Standard & Poor's Ratings Services announced last week that it has raised the Cook Island's long term sovereign rating from 'B' to 'B+' reflecting the government's improved control of its fiscal situation and tighter rein on the country's debt burden.
The ratings agency has also maintained a positive outlook and affirmed a positive short term rating of 'B'.
"Besides building up assets and limiting new borrowings, the government has generally run budget surpluses since its fiscal crisis, averaging 1% of GDP over seven years. Although a slight deficit of about 0.5% of GDP is projected for the next two years, they are still the lowest in the 'B' category," comments Ping Chew, credit analyst, and director in Standard & Poor's Sovereign Ratings Group.
"Further improvements in the Cook Islands' credit standing will hinge on the government's ability to persist with fiscal responsibility and reduce its debt burden, and to step up economic and public sector reforms, in order to ensure self-sustained private sector-led economic growth," adds Mr. Chew. "Conversely, the ratings could come under downward pressure if support and commitment to reforms begin to wane, fiscal discipline is prematurely relaxed, and the capacity to check fiscal excesses is compromised," Mr. Chew warns.
However, S&P noted the Cook Island's continued vulnerability to economic shocks, particularly weather related disasters, which can potentially have a large impact on the jurisdiction's economy. It also observed the country's dependency on tourism.
Despite this, S&P highlights the advantages of the "special relationship" that the Cook Islands has with New Zealand including monetary union.
"Close association with this highly rated country provides the Cook Islands with many economic and policy benefits, including a long-standing and stable trading relationship, a main aid donor, considerable policy influence, a flexible economic structure by having a safety valve when the Cook Islands are hit by economic shocks, and a low and stable inflationary regime," observes the ratings agency.
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