The mission, which visited at the invitation of the Ministry of Finance and Economic Management, consulted with senior members of the Cook Islands Government, statutory authorities, state-owned enterprises (SOEs), the private sector and civil society representatives.
Financial Secretary Richard Neves said the mission commended the government for sustaining macroeconomic stability during a period of volatile and low economic growth.
It outlined the stability of the Cook Islands fiscal position – a current account surplus, stable prices and a sound financial system.
“Prudent financial management and delays in implementing public sector capital investments have resulted in a comfortable fiscal buffer of established public financial reserves including those for debt servicing and disaster management,” the mission said in a statement.
The Cook Islands measure of net debt (gross debt less debt servicing reserve) at 23.5 per cent of GDP, is well below the international benchmark for a small country like the Cook Islands.
The mission noted that real economic growth declined over the last three fiscal years, but that there were encouraging signs that the decline wold taper off next year.
The greatest macroeconomic issue facing the country was its volatile and low economic growth due predominantly to low levels of investment being experienced in the country, the spokesman said.
The most sustainable manner in which to raise investment was to increase private sector investment from its current low levels, to support the positive contribution from current public sector investments.
Urging the Government to use the current stable macroeconomic environment as a platform to launch much needed structural economic reforms, the mission said reforms would assist in raising the economic potential of the Cook Islands and encourage greater levels of private sector investment in particular.
“If the Cook Islands wishes to realise a higher level of economic growth then reforms to improve productivity and encourage investment will need to be implemented over a period of time,” said Neves.
“The timing will need to be acceptable to the community. There is also a cost to not reforming, and that cost is the lost opportunities which could have accrued to Cook Islanders.”
The mission pointed out that policy reforms would need to be aimed at the land leasing framework; improving the performance and productivity of the public sector (including SOE’s); targeting welfare to assist those that were most in need; improving the banking system; easing up labour market regulation and improving immigration processes.
It acknowledged the sensitivity of these issues and encouraged the government to seek solutions in these areas in an inclusive manner.
“The absence of reforms, particularly on the land leasing framework means that the potential for economic growth will remain low, and this comes at a considerable cost to the people of the Cook Islands through lower employment generation and lower tax revenues which are required to deliver essential and quality public services and welfare support.”
Over the short term, fiscal policy could play a “catalytic” role to support economic growth. However, the mission cautioned Government that new spending programmes must be strictly limited to those that secure economic benefits to the country and support private sector investment.
The mission’s statement said that while the Government had increased spending on infrastructure in recent years, there was a need to remain focused on developing essential infrastructure such as water and sanitation.
“The Government needs to adhere to a set economic criterion for assessing spending priorities and decision making processes associated with new spending initiatives,” the spokesman said.
Neves said it was useful to take stock and to re-examine the country’s economic priorities.
“This assessment is vitally important in framing ongoing priorities and the focus for Government. It has come at the right time in the budget consultation process.”
The mission wrapped up its findings with MFEM and also made a presentation to a wider audience of public and private sector representatives. The full report of the mission is expected in the first quarter of next year.