The Government’s books have been opened, and strong growth is projected over the next three years as the country hopes to climb out of Covid-19-related woes.

The Pre-Election Economic and Fiscal Update (PEFU), compiled by the Ministry of Finance and Economic Management (MFEM), went public on Monday afternoon.

It predicts GDP growth of 17.1 per cent for the 2022/23 financial year, 11.2 per cent in 2023/24, and 3.5 per cent in 2024/25.

This comes off the back of negative growth of -7.9 per cent in 2019/20 and -14.6 per cent in 2020/21, with the PEFU noting that these years were significantly affected by the “financial shock” of Covid-19 and border closures.

“In 2021/22, with six months of borders being open to some markets (primarily New Zealand) has seen economic performance turn around somewhat, with 12.1 per cent growth expected (from a low base) on the due to an expected total of 50,000 visitors,” the PEFU says.

“The economic outlook is largely determined by the speed at which visitors return to the Cook Islands. With uncertainty surrounding airline links and the broader international travel situation still not completely returned to ‘normal’, conservative assumptions have been used in developing these forecasts.”

Rarotonga businessman Fletcher Melvin said the PEFU's predictions were “optimistic”, but achievable.

“I think there is going to be an increase in growth, maybe not as high as the PEFU predicts, but it’s certainly possible,” Melvin said.

“If you go around the resorts and markets, things are certainly looking good.”

However, Melvin said there was a need to look at the global situation, with increased inflation and the event of a worldwide recession something to be wary of.

“But right now, the labour issue is number one. A lot of businesses have staffing shortages as a result,” he said.

“If we want to meet those numbers (in the PEFU), we need more access to people. Right now, a number of businesses can simply not meet demand.” 

Cook Islands Tourism Corporation chief executive Karla Eggelton said “at this time we are tracking ahead of forecast predictions so current numbers are realistic”.

“We should be reminded that Cook Islands is incredibly susceptible to airline movements, and things can change overnight without notice,” Eggelton said. 

“If this occurs then we remain optimistic that we are able to pivot and access new opportunities to realise these numbers.”

The PEFU notes the growth for the whole year is assumed to be free of border-closures, bringing the economy back to the same nominal size as pre-Covid-19.

“Part of this growth is in expected higher inflation, with a combination of capacity constraints within country (particularly in the form of labour) and global issues on the supply chain and energy price fronts pushing prices higher,” the PEFU says.

Cook Islands Tourism Industry Council president Liana Scott said although Cook Islands was experiencing fantastic comparable growth at the present time, there was “still concern for our shoulder low season, particularly without a North American or Australian direct connection”.

“I certainly hope for our economies’ sake that the Cook Islands remains a priority to these carriers,” Scott, the general manager of the Muri Beach Club Hotel, said.

However, the PEFU also notes the scale of the economic impact to the Cook Islands is highlighted in the total taxation revenue currently estimated at $107.6 million in 2021/22, just 67.6 per cent of 2018/19 pre--Covid levels ($159.1 million), but an improvement of 24.3 per cent over 2020/21 taxation revenue of $86.5 million.

Meanwhile, taxation revenue forecasts indicate that total tax revenue will increase to $139.3 million in 2022/23, an increase of 29.5 per cent on 2021/22 levels, primarily driven by recovery in income tax levels and an increase in departure tax.

The PEFU also predicts the Government will run fiscal deficits in the 2022/23 financial year ($39.8m), as well as in 2023/24 ($5.2m), before returning to a fiscal surplus in 2024/25 of $3.4m.

“These projections are sensitive to actual economic recovery in GDP along with actual Government expenditure in 2022/23 and 2023/24,” the PEFU says.

“The estimated performance against the fiscal rules is based on conservative economic and fiscal estimates, which assume a gradual economic recovery and full expenditure of Government’s appropriation in each year. Considering the significant uncertainty inherent in the forecasts due to the ongoing impacts of Covid-19, a conservative approach remains prudent.”