The brighter side of Asia: Cook Islands
S&P Assigns B- Rating, Stable Outlook to Cook Islands
PR Newswire - January 20, 1998 00:01
MELBOURNE, Australia, Jan. 20 /PRNewswire/ -- Standard & Poor's today
assigned its single-'B'-minus long-term and single-'C' short-term credit
ratings to the Government of the Cook Islands.
The outlook on the long-term rating is stable.
Key factors constraining the Cook Islands' ratings include:
-- A public debt burden, at about 318% of revenues and 93% of GDP this
year, which is the highest of any rated sovereign in the single-B
category. Cash interest outlays are more modest at 5% of tax revenues,
reflecting low rates on loans from foreign creditors, and that some
official debt is still in default. However, cash interest outlays are
likely to rise sharply in the medium term. Partial debt service was
resumed last year, with negotiations now underway to settle the
government's remaining unpaid obligation -- NZ$90 million, or
US$53 million, owing to Italy's export credit agency (SACE).
-- A still-fragile financial position, despite reforms adopted after
public debt went into default in 1995-96. Since then, the authorities
have slashed spending, sold assets, and adopted a more disciplined,
transparent approach to managing public finances. Fiscal targets could
be missed this financial year (ending June 30, 1998), however, unless
the government moves quickly to offset revenue shortfalls; otherwise,
the budget would be in deficit, not balance, as initially forecast.
The Crown's cash position is weak in relation to operating revenues, at
7%, and scheduled debt service.
-- The vulnerabilities inherent in a small, narrowly-based, middle-income
island economy. With a population of 18,000 and GDP just over US$100
million this year, the Cook Islands is the smallest sovereign rated by
Standard & Poor's. Per capita income, about US$5,600, is 32% of that
in neighboring New Zealand. Tourism, agriculture and finance account
for most local output. Growth prospects hinge on maintaining fiscal
stability as aid flows decline, improving the social and economic
infrastructure, and, in particular, boosting the tourism sector's
competitiveness.
Key factors supporting the ratings include:
-- A special relationship with New Zealand. Under a free association
agreement, Cook Islanders are dual citizens of New Zealand but the
country is politically autonomous. The economic benefits of this link
are important: local residents can work freely in New Zealand, as well
as in Australia; New Zealand is the Cook Islands' largest trade partner
and provides it with aid, which, while declining, still amounts to 4%
of GDP; and despite recent fiscal problems, monetary stability is
assured since the New Zealand dollar is the Cook Islands' local
currency.
-- A somewhat flexible economic structure, despite the Cook Islands' small
size. Until last year, 44% of the workforce were civil servants, a
number that has since fallen by half as a result of fiscal austerity.
Yet, remarkably, output appears to have grown as redundant workers
shifted to private employment. Migration to New Zealand also acts as a
safety valve when economic shocks occur.
-- An emerging political consensus on the need for fiscal discipline and
private-sector led growth. The present government, in office and led
by Prime Minister Sir Geoffrey Henry since 1989, has curbed -- though
not wholly abandoned -- a long standing tradition of public-sector
patronage in favor of free market reforms. While fiscal austerity
remains controversial, the opposition has acquiesced in most of the
measures. Pressure from the local business community, backed by New
Zealand and the Asian Development Bank, and the prospect of a gradual
economic recovery, should help to ensure that many of the reforms will
be retained longer term. Popular support for reforms would grow, too,
if assets sales broaden the local investor base.
OUTLOOK: STABLE
The government's policies should remain broadly on track, even if it is
replaced in 1999, when elections are due. Ratings could improve if a
favorable debt settlement is reached with SACE and the 1998-99 budgetary
targets look like being achieved. Conversely, significant fiscal slippages,
if left unchecked, would put downward pressure on the Cook Islands' credit
standing, Standard & Poor's said. -- CreditWire
SOURCE Standard & Poor's CreditWire
/CONTACT: David Beers, London, 011-44-171-826-3646, or Rick Shepherd,
Melbourne, 011-61-3-9250-4560, both of Standard & Poor's/
Web site: ratings.standardpoor.com
---------------------------------
>>Is this site worth to check out for, anyone? T.<< |
