Expert says economy durable

Friday October 19, 2018 Written by Published in Economy

A repeat of the 1996 economic crisis would only happen if the tools that government had initiated back then were undone, says local economist Vaine Wichman.


Following the financial crisis that year, the government carried a comprehensive economic restructuring programme that also included downsizing of the public sector by 50 per cent.

Twenty years on, former politician Nandi Glassie said the staff numbers in the country’s public service are growing as they did before the crisis.

The former health minister, in a paper on the state of the public sector in the Cook Islands for his doctorate (PhD) studies, has warned the Cook Islands faces a similar situation to the 1996 economic crisis that almost left the country bankrupt.

Wichman said extensive legislative guidelines and tools enacted have established shared governance, transparency in policy implementation, and finance and economic checks.

“For example when a business or community is thriving and there is growth, there are then opportunities to do a bit more. Same with the growth in the economy,” she said.

“Besides looking at public sector’s growth, it’s good to pair it with employment growth in private sector and community sector organisations and why this has happened.”

In 1996, the government embraced measures over the short-term to stabilise and improve public finances through reductions in expenditure, asset sales and the retirement and restructuring of debt which was estimated at $150 million.

According to a report by the Office of the United Nations High Commissioner for Human Rights (OHCHR), government employment was reduced by more than half, reform legislation with respect to taxation, public finances, the public service and other related matters were passed.

The economic restructuring also involved accelerating privatisation, including sales of government-owned hotels and the media and the deregulation of the sale of liquor, the report added.

Wichman said in the two decades since the public sector reform, the economy has weathered two global financial crises fairly well as an example of managing the economy.

“Today private sector led growth and governance laws and policies that guide management of our country resources keep tabs on the external and internal forces that are always going to be a challenge,” she said.

Glassie said the cost of running the country is rising partly due to the increase in the number of public sector agencies.

The 1996 financial crisis saw the country in a huge deficit and the government on the brink of bankruptcy.

In a bid to stop further deterioration of the economy, the government shrank the number of ministries from 52 to 22, cutting public servants from 3168 to 1499.

The public sector agencies have risen again to 52 and, and Glassie said if not managed properly, it could result in a repeat of the 1996 economic crisis. As at June 30, 2017, the public service was employing 2186 full time people.

Meanwhile Wichman said Glassie’s comment on the need to improve public sector outputs and productivity were good points to heed in the economic equation.

In a financial year, Glassie said the major public expenditure items include infrastructure, Crown payments including welfare, operations (delivery of services), the cost of running Parliament, Island Governments/Councils and ministers’ support offices and debt servicing.

“The overall costs of running the government is $121 million. While funding shortages are holding back the potential of some agencies, capability gaps, structural inefficiencies, system and process inadequacies, and poor work practices are at the core of many performance problems.” 

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