THE COOK ISLANDS Pre-election Economic and Fiscal Update 2014 Te turanga moni a te Kavamani o te Kuki Airani I mua ake I te Ikianga Maata Government of the Cook Islands 30 April 2014 www.mfem.gov.ck Table of Contents 1 SUMMARY OF FISCAL AND ECONOMIC UPDATE .................................................................1 1.1 Overview .............................................................................................................................. 1 2 FISCAL UPDATE ..................................................................................................................3 2.1 Overview .............................................................................................................................. 3 3 GOVERNMENT FINANCIAL STATISTICS (GFS) OPERATING STATEMENT ............................... 15 3.1 GFS Operating Revenue ..................................................................................................... 15 3.2 GFS Operating Expenditure ............................................................................................... 16 3.3 GFS Net Operating Balance ............................................................................................... 17 4 NET WORTH .................................................................................................................... 20 5 SPECIFIC FINANCIAL RISKS ................................................................................................ 21 6 ECONOMIC UPDATE ......................................................................................................... 22 6.1 Introduction ....................................................................................................................... 22 6.2 Gross Domestic Product (GDP) .......................................................................................... 25 6.3 Consumer Price Index (CPI) ............................................................................................... 27 6.4 Tourism .............................................................................................................................. 29 6.5 Marine Resources .............................................................................................................. 35 6.6 Pearls ................................................................................................................................. 38 6.7 Agriculture ......................................................................................................................... 39 6.8 Exports and Imports .......................................................................................................... 40 6.9 Banking and Finance .......................................................................................................... 43 6.10 Financial Services Industry ................................................................................................ 46 7 CROWN DEBT .................................................................................................................. 47 7.1 Gross Debt owed by the Crown ......................................................................................... 47 7.2 Crown Loan Reserves (LRF) ............................................................................................... 52 7.3 Net Debt ............................................................................................................................ 53 7.4 Crown Debt Sensitivity Analysis ........................................................................................ 54 7.5 Future Borrowings and Fiscal Responsibility Ratios relating to Debt ................................ 55 7.6 Other State Owned Enterprise Debt ................................................................................. 57 8 OVERSEAS DEVELOPMENT ASSISTANCE (ODA) FLOWS ...................................................... 59 9 SPECIFIC FINANCIAL RISKS ................................................................................................ 70 9.1 Assumptions Underlying the Fiscal Projections ................................................................ 71 10 FINANCIAL STATEMENTS .................................................................................................. 73 10.1 Statement of Financial Position ......................................................................................... 74 10.2 Statement of Financial Position ......................................................................................... 75 10.3 Statement of Cashflows ..................................................................................................... 76 10.4 Statement of Borrowings .................................................................................................. 77 10.5 Revenue Levied on behalf of the Crown ........................................................................... 78 10.6 Statement of Fiscal Risks ................................................................................................... 79 10.7 Statement of Accounting Policies ...................................................................................... 80 MINISTER OF FINANCE GOVERNMENT OF THE COOK ISLANDS PO Box 3246, Rarotonga, Cook Islands Telephone + 682 24875 ♦ Facsimile + 682 24178 30 April 2014 STATEMENT OF RESPONSIBILITY Pursuant to section 17 of the Minister of Finance and Economic Management (MFEM) Act 1995/96, I hereby make available a Pre-election Economic and Fiscal Update. The information in this document is based primarily on the latest data since the publication of the 2014/15 Budget Policy Statement and the 2013/14 Economic and Fiscal Update in December 2013. I have made available to the Financial Secretary all relevant information regarding policies of the Government that could materially affect this economic and fiscal update. The economic and fiscal information included in this update is based on the best professional judgement that we have at this period of time. I accept the overall responsibility for the integrity of the Pre-election Economic and Fiscal Update and its compliance with the Ministry of Finance and Economic Management Act 1995/96. Kia Manuia, Honourable Mark Brown Minister of Finance MINISTRY OF FINANCE AND ECONOMIC MANAGEMENT GOVERNMENT OF THE COOK ISLANDS MINISTRY OF FINANCE AND ECONOMICOffice MANAGEMENTof the Financial Secretary PO Box 120, Rarotonga, Cook Islands GOVERNMENT OF THE COOKTelephone ISLANDS + 682 22878 Facsimile + 682 23877 Email: [email protected] Web: http://www.mfem.gov.ck Office of the Financial Secretary 30 April 2014 PO Box 120, Rarotonga, Cook Islands Telephone + 682 22878 Facsimile + 682 23877 STATEMENT OF RESPONSIBILITY Email: [email protected] Section 17 of the Ministry of Finance and Economic Web:Management http://www.mfem.gov.ck Act 1995/96 requires that the Minister of Finance publish a report containing an economic and fiscal update within fourteen days of the appointment of a polling date in relation to a general election. The purpose of the Pre-election Economic and Fiscal Update is to provide up to date information on the state of the economy and the financial position of Government. The information provided in the update takes in to account as much as possible all Government decisions and other circumstances that may have material effect on economic and fiscal conditions. I have received the assurance of the Minister of Finance that he has disclosed all relevant information regarding Government policies that could materially affect the update. The Pre-election Economic and Fiscal Update primarily reflect significant factors that have changed since the publication of the 2014/15 Budget Policy Statement and the 2013/14 Economic and Fiscal Update in December 2013. As Financial Secretary, I accept full responsibility for the integrity of the information provided. 1 SUMMARY OF FISCAL AND ECONOMIC UPDATE 1.1 Overview Section 17 of the MFEM Act requires that within 14 days of the appointment of the polling day in relation to any general election of members of Parliament, the Minister shall cause to be prepared a report containing an economic and fiscal update as at the date of the appointment of the polling dates. The date of appointment of the polling dates was made on the 16 April 2014. The purpose of providing this update is to provide the general public information on the state of the economy and governments associated fiscal position. Prior to this publication, the most recent Economic and Fiscal Update was published and made available on 18 December 2013 alongside the 2014/15 Budget Policy Statement. This update includes various updates to operating revenues and expenditures for 2013/14 through to 2016/17. 1.1.1 Fiscal Setting Overview Estimated Underlying Budget Balance 2013/14 The 2013/14 Budget was initially developed under tight fiscal circumstances. At that stage, it was projected that the Budget would have a small net underlying operating surplus of $0.046 million. The estimate of the underlying operating balance at the time of the 2013/14 Half Year Economic and Fiscal Update (HEYFU) worsened to a deficit of $1.9 million as it included a number of decisions and actions around the tax reform package. The 2013/14 net underlying operating position has improved, and is now projected to be a $0.112 million deficit. The key factors in reducing the operating deficit for 2013/14 were the $1.5 million saving in the underwrite of the longhaul services