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p. 44 of 54 BACK | NEXT I. Developing Asia and the World - Economic Developments and Prospects II. Economic Trends and Prospects in Developing Asia Newly Industrialized Economies Central Asian Republics, Azerbaijan, and Mongolia People’s Republic of China Southeast Asia South Asia The Pacific Cook Islands Fiji Islands Kiribati Marshall Islands Federated States of Micronesia Nauru Papua New Guinea Samoa Solomon Islands Tonga Tuvalu Vanuatu III. Asia's Globalization Challenge

Asian Development Outlook 2001 : II. Economic Trends and Prospects in Developing Asia

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Samoa

The economy expanded by 7.0 percent in 2000, largely reflecting the Government’s reforms and prudent macroeconomic management. Growth is likely to continue in the medium term, but inflationary pressures and any pause in the momentum of reforms present risks to the strong growth impetus.

Recent Trends and Prospects

The economy is estimated to have grown by 7.0 percent in 2000 with construction, commerce, and hotels and restaurants largely accounting for the buoyant growth (see Figure 2.25). Key projects include the renovation of the Faleolo International Airport, a road-sealing project, and the renovation and construction of several buildings in Apia. The commerce sector has grown at an average of 9 percent for the past three years, with the tariff, tax, and financial liberalization reforms implemented over that period constituting a major contributing factor. The overall level of local food supplies and inflows of remittances increased in 2000. Substantial growth of monetary fishing, as opposed to subsistence fishing, in recent years is a major new development.

Merchandise exports and tourism receipts were slightly lower in 2000 than in the previous year. The main causes of the weakness in the former were coconut products and fresh fish exports, the latter of which now constitute about 60 percent of commodity exports. Annual remittances have been increasing steadily in recent years and are the single most important source of income to the economy. Estimates for 2000 suggest some improvement to the current account. The overall balance of payments remained healthy in 2000, partly reflecting strong capital inflows, while foreign reserves were around seven months of import cover.

The outcome for the fiscal year 2000 (ending 30 June) budget is estimated to be a deficit of 0.7 percent of GDP, after a budgeted surplus of 3.0 percent. This will be the first deficit since fiscal year 1994. Total revenues were lower than budgeted, mainly due to a fall in nontax revenue, particularly receipts from the corporatization of Samoa Communications Ltd. In mid-2000, external government debt fell to around 65 percent of GDP, maintaining the declining trend of recent years. Debt-service costs in fiscal year 2000 were around 7 percent of exports of goods and services, or 6.5 percent of net foreign assets, reflecting the concessionary terms of external loans.

By December 2000, annual inflation amounted to 0.5 percent. The money supply was 11.4 percent higher in 2000 than a year earlier, reflecting a booming economy. Monetary policy was unchanged through 1999 and 2000. Substantial government deposits placed in the banking system over the last few years, despite a small reduction in 1999, have provided ample funds for the commercial banks to lend and have been reflected in relatively strong private sector credit growth since 1996. Commercial bank lending rates in 2000 were in the range of 10.25–11.50 percent, slightly lower than before rate liberalization in January 1998. The commercial banks remain strongly capitalized in terms of formal capital adequacy requirements and continue to earn strong profits, with average returns on shareholder funds of 21 percent in 1999.

The recent strong GDP growth performance is expected to continue, but at a slower pace through 2001 and 2002. Expansion in this period will be driven mainly by continuing major infrastructure construction projects. Strong growth is also expected to resume in the fisheries sector, after the weakness in 2000, with the purchase of six new large fishing vessels by the private sector. A recovery in taro production—following a long period when disease had virtually destroyed production—and continuing growth in coconut cream output are expected to boost exports. Tourism is likely to show stronger performance due to better marketing overseas, new hotel development, and some displacement of tourists from the Fiji Islands and Solomon Islands. These factors, and the continuing long-term upward trend of remittances, are expected to support reasonably strong growth in 2001 and 2002 of around 4 percent. Inflation of around 3 percent is forecast, though the outcome may be slightly higher.

The fiscal year 2001 budget has provided for a deficit of over 3 percent of GDP, which is to be financed largely by concessionary borrowing. Total government expenditure is budgeted at around 37 percent of GDP for fiscal year 2001. Current expenditure as a share of GDP is forecast at around 22 percent.

Issues in Economic Management

A major driving force in the strong credit growth of recent years has been financial liberalization, and in particular the easier access of households and firms to credit. In light of this, and the current expansionary fiscal stance associated with high world oil prices, the central bank is keeping a close watch on monetary developments, and may tighten monetary policy to ensure that inflationary pressures are kept under control.

For 2001, the Government is proposing to consolidate the tax and tariff reforms, the financial sector reforms, and the initiatives on privatization and public enterprise reform, which have been taken in recent years. However, despite all these measures, there is a perception of less momentum.

Another important issue relates to appropriate infrastructure, taxation, and regulation in relation to the rapidly growing fishing export sector. The sector is now making a major economic and social contribution but wharfage, berthing, and refueling facilities are seriously inadequate. Taxation of the sector is very limited and consideration needs to be given to some form of resource rent tax so that the benefits of fishing expansion are reasonably shared with the whole population. There are also concerns about the environmental sustainability of these rapidly growing fishing efforts.

Policy and Development Issues

In 1996, the Government stopped preparing five-year development plans and began issuing a series of biennial statements of economic strategy. The current strategy continues the emphasis on macroeconomic stability, public sector efficiency, improved education and health standards, and measures to support a strong private sector. It also emphasizes agriculture and fisher-ies, sustainable tourist development, and the importance of a revitalized village economy. An important feature is the extensive and successful consultation that has taken place with stakeholders. A major objective of the strategy is to ensure that the whole community shares in the benefits of the reform program.

Insecure land tenure, inefficient public enterprises, and regulations that make it difficult to transact domestic and international business are important constraints to private sector development. The Government has signaled that it will devise a strategy to improve both access to customary and public land, and utilization of customary land as collateral, but this will be difficult to implement. Similarly, despite the implementation of corporatization and privatization programs, progress has been slow. In addition, an independent and adequately resourced utilities regulator is needed. Other regulatory and administrative requirements that need overhauling include export/import documentation, quarantine requirements, exit permits for residents, and work permits for expatriates. Various legal reforms are also required, including streamlining company and insolvency law, repealing price control provisions, and prohibiting collusion in price fixing.

In education, the priority area is primary education, so as to increase the number of literate and numerate students. Similarly in health, more emphasis is needed on primary health care on a sustainable basis, including health promotion programs aimed at lifestyle-related diseases.

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