Location and People
The 15 islands and atolls of the Cook Islands lie in the Pacific Ocean south of Hawaii and the Equator and west of Tahiti . Spread across an exclusive economic zone of nearly 2 million square kilometers, they comprise a total land area of 240 square kilometers. The 7 northern islands are low-lying, sparsely populated coral atolls. The 8 southern islands are more elevated, fertile, volcanic isles and home to most of the population of about 13,900. Population has declined over 25% since 1996, however, due mainly to out migration to New Zealand and Australia.
Historical Background
The islands are named after the English explorer Captain Cook, who sighted them in 1770. They became a British protectorate in 1888. By 1900 administrative control was transferred to New Zealand . In 1965 Cook Islands residents chose self-government in free association with New Zealand . Cook Islanders thus enjoy New Zealand citizenship and unrestricted access to residence, work, and social benefits in New Zealand (and by extension, in Australia ). This association has profound implications for most economic management and policy choices facing the country.
Socio-Economic Conditions
Gross domestic product (GDP) growth for FY2005 (ended 30 June 2005 ) was estimated at 3.0%, slowing from 4.2% in FY2004. Activity at the Offshore Financial Center also picked up during 2005, after the country was removed from the blacklist of the Organisation for Economic Co-operation and Development Financial Action Task Force in February 2005. Inflation in 2004-2005 increased to 1.7%, mainly due to higher imported oil prices. Domestic commercial bank lending grew strongly by 11% over the course of the year, reflecting both the funding for cyclone-related reconstruction and the solid economic growth.
Tourism is the most important income generator, and tourism expenditure was estimated at about 40% of GDP in 2004-2005. In 2004-2005, total tourist arrivals strengthened by 8.8% from 1.7% in 2003-2004, bolstered by competitive airfares and a new direct flight to and from Christchurch , New Zealand , by Pacific Blue. Tourist arrivals are likely to increase by about 4% annually in the next few of years. Pearl exports increased by 84% in 2004-2005.
Key Economic Indicators
Per capita GDP (2004, current): US$9,905
| Fiscal Year (ending June) | 02 | 03 | 04 | 05 |
|---|---|---|---|---|
| Real GDP growth (%) a | 4.4 | 6.8 | 4.2 | 3.0 |
| Current acct. balance/GDP (%) | 14.0 | 8.7 | | |
| Fiscal balance/GDP (%) | 2.7 | 1.9 | 3.1 | 1.6 b |
| Inflation rate (period ave., %) c | 3.9 | 1.0 | 1.7 | 2.0 |
| Money supply (M3) growth (%) | 3.2 | 9.9 | 9.6 | |
| Debt service ratio (% of exports) | 2.5 | 3.0 | | |
| Net foreign assets (US$ m) | 17.8 | 11.3 | -3.4 | |
Problematic disparities exist between the island of Rarotonga and the outer islands. On Rarotonga as well as the main outer island of Aitutaki , tourism and pearl farming supplement public service as sources of employment and income. Employment opportunities are inadequate on the outer islands, with public service employment and welfare receipts the main sources of cash income. Significantly lower gross domestic product (GDP) per capita and substantial out migration characterize the outer islands. However, the significant resources devoted to outer island development by the Government and major bilateral donors in recent years seem to be yielding some dividends. Tourism is spreading increasingly to readily accessible outer islands.
Poverty in the Cook Islands is most commonly the result of a lack of income opportunities and inadequate access to basic services, such as health, education, and potable water. This is particularly true on the outer islands among the elderly dependent on welfare benefits and those with low levels of education and skills. There is no hunger or poverty, however, in terms of people living on less than $1 per day.
Women play an important role in Cook Island society. Although they are underrepresented in Parliament, they are important traditional leaders. They are actively engaged in nongovernment organizations. Women also have a significant role at the managerial level in the commercial sector and in government agencies.
Key Social and Poverty Indicators
| Indicators | 01 | 02 | 03 | 04 | 05 |
|---|---|---|---|---|---|
| Total population (000) a | 15.0 | 14.8 | 13.9 | 13.5 | 12.4 |
| Annual pop. growth rate (%) | 2.7 | -1.3 | -6.1 | -2.9 | -8.1 |
| Pop. below poverty line (%) | | | | | |
| Unemployment rate (%) | 13.1 | | | | |
| Maternal mortality rate (per 100,000 live births) | | 0.0 | | | |
| Infant mortality rate (per 1,000 live births) | 12.8 | 6.8 | 13.4 | | |
| Life expectancy at birth (years) | 71.9 | 71.6 | | | |
| Adult literacy rate (%) | | 100.0 | | | |
| Human development index | | | | | |
TopCountry Outlook
Real GDP growth will be around 3.5% for both 2006-2007 and 2007-2008. Tourism is an important sector; v isitor arrivals are projected to increase by 4.8% in 2005-06 before returning to around 3.8% in 2006-2007 and beyond, based on the average growth rate over the last ten years. Pearl p rices stabilized at $18-$20 per piece which has led to a value of $2.9 million for pearl exports in 2004-05, up 83% on 2003-04. The newly reestablished Pearl Authority is expected to contribute to improved coordination of marketing efforts, and it may also be appropriate to seek greater coordination with French Polynesia .
The latest information in 2006 indicates that economic activity appears to be adopting a more seasonal pattern, while larger operators in the retail and accommodation sectors are generally experiencing solid growth. Because the economy is narrowly based, on a small scale, and subject to the risks of extreme weather, national income could fluctuate in the short-term. Emigration opportunities provide one of the strongest safety nets, since Cook Islanders have legal access to both the New Zealand labor market and its welfare benefits. Nationals living overseas provide substantial income support to their families still in the country. Tourism prospects are likely to stay robust, though the industry has some problems recruiting employees. Three policy issues will affect the economy in the coming months. First, the Government has announced the removal of all import levies, except those on alcohol, tobacco, fuel and motor vehicles, with effect from 1 July 2006 . The Half Year Economic and Fiscal Update (HYEFU) estimates that in the absence of any offsetting increases in other sources of revenue, this decision would have a cost to revenue of $6.3 million in 2006-07 and would lead to a one-off reduction in the price level of around 2.2 % points. In January 2006 the Government invited submissions from the public on how best this reform could be implemented to minimize the effects on government revenue and specific industries. The risk factors include the country's vulnerability to natural disasters.
Several severe cyclones hit the country during the opening months of 2005, and the Government will contribute to the reserve trust fund to provide a buffer against economic fluctuations and natural disasters. At the same time, ADB has provided the Government Cyclone Emergency Assistance Project (CEAL), which is designed to mitigate social and economic impacts of the 2005 cyclone damage by providing concessional resources to meet the costs of the recovery under a burden-shared recovery program. In addition, a technical assistance project Strengthening Disaster Management and Mitigation that is associated with the CEAL is to (i) assist the Government in strengthening disaster and recovery management, including damage assessment, aid management, and operational coordination. The TA will establish (i) robust disaster management operations and control mechanisms to support not only the efficient and effective implementation of the Cyclone Emergency Assistance Project (CEAL), but future disasters as well.