Why Does the Cook Islands Still Need Overseas Aid?

The Cook Islands Government spends more than 40 per cent of gross domestic product (GDP). Its tax revenue is capped at 25 per cent of GDP under a 1998 austerity package agreed with its creditors New Zealand, Nauru and the Asian Development Bank. Non-tax revenue is 5 per cent of GDP, and external aid fills the resulting gap. This recently renewed reliance on aid contrasts sharply with the strong performance of the economy's private sector, driven by a booming tourism industry, which has pushed the balance of payments into a huge surplus and raises important questions about the allocation of the gains from growth.