Borrowing will be government’s key priority in the 2020/21 Budget today.
Deputy Prime Minister Mark Brown said there was an urgent need to generate income in the short term, to pay for the stimulus package after Covid-19 floored the tourism industry – the country’s major income earner.
Brown told Parliament yesterday the key focus of today’s Budget would be the need to “generate money through the economy, or borrow.”
Brown steps up into the role of Prime Minister in September – about the same time he says the money is expected to run out. “After that we will look at borrowing,” he told Newstalk ZB.
He was concerned the need to borrow the nation out of trouble would hinder government’s future investment in infrastructure.
The total gross debt held by the government was $102.05 million for the March 2020 period.
“So we may borrow ourselves to a level where we can’t borrow any more money and that’s going to be a real challenge for a country like us,” Brown said.
Brown said they needed to form a travel bubble with New Zealand by September to avoid further financial turmoil. Tourism was critical to the economy and holidaying New Zealanders would make a “huge impact”.
“For us, the tourism dollar is much more sustainable, has value greater value for the wider economy … and it would definitely be something we’d be in favour of,” Brown said.
“New Zealand comprises about 70 per cent of the tourism market. That would be enough, at this stage, for us to get some sort of traction on economic growth.”
Government’s cash reserves at March 31, 2020 were $68.87 million; they are fast running dry. The “rainy day” funds are being used up for the Covid-19 economic response.
The country is unable to tap into a number of development assistance or aid funding worth in millions due to its high income status which came into effect in January this year.
In order to access that funding, Cook Islands will need to revert back to its former status as a developing nation.
Brown said under the Organisation for Economic Co-operation and Development rules, they would have to wait for at least a year. “There are criteria that allow a country to be downgraded but it can only be done after one years’ worth of data on the country’s income can be assessed,” he told Parliament.
“According to the OECD, we are still classified as a high-income country regardless of the fact our income has taken a drastic hit with the closure of our airport and restrictions on tourism.”
Brown said they had petitioned partners New Zealand and Australia to advocate on their behalf for a speedy resolution of returning back to its former status.
They wanted the OECD to look at the case on its merits rather than going through a process that would take a year to be able to be classified again as a country that can access development assistance.