Finance Minister Mark Brown says drawing up the nation’s Budget for the coming year was like voyaging on a vaka through an economic storm.
“We have been and are still being bashed by strong and dangerous headwinds,” he said. “Those winds are in the form of some severe economic challenges that will affect everyone in our country, either directly now, or less directly as our economy absorbs the impact of this severe shock.”
The 2020/21 Budget, the Finance Minister said, was about steering the country, “our people, our vaka” through this storm, to safety and shelter on the other side.
Government’s operating expenditure is forecast at $232 million for 2020/21, a little over a quarter of that, $76 million, is earmarked for Phase Two of the Economic Response Plan.
Government will draw down on debt agreements to borrow $70 million in 2020/21, and there is an expectation to draw down another $17 million in 2021/22.
Brown told Cook Islands News that the country could borrow money from the Asian Development Bank at a 1 per cent concessional rate.
Cook Islands’ relatively low debt-to-GDP ratio meant the country had options: “Because of our very good debt position, the banks are falling over themselves to try and get us to borrow.
“We don’t want to get into a situation where we have to borrow every dollar, so we’re trying to get as much funding as we can through other avenues, before we go down the borrowing route.”
Brown told Parliament that as the economic recovery gained steam revenues would begin to improve by 2022/23, allowing the government to begin paying down the additional debt. But in order to understand what direction the vaka was headed in if the Government was fiscally responsible, it was important to understand where it had been.
Last year’s Budget was the first of new Medium-term Fiscal Framework and implemented the first year of the medium-term fiscal strategy.
That budget saw a move to a four year planning horizon for Government, and the inclusion of what are called counter-cyclical fiscal measures. “To put it simply that means when times are good we put money aside for a rainy day,” he said.
As part of that strategy, $56.7 million was transferred into a stabilisation account. “Those funds are a blessing, and will position us well to face the huge challenges ahead.”
The first three-quarters of the fiscal year had been on track for another year of record growth; there were record arrivals in July 2019 with 18,500 tourists holidaying in the country.
International arrivals through to February this year were greater than the year before.
And then the Covid-19 pandemic swept the globe. Countries around the world shut their borders to stop the spread of the virus. And the tourism industry came to a standstill.
From July through to September this year it is predicted 4196 tourists will travel to Cook Islands, from New Zealand, with a further 14,228 from October to December.
In 2021, it is forecast that 124,000 tourists from Australia and New Zealand will travel to Rarotonga.
Tourists from the Northern Hemisphere won’t return to the country’s shores until 2022.
While they don’t want to make the mistake of putting “all our eggs in one basket”, and diversification of the economy is one of the key aspects of the Economic Response Plan, Brown said the Cook Islands economy has roughly a 65 per cent exposure to the tourism industry.
Cook Islands Tourism Industry Council vice president Liana Scott said there was hope Kiwis would start holidaying in Rarotonga sooner rather than later.
It was more important to have some tourists on the ground, staying in holiday homes and resorts and spending money, as opposed to none at all, she said.
“Air New Zealand’s system of crediting flights that had to be cancelled due to the Covid-19 pandemic, could be a blessing in disguise as well, when people are choosing where they want to go on holiday,” she said.
Diversification was great in the long term, but for those who had invested in the tourism industry and had new debt, while grateful for Government’s support, they were reliant on getting back to business.
“Those who have invested in holiday homes aren’t going to pull down their home to make a vegetable garden, it’s not financially viable,” she said.
Fletcher Melvin, chairman of the Private Sector Taskforce, said they were not able to comment in much detail until they have had a chance to thoroughly go through the Budget numbers, which they plan to do in the next few days.
He thought tourism projections looked about right. "There's still a big question mark over when the borders will reopen to New Zealand,” he said.
“While we hope for a rapid return, we also have to prepare for a slower return."
- additional reporting Jonathan Milne