The agency Standard and Poor's has lowered the long-term credit rating of the Cook Islands to BB- from BB, while saying there is no change to the existing negative outlook.
A credit analyst, Kyran Curry, says this reflects the country's weakening fiscal settings and the risk of previous strong advances in fiscal flexibility to be further unwound through undisciplined spending and debt accumulation.
Mr Curry says the rating action is also influenced by heavy emigration, weakened capacity in the Ministry of Finance, and infrastructure shortcomings that raise costs and impair investment in the tourism and other sectors, where prospects are already weak.
He says there has been a 7.1 percent contraction in GDP in the past two years, and a structural weakening in the revenue base associated with a falling population.
The net general government debt is estimated to have risen to 19 percent of GDP in 2010 from a low of 5.7 percent in 2008, with further rises to about 37.6 percent by 2013.