The Cook Islands is among the best performing Pacific island economies, with many structures in place that support private sector investment, including an internationally competitive tax regime, an open trade regime, and good standards of education and health care. Future prospects are positive due to the growing tourism sector, and potential resource revenues from seabed minerals prospecting activities are another favorable development. The Government of the Cook Islands is committed to pursuing sustainable development through private-sector-led growth. Yet, the Cook Islands faces significant challenges in realizing its full potential, including a sluggish business entry process that discourages foreign investment, inadequate infrastructure that threatens to degrade the natural environment, complex land ownership and inadequate land use planning processes, and a weak collateral framework.

Cook Islands has transformed its economy since the public debt crisis of the mid-1990s. The economy is private sector-led, the Government is now on a sound financial footing and well placed to address key development issues, and the economy has proved its resilience in the face of five cyclones in 2005. The tourism sector remains the main driver of growth and visitor arrivals are expected to continue to grow. Infrastructure works are a development priority, both to support economic growth and to address the rising pressures on the all-important natural environment. Improved education services are needed to meet the ever-rising expectations of the population, and the aging population and steady rise in noncommunicable disease are placing new pressures on the health and welfare systems. The gap between living standards on the main centers of Rarotonga and Aiututaki and the outer islands is a further key development issue. Continued improvement in institutional performance lies at the heart of an effective response to these needs. This report discusses options for responding to these needs with a view to helping guide public policy formulation in the Cook Islands.