Curaçao and Sint Maarten: Staff Concluding Statement of the 2021 Article IV Mission

June 22, 2021

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

Washington, DC: The COVID-19 pandemic inflicted another major shock on the economies of Curaçao and Sint Maarten. Despite the substantial response measures financed by The Netherlands, the economic contraction in 2020 was severe. The outlook remains challenging and subject to elevated uncertainty and risks. Important near-term priorities include reaching vaccination objectives, supporting measures as needed, protecting the vulnerable, and setting the basis for inclusive recovery and medium-term sustainability. The agreements with The Netherlands (landspakketen) provide a window of opportunity to improve the overall policy framework needed to support the exchange rate peg, strengthen resilience, and raise potential economic growth.

Recent Developments

1. Before the pandemic, both countries had already experienced major economic shocks. Curaçao suffered spillovers from the crisis in Venezuela, leading to a decline of the oil refining sector—a major economic pillar—and contributing to a protracted recession. Sint Maarten has not fully recovered from catastrophic hurricanes in 2017. In both countries, the real GDP in 2019 was lower than in 2010.

2. The pandemic caused a collapse of tourism and inflicted a major blow to the economy despite significant support measures. The authorities successfully contained the spread of COVID-19 in the first half of 2020, but the necessary containment measures brought tourism and economic activity to a halt. Both countries swiftly designed and implemented comprehensive packages of response measures featuring payroll subsidies, support for the self-employed, and unemployment benefits. The Netherlands extended significant liquidity support in 2020 (13.3 percent of the monetary union’s GDP), rolled over maturing debt, and provided critical in-kind support for the health sector, including COVID-19 vaccines, and food packages for the vulnerable. The fiscal support measures were critical for saving lives and livelihoods but increased fiscal deficits and debt significantly.

3. Curaçao. Despite the significant support measures, real GDP declined by an estimated 20 percent in 2020 and the unemployment rate reached 19.1 percent. The economy suffered another shock in the first half of 2021 due to a major COVID-19 outbreak in March-April that brought tourism to a halt again. Formal private sector employment kept declining in the first five months of 2021. The primary fiscal deficit of the government widened from 0.4 percent of GDP in 2019 to 14.9 percent of GDP in 2020, contributing to the increase of the government debt stock to 89.1 percent of GDP in 2020. In May 2021, the government-owned holding company RdK reached an agreement with a local company (Curaçao Oil Refinery Complex) to operate the oil refinery, taking a step towards its reopening.

4. Sint Maarten. Given Sint Maarten’s high dependence on tourism, real GDP is estimated to have contracted by 24 percent in 2020 as tourism collapsed and the unemployment rate increased to an estimated 16.9 percent, although it does not account for an increase in underemployment, which is difficult to measure given the absence of data. The shock was cushioned by the fiscal support measures and an acceleration of the recovery projects under the World Bank-managed Trust Fund, which disbursed twice as much in 2020 as in 2018-19 combined. The primary fiscal deficit excluding the Trust Fund increased to 10.2 percent of GDP and government debt reached an estimated 64.7 percent of GDP in 2020, although the discrepancy between the deficit and identified financing flows indicate that the debt stock could be up to 6 percent of GDP higher than estimated. The launch of cruise ship homeporting in early June is a positive development.

5. The Union. The Centrale Bank van Curaçao en Sint Maarten (CBCS) implemented measures to cushion the impact on the borrowers and the banking system. In March 2020, the CBCS reduced the pledging rate to 1 percent, introduced deferrals on debt payments, and suspended granting new foreign exchange licenses related to outgoing capital transactions. The collapse in export receipts widened the estimated current account deficit to about 27.5 percent of GDP in 2020. Nevertheless, the reserve position improved due to large inflows from The Netherlands.

Outlook and risks

6. Curaçao. Zero real GDP growth is projected in 2021 as tourism and economic activity were negatively affected by the April-May near-lockdown. The vaccination program is expected to support a recovery of stayover tourism in the second half of the year, keeping the arrivals in 2021 flat at 38 percent of their 2019 level. In 2022, further tourism increase (to 65 percent of the 2019 level) would support economic growth of 6½ percent. Tourism is expected to reach its pre-pandemic levels in 2024. As reopening the refinery requires finalizing an agreement with the government, it is not included in the projections and viewed as an upside risk. This assumption implies that the real GDP would remain below the 2019 level even in the medium term as the remaining manufacturing sector shrinks. The unemployment rate is expected to increase further this year and remain at double-digit levels in the medium term. Inflation is anticipated to accelerate to 2.8 percent in 2021 reflecting higher import prices but will revert to around 2 percent in the medium term.

7. Sint Maarten. Real GDP growth of 4 percent is expected in 2021 supported by a recovery of stayover tourism to 55 percent of its 2019 level and the Trust Fund projects. In 2022, GDP growth is projected to accelerate to 15 percent as both stayover and cruise tourist arrivals recover to 65 percent of their pre-pandemic levels, and investment projects make a large positive contribution. Whereas tourism and the economy are expected to recover to their pre-pandemic levels in 2024, the recovery to the pre-Irma (2016) levels would take longer. Inflation is projected to increase to 3.2 percent in 2021 on account of higher import prices and subside to 2.2 percent in the medium term.

8. The Union. The current account deficit is projected to widen to 33 percent of GDP in 2021 as tourism remains subdued while the imports increase due to higher oil prices. Baseline projections assume that liquidity support from The Netherlands would continue, keeping the international reserves at a safe level in the near term. Over the medium term, the current account deficit would decline in line with tourism recovery.

9. The growth outlook is subject to significant uncertainty and risks. A resurgence of COVID-19 either locally or globally could undermine tourism recovery. Natural disasters—particularly hurricanes in Sint Maarten—could also undermine the recovery. On the domestic side, a delay of reconstruction of Sint Maarten’s airport would pose significant downside risks. In both countries, delays in securing liquidity support for the budget and the end of economic support measures would force abrupt fiscal adjustment with significant implications for their economies. On the upside, the tourism recovery could be faster than projected in the event of a speedier vaccine rollout. In Curaçao, a sustainable revival of the oil refinery could improve the outlook.

Near-Term Priorities

10. It would be important to focus on safe reopening of the economies, providing support where necessary, and setting the basis for inclusive recovery and medium-term sustainability. Vaccination campaigns, particularly in Sint Maarten, ought to be sustained until the immunity objectives are reached. It would be necessary to continue economic response measures until COVID-19 is firmly under control and the recovery takes hold. These measures—especially support of the vulnerable groups—are necessary to support a recovery and to avoid long-term scarring. In addition, critical areas including tax administration, AML/CFT, data/information frameworks and the health sectors require adequate resources to perform their functions. The short-term increase in debt would be justified as long as the authorities are putting in place measures to reduce it in the medium term. Liquidity support should be planned in a way that ensures adequate contingency buffers.

11. It would be essential to implement reforms facilitating adaptation to the new environment of depressed tourism flows and high macro uncertainty. Urgent reforms are needed in the labor market to improve mobility and flexibility while preventing abuses. The Curaçao authorities could consider introducing the Labor Court to speed up dispute resolution. Active labor market policies with the focus on training would help the unemployed to find jobs. Better communication and dialogue across government entities and also with other stakeholders including the private sector would improve outcomes.


12. Setting out a strong but growth friendly fiscal adjustment path and working towards an agreement with The Netherlands to unlock much-needed support for 2021 and the coming years is a key priority. It would be important to provide sufficient resources for Alivio measures as needed to support the economy. Premature retrenchment could hurt the recovery and leave permanent scars on the economy. A combination of depressed revenue and the need for higher expenditure implies significant financing needs in 2021 and the coming years. Deploying a facility of guaranteed lending for viable SMEs would support their survival. Thus, it would be important to set out a strong but growth friendly fiscal adjustment path and work towards an agreement with The Netherlands to unlock needed financing. It would be important to legislate the adjustment measures previously agreed with The Netherlands to contain expenditure.

13. It would be essential to reach an agreement on a realistic budget for the Curaçao Medical Center. Given the pandemic, the health sector requires adequate resources while the authorities are pursuing measures to optimize spending. In addition, it would be necessary to provide adequate liquidity to the social insurance fund (SVB) to cover its operating deficits.

Sint Maarten

14. Support from The Netherlands is essential to ensure the continuity of critical functions of the government. It is essential to strengthen the governance of the airport and keep its reconstruction on track—further delays could entail significant consequences for the economy. It is also important to ensure the continuity in supporting the vulnerable groups, especially via the food support program. It would be essential to secure resources for the much-needed reforms of tax administration and public financial management and implement them as a matter of priority. Setting the overall policy direction and actively communicating it to the public would improve confidence.

Strengthening the Fiscal Framework and Securing Fiscal Sustainability

15. The sharp increase in the government debt heightened debt sustainability concerns in both countries. It would be important to design strong consolidation packages to reduce government debt in the medium term, although the pace should be as gradual as feasible, given the pandemic, and subject to available financing. In this light, it would be necessary to maintain the fiscal measures agreed with The Netherlands in 2020 until the fiscal deficits subside to sustainable levels. Both countries need strong public financial management reforms, including stronger internal controls and procedures, better handling of fiscal risks, and improved transparency.

16. In the long term, both countries would benefit from moving towards a Fiscal Responsibility Framework. It could incorporate a government debt ratio as a long-term anchor and operational rules, such as targets for the primary fiscal balance and current expenditure, calibrated to meet it. Given the pandemic shock, reaching a long-term target of 40 percent of GDP in 10 years recommended in the 2019 Article IV consultation discussions appears unfeasible unless a part of the pandemic-related liquidity support is converted into grants. The new target can be set, taking into account the debt sustainability analysis and possible impact of debt on investment, when the uncertainty subsides.


17. The fiscal deficits in the coming years are expected to be elevated given the lingering effects of the economic shock. The primary fiscal deficit would persist at 13.5 percent of GDP in 2021 despite the measures to control the wage bill, although it would subside to single digits in 2022-23 and revert to a surplus in 2024. The government debt is projected to peak at about 103 percent of GDP in 2021—in part reflecting the loan from The Netherlands for Girobank resolution—and gradually decline to about 85 percent of GDP in 2026 assuming that none of the pandemic liquidity support is converted to grants. Achieving a more forceful debt reduction trajectory—for example, reducing it to 60 percent of GDP in 2031—would require a primary fiscal surplus of 3.2 percent of GDP by 2026.

18. It would be important to broaden the tax base, streamline the tax system, and make it growth friendly. Whereas the reform of the turnover tax planned by the new Curaçao government moves a step closer to a value added tax (VAT), significant deviations persist. Curaçao would benefit from moving to a full-fledged VAT with parameters calibrated to increase government revenue. It would also be important to incorporate other recommendations from the 2019 IMF technical assistance. The tax administration requires an urgent overhaul—this is a key prerequisite for any tax policy change.

19. The authorities’ plans to improve public financial management are steps in the right direction and should proceed expeditiously. The findings of the General Court of Audit on the 2019 financial statements need to be addressed, including rationalizing the human resources and the compensation system, adhering to regulations in subsidies and transfers to public entities, taking stock of the government assets, and improving the procurement procedures.

Sint Maarten

20. Assuming that liquidity support for financing the budget is provided, the primary fiscal deficit would increase to 16.4 percent of GDP in 2021. Primary deficits would persist in the medium term despite the measures to control public sector compensation. Government debt would peak at about 82 percent of GDP in 2021 and gradually decline to about 69 percent of GDP by 2026, although it is likely to increase again in the long term unless the authorities take measures to restore the sustainability of the health and the pension schemes. A stronger decline of government debt—for example, to 60 percent of GDP in 2028—would require achieving a primary surplus of 1 percent of GDP by 2026 and addressing fiscal risks from the health and basic old-age pension areas.

21. The planned tax policy reforms would benefit from more specificity and incorporating the advice from recent IMF technical assistance. The turnover tax ought to be maintained unless Sint Maarten and Saint Martin agree on a harmonized VAT. The authorities should introduce a tax on gambling activities and explore options for taxing real estate. Staff advise against introducing the financial transactions tax as it poses risks of financial disintermediation and could negatively affect economic growth. Sint Maarten tax administration function needs to be improved as a matter of priority before any adjustments in tax policy. Tax administration reform needs to be supported by adequate resources.

22. Improving public financial management will be key for regaining fiscal sustainability. The authorities’ plan to upgrade the outdated financial management information system is a step in the right direction, although this should be done in conjunction with improving business practices and procedures. It is important to improve timeliness of the budget and the financial statements.

23. Restoring the financial sustainability of the health and pension schemes is needed to reduce the fiscal risks. As the current health model is inefficient and financially unsustainable, it would be important to design a health financing strategy elaborating a plan for overall financial system architecture and governance. In addition, further reforms are needed in the general pension fund to avoid medium-term structural deficits due to population ageing.

Monetary and Financial Sector Policies

24. Monetary policy should aid the recovery while supporting the peg. It would be important to monitor the excess liquidity closely and stand ready to sterilize it if the international reserves come under pressure. When the recovery takes hold, the restrictions on transfers introduced in 2020 ought to be unwound if the reserve cushion remains comfortable. Strengthening the CBCS’ capacity to respond to liquidity pressures in the banking system is a key priority. It would be key to develop a new emergency liquidity assistance framework clearly articulating its objectives and governance. In the longer term, the authorities could consider revising the current standing subscription framework to enable the development of the domestic capital market and support monetary policy operations.

25. The financial sector reform program recently published by the CBCS is a step forward. The transition towards the risk-based supervision is welcome. It would be necessary to fine-tune the sequencing of planned reforms and devise a strategy for addressing possible capital shortfalls prior to the outcome of the asset quality reviews of large banks planned for 2021. Efforts to strengthen supervisory enforcement and upgrade the legislative framework on the bank resolution framework should be frontloaded. The authorities made significant progress in resolving Girobank and have been making efforts to improving data quality in order to compile the financial soundness indicators. Preparing and publishing a Financial Stability Report would be useful for transparency. Efforts to improve CBCS governance are welcome, including through amendments of the CBCS Statute, such as the introduction of staggered terms of the Supervisory Board. These efforts would lead to improved decision-making and enhanced oversight, while also strengthening overall CBCS autonomy.

Strengthening Post-Pandemic Recovery and Potential Growth

26. Across-the-board structural improvements are needed to support the recovery and potential growth. Improving the business environment is essential for the economic recovery. Facilitating business permits, business licenses and other permits—including through transparency, eliminating red tape, and using e-government for automating various business application and approval procedures—would increase incentives for investment, including foreign direct investment. Phasing in more labor market flexibility, while fine-tuning safety nets and addressing skills gaps, will help businesses operate more competitively and adjust to changing conditions.

27. Finding new areas of growth would help mitigate exposure to shocks in the longer term. Whereas the small size of the economies—especially in Sint Maarten—limit opportunities for diversification, the authorities could foster new areas of growth by supporting business facilitation and lowering barriers to entrepreneurship. Expanding green energy production (such as solar and wind) or developing water treatment plants could generate new investment.

Capacity Building and Data Framework

28. Significant capacity building efforts supported by adequate resources are needed to improve decision-making, implementation and governance in the public sector, particularly in Sint Maarten. A significant improvement in data availability and quality is needed as current gaps hamper effective macroeconomic analysis and policymaking. It would be essential to address the shortages of human and financial resources limiting data collection, coverage, and timeliness. The authorities could seek technical support from the international community.

The IMF mission would like to thank the authorities for their cooperation and the candid and constructive discussions that took place during May 13-June 17, 2021.

IMF Communications Department

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