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Cook Islands economy strongest in South Pacific

Monday 16 April 2018 | Published in Economy


A recent report released by the Asian Development Bank has indicated that the Cook Islands economy continues to be the strongest performing in the South Pacific.

The Asian Development Outlook (ADO) report analyses economic and development issues in developing countries throughout Asia and the Pacific. The report includes forecasting the inflation and gross domestic product (GDP) growth rates of countries throughout these regions.

The Cook Islands’ GDP grew 3.5% in the fiscal year ending June 30, 2017. This is substantially lower than the 8.8% growth rate that was recorded in the previous fiscal year.

However, it is still the greatest rate of GDP growth recorded for any South Pacific nation during the last fiscal year.

The ADO expects that trend to stay steady, forecasting a 3.5% rate of growth for the Cook Islands GDP in the coming fiscal year. The Cook Islands also has the highest percentage of its working-age youth population in employment, with more than 40% of eligible youth being employed.

Although the overall number of visitors to the South Pacific declined by around 3%, tourism still supported moderate growth in the Cook Islands.

Visitor arrivals to these shores rose by 14.9%, with most additional visitors coming from New Zealand.

The increase in tourism contributed to growth in retail, hotels and restaurants, transport, and communications. Utilities expanded by an estimated 24.2% with the implementation of water supply, sanitation, and renewable energy projects on the outer islands. Fishing was the only industry to not expand throughout the last fiscal year.

Average food prices were on the rise, but prices for locally produced goods and services declined while prices for imports increased. High growth in agriculture-strengthened supply to the food manufacturing industry helped to stabilise prices for domestically produced food.

The Cook Islands regularly records current account surpluses due to the high income from tourism, offsetting deficits in merchandise trade and investment income. The current account surplus was estimated to equal 25.5% of GDP for the 2017 fiscal year, only a slight change from 2016.

The improved collection of income and value-added taxes, as well as increased fisheries revenue and grants, saw the fiscal surplus equal to 7.3% of GDP in 2017. This is an increase from 3.9% in the previous year. Net public debt, all of it external, fell from the equivalent of 24.8% of GDP in 2016 to 17.9% in 2017. The government’s limit is 35.0%.

Expansion is projected to continue at 3.5% in 2018. Significant contributions are expected to come from tourism and large projects being undertaken to improve water supply, sanitation, and internet connectivity. However, growth is projected to slow down slightly next year, as these infrastructure projects come to an end.

The ADO expects a decline in capital expenditure that will be largely paralleled by reduced grants from development partners. However, tax collection is expected to improve.

Despite projected fiscal deficits, economic growth and cash balances “should keep public debt manageable”. Debt is expected to be no more than the equivalent of 28.1% of GDP in 2018 and 25.0% in 2019.

Increased tourism earnings are expected to offset higher imports of goods and services for public investment projects. However, the surplus will narrow in 2019 because of increased imports.

The ADO expects the Cook Islands to become the first Pacific Island nation to reach developed status based on income per capita. “Any resulting decrease in grant inflows can be countered with improved mobilisation of domestic revenue” the report says. “With few feasible livelihood options, the country can only become more dependent on tourism”.

The report says that the Cook Islands has “benefitted from tourism for many years” and supports the steps taken to mitigate the risks posed by disasters.

It also says that ensuring the sustainability of tourism “requires policy and infrastructure development that is sensitive to the impact of tourism on the environment and local sociocultural frameworks”.

The report goes on to say that “as in other tourism-dependent economies, the Cook Islands may wish to target the higher end of the market to rationalise capacity expansion without sacrificing potential income”.