MANILA, PHILIPPINES - The Asian Development Bank (ADB) is providing $10 million in budget support to the Cook Islands that will give a short-term boost in economic activity in response to the global financial crisis.The loan, approved by ADB's Board of Directors, supports the first of two subprograms under the Cook Islands Economic Recovery Support Program. The program will first help the Government kick-start the economy by allowing it to increase spending on badly needed infrastructure in this financial year. This will lift economic activity in the short term and provide the productive capacity needed to achieve higher economic growth over the medium term. The program will also strengthen fiscal management and social welfare policy.
"The Cook Islands Government has taken some prudent steps towards managing the impacts of the crisis while recognizing that reforms need to continue, even in difficult times," said Sultan Hafeez Rahman, Director General of ADB's Pacific Department. "The ADB loan will be complemented by policy actions that will promote economic recovery and help safeguard the fiscal position of Cook Islands."
An important element of the program is helping the Government to reorient its social welfare system to provide increased support for those on low incomes by allocating less budgetary resources to high income groups.
"Support for the vulnerable is a key feature of the program. The aim is to help vulnerable members of the community, who have been hard hit by the crisis and high inflation, receive more support via the social welfare system," said Keith Leonard, Regional Director of ADB's South Pacific Sub-Regional Office in the Fiji Islands.
After six years of growth, the Cook Islands economy has weakened since 2004 as a result of low public investment and a slowdown in economic reforms. The island group is heavily dependent on tourism with as many as 100,000 visitors a year, almost six times the resident population. The global crisis has heightened the economic deterioration with a slowdown in visitor arrivals in 2008, and revenue declines putting pressure on Government spending programs.
ADB's loan support will give the Government financial leeway to quickly boost sound capital spending. Under a broad infrastructure investment program the Government has prioritized projects including the main airport, roads, key buildings, and water supply.
The initial subprogram loan has a term of 15 years, including a three year grace period, with interest charges set according to ADB's LIBOR-based lending facility. The proposed second subprogram loan is for $6 million for a total program cost of $16 million. The Ministry of Finance and Economic Management will execute the program which runs from January 2008 to December 2011.