Lifeline for the economy

Monday 1 March 2021 | Written by Melina Etches | Published in Economy

Share

Lifeline for the economy
MFEM’s new Director for Economic Planning Division, Dr. Willem Ysbrand Borren (Pim) Pim gave an economic update at the PACER Plus consultations held on Wednesday. 21022508.

Government’s Economic Response Plan (ERP) is a lifeline for the economy, says the Ministry of Finance and Economic Management (MFEM) economic analyst Dr. Willem Ysbrand Borren.

Dr Willem (Pim) Borren is the new director for Economic Planning Division. He spoke on the country’s current economic state at the PACER (Pacific Agreement on Closer Economic Relations) Plus consultations on Wednesday last week.

The government’s Economic Response Plan ERP started last March, and this financial year alone it has a budget of $71 million. A significant amount of spending and most of that money will be spent by the end of April.

While reflecting on the Economic Response Plan, Borren said in his perspective, “it has been incredibly well thought out and extraordinarily impressive”.

According to him, without the Plan, the economy would be in a far worse shape than it is, “and we probably would have lost, not only our business community but an awful lot of our people as well - worse than what we saw in 1996”.

The worry now, Borren says is to consider what will happen if the two-way quarantine free travel with New Zealand is not established by early April.

And if the travel bubble is delayed, Borren said: “It will certainly be my advice as the chief economist working out of MFEM, that we do continue the ERP.”

But continuing with the Economic Response Plan will come with a significant long-term debt to the country, he said.

The current financial deficit released in December is about $175 million – that deficit is made up of the loss of Gross Domestic Product (GDP) caused by the loss of income from inbound tourists – over $300 million a year.

According to Borren, the estimate in that half yearly fiscal update is that GDP will be down in this current financial year around 19 per cent – “much better than you might have expected”.

The 19 per cent drop is a phenomenal achievement for a country which relies directly on international tourism, representing 65 per cent of GDP, he said. “Indirectly we’ve got that number closer to 85 per cent.”

“When you’ve had such a massive shock to your economy because you are so reliant on one industry, it’s quite remarkable that we’ve managed still to keep the GDP so high,” he said.

Borren said this was achieved “mostly through the ERP… through government expenditure”.

Since the pandemic struck the private sector is unable to invest further in the country – 65 per cent of businesses are involved directly in international tourism.

As an economist, Borren is of the view that the country can’t afford “not to be spending what we are doing currently, because the GDP would be less”.

He commented that the Cook Islands have managed to protect the economy through the government expenditure which has mostly been through the economic response plan - “that’s how we protect this economy – and that’s crucial.

“Economists don’t reduce government spending at times of a recession.”

Government has also spent a huge amount of money particularly on the wage subsidy that is keeping people in the country – “because they will be needed for when the borders finally do open”.

“They’re the people who actually create the outputs that make up the GDP, so we can’t have people going offshore and not coming back – that will cause significant long-term damage to our economy,” Borren said.

“The main purpose of the wage subsidy is not only protecting some form of liability for our business community and our employers, it’s largely to keep that relationship between employees and employers which allows employees to remain in the Cook Islands.”

And most of that money is funded through debt funding.

Borren also explained that the country has received about $30 million in grants, $22 million from New Zealand alone. He said a vast amount of the money is being used to prop up the economy and the deficit that is forecasted through debt funding.

If the current situation of the borders being closed continues, Borren says additional funds will be sought from donors and creditors.

From an economic perspective, Borren applauded the ERP that was already actioned prior to his taking up employment.

He also conveyed credit to his predecessor Natalie Cooke for the Economic Development Strategies (EDS) - 10-year strategy that was approved by Cabinet in December 2020.

“It’s a fantastic piece of work, impressive for a country of this size, it is extremely well written and far reaching in terms of vision.”

Borren acknowledged and thanked the efforts of people who have contributed to it.

There are five objectives from the Economic Development Strategies (EDS): Improving equity and access for all; Transforming the economy; Developing our people and our culture; Investing in our islands and Greening our economy.

“The strategy is only a starting point…. it’s only successful as the implementation.”

Dr. Willem Ysbrand Borren (Pim) Pim has a comprehensive background in economics. He has a Ph.D. in economics and has worked as a professional economist for much of his life. Borren looks forward to supporting the MFEM team to assist the Government through its economic recovery programme.