economic outlook remains positive says mfem

// PRESS RELEASE

 

Cook Islands Government Press Release

 

Ministry of Finance and Economic Management

 

Friday, 1 April 2005

 

 

 

Economic outlook remains positive despite cyclones

 

The Economic Update comments that effects of the cyclones on economic activity are expected to be relatively short-lived, with activity expected to return to normal by around mid 2005.

 

Clearly, the five cyclones in February-March 2005 have affected the economy.  The Asian Development Bank (ADB) has estimated the cost of a comprehensive recovery program covering government assets, community assets and private residences at around NZ$10.5 million.  This does not include reinstatement of the beaches and foreshore strengthening or commercial facilities.

 

Data available suggests that the economy contracted during the March quarter 2005.  A number of trading days were lost as a result of the cyclones, and some, mostly smaller businesses, closed temporarily because of damage suffered.  Some flights were cancelled or diverted because aircraft were unable to land.  Some employees have been laid off temporarily, further reducing consumer spending.

 

Nevertheless, discussions with the banks and the private sector indicate that they remain generally optimistic about the economic outlook.  Most businesses have been able to resume operations quickly, with less than 8% of rooms in accommodation providers in Rarotonga out of commission.  Visitor arrivals are expected to increase significantly with five additional flights per week scheduled from March-April 2005.  Construction activity is also likely to increase because of rebuilding.

 

Growth is expected to resume in the June quarter and to accelerate throughout 2005.  In year average terms, economic growth is projected at 2.5% in 2004-05 and 2.4% in 2005-06, before returning to the long term growth rate of around 3.0% in 2006-07.

 

In terms of Government’s fiscal position, the advent of the recent cyclones means that taxation revenue and some other operating revenues will be lower than would otherwise have been the case.

 

The cyclones will also give rise to additional spending requirements.  Under the comprehensive recovery program, budget financing is estimated at around $1.0 million, primarily for cleaning up ($505,000), recovery of harbours, airports and water ($145,000), reinstatement of public infrastructure ($266,750) and contributions to reinstatement of community facilities ($100,000).

 

Fortunately, Government finances are in a sound position.  While the cyclones will clearly impose significant challenges, the strength of Government finances means that the Government is in a much better position to focus on reconstruction and to address other development challenges than would otherwise have been the case.

 

Nevertheless, the projections highlight that the 2005-06 Budget will be tight.  The requirement to run an operating surplus implies limited scope for new spending initiatives unless savings can be found in other areas.

 

// ENDS