Bracing for the worst

Monday 3 August 2020 | Written by Rashneel Kumar | Published in Economy

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Bracing for the worst
“The window of opportunity for us to make the most of the Covid free bubble with New Zealand is closing fast and is essential for it to be established in August or late September.” Fletcher Melvin.

Private Sector Taskforce says the roll on effect of less revenue in the economy would have an effect on them first but eventually the public sector.

Cook Islands is on the brink of its worst economic collapse if talks of an air bridge with New Zealand doesn’t materialise soon, says the Private Sector Taskforce.

According to the Asian Development Bank’s latest Pacific Economic Monitor report, each month without tourists costs the economy about three per cent in lost GDP.

It predicts the country’s economy will contract by 15.4 per cent by this financial year which concludes in June 2021, due to a sharp decline in tourist arrivals. This will cause significant economic and social damage, the Philippines-based development bank said.

Taskforce chair Fletcher Melvin says he believes the report is correct and that the damage “we will face will be greater than anything we would have experienced in the past due to the fact the global economy is facing an ongoing economic crisis”.

“The window of opportunity for us to make the most of the Covid free bubble with New Zealand is closing fast and is essential for it to be established in August or late September,” Melvin said.

“Businesses are already hurting unfortunately redundancies are happening and this will accelerate once payroll subsidies end after September.”

Melvin said the roll on effect of less revenue in the economy would have an effect on the private sector first but eventually the public sector.

“There will be less revenue to pay for government services which in the long term effects the health of the nation.”

According to the Asian Development Bank report, the crisis in the mid-1990s saw the Cook Islands GDP decline by 11 per cent between 1996 and 1998, driving a 16.9 per cent decline in the resident population due to emigration to New Zealand (and later, Australia) because of public service cuts. The 2008/09 financial crisis saw a decline of 3.5 per cent of GDP in 2008.

“The difference between the mid-1990s and 2008 contractions compared with the present crisis is that the impact of Covid-19 is significantly larger because of the collapse of the tourism sector,” the report said.

Melvin agrees the damage to the economy from zero tourism could lead to an “exodus of people offshore in search of employment which will lead to further issues as was the case in 1997 and 2007”.

“We should take some comfort in that there are a lot of people in both the private and public sector who are working day and night to mitigate the factors above.”