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APIA, Samoa (February 20, 2000 – Samoa Observer)---Prime Minister Tuilaepa Sailele Malielegaoi is calling for public support of his government’s economic strategies aimed at "raising the quality of life of all Samoans."

Contained in a 43-page booklet, the Statement of Economic Strategy was launched at the National University of Samoa Thursday of last week. The booklet contains a "Message from the Prime Minister" outlining the key principles of the strategies. Titled "Partnership for a Prosperous Society," the statement contains "eight strategic outcomes (to be) seriously pursued in the next two years."

These are:

Says Tuilaepa is his message: " The Government remains convinced that the real test for successful policies and strategies is when the community enjoys a better quality of life as a result.

"The Government believes the successful implementation of these strategies is a pre-condition for an improved quality of life.

"The two years ahead will be a real challenge.

"Considering the resource constraints, government calls for the contribution of all stakeholders to make the above strategies work for the benefit of all Samoans.

"I invite all stakeholders to work in partnership with the Government for a better Samoa as we begin this new millennium."

Tuilaepa says "the two previous Statements of Economic Strategy clearly demonstrated Government’s conviction that the key to sustained economic growth is a healthy and competitive private sector.

"In pursuit of that conviction, Government put in practice major policy initiatives aimed at creating the enabling environment that allowed businesses to prosper. These were indeed hard decisions, but Government was determined it was the optimal choice for the Samoan economy to move forward.

"As we look back and review the last two SES periods, despite the many adverse shocks the economy faced, it is pleasing to note that significant progress has been achieved.

"Export earnings have continued to improve generating foreign reserves sufficient to cover more than five months of imports. Annual inflation continued to grow at a rate below one percent.

"The tala (ST) remained competitive relative to our trading partners. Availability of credit for private sector development continued to improve. As a consequence, economic growth remained positive with annual growth rates of up to four percent.

"Government has also put in place a number of reforms aimed at raising the efficiency of the public service. On the social side, Government continues to place priority on improved access to appropriate education and better health services.

"With the enabling environment soundly established, the 2000/01 Statement of Economic Strategy signifies a deliberate attempt towards ensuring the policies and strategies pursued do benefit the Samoan community. That is why this Statement of Economic Strategy is entitled "Partnership for a Prosperous Society."

"The Government remains convinced that the real test for successful policies and strategies is when the community enjoys a better quality of life as a result.

"The preparation of this Statement of Economic Strategy involved consultation with a wide range of stakeholders including the church, non government organizations, farmers, fishing industry, Pulenuus, the business community, as well as Government departments.

"With stakeholders contributing to the finalization of this important document, there is commitment and community ownership of the strategies which should lead to their efficient implementation for the benefit of all Samoans.

"From Government’s perspective, it means the strategies pursued are more focused in pursuit of the ultimate goal of raising the quality of life of all Samoans."



Stable Macroecnomic

The macroeconomic policy framework is aimed at achieving three objectives: a sound and stable macroeconomic environment, low inflation and a sustainable external position in the balance of payments. These objectives are not, however, ends in themselves. They are the means to the end of generating positive real growth in GDP and creating employment for the growing number of young people entering the labor force.

The latter is one of the key policy targets for the medium term, hence a labor policy is being developed aiming at highlighting and addressing this issue. All microeconomic and sectoral policies must also be consistent with need to create employment or to establish and environment where opportunities for employment creation can flourish. The economic and public sector reform program together with the partnership between the public and private sectors are all geared to this end.

Macroeconomic Performance Targets

The SES macroeconomic performance targets for the two years 2000 - 2001 will not differ greatly from those set for the previous two years. GDP is targeted to increase in real terms by 3-4% per annum. The primary growth generating sectors are targeted to be Manufacturing, Commerce, Construction and Services. The declining trend in the Agricultural sector will also be reversed.

Fiscal Policy will aim to maintain a surplus between current revenue and expenditure, 3.5% of GDP is budgeted for 1999/2000 fiscal year. A similar level will be targeted for the subsequent year. Overall there is expected to be a deficit in the coming two years as major public sector investment projects get underway. A deficit of 3.3% of GDP is estimated for the 1999/2000 fiscal year and a similar level is likely for the subsequent year. The deficit will be financed by soft-loans from international institutions.

In 1998 and first half of 1999, Exports increased by more than targeted, reaching approximately 20% of imports (excluding MV Lady Naomi in 1999). The commencement of the Garment Factory and further recovery from the effects of the Asian Crisis are expected to boost manufacturing exports in the coming two years. The fishing industry is also expected to continue its growth trend, albeit at a more modest rate than has been seen in the 1997 - 1999 period. Imports are forecast to increase at a faster rate than economic growth as a whole as materials are imported for the major public sector projects scheduled for implementation in the coming period. The Trade Deficit is therefore expected to average around 40% of GDP in the next two years.

Remittances and Gross Tourism Revenues are both forecast to continue their recent nominal growth trends of 3% and 8% respectively. The Current Account on the Balance of Payment is therefore forecast to be in deficit by around 4% of GDP. The Overall Balance is however expected to remain in surplus by around 2.5% of GDP in both 2000 and 2001 as capital account and development assistance flows cover the gap. Foreign Exchange Reserves should continue to increase although the six-month import cover target may come under pressure in the short term as imports are boosted by public sector investment expenditure.

Private Sector Domestic Credit is forecast to continue to increase at its recent trend rate of around 17.5% pa. Money Supply will increase at a slower pace of around 7.5% pa, as government’s net credit position with the domestic financial system continues to build in consequence of the tight fiscal stance.

The Central Bank’s monetary policy stance will aim to contain any inflationary or external account pressures which might appear in the event that fiscal or balance of payments targets are not met. Domestic inflation of up to 3% will be targeted for the next two years. This will be broadly in line with forecast in Samoa’s main trading partners. The medium term target for labor force participation in formal sector employment has been scaled back slightly for the 2000 - 2001 period. It is now targeted at 25% for end 2001. For this to be achieved approximately 1,250 new jobs need to be created each year.

Fiscal Policy

Government is committed to fulfilling its role in providing the necessary social and economic infrastructure to service a modern economy. Equally Government is committed to restructuring the public service to make it more focused, service oriented and cost-effective. Maintaining a sound fiscal policy and ensuring that government’s net deposit position with the domestic financial system continues to improve is critical to the achievement of the balance of payments, credit and money supply targets.

Current expenditure will not be allowed to increase in real terms beyond the growth rate of the economy as a whole. A surplus of current revenue over current expenditure of 3.5% of GDP will be targeted for each of the fiscal years covered by the SES period. Emphasis will continue to be placed on resource allocation to priority sectors with focused outputs. Non-priority activities will be cut and processes and procedures streamlined.

Revenue growth will come mainly from improved compliance in both tariffs and excise and in VAGST. Additional revenues will be generated from the privatization program and the improved performance of the corporatized Samoa Communications Limited (SCL).

One cause of the slowdown in economic growth in 1997 and 1998 was the lack of new public sector investment. There is now likely to be a severe bunching of projects in the coming two years. This could place pressure on both the physical and financial absorptive capacity of the economy. It will result in an overall deficit on the budget of between 3-3.5% of GDP in the coming two fiscal years. These deficits will be financed by concessional borrowing from the major international financial institutions. They should not therefore have any major adverse impact on the domestic financial system. Government will aim to at least maintain its net deposit position with the banking system. The forecast deficits in the coming two years need to be seen in the context of the budget surpluses which have been achieved in previous years and Government’s policy of only borrowing for investment projects. All such borrowing is external and on soft terms.

Fiscal policy will therefore be slightly expansionary in the coming two years. The public sector investments will give a boost to the construction industry, which will be a major contributor to overall economic growth.

Monetary Policy

This generally expansionary fiscal stance will need to be carefully monitored by the Central Bank in its conduct of monetary policy and control. It is important for economic growth that, on the one hand, sufficient credit is available for the private sector but that, on the other, this does not lead to a deterioration in the external position or create inflationary pressures in the domestic economy. Monetary policy will therefore target domestic credit growth sufficient for private sector expansion consistently with achieving inflation of less than 3% pa, maintaining a competitive exchange rate and foreign exchange reserves equivalent to six months imports.

The experience which CBS has gained in 1998 and 1999 in the use of indirect instruments of monetary control will be very valuable as it meets the likely monetary policy challenges of the next two years. Private sector domestic savings have been consistently negative in recent years. The saving investment gap has been fitted by remittances and aid inflows resulting in positive national savings. Financial sector liberalization, more competition in financial intermediation and the gradual development of capital markets are to result in an improvement in private sector domestic savings ratio.

For additional reports from the Samoa Observer, go to PACIFIC ISLANDS REPORT News/Information Links: Newspapers/Samoa Observer.

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