The recent International Monetary Fund (IMF)’s World Economic Outlook (WEO) published in January 2021 predicts a 5.5% recovery in the global economy for 2021, from the 2020 COVID-19 adversely impacted -3.5 percent global contraction.
This positive outlook, which is also revised upwards by 0.3 percentage points from the October 2020 WEO, is driven by high expectations of a strong rebound in economic activities with vaccines becoming widely available during the year, as well as the continued policy support in the larger economies.
Nevertheless, downside risks remain elevated as new COVID-19 variants and recent waves present exceptional risks and uncertainty on the global recovery as restrictions or national lockdowns may be re-imposed as is now seen in New Zealand.
Further, the rollout of a vaccine within and amongst countries also raises concerns of social unrest, with added pressure from structural damages on labour markets and concerns over the early withdrawal of policy support before a full recovery.
Global inflation continues to be subdued, with the outlook likely to be stable in the year ahead.
While projections are for a possible pick-up in inflationary pressures in the advanced economies as economic activities recover, inflation rates are projected to generally moderate below most central bank’s targets of 1.5 percent.
On the other hand, the inflation rates in developing economies are projected to drop due to reduced supply-side pressures but average around 4.2 percent in the year ahead.
On the exchange rate front, the US dollar continues to be under pressure against the major currencies (in the Sāmoa Tala Currency Basket), driven by lower safe-haven appeal for the greenback following progress on COVID-19 vaccines and US stimulus measures.
Overall, given the latest global economic outlook, most central banks are continuing with their easing monetary policies to support their respective economies.
As a result, the current near zero percent interest rates worldwide are expected to continue for the next two to three years.
THE SAMOAN ECONOMY
1. Gross Domestic Product (GDP)
Nominal GDP
September 2020 quarter
$491.80 million, 15.5 percent lower than $581.87 million in the September 2019 quarter.
Annual – 12 months to end September 2020.
$2,077.94 million or 8.3 percent lower than $2,266.31 million for the year up to September 2019.
GDP per capita – 12 months to September 2020.
$10,283 per capita, 9.0 percent lower than $11,305 for the same period up to September 2019.
Real GDP
September 2020 quarter
$446.94 million, 16.3 percent lower than $533.96 million in September 2019 quarter.
Annual 12 months to end September 2020
$1,895.34 million, 8.6 percent lower than $2,073.53 million for the year up to September 2019
Inflation (January 2021)
The annual average headline Consumer Price Index recorded a negative inflation (or deflation) rate of -2.4 percent in January 2021, down from 1.48 percent at end June 2020 and 1.52 percent at end January 2020.
This decline was underpinned by a drop in imported inflation to -3.9 percent (from 1.0 percent in June 2020) while local inflation also declined to -0.9 percent from 2.0 percent at end June 2020.
2. Agricultural produce (First seven months to January 2021)
According to the Samoa Bureau of Statistics (SBS) monthly survey, the average volume of agricultural produce supplied to the local markets fell by 14.6 percent in the first seven months of 2020/21, over the same period last year.
The drop reflected large reductions in supplies of stable food crops such as banana, taamu, yam, breadfruit and coconuts; as well as vegetable items like head cabbage, tomatoes and Chinese cabbage to name a few. Given the weak demand, the average price index of agricultural produce sold at the local markets also fell by 9.1 percent.
3 Banking system (January 2021)
The banking system at end January 2021 was well-capitalized with the capital adequacy ratio hovering at 28.5 percent, similar to that of January 2020, but well above the 15.0 percent minimum prudential requirement.
Its liquidity was more than adequate at 25.7 percent, which was lower than 23.9 percent in January last year, and also well above its minimum prudential requirement of 10.0 percent.
Non-performing loans (NPLs) as at end January 2021 stood at 3.8 percent to total loans, about the same level as at end December 2020. The provisioning for doubtful loans to total NPLs rose to 176.5 percent from 167.4 percent in December 2020.
4 Balance of Payment
External Trade:
Total Exports of Goods (First seven months to January 2021)
$55.61 million; 32.1 percent lower than $81.90 million, in the first seven months to January 2020.
Export Composition
The shares of the main exports were as follows:
Re-exports – 28.0 percent ($15.55 million)
Domestically produced exports – 72.0 percent ($40.06 million)
Of which;
Fresh Fish – 50.7 percent ($20.31 million)
Taro – 13.9 percent ($5.57 million)
Crude coconut oil – 11.3 percent ($4.52 million)
Beer – 8.8 percent ($3.54 million)
Cigarettes – 3.2 percent ($1.26 million)
Nonu Juice – 1.9 percent ($0.76 million)
Others – 10.2 percent ($4.1 million)
Total Imports of Goods (First seven months to January 2021)
$475.37 million, 14.1 percent lower than $553.42 million in same period up to January 2020.
- Government imports dropped by 43.1 percent to $24.29 million
- Petroleum imports decreased by 38.6 percent to $55.82 million (reduced fuel demand)
- Non-petroleum private sector imports edged down by 5.8 percent to $395.25 million
Net Trade of Goods Deficit (First seven months to January 2021)
$419.76 million, 11.0 percent lower than $471.52 million in the seven months to January 2020
Visitor Arrivals and Receipts (First seven months to January 2021)
Total Arrivals
0 visitors, 100 percent lower than 113,182 visitors in the seven months to January 2020.
Total Receipts
$0 million, 100 percent lower than $341.76 million in the seven months to January 2020.
Private Remittances (First seven months to January 2021)
$362.88 million, 9.5 percent higher than $327.78 million in the first seven months of FY2019/20.
Gross Official Foreign Reserves
$754.05 million at end January 2021, 54.1 percent (or $137.87 million surplus in first seven months of 2020/21); significantly higher than the same period last year.
At this level, this was sufficient to cover 11.7 months of imports, which was significantly higher than 6.6 months at end January 2020.
External Debt Outstanding (at end September 2020)
Debt Stock
$1,027.7 million (around 49.5 percent of nominal GDP), 1.2 percent lower than $1,040.2 million at end September 2019 (45.9 percent of nominal GDP).
Annual Debt Servicing (at end September 2020)
$65.71 million, which was 12.4 percent lower than $74.98 million in the year up to September 2019. This was equivalent to
- 85 percent of recurrent revenue
- 71 percent of foreign reserves or
- 05 percent of total exports of goods and services.
ATTACHMENTS
DETAILED REPORT ON THE MACRO-ECONOMY FOR THE FIRST SEVEN MONTHS OF FY2020/2021 TO JANUARY 2021
WORLD ECONOMY
The recent International Monetary Fund (IMF)’s World Economic Outlook (WEO) published in January 2021 point to a 5.5 percent recovery in the global economy for 2021, from the 2020 COVID-19 adversely impacted -3.5 percent global contraction. This positive outlook, which is also revised upwards by 0.3 percentage points from the October 2020 WEO, is driven by high expectations of a strong rebound in economic activities as the vaccines becoming widely available during the year as well as the continued policy support in the larger economies. Nevertheless, downside risks remain elevated. The new COVID-19 variants and recent waves present exceptional risks and uncertainty on the global recovery as restrictions or national lockdowns may be re-imposed (as partially implemented in New Zealand in recent days). Further, the rollout of a vaccine within and amongst countries also raises concerns of social unrest, with added pressure from structural damages on labour markets and concerns over the early withdrawal of policy support before a full recovery.
Of Sāmoa’s main trading partners, the latest available economic releases point to:
- The US economy growing by 4.10 percent in Q4 2020, according to second estimates, slowing down from a record 33.4 percent expansion in Q3 as COVID-19 continues to dominate activities in the country. For the full year 2020, real GDP contracted 3.5 percent, its worst economic performance since 1946. The annual inflation rate has remained at 1.4 percent in January 2021, the same as in December 2020, while the unemployment rate dropped slightly to 6.3 percent from 6.7 percent over the same period, still well above pre-pandemic levels (averaging 4.0 percent). In view of this, the US Federal Reserve Bank has continued with its easing monetary policy stance to support the US economy’s full recovery in the year ahead.
- The Australian economy recovered 3.3 percent in Q3 2020 following two consecutive quarterly contractions, boosted by a resumption in economic activities as COVID-19 restrictions were eased across most states and territories. In the year to the September 2020 quarter, the economy contracted 3.8 percent from a larger 6.4 percent reduction in the previous quarter. Inflationary pressures remain subdued with 0.9 percent in December 2020 while the unemployment rate fell slightly to 6.4 percent, its lowest level since COVID-19 but continued to be higher than pre-pandemic levels (average 5.0 percent). Accordingly, the Reserve Bank of Australia has left its policy interest rate at 0.1 percent in its February 2021 meeting, a policy position that will continue until at least 2024.
- The New Zealand economy rebounded strongly by 14.0 percent in the September 2020 quarter after recording its first recession in years with a 12.2 percent economic reduction in Q2 amid the Covid-19 health crisis. The annual inflation rate was unchanged at 1.4 percent in December 2020 while the unemployment rate fell to 4.9 percent from 5.3 percent in the September quarter. Given the economic uncertainties, the Reserve Bank of New Zealand also maintained its official interest rate at 0.25 percent in its February 2021 meeting, with its asset purchase and lending programmes left unchanged since their introduction at the onset of COVID-19.
Global inflation continues to be subdued, with the outlook likely to be stable in the year ahead. While projections are for a possible pick-up in inflationary pressures in the advanced economies as economic activities recover, inflation rates are projected to generally moderate below most central bank’s targets of 1.5 percent. On the other hand, the inflation rates in developing economies are projected to drop due to reduced supply-side pressures but average around 4.2 percent in the year ahead.
On the exchange rate front, the US dollar continues to be under pressure against the major currencies (in the Sāmoa Tala Currency Basket), driven by lower safe-haven appeal for the greenback following progress on COVID-19 vaccines and US stimulus measures.
Overall, given the latest global economic outlook, most central banks are continuing with their easing monetary policies to support their respective economies. As a result, the current near zero percent interest rates worldwide are expected to continue for the next two to three years.
DOMESTIC ECONOMIC DEVELOPMENTS
POLICY INSTRUMENTS AND DEVELOPMENTS
- The Government’s net financial position at end January 2021 recorded a huge surplus of $68.19 million (to $330.76 million) over same month of last year, in-light of large government’s foreign inflows of budget support funds and those for COVID-19 assistance.
- On exchange rates, the average nominal value of the Tala in the first seven months to January 2021 fell by 0.1 percent when compared to the same period last year. The depreciation was underpinned by the weakening of Tala against the Euro (down by 3.8 percent), Australian dollar (down 3.6 percent), New Zealand dollar (down 2.0 percent), which outweighed a 2.7 percent appreciation of Tala against the US dollar.
- The banking system’s average liquidity in the first seven months to January 2021 increased by 9.0 percent (or $26.78 million) to $321.08 million compared to its average level in the same period last year. The overall expansion was due to a significant increase in the commercial banks’ average exchange settlement accounts (up $41.04 million) while its holdings of vault cash went up $4.53 million. However, CBS open markets operations (OMO) remains suspended since April 2020 to conserve commercial bank liquidity.
- On interest rates, due to the temporary suspension of CBS Open Market Operations (OMO) in April 2020, the overall weighted average yield on CBS securities (or official interest rate) remained at 0.15 percent in January 2021, which was also similar to that of January last year. Commercial banks’ weighted average deposit rate increased to 2.56 percent from 2.46 percent last year while the weighted average lending rate dropped to 8.54 percent from 8.88 percent in January 2020. As a result, the weighted average interest rate margin narrowed to 5.98 percent at end January 2021 from 6.42 percent a year ago.
- The commercial banks’ total lending to the private sector and public institutions combined edged down by 0.7 percent to $1,179.17 million in January 2021 over the same month last year. As a result, the annual rate of commercial bank credit grew by 2.5 percent, lower than its growth rate of 5.6 percent at end January 2020.
- Overall, total money supply (M2) rose by $59.07 million (or 4.8 percent) in January 2021 to $1,290.073 million compared to the same month of last year. Nevertheless, the annual average growth rate of M2 decelerated to 1.8 percent at end January 2021, from 9.0 percent in the same month of last year.
MACRO-ECONOMIC OUTCOMES AND RESULTS – FIRST SEVEN MONTHS OF FY2020/21 TO JANUARY2021
- Due to the current closure of Samoan borders, there were no visitor arrivals and earnings in the seven months to January 2021.
- On the other hand, private remittances increased by 9.5 percent to $362.88 million in the first seven months to January 2021, compared to the same period last year.
- Total export earnings dropped by 1 percent to $55.61 million in the first seven months of FY2020/21 over the same period last year. The current overall reduction was due to declines in both domestically produced exports (down 27.1 percent) and re- exports down by 42.3 percent.
- Likewise, import payments contracted by 14.1 percent to $475.37 million in first seven months to January 2021. This was mainly due to reductions in government imports (down by 43.1 percent), petroleum imports (down 38.6 percent) and private sector non-petroleum imports (also down 5.8 percent). As a result of the larger drop in total imports, the merchandise trade deficit narrowed by 11.0 percent to $419.76 million in first seven months of 2020/21 compared to the same period of last year.
- The balance of payments posted a surplus of $137.87 million (to $754.05 million) in the first seven months of FY2020/21 compared to a small gain of $2.52 million in the same period last year. This is in-light of large government inflows of external funds for budget support and assistance for COVID19. The current level of gross official reserves was sufficient to cover 11.7 months of imports; which was significantly higher than 6 months at end January 2020.
- The average volume of agricultural produce supplied to local produce markets around the Apia area recorded a drop of 6 percent in the first seven months of FY2020/21. This reduction in supplies was mainly due to lower supplies of stable food crops (except taro), coconuts as well as vegetable items such as cabbages and tomatoes to name a few. As a result of weak demand, the overall price level decreased by 9.1 percent in the reviewed period.
- The annual average headline inflation rate slowed to -2.4 percent at end January 2021 from 1.5 percent in January 2020. This decline was underpinned by a reduction in imported inflation to -3.9 percent (from 1.0 percent in June 2020) as well as local inflation to -0.9 percent from 2.0 percent at end June 2020
- The underlying inflation rate, (excluding the adjusted and cyclic price movements from the headline CPI) also dropped to -1.1 percent at end January 2021 compared to 1.2 percent in January 2020.
- According to the latest update on Real GDP, September 2020 quarter recorded a drop of 2.3 percent to $446.94 million from the previous quarter and also 16.3 percent lower compared to the same quarter last year.
- For the whole year up to September 2020, real GDP growth fell by 8.6 percent, compared to its high of 4.8 percent annual growth at end September 2019.
- The annual nominal GDP per capita up to September 2020 decreased to $10,283; which was 9.0 percent lower than $11,305 in the twelve months up to September 2019.
- Total outstanding external debt at end September 2020 stood at $1,027.7 million, or roughly 49.5 percent of nominal GDP. This was 1.2 percent lower than its level ($1,040.2 million) at end September 2019.
- Total debt servicing in the twelve months to September 2020 amounted to $65.71 million which was 12.4 percent lower than its level in the same period last year. The current level was equivalent to 9.85 percent of recurrent government revenue, 8.71 percent of gross foreign reserves or 12.05 percent of total exports of goods and services.
Sources:
[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.
[2] Monthly NPLs only started from April 2020
[3] This drop from $77.57m at end June 2020 reflects the deferral of debt servicing repayments as a form of COVID-19 assistance for low income countries, which is led by the G20.
[4] For every tala that is earned by Government (Recurrent) Revenue, approximately 10 sene is used to pay off Samoa’s foreign debt.
[5] For every tala that is saved as the country’s foreign reserves, 9 sene is used to pay for our external debt.
[6] 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 12 sene of those earnings to repay our foreign loans.
[7] Effective April 2019, the Sāmoa Bureau of Statistics (SBS) have published the rebased national accounts data with new base year 2013 (2013=100).
