Wellington, April 1 - S&P Global Ratings raised the Cook Islands' long-term sovereign credit rating to BB- from B+ late on Tuesday, citing an economic recovery anchored in tourism and evidence of fiscal prudence that have improved government finances. The ratings agency attached a stable outlook to the upgraded rating, kept the short-term sovereign rating at B, and left the transfer and convertibility assessment at AAA.
S&P said the upgrade was driven by "buoyant" economic conditions supported by strong tourist arrivals. The agency noted that government spending has come in below budget, especially on wages and capital expenditure, which has helped strengthen the fiscal position.
Although S&P expects a small fiscal deficit in the current year - a result of the withdrawal of budget support from New Zealand and increased capital spending - the agency indicated that stronger-than-expected tourism income and reprioritised expenditure should help soften the fiscal impact in subsequent years.
On public debt dynamics, S&P expects the Cook Islands' net debt to continue trending downward after 2026, settling at around 15% to 20% of GDP over the following three years. The agency reported that net debt fell to 16.4% of GDP in fiscal 2025 from a peak of 37.6% in fiscal 2022, a reduction S&P attributed to rising tourism revenue and concessional donor financing.
Despite the upgrade, S&P warned that the rating remains constrained by a number of structural and external vulnerabilities. These include the Cook Islands' narrow economic base, weak statistical capacity, the absence of an independent monetary policy, and susceptibility to external shocks. The agency explicitly cited exposure to higher fuel costs and potential strains in relations with New Zealand as examples of such external risks.
The assessment leaves the Cook Islands with an improved sovereign score but underlines the island nation's continued sensitivity to swings in tourism flows, donor support and external cost pressures. S&P's forward-looking expectations around net-debt reduction and the moderation of fiscal deficits rest on continued tourism strength and the government's ability to prioritise spending.
Summary: S&P upgraded the Cook Islands' long-term rating to BB- from B+, assigned a stable outlook, affirmed the short-term B rating and kept the transfer and convertibility assessment at AAA. The upgrade reflects stronger tourism receipts and below-budget government spending. S&P foresees a small fiscal deficit this year due to the withdrawal of New Zealand budget support and higher capital spending, but expects net debt to keep falling after 2026, with net debt around 15% to 20% of GDP in the subsequent three years. Net debt declined to 16.4% of GDP in fiscal 2025 from 37.6% in fiscal 2022, aided by tourism revenue and concessional donor financing, while constraints remain from a narrow economic base, weak statistics, lack of independent monetary policy and external shocks including higher fuel costs and strains with New Zealand.