IMF Executive Board Concludes 2013 Article IV Consultation with the Kingdom of the Netherlands—Aruba

Press Release No. 13/303
August 9, 2013

On June 26, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kingdom of the Netherlands—Aruba1 and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.2

Aruba is a highly open economy with a long history of macroeconomic stability. Over eighty percent of the economy depends directly or indirectly on tourism making Aruba the second highest tourism-dependent country in the world. The long-standing fixed exchange rate against the US Dollar, supported by conservative fiscal, credit and prudential policies, has provided macroeconomic stability by maintaining low inflation over the years and keeping imbalances checked until recent shocks.

The economy faced two major shocks in the last four years: the global financial crisis, which hit Aruba’s tourism sector in 2009, and the shutdown of Valero oil refinery for a total of 27 months during 2009-12 reflecting poor profitability. Although tourism rebounded quickly partly thanks to aggressive market diversification efforts, real GDP took a second dip in 2012 by close to 1¼ percent after increasing by 3¾ percent in 2011. Output remains 12 percent below its pre-crisis level, with recovery slower than others in the Caribbean region.

The external sector has held up well through these shocks. The non-oil current account (CA) balance, which mostly reflects developments in the tourism sector, has improved since mid-2000 reaching a balanced position in 2012. The overall CA balance, however, after being in surplus for years, showed volatilities in recent years reflecting oil sector developments. In 2012, it recorded a surplus of 5 percent of GDP.

The fiscal position worsened significantly in recent years. Preliminary data suggests that the overall fiscal balance recorded a deficit of 8½ percent in 2012. Notwithstanding measures taken in the pension and health sectors and efforts to collect tax arrears, the deficit widened sharply from pre-crisis years due to the tax rate cut and increased current expenditure. Fiscal consolidation is appropriately planned to start this year.

In 2013, real output is projected to grow by 1¼ percent. Robust tourism growth and some pick-up in consumption from projected deflation will support the subdued near-term recovery. A two percent deflation is projected in 2013 reflecting large utility price reductions in late 2012, and declining food and energy prices. The CA balance is projected to record a deficit of 9½ percent of GDP in 2013 due to the loss of oil exports.

Executive Board Assessment

In concluding the 2013 Article IV consultation with the Kingdom of the Netherlands—Aruba, Executive Directors endorsed the staff’s appraisal, which made the following observations:

Aruba is recovering slowly from recent shocks. Two major shocks in the last four years, the global financial crisis and the shutdown of oil refining by Valero, have caused a recession that is deeper than in most other Caribbean countries. Although tourism, the mainstay of Aruban economy, rebounded quickly, Valero’s shutdown has left harder-to-fill gaps in investment and non-tourism exports, with real GDP projected to reach its pre-crisis level only in 2018.

Downside risks dominate in the near-term, but medium-term prospects could be brighter. With a high dependence on tourism and oil imports, Aruba faces downside risks from renewed weaknesses in the global economy and higher oil prices. In the medium-term, there are upsides from resumption of oil refining by Valero, and large scale investment in renewable energy.

Putting the fiscal deficit on a downward path is an immediate policy priority. The authorities’ efforts to counter the recession through cuts in the business turnover tax rate and higher current expenditure have rapidly increased central government’s deficit and debt. In the absence of exchange rate policy options, rebuilding fiscal space is urgent. A reduction of the overall deficit to 6 percent of GDP in 2013 is appropriate. To ensure this outcome, directors recommend resisting possible expenditure pressures during the election year.

In the medium term, ambitious fiscal consolidation is needed. Without additional measures, the central government’s fiscal deficit is projected to remain elevated posing risks to public debt sustainability. Financial deficits of the old age pension system (AOV) and payments for investment projects under the Public Private Partnerships (PPP) are likely to further widen the deficit beginning as early as 2014. A consolidation of around 8 percent of GDP during 2014-18 is appropriate, which would bring debt down to below 60 percent of GDP. To contain fiscal pressures from financial liabilities of the AOV and the PPP, it is important to implement further pension reforms and put a limit on the size of the PPP-related expenditure commitments.

External competitiveness needs to be strengthened to ensure a steady recovery. Aruba has managed to maintain its competitiveness in tourism through recent shocks partly due to authorities’ strong initiatives to diversify source markets. With the US accounting for 60 percent of tourists, directors see further scope for market diversification. To ward off risks from a large negative net international investment position, and elevated financing requirements, Aruba would also need to strengthen its price and structural competitiveness through higher flexibility in the labor market and more enabling business conditions.

The accommodative monetary policy stance is appropriate. With slack in the economy, projected deflation and subdued credit growth, directors see no need for monetary tightening. The banking system’s excess liquidity has increased substantially since mid-2012. In case credit demand picks up, a very low risk at this point, the authorities would need to mop up the excess liquidity by increasing the reserve requirement.

Aruba: Selected Economic Indicators, 2010–14
  2010 2011 2012 2013 2014
  (Percent change)

Real economy

Real GDP

-3.6 3.7 -1.2 2.3 3.0

Real domestic demand

-4.0 1.7 -1.7 -1.5 2.6


-0.9 1.8 1.6 1.3 1.7


-0.3 3.9 0.5 1.6 1.6


-2.4 -3.2 4.5 0.7 1.8

Gross investment

-10.8 1.5 -10.2 -9.5 5.7

Exports of goods and services

-10.2 14.4 -5.3 3.7 2.2

Imports of goods and services

-9.0 8.8 -5.0 -1.7 1.8
  (Percent change)

Consumer prices


Period average

2.1 4.4 0.6 -1.5 1.5


-0.7 6.1 -3.7 0.7 2.3
  (Percent of GDP)

Central government operations


27.7 21.4 22.3 23.6 23.0


31.3 29.3 30.9 29.7 29.4

Of which: capital

1.1 1.2 1.7 0.9 1.0

Overall balance

-3.6 -7.8 -8.5 -6.2 -6.4

Gross central government debt (percent of GDP)

55.9 61.2 67.0 72.3 75.0

Savings and investment (percent of GDP)

Gross investment

31.0 32.6 29.7 27.0 29.0

Foreign saving

18.3 9.6 -4.9 9.4 9.0

Domestic saving

12.7 23.0 34.6 17.6 20.0

Balance of payments

Current account balance

-18.3 -9.6 4.9 -9.4 -9.0


-18.8 -1.7 5.0 -7.8 -7.4


0.5 -8.0 -0.1 -1.6 -1.6


6.5 18.2 -5.6 3.4 5.1

Gross foreign assets of central bank (millions of U.S. dollars)

724 712 787 820 860

Gross foreign assets of central bank (months of non-oil imports of following year)

5.1 4.9 5.2 5.1 5.1

External debt (percent of GDP)

101.7 114.5 104.8 109.5 107.8
(millions of local currency, unless otherwise indicated)



1,309 1,286 1,342 1,400 1,432


1,845 1,873 2,077 2,121 2,278

Credit to private sector (year-on-year percent change)

1.2 3.5 2.8 3.1 4.0

Broad money

3,155 3,159 3,419 3,521 3,710

Deposits (year-on-year percent change)

-0.3 -0.1 8.2 3.0 5.3

Memorandum items:

Nominal GDP (millions of Aruban florins)

4,279 4,566 4,555 4,613 4,860

Nominal GDP (millions of U.S. dollars)

2,391 2,551 2,544 2,577 2,715

Sources: Aruban authorities; and IMF staff estimates and projections.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.


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