The economy is heavily dependent on imports of both consumer and investment goods to feed domestic demand.
Imports were around $109.8 in 2004-05, with 78% of imports coming from New Zealand. With very limited exports of goods, this has resulted in a large merchandise trade deficit averaging around $99 million in the past five financial years.
This trade deficit is financed by a large surplus in trade in services, driven primarily by receipts from the tourism industry. The overall trade balance on both goods and services is estimated to have been approximately $46.0 million in surplus in 2004-05, compared with $23.0 million in 2004-05. This improvement is largely due to a 10.5% decrease in merchandise imports combined with a 10.7% increase in tourism receipts, although it must be acknowledged that tourism receipts are very difficult to estimate without an up to date survey of visitor expenditure.
With Government’s recent decision to remove import levies on most goods from July 2006, it is expected that imports may increase moderately over the medium term, very likely expanding the trade deficit.
Complete report: MFEM, Half Year Economic and Fiscal Update