In the 2016/17 financial year which is from July, 2016 to June this year, goods imports are projected to have grown by 10.2 per cent following a growth of 10.7 per cent in 2015/16.
According to a statement in Book 1 of the Appropriation Bill, in 2016/17, it is estimated import “leakage” will run at approximately 41 per cent.
This means that for every dollar spent in the Cook Islands economy, 41 cents will flow overseas.
The statement says the high import levels expected in the 2016/17 financial year are having a negative impact on economic growth through reducing net exports estimates to below 2015/16 levels (a decrease from $130.7 million to $127.8 million in 2016/17).
“These forecasts reinforce the reliance that the Cook Islands has on foreign goods in order to experience economic growth.”
The statement authorised by Finance minister Mark Brown says growth in construction and the expectation of further growth in this sector, based on a surge in building approvals, in addition to strong government capital investment, is having an impact on the value of crude materials and machines, transport and equipment imports.
Imports of these items are expected to have increased by 46.9 per cent and 34.3 per cent respectively in 2016/17.
This, the statement says, is off the back of strong growth in 2015/16 in the same sectors (33.9 per cent for crude materials and 34.1 per cent for machines, transport and equipment).
“Imports of beverages and tobacco grew by 32.5 per cent to total $11.9 million in 2015/16. Other sectors that experienced growth, albeit at slower rates in the same period were food and live animals (3.5 per cent), basic manufacturing (2.5 per cent) and miscellaneous manufactured goods (13 per cent),” says the statement.
However, the value of mineral and fuel imports decreased by 2.9 per cent in 2015/16 due to continued decreases in fuel prices.
Chemicals imports also dropped by 4.3 per cent.
Looking at the future, the statement says imports are expected to grow in 2017/18 on the back of expected strong construction growth, capital projects and visitor arrivals.
Import growth is expected to slow from 2018/19 once current planned capital projects slow, although maintained tourism arrivals should keep imports buoyant, it adds.
“In the case that new capital projects arise…imports would be expected to increase in line with these – largely due to sourcing of raw materials and required machinery from overseas.”
The export industry performed strongly in 2015/16, increasing by 15.9 per cent to $22.3 million.
But a decrease of 13.5 per cent to $19.3 million in exports for the 2016/17 financial year was forecast due to several factors.
“This growth is largely attributed to growth of 18 per cent in the export value of fresh and chilled fish,” says the statement.
“Manufactured exports also increased by 4 per cent, albeit from a low base, to $313,000 from $301,000.
“These improvements were offset by slight decreases in exports of agriculture of 8.6 per cent, or $40,000, largely due to a decrease in noni exports from $362,000 to $139,000. It is expected that noni exports will rebound in 2016/17, with a total of $238,000 of noni exports in quarters 1 and 2.”
Meanwhile, due to the strong growth in imports, a negative merchandise balance of $157.9m was forecasted for 2016/17, an increase from $138.5m in 2015/16.
“The increase in imports in 2017/18 is expected to worsen the balance, before improving slightly over the forwards following a decrease in capital projects.”
The statement also says despite the increasingly large deficit in the merchandise balance, the overall trade balance is highly positive due to strong exports in services that result from tourism.
“After falling slightly in 2016/17 to 127.8 million from $130.7 million in 2015/16 as a result of high imports, the overall trade balance is expected to improve from 2017/18 to $138 million.
“The trade surplus is expected to grow over the forwards in line with growth in tourism spending.”