A report in the Appropriation Bill presented by Finance minister Mark Brown in Parliament on Friday states the Cook Islands economy had experienced a strong run of real economic growth in recent years, averaging 3.7 per cent per year from 2011/12 to 2016/17.
Over the past three years, the report said, tourist arrivals have risen by an average of nearly 11 per cent per year, from 121,772 in 2014/15 to 164,800 in 2017/18. July 2018 saw the most visitors the Cook Islands has ever seen, with 18,332 arrivals.
The value of residential and commercial (commercial, tourism and community buildings) building approvals had also been much higher than trend in the three years to 2017/18, added the report.
“The rise in residential approvals appears to be for holiday houses, rather than residential living, driven by tourism growth. Commercial approvals have been led by a number of large community projects, as well as a significant spike in tourist accommodation approvals,” the report said.
The report also said government capital expenditure, including on a number of large signature projects such as renewable energy in the Pa Enua and Te Mato Vai, had risen from an average of $13.6 million from 2012/13 to 2014/15, to $15.7 million over the past three years.
This strong economic performance may result in the graduation of the Cook Islands from the Organisation for Economic Cooperation and Development’s (OECD) Official Development Assistance (ODA) eligibility list in early 2019.
And if this happens, then the Cook Islands will lose the ODA it receives from foreign countries every year.
Finance minister Brown in his Budget speech last week said this year the government estimates the country would receive $61 million in official development assistance, the majority of which will fund ambitious capital projects such as Te Mato Vai and the Manatua Cable.
Work is currently being undertaken by the Statistics Office to develop comprehensive balance of payments data, which will be used to determine the Cook Islands’ Gross National Income for the past three years, said the report.
This data will be used by the OECD to determine whether the Cook Islands has reached the level of economic development required to graduate to “high income status”.
“Preliminary analysis by the government suggests that the Cook Islands economy is currently performing above its potential level – that is the Cook Islands is facing a positive output gap,” the report said.
“While there is little sign of economic overheating in the leading economic indicator, the CPI, there are increasing signs of capacity constraints emerging in the labour and housing markets, and the construction sector.
“As a result, the government has maintained consistent capital expenditure estimates in the 2018/19 Budget to ensure that it does not further fuel the constraints in these sectors.”
In summary, the report said the outlook for Cook Islands economy was positive albeit at lower levels than seen in recent years, with real GDP (gross domestic product) growth expected to average 1.7 per cent per year.
The report also said over the longer-term, a number of planned capital projects were expected to increase the productive capacity of the Cook Islands economy, increasing the “potential GDP” in future years, helping to ease capacity constraints.