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Annual Report 2001

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Cook Islands

Economic performance

Real GDP in the Cook Islands grew by 3.0% in 2001. Record numbers of tourists have stimulated growth in construction and services, particularly in Rarotonga and Aitutaki. However, the loss of international air services in late 2001 due to the 11 September attacks diminished medium-term growth prospects. The government sector’s contribution to GDP has been reduced to about 55.0% of its 1994 level. The banking system is sound with a high level of liquidity supported in particular by the rapid increase in the Government’s net creditor position. Broad money at the end of September 2001 was 6.0% higher than at the end of 2000. Inflation accelerated from 3.2% in 2000 to 8.0% in 2001.

The budget was sound in FY2001 (ending 30 June), with revenues amounting to 38.8% of GDP and an operating surplus of 4.2% of GDP. Continued economic and import growth led to increased receipts of value-added tax and import levies, which explains the unexpected strong revenue growth. Expenditure was kept close to the budget estimate. However, the Government’s external debt obligations remained a concern. Adverse exchange rate movement during the past year increased the total debt in New Zealand dollar terms. Net debt was about 72% of GDP at the end of 2001, with the Government maintaining a reserve for future debt repayment.

ADB operations

Operational strategy: ADB’s operational strategy focuses on building sustainable capacity for sound economic and public sector management, promoting economic growth through private sector development, and reducing poverty. It is directed at economic and governance reform, and infrastructure and outer islands development.

Several economic and governance reforms were identified in the recently completed 2001 Economic eport, e.g., diversifying the economy by emphasizing fisheries and agriculture, improving human resource development, strengthening prudential supervision of the banking system, and bringing the benefits of development to the outer islands.

Policy dialogue: Policy dialogue in 2001 focused on continued economic development by diversifying the economy, strengthening and ensuring an appropriate role for the private sector, extending the financing available to small businesses, improving the prudential regulation of the financial sector, and expanding the Superannuation Fund. It also focused on improved governance by clarifying the roles of island councils and island administrations, developing suitable institutional capacities and business procedures for the outer islands, enhancing transparency in public sector operations, and institutionalizing performance-based management of the public sector; and promoting better environmental management by extending environmental monitoring and regulation to the outer islands.

Loans and technical assistance: ADB approved one loan of $2.2 mil- lion for a waste management project, and approved two technical assistance grants totaling $500,000, one for preparing the outer islands development program and the other an advisory technical assistance for improving corporate management in government services. ADB continued to play an honest broker’s role in assisting the Government’s effort in restructuring its debts to bilateral creditors.

Project implementation: Since joining ADB in 1976, the Cook Islands has received 12 loans, of which 2 were active at the end of 2001. Contract awards totaled $600,000, bringing the cumulative figure to $25.2 million. The contract award ratio was 16.8%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $600,000, bringing cumulative disbursements to $22.8 million. The disbursement ratio was 18.3%, lower than the ADB-wide average of 20.5%.

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