MDG Achievement and Poverty Reduction
Support for National Sustainable Development Strategies
Achievement of the MDGs and Pro Poor Policies
Private Sector Development and Enterpreneurship Development
Environment, Energy and Sustainable Development
Pacific MDG Network
Pro-poor and MDGs Acceleration Policy Analysis in Samoa (Banking, credit and financial regulation)
Sector/focus area: Banking, credit and financial regulation
A) Overall Objective
The objective of the assignment is to identify policy options and scenarios that will promote inclusive growth, job creation and poverty reduction and, consequently, contribute to acceleration of progress towards the achievement of MDGs in Samoa. Policy options should be feasible, applicable and based on a comprehensive analysis of relevant data and government policies and regulations.
B) Background
After a period of high growth in the late 1990s, economic growth in Samoa has been stagnant for the past 5 years, with negative growth in 2008 and 2009, as a result of the global financial and economic crises. Correspondingly, unemployment has risen significantly. Samoa submitted the second MDGs progress report (2010). The report shows increasing proportion of populations living below the Basic Needs Poverty line (15% in 1997, 20% in 2002 and 26.7% in 2008).
The government of Samoa is seeking UNDP’s assistance in conducting comprehensive policy analysis in order to identify potential feasible policy options to address the gaps identified in the report, particularly slow economic growth and rising poverty and unemployment, and accelerate progress towards the achievement of MDGS. This policy analysis exercise aims to guide the national, provincial and sectoral plans. It will focus on providing policy makers with concrete and applicable pro-poor policy options and scenarios, highlighting there pros, cons and expected impacts and taking into account stakeholders’ perspectives (including private sector and civil society). Policy options will be based on comprehensive analysis of the following:
a) Existing Macroeconomic policies;
b) Trade policies and balance of payment;
c) Fiscal policies;
d) Monitory policies;
e) Banking, credit and financial regulations,
f) Social policies;
g) National export strategy (developed by the ministry of foreign affairs and trade)
h) Performance of productive sectors and sectoral policies/plans (e.g. agriculture, manufacturing, tourism), identifying potential promising sectors and subsectors that may be renders as engine for growth and employment generation;
i) Labor market and employment trends;
j) Trends in poverty and income distribution;
k) Recent Households Income and Expenditure Survey (HIES) and poverty reports (2002 and 2008), recent MDG report and labor market survey;
In the fiscal year 2008/09 and the current financial year, the Central Bank adopted an expansionary monetary policy stance to stimulate the slowing economy. Whilst the Central Bank succeeded in sharply reducing the official interest rates, the market lending rates fell slowly and marginally, partially due to the position held by the Samoa National Provident Fund (SNPF) and the Accident Compensation Corporation (ACC) in the wholesale deposit market. SNPF and ACC deposits are considered by the commercial banks as “hot money”, being very large and regular sources of deposits. The lending rates also needed to remain high to match the high deposit rates. Consequently, the demand for credit continued to weaken. To avoid returning to direct controls to reduce interest rates, the Central Bank explored the possibility of injecting liquidity into the economy via selected non-bank financial institutions such as the Development of Samoa (DBS) and the Samoa Housing Corporation (SHC).
Whilst the trade account balances have worsened in the last decade, improvements in the current account balances have enabled Samoa to register overall balance of payments surpluses. Remittances which represent the most important and historically the most stable inflow in the current account are used mainly for consumption. Therefore international reserves have stabilized around the equivalent of 3.5 to 4 months of imports cover in the last 5 years.
