After more than a decade of strong economic performance, the global recession and 2009 tsunami dealt Samoa major setbacks. Real per-capita income growth since the mid-1990s has been significantly higher than for most comparator countries. Prudent fiscal and monetary policies and structural reforms underpinned this performance. However, the global recession hit parts of the economy severely, notably manufacturing. In addition, construction also recorded a significant decline, in part reflecting the unwinding of activity related to the South Pacific Games, while agriculture and fishing suffered from poor harvests. As a result, real GDP fell 5 percent in FY 2008/09, recording the worst slump in two decades.

Nevertheless, Samoa’s external position remained comfortable. The current account deficit narrowed in FY 2008/09 (on provisional data) as remittances and tourism receipts, Samoa’s main foreign exchange earners, continued to grow. Official reserves remained stable, well above the central bank’s target.

The tsunami in September 2009 caused human suffering and damage to physical infrastructure, including tourism, of an unprecedented scale. Beyond the human cost, the physical damage is estimated by the UNDP and the World Bank at US$60 million (over 10 percent of GDP), but the cost of infrastructure rehabilitation, strengthening social safety nets, investing in disaster protection, resettlement, and lost tourism earnings is expected to be significantly higher.

The authorities responded early in the global recession with monetary and fiscal stimulus. The Central Bank of Samoa (CBS) has lowered policy rates (CBS securities overall rate) by nearly 500bps since mid 2008 to ¼ percent. The government also started to increase development spending in 2008 and the pre-tsunami fiscal deficit was budgeted to double to over 10 percent of GDP in FY 2009/10, largely financed by grants and concessional loans.

A massive humanitarian relief effort was mounted within days after the September 2009 tsunami and attention is now shifting toward implementing a recovery framework that focuses on maintaining access to basic health and education services, infrastructure rehabilitation, resettlement and investments in disaster risk reduction. Given the poverty implications of the disaster, the framework is integrated with the Strategy for the Development of Samoa 2008–12, Samoa’s blue-print for poverty reduction and growth.

A strong initial response from private overseas remittances and donor support, including the Fund’s emergency assistance, have helped offset balance of payments pressures so far, with official reserves rising to US$130 million at end February 2010 (4 months of prospective import cover).