Maintain stimulus and support in Cook Islands, Niue, Samoa and Tonga until tourists return – ADB

(ADB)—The economic recovery from the coronavirus disease (COVID-19) pandemic in tourism-dependent, Polynesian countries will be slow, with continued support needed to allow the private sector to drive future economic growth, says a new Asian Development Bank (ADB) report. The Asian Development Outlook (ADO) 2021, ADB’s flagship annual economic analysis, projects the economies of the Cook Islands, Samoa, and Tonga will continue to decline in 2021 with economic contraction and fiscal deficits deepening. The report predicts the resumption of international travel will see gross domestic product (GDP) growth return to positive in each country in 2022, but their economies will still be smaller than before the outbreak of the pandemic.

“The tourism-dependent economies of the Cook Islands, Niue, Samoa, and Tonga have been hit hard by COVID-19,” said Public Management Economist and ADO report author James Webb of ADB’s Pacific Subregional Office in Fiji. “While lives have been saved, livelihoods have been lost. To preserve future jobs and maximize the eventual economic recovery, it is imperative that spending sustains the private sector to survive and compete.”

The ADB report describes the profound effect COVID-19 has had on private businesses in Polynesia. Income from tourism—which in 2019 accounted for 61% of GDP in the Cook Islands, 23% in Samoa, and 10% in Tonga—has fallen to zero so far in 2021. While the direct and indirect impact of this cannot yet be fully assessed, the report says it will continue to worsen until travel resumes.

In the Cook Islands, the economy contracted by 5.9% in 2020, contributing to a fiscal deficit equal to 2.8% of GDP. After a full fiscal year of almost no tourism, the ADO projects a further contraction of 26% in 2021 leading to a 33.1% deficit. The latter estimate incorporates US$25.5 million in government stimulus spending—mainly wage and business subsidies—and a 45.2% fall in tax revenue.

ADB assisted the Cook Islands with a US$1 million grant and loans totaling US$30 million over 2021. The ADO projects economic growth in 2022 of 6%—and a deficit equivalent to 11.2% of GDP—after the opening of a proposed travel bubble with New Zealand.

Dramatically reduced tourist arrivals in Niue likely caused an economic contraction in 2020, ending a 7-year uninterrupted stretch of 4.6% average growth since 2013. On top of the decline in tourism, travel restrictions stalled capital projects financed by development partners. A more severe contraction is forecast for 2021 as tourism remains suspended perhaps for the entire year. Economic recovery is projected in 2022, assuming the establishment of a travel bubble with New Zealand in the last quarter of 2021 following parallel COVID 19 vaccination drives in both countries.

In Samoa, GDP contracted 3.2% in 2020, with the onset of COVID-19 coming after a measles outbreak in late-2019. While visitor arrivals fell 30.2% and commerce and manufacturing declined, remittances grew by 4.9%.

The ADO says Samoa’s economy will contract a further 9.2% in 2021 before recovering to 3.1% growth in 2022.

Despite increased grants from development partners, including US$22.9 million from ADB, a fiscal deficit equal to 3.1% of GDP is projected for 2021, when government stimulus spending will equal 4.2% of GDP.

In Tonga, the twin shocks of Tropical Cyclone Harold and the onset of COVID-19 in April 2020 saw the economy contract by 0.5% in 2020. The ADO says continued decline in the construction and tourism sectors will contribute to a 5.3% contraction in 2021, before a return to growth of 1.8% in 2022.

Development partner grants—including US$18.7 million from ADB—contributed to a fiscal surplus equivalent to 5.3% of GDP in 2020. The ADO predicts this will narrow to 0.8% of GDP in 2021 and become a fiscal deficit equal to 5.9% of GDP in 2022 due to stimulus spending and reduced tax revenue. …

Source : PACNEWS