After two years of underspending, an expansionary fiscal stance is needed says IMF


After two years of underspending, an expansionary fiscal stance is needed to support the recovery and avoid long-term scarring through increased public investment and other growth-enhancing expenditures. 

This is outlined in the International Monetary Fund 2023 ARTICLE IV consultation released yesterday. 

An IMF team led by IMF official Andrew Swiston were in Samoa between January and February for their consultation. 

He said the Samoan economy has begun recovering after a three-year recession driven by the Covid-19 pandemic.

The lifting of domestic Covid-19 restrictions in July and the pickup in visitor inflows when borders reopened in August led to a rebound in economic activity, with real GDP rising 4.7 percent y/y in Q3-2022.

The IMF team were in Samoa between January and 16-February 1, 2023.

The economy is being boosted by the return of tourism, rising remittances, and increased public investment. 

Given high inflation, this can be partially counterbalanced by the Central Bank of Samoa immediately but gradually unwinding the accommodative monetary stance. 

If the economic recovery stalls—including if the fiscal expansion doesn’t materialize as planned—monetary tightening could proceed at a slower pace. 

Support to households provided by state-owned enterprises (SOEs) via low utility tariffs should be channeled through the budget to make the costs transparent and preserve their capacity to make needed investments. 

Sustainable growth and diversification can be complemented by ramping up training programs to build a pipeline of skilled labor and improving the broader business environment to take greater advantage of regional trade and economic integration agreements. 

With long-term risks of debt distress remaining high, gradual fiscal consolidation is appropriate. 

This should be through raising revenue, which would also create space for the needed strengthening of social safety nets and higher investment in climate resilience. 

Recent efforts to contain fiscal risks at SOEs are welcome and should be continued. 

For public financial institutions, their mandates need to be reviewed, and regulation and supervision should be stepped up. Financial sector reforms are advancing—including the national digital ID, credit registry, and Know-Your Customer utility—and their prompt implementation would help facilitate credit intermediation, increase financial inclusion, and sustain access to the international payments system.