The Asian Development Bank has issued a dire recession warning for Cook Islands, in a major new global report.
It comes as Finance Minister Mark Brown announces more belt-tightening.
• Government is deferring pay-rises for 2000 public servants.
• Brown encourages landlords to cut rents: “If you can afford to help another family out ... please do so.”
The Asian Development Bank says the economy will be “severely affected by a collapse in tourist arrivals” and will contract by 2.2 per cent. As GDP shrinks, inflation is projected to accelerate to 1.5 per cent this year, then 1.7 per cent next year.
That inflation will be driven by the need to buy in food, tobacco, alcohol and construction material, “most of which are imported from New Zealand and will be subject to significant supply disruption.”
Cook Islands had been the Pacific dragon, its economy growing nearly 15 per cent over two years – but those that fly the highest also fall hardest.
It says the surplus will turn into a fiscal deficit equal to 12.1 per cent of GDP, as company tax and VAT revenue collapses, and government blows its reserves and dips further into debt to finance its recovery package.
The Bank forecasts minimal visitor arrivals through to October, with limited recovery beginning only in December. Tourism is forecast to recover late next year, driving a 1.1 per cent surplus that year.
Mark Brown said tourism had taken a hit, but it was not the country’s only income stream: approximately 35 per cent of economic activity was not tourism related. “Look around, not every business is shut,” he said.