IMF Executive Board Concludes 2021 Article IV Consultation with the Kingdom of the Netherlands—Curaçao and Sint Maarten
IMF News, August 2, 2021
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- Published: August 2, 2021
Economic impact of COVID-19 and recent shocks
- The COVID-19 pandemic inflicted another major shock on the economies of Curaçao and Sint Maarten, following major hurricanes in Sint Maarten in 2017 and spillovers of the Venezuelan crisis on Curaçao that caused a decline of the oil refining sector.
- The pandemic led to a collapse of tourism in both countries.
- Real GDP is estimated to have fallen 20 percent in Curaçao and 24 percent in Sint Maarten in 2020.
- A particularly severe outbreak of COVID-19 in Curaçao in March-April 2021 required a near-lockdown and brought tourism to a halt again.
- Depressed fiscal revenue and higher spending needs due to COVID-19 response measures widened fiscal deficits in 2020, increasing government debt stocks to about 89 and 65 percent of GDP in Curaçao and Sint Maarten, respectively.
Outlook and growth projections
- Tourism is expected to reach pre-pandemic levels only in 2024, implying a protracted recovery.
- Curaçao projections:
- Zero real GDP growth in 2021 due to the effects of the COVID-19 outbreak.
- 6.5 percent real GDP growth in 2022 as tourism partially recovers.
- Unless the refinery resumes operations in a sustainable way, it could take a decade for real GDP to recover to its pre-pandemic (2019) level as the refinery-related sectors decline.
- Sint Maarten projections:
- Real GDP growth projected at 4 percent in 2021 and 15 percent in 2022 driven by recovery of tourism and implementation of post-hurricane projects including reconstruction of the airport.
- Real GDP is likely to recover to the pre-pandemic level in 2024.
- Inflation is likely to accelerate in 2021 in both countries due to higher fuel and other import prices.
- Elevated primary fiscal deficits in 2021 are likely to increase government debt ratios to 103 and 82 percent of GDP in Curaçao and Sint Maarten, respectively, although debt ratios would gradually decline in the medium term as fiscal deficits subside and the economies recover.
- The outlook is subject to elevated uncertainty and risks, including the risk of another COVID-19 outbreak and delays in securing required liquidity support.
Executive Board assessment — policy priorities and recommendations
- Near-term focus:
- Safe reopening of the economies, providing support where necessary, and setting the stage for inclusive recovery and medium-term sustainability.
- Accelerating vaccination campaigns, particularly in Sint Maarten, to support recovery of the hospitality sector.
- Provide adequate resources to critical areas such as the health sector, tax administration, AML/CFT, and data and information frameworks.
- Use agreements with The Netherlands (landspakketten) as a window to implement structural reforms.
- Fiscal policy and fiscal sustainability:
- Strong implementation of fiscal reforms and a sustainable economic recovery are needed to achieve medium-term debt sustainability.
- Strengthen tax administration urgently and implement tax policy reforms to widen the tax base.
- Strengthen public financial management through better planning, stronger expenditure controls, better tracking of fiscal risks, and improved transparency.
- In the long term, move towards a Fiscal Responsibility Framework including government debt as a long-term anchor.
- The previously recommended debt anchor of 40 percent of GDP is unfeasible unless part of liquidity support is converted into grants; a new target can be set when uncertainty subsides.
- Monetary and external sector:
- Monetary policy should aid the recovery while supporting the peg.
- Excess liquidity should be monitored closely and sterilized if international reserves come under pressure.
- The CBCS is encouraged to remove capital flow measures introduced in March 2020 as soon as the recovery takes hold and if the international reserve cushion remains comfortable.
- Staff does not recommend approval of the exchange restriction as the conditions for approval are not met.
- Financial sector:
- Authorities’ efforts to address financial sector vulnerabilities are welcome and need to be sustained.
- Developing a comprehensive Financial Sector Reform Program was a significant step.
- Careful sequencing of measures and implementation would be key; transition to risk-based supervision, strengthen supervisory enforcement, and upgrade the bank resolution framework should be frontloaded.
- CBCS should develop a roadmap for addressing results of a planned asset quality review.
- Structural reforms and growth:
- Finding new areas of growth, supported by strong across-the-board structural reforms, would help mitigate exposure to shocks and boost potential growth.
- Improve the business environment and reduce the cost of doing business; facilitate permits, improve transparency, and eliminate red tape to increase incentives for investment, including FDI.
- Phase in more labor market flexibility while fine-tuning safety nets and addressing skills gaps.
- Expand green energy (such as solar and wind) or pursue green projects to generate new investment.
- Governance, planning, and data:
- Significant efforts are needed to improve planning, implementation capacity, and governance in the public sector, particularly in Sint Maarten.
- Address shortages of personnel and financial resources in data and statistics to remove gaps that hamper macroeconomic analysis and policymaking.
Key statistics and selected indicators (as presented)
- Curaçao: Selected Economic and Financial Indicators, 2017–22 (Prel./Est./Proj.)
- Real GDP (percent change): -1.7; -2.2; -3.4; -20.0; 0.0; 6.5
- CPI (12-month average): 1.6; 2.6; 2.2; 2.8; 3.3
- Unemployment rate (percent): 14.1; 13.4; 17.4; 19.1; 24.3; 21.0
- Central government finances (percent of GDP)
- Net operating (current) balance: -2.1; -1.2; -0.5; -17.0; -14.3; -5.7
- Primary balance: -2.6; -1.4; -0.4; -14.9; -13.5; -5.5
- Overall balance: -3.5; -2.4; -1.9; -17.8; -15.0; -7.0
- Central government debt 1/: 54.5; 55.9; 89.1; 103.2; 100.2
- Balance of payments (percent of GDP)
- Current account: -21.8; -26.0; -17.4; -26.7; -31.3; -26.5
- Goods trade balance: -33.5; -37.4; -34.3; -36.4; -39.4; -40.7
- Exports of goods: 13.6; 18.7; 12.8; 10.5; 13.7
- Imports of goods: 47.1; 56.2; 46.9; 53.1; 54.4
- Service balance: 12.1; 11.5; 16.3; 9.4; 8.9; 14.5
- Exports of services: 43.0; 43.1; 44.4; 28.8; 30.6; 37.6
- Imports of services: 30.9; 31.6; 28.0; 19.4; 21.7; 23.1
- External debt (percent of GDP): 133.3; 152.0; 156.4; 208.0; 227.7; 218.3
- Memorandum items:
- Nominal GDP (millions of U.S. dollars): 3,117; 3,128; 3,103; 2,581; 2,577; 2,849
- Per capita GDP (U.S. dollars): 19,438; 19,548; 19,557; 16,521; 16,769; 18,438
- Credit to non-gov. sectors (percent change): 2.4; 2.5; 0.1; …
- Sint Maarten: Selected Economic Indicators, 2017–22 (figures as presented)
- Real GDP 1/: -8.8; -9.1; 8.0; -24.0; 4.0; 15.0
- (Additional series in table include various percent and level indicators presented in the source tables, including government finances, central government debt, external debt, net international investment position, and nominal and per capita GDP as provided by the authorities, World Bank, and IMF staff estimates.)
- Central government debt 4/: 40.7; 47.2; 44.2; 64.7; 82.2; 77.9
- External debt: 236.1; 232.4; 222.3; 285.6; 306.1; 269.8
- Net international investment position: -134.6; -134.5; -137.6; -189.9; -212.6; -199.3
- Memorandum nominal GDP (millions): 1,147; 1,108; 1,226; 970; 989; 1,177
- Memorandum per capita GDP (U.S. dollars): 28,287; 27,293; 29,781; 23,083; 23,235; 27,313
IMF Executive Board press release: Executive Board concluded Article IV consultation discussions with the Kingdom of the Netherlands—Curaçao and Sint Maarten (July 29, 2021); IMF staff appraisal endorsed on a lapse-of-time basis.
