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Research Update: Cook Islands 'B+/B' Ratings Affirmed; Outlook Stable


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Research Update: Cook Islands 'B+/B' Ratings Affirmed; Outlook Stable


  • The Cook Islands' economy is recovering after two years of exogenous shocks. A strong rebound in tourism is leading the recovery, improving the government's fiscal outlook.
  • A concentrated private sector limits the government's ability to raise revenues, highlighting dependence on external funding to plug fiscal gaps.
  • On May 23, 2023, we affirmed our 'B+/B' sovereign credit ratings on Cook Islands.
  • The stable outlook reflects our view that economic growth will support improvements in government finances and reduce net debt as a proportion of GDP over the next few years.

Rating Action

On May 23, 2023, S&P Global Ratings affirmed its 'B+/B' sovereign credit ratings on Cook Islands. The outlook is stable, and the transfer and convertibility (T&C) assessment is 'AAA'.


The stable outlook on our long-term rating on Cook Islands reflects our expectation that, over the next 12 months or so, the economic recovery will narrow fiscal deficits, and reduce net debt relative to GDP.

Downside scenario

We could lower our ratings if Cook Islands' public finances were to materially underperform our forecasts. This could occur if fiscal deficits do not narrow and the resulting increase in debt increases the budgetary interest burden to above 5% of government revenues annually.

Upside scenario

We could raise our ratings if there is a sustained improvement in the government's fiscal outlook or economic wealth and diversity improve.


We expect Cook Islands' fiscal outlook to improve as the reopening of borders spurs strong tourism flows. The important tourism sector has driven a meaningful improvement in the Cook Islands economy over the past 12-18 months.

Tourism nevertheless remains below pre-pandemic levels. We forecast the improvement in tourism numbers and consequently improvement in government revenues from tourism receipts will lower the ratio of net debt to GDP to about 30% over our forecast period. Fiscal deficits have meaningfully contracted; we expect these to improve to 4.3% of GDP in fiscal year 2023 (year ending June 30), from a high of 23.1% in fiscal 2021. A growing economy and smaller deficits have resulted in slower growth in debt. Cook Islands' debt burden remains modest compared with its peers', and the country owes most of its debt to official lenders.

Our ratings on Cook Islands also reflect the vulnerabilities associated with a weak institutional setting and capacity for making policies, lack of an independent monetary policy, and a narrow economic base. Partly offsetting these factors are the government's supportive relationship and high labor mobility with New Zealand (AA+/Stable/A-1+), financial and technical assistance from donor agencies, and the country's sound financial system.

Institutional and economic profile: Post-pandemic economic rebound under way as international tourists return
  • We expect economic growth to average 4.7% over 2024-2026 after two years of rapid expansion. The economy contracted by 19% in fiscal 2021 when borders closed, shutting down the tourism industry.
  • Weak policymaking culture and institutional settings constrain the ratings.

As we previously expected, Cook Islands is seeing a strong recovery in the tourism sector; the country is benefiting from its proximity to its largest tourism source market, New Zealand, and pent-up demand. We expect real GDP growth of 11.6% in 2023, spurred by tourism. Borders are now fully opened. In January 2022, Cook Islands reopened to tourists from New Zealand, who historically comprised about 65% of arrivals, and Australia in April 2022, which previously accounted for 15%-20% of arrivals. Tourism numbers had collapsed to zero when the government shut borders to stem the COVID-19 pandemic. Immediately prior to the pandemic Cook Islands enjoyed several years of strong tourism growth. The economy centers on tourism, which is the country's major revenue earner. In our view, this concentration makes the economy particularly vulnerable to tourist preferences, weather events, and downturns in major tourism markets.

The vulnerabilities associated with Cook Islands' relatively weak policymaking culture and institutional settings are a key ratings constraint. The outcome of the 2022 election continued the country's history of political uncertainty. Parliament was unable to sit for six months due to contentions around election polling. The fragmentation leaves Cook Islands vulnerable to policy shifts driven by populist sentiment, which has hampered previous development and much-needed reforms. Shortages of skilled labor continue to weigh on institutional capacity. The policymaking settings derive support from a vigorous free press, an outspoken business community, and efforts by major aid donors to promote sound financial and economic public policies and stronger administration.

In April, 2023, Cook Islands renegotiated terms regarding its developing nation status with the Asian Development Bank (ADB). This allows Cook Islands access to the ADB's concessional funding window. In contrast, Cook Islands no longer qualified to receive official development assistance through the Organization for Economic Co-operation and Development's (OECD) development assistance committee. On Jan. 1, 2020, Cook Islands acquired the status of a developed country from the OECD. Official technical assistance provides vital help to the islands. Additionally, we expect New Zealand--the country's largest aid donor--to maintain its historical support, reflecting long-standing political and social ties. Throughout the pandemic, the New Zealand government provided the nation with additional budget support in the form of grants to support the government's economic response plan and economic recovery plans.

Cook Islands is a self-governing country with a free association with New Zealand. Cook Islanders are citizens of New Zealand. The country achieved self-governance in 1965, but New Zealand controls its foreign policy, defense, and continues to provide budgetary support. The country benefits from a close and comprehensive political and economic relationship with New Zealand.

Flexibility and performance profile: Growing economy supports smaller deficits and slowing debt accumulation
  • The growing economy is supporting the government's fiscal outlook and reducing net debt as a proportion of GDP.
  • The lack of data on balance of payments and net international investment position continues to constrain our sovereign analysis.
  • There is an absence of independent monetary policy since the Cook Islands uses the New Zealand Dollar.

The growing Cook Islands economy is helping to reduce the government's fiscal deficits. We expect fiscal deficits to improve to 4.3% of GDP in 2023 and continue to narrow thereafter. The government scrapped previous fiscal targets during the pandemic, replacing them with rules that outline fiscal prudence while supporting the economic recovery.

A fall in taxation revenues has caused the government to shift its expenditure planning over the next three years. It has paused new programs and focused on maintaining core community services.

We expect it will take a few years before this has a meaningful effect on public finances. The government has not announced any new revenue streams, and we do not anticipate substantive new taxes.

The pandemic interrupted three years of fiscal surpluses in Cook Islands. In fiscal 2021, the general government deficit blew out to 23% of GDP when borders closed.

The narrowing of fiscal deficits means net general government debt will peak at about 33% of GDP in 2023, before receding to about 30% of GDP in 2026. Net debt rose sharply during the pandemic as the government used its cash reserves to fund its large deficit. The concessional and long-term nature of current government borrowings, as well as the government's relatively low debt mean, that the ratio of the general government interest expenditure to revenues is low; we estimate it will average 4.5% of revenues in 2023 and 2025. Typically, borrowings are over 15 years in maturity. About 1% of general government debt is commercial. This is entirely borrowed through its airport authority.

Poor coverage and timeliness of statistical releases prevent a robust analysis of Cook Islands' economic and external accounts. We consider New Zealand to be the starting point, and we also recognize limitations to Cook Islands' external data gaps.

The country's monetary policy flexibility is limited because of the absence of a central bank and its use of the New Zealand dollar. This arrangement means it forfeits monetary independence, which is an important lever for promoting economic and financial stability. It can also make it difficult for the country to control inflation, even though the use of the New Zealand dollar previously enabled Cook Islands to benefit from lower inflation than its peers.

We equalize the local currency rating with the foreign currency rating, reflecting Cook Islands' absence of monetary policy flexibility, its use of the New Zealand dollar, and its lack of a domestic capital market

Key Statistics

Table 1

Cook Islands - Selected Indicators
Year ended June 30
Mil. NZ$ 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Economic indicators
Nominal GDP (bil. LC) 0 1 1 1 0 0 1 1 1 1
Nominal GDP (bil. $) 0 0 0 0 0 0 0 0 0 0
GDP per capita (000s $) 21.6 23.1 22.7 18.2 17.4 18.8 19.0 21.3 22.6 23.6
Real GDP growth 6.8 8.9 5.3 (5.2) (19.0) 11.8 11.6 6.8 3.7 3.6
Real GDP per capita growth (11.6) 5.4 1.4 (13.3) (16.6) 10.9 10.7 6.0 2.9 2.8
Real investment growth N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Investment/GDP N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Savings/GDP N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Exports/GDP N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Real exports growth N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Unemployment rate N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
External indicators (%)
Current account balance/GDP 16.7 35.1 34.2 26.8 (35.5) (0.1) 15.9 19.0 14.7 13.8
Current account balance/CARs 17.4 41.8 39.3 26.2 (28.5) (0.1) 14.5 17.9 13.6 12.6
CARs/GDP 96.1 84.1 87.0 102.2 124.4 106.7 109.5 105.9 108.4 109.3
Trade balance/GDP (36.3) (31.8) (32.8) (26.4) (34.4) (18.5) (17.5) (21.9) (27.7) (27.5)
Net FDI/GDP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net portfolio equity inflow/GDP 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Gross external financing needs/CARs plus usable reserves N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Narrow net external debt/CARs (20.4) (24.3) (40.1) (43.2) (25.5) (27.3) (26.2) (23.9) (21.9) (20.6)
Narrow net external debt/CAPs (24.7) (41.8) (66.1) (58.5) (19.8) (27.3) (30.6) (29.2) (25.3) (23.6)
Net external liabilities/CARs (20.4) (24.3) (40.1) (43.2) (25.5) (27.3) (26.2) (23.9) (21.9) (20.6)
Net external liabilities/CAPs (24.7) (41.8) (66.1) (58.5) (19.8) (27.3) (30.6) (29.2) (25.3) (23.6)
Short-term external debt by remaining maturity/CARs N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Usable reserves/CAPs (months) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Usable reserves (mil. $) 0 0 0 0 0 0 0 0 0 0
Fiscal indicators (general government; %)
Balance/GDP 6.8 4.1 5.0 (6.3) (23.1) (7.3) (4.3) (2.3) (1.5) (0.8)
Change in net debt/GDP (7.4) (7.2) 4.1 5.3 22.2 9.1 5.3 1.5 0.8 0.8
Primary balance/GDP 7.2 4.5 5.3 (6.0) (23.1) (6.0) (2.5) (0.6) (0.0) 0.6
Revenue/GDP 42.1 45.9 42.3 44.8 42.5 42.1 45.9 33.3 32.8 32.5
Expenditures/GDP 35.3 41.8 37.3 51.1 65.6 49.4 50.2 35.6 34.3 33.3
Interest/revenues 0.9 0.9 0.9 0.8 0.0 2.9 4.0 5.0 4.4 4.4
Debt/GDP 21.4 22.1 20.5 21.1 40.9 47.6 40.7 33.2 32.5 33.0
Debt/revenues 50.8 48.1 48.5 47.1 96.3 113.0 88.6 99.9 99.3 101.7
Net debt/GDP (0.3) (7.5) (2.7) 2.4 25.0 31.5 33.0 31.4 31.1 30.3
Liquid assets/GDP 21.7 29.5 23.3 18.8 15.9 16.1 7.7 1.8 1.5 2.7
Monetary indicators (%)
CPI growth (0.1) 0.4 0.0 0.7 2.2 4.2 9.4 4.1 3.0 2.5
GDP deflator growth (2.7) 1.3 3.4 (2.8) 5.4 (0.6) 2.1 3.2 0.0 1.7
Exchange rate, year-end (LC/$) 1.37 1.48 1.49 1.56 1.43 1.61 1.63 1.57 1.53 1.53
Banks' claims on resident non-gov't sector growth (0.2) 0.8 (0.7) 2.8 (2.9) (6.5) 4.0 4.0 4.0 4.0
Banks' claims on resident non-gov't sector/GDP 50.2 45.9 41.8 46.7 53.1 44.6 40.7 38.5 38.6 38.1
Foreign currency share of claims by banks on residents N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Foreign currency share of residents' bank deposits N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Real effective exchange rate growth N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Definitions: Savings is defined as investment plus the current account surplus (deficit). Investment is defined as expenditure on capital goods, including plant, equipment, and housing, plus the change in inventories. Banks are other depository corporations other than the central bank, whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private- sector borrowings from nonresidents minus official reserves minus public-sector liquid claims on nonresidents minus financial-sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. N/A--Not applicable. LC--Local currency. CARs--Current account receipts. FDI--Foreign direct investment. CAPs--Current account payments. The data and ratios above result from S&P Global Ratings' own calculations, drawing on national as well as international sources, reflecting S&P Global Ratings' independent view on the timeliness, coverage, accuracy, credibility, and usability of available information. Adjustments: None. Sources: Ministry of Finance and Economic Management (Economic Indicators), Ministry of Finance and Economic Management (Monetary Indicators), Ministry of Finance and Economic Management (Fiscal Indicators), Ministry of Finance and Economic Management (External Indicators).

Rating Score Snapshot

Table 2

Cook Islands - Ratings Score Snapshot
Key rating factors Score Explanation
Institutional assessment 5 Populist policymaking and weak institutional capacity stall any potential reform agenda. Impaired transparency and material data gaps hamper our view of the sovereign.
Economic assessment 4 Based on GDP per capita (US$) and growth trends as per Selected Indicators in Table 1.
Concentrated economy, with tourism accounting for 65% of GDP.
External assessment 5 The sovereign has limited external data. We therefore assign an initial assessment that is the same as the initial assessment that we could apply to New Zealand.
We apply a negative adjustment because the lack of external data is an information deficiency.
Fiscal assessment: flexibility and performance 4 Based on the change in net general government debt (% of GDP) as per Selected Indicators in Table 1.
The sovereign has a volatile revenue base, since more than half of general government revenue is based on tourism.
The sovereign has a limited ability to raise general government revenues in the short term compared with sovereigns with a similar level of development.
Fiscal assessment: debt burden 1 Based on net general government debt (% of GDP) and general government interest expenditures (% of general government revenues) as per Selected Indicators in Table 1.
The sovereign’s borrowing needs are likely to be covered by official funding in the next two years.
Over 40% of gross government debt is denominated in foreign currency.
Monetary assessment 6 The Cook Islands uses the currency of New Zealand, NZD.
There is no monetary policy, reflecting the absence of a central bank and domestic capital market.
Indicative rating b+ As per Table 1 of "Sovereign Rating Methodology."
Notches of supplemental adjustments and flexibility 0
Final rating
Foreign currency B+
Notches of uplift 0 Default risks do not apply differently to foreign- and local-currency debt.
Local currency B+
S&P Global Ratings' analysis of sovereign creditworthiness rests on its assessment and scoring of five key rating factors: (i) institutional assessment; (ii) economic assessment; (iii) external assessment; (iv) the average of fiscal flexibility and performance, and debt burden; and (v) monetary assessment. Each of the factors is assessed on a continuum spanning from 1 (strongest) to 6 (weakest). S&P Global Ratings' "Sovereign Rating Methodology," published on Dec. 18, 2017, details how we derive and combine the scores and then derive the sovereign foreign currency rating. In accordance with S&P Global Ratings' sovereign ratings methodology, a change in score does not in all cases lead to a change in the rating, nor is a change in the rating necessarily predicated on changes in one or more of the scores. In determining the final rating the committee can make use of the flexibility afforded by §15 and §§126-128 of the rating methodology.

Related Criteria

Related Research

In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see 'Related Criteria And Research'). At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision.

After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts.

The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above.

The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action (see 'Related Criteria And Research').

Ratings List

Ratings Affirmed

Cook Islands

Sovereign Credit Rating B+/Stable/B
Transfer & Convertibility Assessment
Local Currency AAA

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Secondary Contact:Anthony Walker, Melbourne + 61 3 9631 2019;
Additional Contact:Sharad Jain, Melbourne + 61 3 9631 2077;

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