Samoa’s external debt is edging closer to distress levels with the amount the government owing creditors increasing by more than $68 million.
According to the Ministry of Finance’s (M.O.F.) Quarterly Economic Review (Q.E.R.) No. 63, the official government debt outstanding at the end of December in 2013/14 stood at $987.84 million, an increase of $68.03 million over the same period in the 2012/13 financial year.
“This amount is equivalent to 61.8 per cent of G.D.P. (Gross Domestic Product),” the Ministry reports.
“Multilateral and bilateral loans accounted for 58.5 per cent (or) $577.52 million and 41.5 per cent (or) $410.32 million, of disbursed outstanding debt (D.O.D.) respectively.
“Total debt servicing stood at $7.29 million for the December quarter of 2013/14, an increase of $0.27 million from the comparable quarter of the previous year, 2012/13.
“This was equivalent to 4.7 per cent of commodity and services exports.”
The Ministry says that in the year 2013, total debt servicing increased by $3.29 million over the previous year (2012) to stand at $33.74 million.
“This was equivalent to 6.2 per cent of commodity and services exports,” it says.
Turning now to the trade deficit, the M.O.F. reports that it widened by 12.9 per cent over the same quarter of the previous year, to stand at $182.73 million in the December quarter of the 2013/14 financial year.
“This was reflected in the increase of 11 per cent in imports of goods and a decline of 8.1 per cent in export earnings,” the Q.E.R. reads. “The current account balance turned around from a surplus of $25.30 million in the comparable quarter
of the previous year to a deficit of $9.30 million in the fourth quarter of 2013/14.
“This result was driven by the expansion in the merchandise trade deficit and the decline in the balance of trade in services during this period.
“The capital account fell by 30.1 per cent throughout this period.
“The overall balance of payments account has turned around from a deficit of $9.60 million in the corresponding quarter of the previous year to a surplus of $0.40 million in the reviewing period.”
In the year 2013, the decline of exports by 22.5 per cent and the increase of imports by 6.5 per cent has led to the expansion of the merchandise trade deficit by 9.7 per cent over the previous year (2012), the Ministry reports.
“Furthermore, the decline in the deficit of goods, services and income resulted in a downward trend in the current account deficit by 25.4 per cent over the period,” the Review says.
“Though the capital account had declined throughout this period, the overall balance of payments account turned around from a deficit of $6.70 million in 2012 to a surplus of $8.20 million in the reporting year (2013).”
The Ministry also reports that while tourist arrivals increased by 0.2 per cent, tourism earnings declined by 3.3 per cent over the comparable quarter of the 2012/13 financial year. “On an annual basis, both tourism earnings and visitor arrivals declined by 7.0 per cent and 5.3 per cent respectively over the year 2012,” the M.O.F. says.
“This result was partly caused by the cyclone Evan damage to the tourism sector.
“Remittances recorded a decline of 4.7 per cent from the corresponding quarter of 2012/13 but for the year as a whole there was an increase of 2.3 per cent over 2012.
“For 2013 remittances were valued at $415.53 million.”
External debt climbs, the trade deficit widens and the tourism dollar drops the Ministry of Finance reports in its latest Quarterly Economic Review
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Good news
Now for some good news, the Ministry says the level of economic activity in the Samoan economy continued to improve with an increase of 3.7 per cent in constant price G.D.P. in the December quarter of 2013/14 relative to the December quarter of the previous year (2012/13).
“This result was largely driven by the recovery in several sectors of the economy that were previously affected by cyclone Evan in December 2012,” the Q.E.R. reads.
“The agriculture sector was the leading industry with the largest contribution to economic growth followed by the construction industry.
“The total number of formal paid employment stood at 23,411 at end of December 203/14, an increase of 12.4 per cent from end December 2012/13.
“Employment in the secondary and tertiary industries increased by 6.7 per cent and 20.1 per cent respectively whilst the number employed in public administration declined by 0.3 per cent over this period.”
P.M. Tuilaepa on foreign debt
Earlier this month, the Office of the Press Secretariat issued a statement from Prime Minister, Tuilaepa Sa’ilele Malielegaoi, in response to growing concerns from his opponents about Samoa’s external debt.
According to Tuilaepa, when paying external debts, there are two important indicators you have to look at. They are foreign reserves and government revenue.
“Our foreign reserve balance which gravitates up to six months is very strong,” he said.
Though Samoa has debts of around $960 million, Tuilaepa says the government is only paying a small fraction annually because the country has been borrowing on soft terms.
“Our debt service ratio is therefore quite manageable. So there is nothing to be worried about.”
In 1980, the Prime Minister said, Samoa only had $15 million tala in external debts and “we had huge problems in paying because we ran out of reserves.”
“Everybody closed their doors to Samoa and we could not acquire any loans.” “So that is what I have been trying to explain to the Opposition, time and again. It is not the total sum of the debts that is important, it is what you are required to pay each year.
And your ability to pay them."
“Nearly all our external loans are at soft terms. Not only are we given very low interest rates – between one and two percent – but the duration of payment is over 20 years. Some other loans only require us to pay the interest for the first 5 to 10 years.”
Tuilaepa also addressed concerns about the debt-to-GDP ratio.
“GDP relates to the total income earned in the country,” said P.M Tuilaepa.
“Our GDP at the moment is approximately $1.6 billion. So if you calculate the debt-to-GDP percentage, you have the total debt as the numerator and the GDP as the denominator, multiplied by 100.
“If you want to improve that percentage, then you build up your denominator, the GDP. Or in simple words, you grow the economy.
“How do you do that? By fiercely engaging in all forms of national development. Establishing and pursuing international development partnerships, attracting foreign investment, building hotels, building IT and communications capabilities, building roads,
investing in energy delivery and generation, building airports, building wharves, stimulating business, promoting tourism, developing education so that we have smart, educated and employable young people and improving health service so that we have a strong and healthy population.
“At the same time, we have to safeguard the environment, particularly the soils and water supply as well as promoting our customs, values, traditions and material culture because that is our identity."
The Prime Minister says that many times Government’s vision and pursuit is misconstrued by the Opposition and the media. And in turn, the public and overseas observers tend to be misled.
“I really don’t blame them,” he said. “Because these are complicated issues that only those with a background in finance and development understand.”
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