P.M. downplays bank warning

“We have brains too.”

That is Prime Minister, Tuilaepa Sa’ilele Malielegaoi’s response to the latest warning from the International Monetary Fund (I.M.F.) about Samoa’s “rising debt.”

Speaking to the media yesterday, the Prime Minister reassured that there is nothing to be alarmed about.

“There are times when we have to use our brains too,” Tuilaepa said. “We don't have to just swallow (whatever advice) is given. We have to use our brains and make a decision that best suits our situation.”

Tuilaepa was asked for a comment following the latest caution issued by the I.M.F., urging the government to curtail the accumulation of any more debt.

The warning followed a visit by an I.M.F. delegation to Samoa last week, led by I.M.F’s senior economist, Geoffrey Bannister.

“The Samoan government has reacted appropriately to increase expenditure for recovery and reconstruction in the face of recent external shocks, including the global financial crisis, the tsunami and cyclone,” Mr. Bannister says.

“However, public debt has risen rapidly in recent years, raising risks to sustainability and leaving little fiscal space to address future disasters.

“It is thus necessary to begin a process of gradual fiscal consolidation, once the recovery has taken hold.”

Prime Minister Tuilaepa said it was not unusual for major financial institutions to issue such warnings.

As a matter of fact, he recalled that between 2003 and 2004, the I.M.F. issued a similar warning.

It called on the government to stop four major projects at the time.

These projects included the construction of the SamoaTel headquarters at Maluafou, Virgin Samoa joint venture, the construction of Aggie Grey’s Resort at Mulifanua as well as the construction of Development Bank Building on Beach Road.

“I looked at it (the warning) and I said to Cabinet to go ahead (with the projects),” he said. “We have brains too.”

The Prime Minister reiterated that it is not the amount of a country’s debt that its leaders should be worried about. Rather, it is a country’s ability to service the debt.

In Samoa’s case, he assured that Samoa’s debt service capacity is stable, saying the country is generating more than enough revenue to sustain the debt.

The caution from Mr. Bannister this week is not the first time I.M.F. has warned Samoa.

Last year, I.M.F. also cautioned the government against resorting to further "external loans" as part of the post Cyclone Evan recovery effort.

The Bank instead urged the government to secure "grant financing as much as possible."

Now, the latest warning from I.M.F follows a World Bank prediction that Samoa’s debt to Gross Domestic Product (G.D.P) ratio is expected to hit the 65 per cent mark in the next fiscal year.

According to the World Bank, public debt to G.D.P. ratio has increased from 34 per cent in 2007-2008 to 62 per cent in 2012-2013, shifting from moderate to high risk of debt distress.

I.M.F. has also cautioned against a number of initiatives put in place by the government to facilitate the flow of credit to the economy.

Such initiatives include the establishment of the Unit Trust of Samoa (U.T.O.S.) and subsidized lending through the Development Bank of Samoa and the Samoa Housing Corporation.

“While these initiatives have provided resources and breathing space to the private sector and state owned enterprises, they may also result in the transfer of risk to the government’s finances and subsequent contingent liabilities that could increase the public debt in the future,” the bank said.

“Enhanced financial sector supervision by the C.B.S., covering all financial institutions, will thus be important to minimize a potential build up of risk in the financial system.”

Prime Minister Tuilaepa has constantly dismissed fears about the country’s foreign debt.