Cook Islands is one of the eight small island developing states (SIDS) eligible for the Asian Development Bank’s (ADB) “highly concessional funding”.

Last week, ADB announced new, more concessional lending terms for SIDS to support their efforts to meet infrastructure needs, strengthen social services, and scale up investments in climate adaptation and disaster risk reduction.

The new lending terms, which took effect on October 1, 2023, represent the most concessional financing available from ADB, aside from grants. The terms include a 1 per cent interest rate, a 10-year grace period, a 40-year maturity, and principal repayments of 2 per cent per year for the first 10 years after the grace period and 4 per cent per year thereafter.

“The new terms will help reduce future debt service obligations of SIDS, which have seen eroding fiscal space and rising debt burdens due to the lingering impacts of the pandemic and subsequent global shocks,” ADB said.

ADB is the Cook Islands’ largest lender. About 76 per cent of the Cook Islands’ total debt – $212.8 million as of June this year – is from ADB.

Prime Minister Mark Brown welcomed the new concessional funding, saying the Cook Islands has been at the forefront of advocating for this type of financing facility for a number of years.

“The new lending criteria for longer terms and concessional interest rate of 1 per cent means that our ability to finance key infrastructure investments can now be affordable for our country,” said Brown, who is also the country Finance Minister.

“Infrastructure investment that catalyses economic development whilst also building resilience to the impacts of climate change is a priority for our country.

“We congratulate the ADB and its board for this bold new initiative.”

Brown said the unique challenge of being a small island economy that has graduated to a high-income basis has constrained its ability to finance much-needed infrastructure. The Cook Islands has been vocal about this for a number of years.

He referred to recent comments from the likes of Barbados PM Mia Mottley, who called for the World Bank to provide “long money,” echoing the cries of small island economies that have graduated under the “very narrow” criteria of GNI (gross national income) per capita.

The Cook Islands officially graduated to a “high-income country” status on January 1, 2020, as determined by the Organisation for Economic Cooperation and Development (OECD) standards.

The ODA graduation was expected to have a limited impact on the level of foreign aid received, particularly due to the Cook Islands’ strong economic position.

However, with the onset of Covid-19, the graduation status impacted the Cook Islands’ access to grant funding through donor partners outside of New Zealand. Instead, it relied on loan financing and New Zealand-provided Budget Support to fund the Cook Islands’ Economic Response Plan (ERP) to prevent severe economic outcomes, according to the Ministry of Finance and Economic Management in the 2023/23 Budget Book.

“However, there are indications that there will be limited consideration by donors of the impact of Covid-19 on newly graduated economies and their development status until at least 12 months of World Bank verified GNI data is available.”

Apart from the Cook Islands, Fiji, Niue, Palau, Papua New Guinea, Solomon Islands, Timor-Leste, and Vanuatu are also eligible for ADB’s concessional ordinary capital resources lending.