Samoa's economic recovery has been remarkable, says IMF

February 01, 2025 — Samoa's economy has experienced a remarkable recovery from the pandemic-induced downturn, with growth exceeding expectations in the past two fiscal years, according to the International Monetary Fund (IMF). In its latest Article IV consultation, the IMF praised Samoa's strong rebound, but also highlighted the need for careful management of emerging challenges.

Samoa is a Pacific island country

Samoa is a Pacific island country located in the South Pacific Ocean, between Hawaii and New Zealand and northeast of Fiji. Samoa consists of four inhabited and a number of smaller, uninhabited islands. The capital and economic hub Apia is located on Upolu, the most populous of the islands. Upolu and Savai'i, the other main island, account for 99 per cent of Samoa's around 200,000 population.

Strong economic rebound since pandemic

After a 15% contraction during the pandemic, Samoa's GDP surged by 9.2% in FY2023 and a further 9.4% in FY2024, primarily fuelled by a swift resurgence in tourism. Inflation has also cooled significantly, dropping from double digits to 2.9% in October 2024. Robust grant inflows, strong tax revenues, and restrained spending have led to a substantial fiscal surplus, reaching 10.1% of GDP in FY2024. This, coupled with a current account surplus, has significantly boosted Samoa's foreign reserves.

IMF projects strong growth for Samoa

The IMF projects continued robust growth of 5.5% for FY2025, driven by increased public investment and the upcoming Commonwealth Heads of Government Meeting (CHOGM). However, growth is expected to moderate to around 2% in the medium term, aligning with historical averages. The IMF cautioned that the outlook is subject to downside risks, including global economic uncertainties and potential inflationary pressures.

While acknowledging Samoa's impressive economic performance, the IMF emphasized the need to address certain challenges. The large fiscal surpluses, while improving debt dynamics, have also resulted in low capital spending, potentially hindering long-term growth. The combination of tight fiscal policy, high grants and remittances, and the exchange rate peg has created a large current account surplus and excess liquidity in the banking system.

IMF policy recommendations

The IMF recommended a more expansionary fiscal stance to support the economy, focusing on much-needed public investments, including climate-related projects. They stressed the importance of maintaining strong public financial management controls, particularly during the election cycle, and improving fiscal data. The IMF also advised gradually reversing pandemic-era utility tariff cuts while providing targeted support for vulnerable households.

On monetary policy, the IMF recommended continued normalization, aiming to raise interest rates and reduce excess liquidity in the banking system. They reaffirmed the exchange rate peg as the appropriate nominal anchor. The IMF also called for further strengthening of financial supervision and regulation, particularly for Public Financial Institutions (PFIs), and the establishment of an online credit registry to promote financial inclusion.

Addressing concerns about correspondent banking relationships (CBRs), the IMF urged Samoa to strengthen its anti-money laundering and combating the financing of terrorism (AML/CFT) framework and implement effective risk-based supervision. They highlighted the importance of the timely rollout of the e-KYC facility and the National Digital ID.

Economic outlook

Looking ahead, the IMF stressed the need for concerted reforms to address structural challenges hindering Samoa's medium-term growth potential. Key priorities include attracting foreign investment, reducing trade facilitation costs, and mitigating the impact of the seasonal workers program by enhancing human capital and raising labor force participation rates. The IMF's assessment provides a comprehensive overview of Samoa's economic landscape, highlighting both its strengths and the areas requiring attention to ensure sustainable and inclusive growth.

Navigating the tides: a recent history of the Samoan economy

Samoa, a small island nation nestled in the heart of the South Pacific, faces the unique economic challenges and opportunities inherent to its size and location. Its economy, heavily reliant on tourism, remittances, and development aid, has experienced periods of robust growth interspersed with vulnerabilities to external shocks and natural disasters. While recent performance indicates a strong recovery trajectory, a deeper examination reveals a complex interplay of factors shaping Samoa's economic landscape.

Samoa's main trading partners

Samoa's main trading partners include New Zealand, Australia, the United States, China, and Singapore. Samoa exports a variety of goods, including fish, coconut oil, animal products, and other agricultural commodities. Samoa’s main imports are petroleum oils and food products.

Samoa's economic characteristics

Historically, Samoa's economy has been characterized by a dual structure. A subsistence agricultural sector, focused on crops like coconuts, taro, and bananas, provides livelihoods for a significant portion of the population. Alongside this, a more modern, service-oriented sector has emerged, driven primarily by tourism.

The idyllic beauty of the islands, coupled with a rich cultural heritage, has attracted a growing number of visitors, making tourism a crucial source of foreign exchange and employment. Every year many tourists visit Samoa mainly from Australia, New Zealand, and China. Remittances from Samoans living abroad, particularly in Australia, New Zealand, and the United States, also play a vital role, supplementing household incomes and contributing significantly to the nation's GDP.

Economic chllenges

The COVID-19 pandemic served as a stark reminder of the vulnerability of economies dependent on tourism. Samoa's economy contracted sharply as travel restrictions brought the tourism sector to a standstill. However, the subsequent recovery has been remarkable, demonstrating the resilience of the Samoan people and the effectiveness of government policies. A swift rebound in tourism, coupled with strong grant inflows and prudent fiscal management, has led to impressive growth figures in recent fiscal years. This resurgence has allowed Samoa to rebuild its foreign reserves and improve its debt dynamics.

Despite this positive trajectory, Samoa's economy faces several persistent challenges. One key issue is its dependence on external factors. Fluctuations in global economic conditions, particularly in key trading partner countries, can significantly impact tourism and remittances. Climate change poses another significant threat, with rising sea levels, extreme weather events, and coastal erosion impacting agriculture, tourism infrastructure, and the overall well-being of the islands. Diversifying the economy and reducing reliance on tourism remains a crucial long-term goal.

Another challenge lies in developing the country's human capital. While Samoa has made progress in education and healthcare, further investment is needed to equip its workforce with the skills necessary to compete in a globalized economy. Improving education outcomes, promoting vocational training, and fostering entrepreneurship are essential for creating a more dynamic and diversified economy. Furthermore, strengthening governance and improving the business environment are crucial for attracting foreign investment and stimulating private sector growth.

Fiscal management plays a critical role in Samoa's economic stability. While recent fiscal surpluses have been commendable, maintaining fiscal discipline and prioritizing public investments in key areas like infrastructure, education, and healthcare are essential for long-term sustainable development. Improving public financial management, enhancing revenue mobilization, and ensuring the efficient allocation of resources are crucial for maximizing the impact of government spending.

Looking ahead, Samoa's economic prospects hinge on its ability to address these challenges and capitalize on its strengths. Investing in renewable energy, developing sustainable tourism practices, and promoting agricultural diversification are crucial for mitigating the impacts of climate change and building a more resilient economy. Strengthening regional cooperation, leveraging development assistance effectively, and fostering innovation are also essential for driving sustainable and inclusive growth.

Major companies operating in Samoa

Samoa's economy is supported by a diverse array of major companies that operate across various sectors, including banking, telecommunications, and manufacturing. In the banking sector, the Samoa Commercial Bank (SBC) stands out as a key player. Not only does SBC provide essential financial services, but it also owns Samoa Shipping Services (SSS) and Samoa Airways, thereby enhancing its influence within the local economy. The partnership between these entities allows for improved connectivity and service delivery across multiple industries.

The telecommunications sector in Samoa is competitive, featuring several prominent companies that provide essential communication services. Vodafone Samoa and Digicel Samoa are two leading technology firms that offer comprehensive internet services to the population. Alongside them, Computer Services Limited (CSL) and other entities like Amalgamated Telecom Holdings (ATH), Amper, Blue Sky Samoa, Kacific Broadband Satellite, and O3b contribute to the growing demand for reliable telecommunications. Collectively, these organizations play a vital role in ensuring that both urban and rural communities have access to cutting-edge communication technologies, which is crucial for economic growth and connectivity.

Manufacturing in Samoa also contributes significantly to the economy, with companies like Apia Bottling Company Limited and Apia Concrete Products leading the way in producing local goods. Yazaki Samoa, a Japanese-owned manufacturer, specializes in automotive wire harnesses, showcasing the island's capacity for specialized production. Additionally, Fero, a New Zealand manufacturer, focuses on wiring units, further diversifying the manufacturing landscape. Alongside these entities, other businesses such as Apia Export Fish Packers, Samoa Breweries, and Loralei Samoa enrich the economic fabric of the country, demonstrating the broad spectrum of industries working to bolster Samoa's economic resilience.

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