

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Country Strategy and Program Update 2004-2006: Samoa

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II. Current Development Trends and Issues

A. Recent Political and Social Developments

2. Political Developments. The position of Prime Minister Tuila’epa Sa’ilele Malielegaoi and his political party, the Human Rights Protection Party, remains strong and unchallenged. The reforms of the Ministry of Works were successfully implemented in the second half of 2002. The new role of the ministry has been limited to regulatory functions, policy advice, and asset management. All technical operations have been spun off, applying an approach that has proved socially and politically successful. This reform is a welcome step to rationalizing the public service and fostering private sector development. Another milestone in Samoa’s public sector reform efforts is the streamlining of public service by reducing government departments and constitutional offices from 28 to 19. The Government has expressed its strong commitment to initiate further reforms to facilitate the productive and economic use of customary land.

3. Social Developments. ADB’s participatory poverty assessment, Priorities of the People: Hardship in Samoa, indicates that there are still significant pockets of poverty. More people are without jobs, affected by higher school fees and dropout rates. Drug use, domestic violence, teenage pregnancies, and youth suicide are also said to be increasing. Urban slums are appearing in Apia, particularly in low-lying areas that often have poor drainage and sanitation. While there is evidence that the gap between rural and urban areas is increasing, hardship can be observed in both rural and urban areas. In urban areas the most affected are people who live on leased land, without enough space to grow crops, in flood-prone areas, or on traditional lands but with little access to transport, communication facilities, and water. In rural areas the most affected are people living inland who have limited or no access to land, product markets, and basic public services. The recent census suggests that around 60% of households continue to rely on firewood for cooking. Land issues and related disputes are perceived by the people as major aspects of hardship in rural areas.

4. There are significant gaps between the two major islands of Upolu and Savaii in terms of economic growth and human development indicators, with Savaii lagging significantly behind. The Government has, therefore, prioritized Savaii’s development to create new business opportunities. The Government plans to develop the area around Salelologa village and improve the efficiency and supply of electricity by developing renewable energy in Savaii, and proposes a lifeline electricity supply for the poor.

B. Economic Assessment and Outlook

6. . While still relatively vulnerable, the Samoan economy has performed strongly in recent years due to a combination of growth-enhancing policies, including tax and financial sector reforms; macroeconomic stability; and public sector reforms, which continued to make good progress in 2002. However, the major short-term policy challenge for the Government is to support the resumption of good economic growth, which was partly achieved in the second half of 2002 but with expansionary fiscal and monetary policies. The establishment of a fourth commercial bank (Samoa Commercial Bank) is a welcome development, providing the necessary competition to improve delivery of financial services. The Government’s vision for economic and social development emphasizes key factors that will enhance short- and long-term international competitiveness: macroeconomic stability, public sector efficiency, and investment in human capital and relevant public goods. While the Government’s vision includes specific interventions to address market failures that constrain key export activities, each case of intervention should be assessed carefully against microeconomic efficiency and consistency with current reform programs. Likewise, financial support to a number of major construction projects, as currently considered by the Government, should be scrutinized since these will not only strain the government budget but may also be inconsistent with the Government’s commitment to private sector development reforms. The significant public financial support to the national airline causes serious budgetary concerns, and innovative solutions for a turn-around, possibly through privatization, should be seriously considered. A forthcoming review by the International Finance Corporation (IFC) of strategic options for the Government’s ownership of the airline is a step in the right direction.

7. The long-term sustainability of economic growth will require progress on many fronts, including land mobilization to facilitate financial transactions, and infrastructure development. After several years of impressive overall economic growth, most policymakers now emphasize the need to narrow the widening gap between urban and rural incomes. The main theme of SDS 2002–2004 is, therefore, “opportunities for all.”

8. Outlook for 2003–2004. Samoa is projected to achieve the SDS growth target of 3–4% in 2003–2004, reflecting a positive outlook for agriculture due to better weather; growth in public and private construction activities; the Government's commitment to continue reforms; and an increase in tourism and remittances, reflecting the outlook in the main source countries. Continuity of expansionary fiscal and monetary policies is expected to support growth but also increase the risk to macroeconomic stability. Inflation is forecast to decline to about 5% in 2003 as the local food supply improves. A small current account deficit of 1.4% of GDP is forecast for FY2003, mainly due to higher imports. The overall balance is expected to weaken slightly in FY2003, reflecting lower private capital flows, with foreign reserves declining slightly to less than 4.5 months cover for import goods. The main risk to the 2003 forecasts arises from possible deterioration in global conditions and higher oil prices. In 2004 inflation is expected to fall to about 3%. The current account deficit is forecast to remain below 4% of GDP, and the overall balance of payments in surplus, in light of forecasted continued growth in tourism and remittances.

C. Implications for the Country Strategy and Program

9. The Government’s development strategy adequately reflects economic and social issues and developments, and encapsulates the significance of economic growth, importance of social sectors, and strong cultural and traditional values.

10. ADB’s strategy and program for Samoa strongly supports the Government’s priority areas, and is consistent with past and ongoing ADB interventions and thrusts. In strong support of the Government’s reform plans, ADB will provide significant assistance to help the Government tap the productive and economic uses of customary land. The strategy and program have been closely coordinated with other development partners.

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