Cook Islands Finance Minister Says Debt Level Is Sustainable

Brown responds to critics who question borrowing habits

By Rashneel Kumar

RAROTONGA, Cook Islands (Cook Islands News, June 13, 2016) – Minister of Finance Mark Brown has hit back at critics who condemned government’s borrowing habits, saying the government’s debt level is sustainable.

In fact, he said, the government was in a position to comfortably take on more loans in the future, if they needed to.

But the approach over the last six years had been if the country had to take on debt, government had to ensure that debt would have a net eco-nomic return to the country, Brown added.

He said they had a system in place to ensure any future loans would have a way to be able to service themselves over the long term.

“Prudent fiscal management has been a hallmark of the government and continues to be with this budget,” Brown said in his budget speech on Friday.

“The Cook Islands has one of the lowest debt profiles in the Pacific, even compared to Australia and New Zealand. This is even more impressive given the number of beneficial capital projects the government has committed to, and completed, since coming to power in 2010.

“Whilst we should be proud of our strong debt management, the government is mindful of the need to continue carefully managing our spend-ing. This means maintaining government debt at sustainable levels.”

Brown said the country’s net debt to gross domestic product (GDP) ratio for the 2016/17 financial year was estimated at 23.6 per cent.

This, he said, was below the 35 per cent net debt to GDP ratio benchmark.

The government’s debt servicing to total revenue ratio stood at five per cent which, Brown said, was a considered a “very comfortable level.”

However, he said they were in discussions with the Asian Development Bank (ADB) and International Monetary Fund to see whether this could be raised up a notch, considering the major investments the government would be undertaking in the coming years.

“The latest sustainable debt forecasts take into account our current spending levels and the inclusion of two major projects that are currently be-ing planned; the Pacific Connectivity Undersea Cable project and the Muri Sewage Reticulation project.

“In these forecasts, our debt management envelope could comfortably absorb the two planned projects while staying well below our self-imposed debt to GDP limit of 35 percent.

“In light of this, government has responsibly tightened its self-imposed debt limit to 30 per cent. This ensures that there is at least five per cent of GDP available in debt financing should there ever be a major economic or natural disaster before the government breaches the voluntary debt limit.

“This aligns with other responsible debt management initiatives we have instigated.”

Brown said the government had also topped up an emergency response fund to the tune of $1.5 million, adding a contingency loan programme was currently under negotiation with the ADB.

“The loan facility will pre-approve a disaster assistance loan to assist reconstruction efforts in the event of a catastrophic weather event.”

Brown also said government’s cash reserves worth about $35m were comfortably above the three months of operating expenditure required to meet any short term funding requirements.

“We as a country are in very good shape over the last six years of sound prudent and disciplined financial management. A far cry from the shambolic mess we inherited from the Democratic Party, a mess that even today we still pay for in the Toagate payments of $1.2m a year.”

Cook Islands News
Copyright © 2016 Cook Islands News. All Rights Reserved

Rate this article: 
Average: 4 (2 votes)

Add new comment