Kingdom of the Netherlands – Sint Maarten: Staff Concluding Statement of the 2023 Article IV Consultations Mission
IMF News, May 30, 2023
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- Kingdom of the Netherlands – Sint Maarten: Staff Concluding Statement of the 2023 Article IV Consultations Mission
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- Published: May 30, 2023
Key takeaways
- Sint Maarten is experiencing strong recovery growth led by tourism and investment, but benefits of growth are slow to reach the rest of the economy.
- With narrowing fiscal and external deficits, the time is ripe to advance key fiscal and structural reforms, including medium-term investment planning and execution and streamlining business procedures.
- Capacity limitations exist in economic statistics and financial intelligence and require adequate resourcing.
Economic developments and outlook
- Output and growth
- Sint Maarten grew an estimated 10 percent last year.
- Output per capita is expected to surpass pre-pandemic levels this year and pre-hurricane levels next year.
- Growth led by buoyant tourism arrivals and robust private and public investment.
- Formal employment rose by 5 percent last year but remained below even the 2020 average.
- Indicators (consumer credit growth down, subdued car demand, social assistance beneficiaries not falling meaningfully) suggest a job-poor recovery that is slow to reach households.
- Major investment projects experienced delays due to supply chain and commodity price difficulties.
- Tourism dynamics
- Stayover arrivals grew 50 percent in 2022, putting them substantially above their pre-pandemic levels.
- Hotel room inventory is higher now than before the pandemic and growing, but room stock is still more than 15 percent below pre-hurricane capacity and will recover slowly, expected to increasingly act as a bottleneck.
- Cruise arrivals are growing quickly from lower levels but are also expected to slow.
- Tourism recovery will slow well before achieving pre-hurricane numbers.
- External sector and inflation
- The current account deficit narrowed dramatically, down nearly twenty percent of GDP to an estimated 2.7 percent of GDP in 2022 and expected to reach balance in 2024.
- Tradable goods prices broadly tracked U.S. inflation with a sharp impact on energy prices.
- Inflation was 3.8 percent, kept lower than expected by a subdued housing sector.
- Inflation is expected to slow slightly this year then normalize quickly.
- External support
- The US$520 million, grant-financed Trust Fund for hurricane reconstruction remains the principal source of public investment and an important driver of growth.
- The Netherlands provided liquidity support through the pandemic, conditional on a reform program (landspakket) that delivered technical assistance and policy improvements.
Fiscal reforms and public finances
- Recent fiscal performance and outlook
- The overall fiscal deficit was 1 percent of GDP last year, down from 6 percent the previous year and smaller than the budgeted figure.
- Performance driven by under-execution of the wage bill on sluggish hiring and goods and services, with support from buoyant growth-related revenues.
- Government debt to GDP ratio is projected to decline by 7 percentage points by the end of the forecast horizon, placing it in the bottom quintile of Caribbean economies.[2]
- Debt treatment scenarios
- In the baseline, pandemic-era liquidity loans falling due in October are refinanced as long-duration bullet loans.
- An annuity structure would result in additional reduction of debt to GDP, with the reduction in the debt stock partially offset by a reduction in GDP from compressed expenditures.
- Policy priorities
- Reverse earlier compression of high-quality expenditures and move forward with revenue reforms.
- Consider further increases in spending for improved public services, wages in key capacity areas, and transfers to clear outstanding domestic payment arrears to the pension fund and SZV.
- Raise domestic revenue by completing the cleansing of the tax database and ensuring that current tax payments are properly reconciled with taxpayers and tax types.
- Conduct a functional review of the Ministry of Justice to ensure consistent job grading, aligned with hiring needs and offering competitive wages.
- Continue steps to build public investment capacity: 2023 budget marked the first approval of public investment projects since the hurricanes; Trust Fund execution is expected to be substantial through 2027, and large additional public investment risks hitting supply constraints in the construction sector.
- Strengthen Ministry of Finance forecasting capacity and link medium-term budgeting to key policy measures and budget discussions.
- Ongoing efforts to develop a debt management strategy with IMF technical support are welcome to support financing scenarios and capital expenditure plans.
- Financial management and revenue administration
- Addition of six staff in the tax office has helped ease staffing constraints and may underlie recent positive results.
- Rollout of recently approved tax and financial management systems is expected to underpin improvements in tax administration and expenditure management.
Supply-side reforms and governance
- Business environment and public services
- Meaningful progress toward e-government, but processes need to be end-to-end to realize efficiency gains.
- Priority reforms: reduce turn-around time for work permits, business licenses, and building permits.
- Initiatives to establish single-window transactions and increase coordination between government agencies could benefit from a firmer timeline.
- Financial Intelligence Unit (FIU) and AML/CFT
- FIU has updated laws and advanced key legislation but requires an expanded budget and competitive wages to attract and retain staff.
- Dedicated financial crimes counterparts are needed in law enforcement and prosecution; integration with the FIU could be considered.
- The national risk assessment process is underway and must conclude in advance of the 4 th round Mutual Evaluation scheduled for September 2024.
- Laws underpinning a gaming authority and strengthening the FIU’s sanctioning authority are needed.
- The ultimate beneficial ownership registry, approved by legislation in 2019, should be prioritized.
- Statistics and data capacity
- GDP compilation has rapidly improved in timeliness and reliability; inflation statistics have improved in timeliness with further estimation improvements underway.
- The pandemic-delayed census is in its final stages and results are expected by the end of the year.
- The statistics department remains understaffed and requires a sufficient budget and competitive pay to attract and retain high-skill staff.
Implementation risks and capacity constraints
- Capacity limitations in key areas—economic statistics and financial intelligence—are binding and require adequate resourcing.
- Large-scale public investment could face supply constraints in the construction sector.
- Refinancing choices for pandemic-era liquidity assistance materially affect debt dynamics and fiscal space.[1]
Mission acknowledgements and timing
- The IMF mission conducted discussions during May 3-10, 2022.
- Issues related to the Curaçao and Sint Maarten monetary union were further discussed in the mission to Curaçao and covered in that mission’s concluding statement.
Kingdom of the Netherlands – Sint Maarten: Staff Concluding Statement of the 2023 Article IV Consultations Mission, May 30, 2023.