Kingdom of the Netherlands – Curaçao: Staff Concluding Statement of the 2023 Article IV Mission

May 31, 2023

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: Curaçao’s economy is recovering on strong tourism growth and sizeable private investment. Realizing Curaçao’s significant economic potential requires a strong development strategy supported by buy-in from stakeholders. Policies should support inclusive growth while strengthening fiscal sustainability. The recent decision to adopt a long-term debt anchor and develop an investment strategy are welcome steps towards developing a medium-term fiscal framework. Implementing the structural agenda embodied in the package of structural reforms (landspakket) agreed with the Netherlands would be key for addressing many of long-standing structural challenges. Continued efforts with financial sector and supply-side reforms remain vital for strengthening the financial stability and the external position of Curaçao and Sint Maarten’s monetary union.


Recent Developments and Outlook

Following a protracted recession, Curaçao’s economy has shown robust but uneven growth in 2021-22. Output grew by 4.2 percent in 2021 and an estimated 6.5 percent in 2022. Growth was supported by a strong recovery in tourism and private investment, although some sectors such as the maritime industry are lagging. While administrative data indicates subdued formal employment, the recent labor force survey indicates a strong growth in total employment, suggesting significant expansion of the informal sector. The increase in inflation last year, driven by high import prices, created a drag on real disposable incomes and negatively affected the vulnerable.

Growth is projected to moderate this and the coming years. The tourism sector, benefiting from the opening of new resorts, would support growth of 3 percent in 2023 and 2024. Given the large decline in 2020, real GDP is projected to recover to its pre-pandemic level by 2026, later than the Caribbean average. Inflation is projected to subside to 3.8 percent in 2023 and 2 percent in the medium term, in line with the projected decline in import prices. The economic outlook is subject to significant risks, including a sharp downturn in Curaçao’s trading partners, commodity price hikes, and deepening geo-economic fragmentation.

Fiscal policies

Going forward, policies should focus on improving the quality of expenditure, emphasizing growth-enhancing investment. Unsustainably low government investment, due in part to the absence of a multiyear investment framework, reduces the public capital stock and jeopardizes potential growth. The recent decision by the Council of Ministers to prepare a multiyear investment agenda and establish the Project Management Bureau would strengthen project implementation capacity, paving the way towards a stronger and more sustainable public investment program vital for supporting potential growth and boosting resilience. Improving public investment management will be important for increasing the investment returns. Budgeting adequate resources for priority areas such as implementation of the landspakket would enhance the reform and improve quality of public services. Curaçao’s vulnerabilities warrant preserving part of the accumulated stock of liquidity as an important fiscal buffer to be used if risks are realized.

Steps towards developing a medium-term fiscal framework supported by a debt anchor are welcome. The current fiscal rule—zero current account balance—has significant drawbacks including procyclicality, lack of a medium-term perspective, and low applicability during periods of shocks. The decision by the Council of Ministers to adopt a medium-term debt anchor is a step in the right direction. It should be accompanied by setting out operational targets for fiscal deficits that would be in line with achieving the debt objective. Introducing a medium-term fiscal framework would strengthen policy formulation, help avoid procyclical spending, and mitigate fiscal risks.

The authorities’ efforts to improve tax administration should continue, followed by a tax policy reform. Finalizing the restructuring of tax departments and enhancing capacity would improve performance. When tax administration gains sufficient capacity, the authorities should consider replacing the sales tax with a VAT to reduce distortions. As proposed reform of the sales tax to include automatic withholding by banks increases complexity of the system, the authorities should weigh costs and benefits before implementing. The authorities appropriately unwound most of the price-mitigating measures on fuel taxes and are reviewing the pricing structure. 

Modernizing Curaçao’s civil service would improve efficiency and the quality of public services. The level and skill composition of government employment needs to be consistent with the effective delivery of public services. It would be important to follow through on the reforms to improve the quality, effectiveness, and implementation power of the government organization, as envisaged in the landspakket. The compensation system should be calibrated to attract and retain the required talent and incentivize performance.

A comprehensive health sector reform is needed to guarantee continuity of health services, restore the sectors’ financial sustainability, and limit fiscal risks. The government, SVB, and the Curaçao Medical Center (CMC) need to agree on a common strategy to avoid funding gaps and recognize the full—including fixed—costs of service delivery. The government should advance legislation to establish the Curaçao Health Authority that will regulate the health sector, including prices. The recent transfer by the government to the CMC is welcome, but it still faces continued shortfalls in resources that result in accrual of arrears and lack of maintenance. While the reform is being prepared, it is important to provide the health sector with adequate resources to guarantee required asset maintenance and service continuity.

In view of multiple shocks that disproportionally affected the vulnerable, there is the need for a comprehensive social support strategy. The expansion of targeted support in the 2023 budget for low-income pensioners, the disabled and persons who rely only on social assistance benefits is welcome.

It will be important to continue improving public financial management. There has been welcome progress in reducing the backlog of the audited financial statements. It is necessary to strengthen internal controls, operationalize the internal audit unit, enforce proper procedures in all spending commitments and buttress accountability.  

Structural Reforms and Climate Change Policies

Given significant structural shocks in the past years, Curaçao would benefit from developing a national development strategy, setting out a long-term vision for the economy. The authorities are developing a National Recovery Plan, which requires buy-in from key stakeholders to achieve the objectives and needs to be supported by a credible macroeconomic framework. It could integrate multiple initiatives, such as further transition to renewable energy and development of priority sectors. Developing human capital through active labor market policies, including vocational education and training programs, is needed to facilitate Curaçao’s transition to a new economic structure.

A better business environment will be key for increasing potential growth. Under the landspakket, the authorities are planning to assess the business and investment climate to identify gaps. Reducing the turn-around time for licenses and permits, including through the creation of a single electronic window, would reduce cost of doing business, encourage private sector investment, and support growth. Digitization has significant potential for improving efficiency and governance.

Integrating adaptation to climate change into the policy framework will be important for sustainable growth. The authorities conducted the Climate Change Policy Assessment that identified coastal inundation, increasing rainfall and risk of flooding, and damages to biodiversity and human health as potential outcomes of global warming. They should consider preparing a National Strategic Adaptation Plan that would set out policies for increasing structural and financial resilience and introduce a comprehensive legislative and policy framework for adaptation.

The AML/CFT institutions and effectiveness need continued strengthening in line with Financial Action Task Force standards. The National Risk Assessment rates Curaçao medium-high overall in vulnerability to AML/CFT threats. Like in many institutions in the public sector, the primary issue is the lack of resources, both human capital and financial, to effectively monitor and prosecute cases. The assessment notes the lack of data available to properly execute the evaluation. While the AML/CFT framework appears not to have major gaps, the implementation needs significant improvement.

Providing adequate resources for the Curaçao Bureau of Statistics (CBS) would enable more informed decisions. Current data gaps hamper effective macroeconomic analysis and policymaking. Improving data availability and timeliness requires adequate resources for the CBS to produce statistics as well as execute timely benchmarking exercises. Increasing information sharing across the public sector would improve policy effectiveness.

The Monetary Union of Curaçao and Sint Maarten

Strengthening external and financial sector resilience

The external current account deficit (CAD) of the union remained elevated in 2022 but is projected to subside in the medium term. High import prices and an uptick in construction activity kept the CAD close to 20 percent of GDP, although the stock of international reserves remained adequate at 4.5 months of imports of goods and services. The CAD is expected to moderate to 11.6 percent of GDP in the medium term due to robust growth of tourism receipts. Credit growth in the Union has increased, reaching 3.9 percent (y/y) in March 2023, driven primarily by mortgages in both countries and business loans in Sint Maarten.

Following global monetary policy tightening, the CBCS appropriately tightened monetary policy. It increased the pledging rate and stepped up the issuance of certificates of deposits. It is important to continue to strengthen the transmission mechanism of monetary policy. The planned review of the 60/40 investment rule should include a comprehensive review of the effects on the economy, including efficiency, pro-cyclicality, and the stability of international reserves.

The financial system weathered the pandemic well, but asset quality and other vulnerabilities linger. Capital buffers in the union’s banking system increased, profitability indicators improved, and non-performing loans declined to single digits, marginally below the 2019 level. However, there are latent credit risks that may arise from the moratorium implemented in 2020, many of which have been restructured after the moratorium ended. These risks could increase NPLs and reduce capital buffers. The CBCS should monitor the housing market for signs of overheating and be prepared to employ macroprudential tools if necessary.

The CBCS has made significant progress in advancing its financial reform agenda. The CBCS has advanced its transition to risk-based supervision, improved understanding of the risk levels of various institutions, and enhanced its ability to apply formal enforcement measures. The authorities are working on a wide legislative agenda, recently publishing three key guidelines for credit institutions covering the management of liquidity risk, credit risk, and stress testing practices. The authorities should finalize the legal framework for the launch of the deposit guarantee system. It will be vital to finalize a resolution strategy for Ennia, a large insurance company that has been under CBCS’ special administration regime since 2018. A solution should avoid drawing down the international reserves. The CBCS and the governments of Curaçao and Sint Maarten need to closely coordinate on establishing a well-designed Financial Stability Committee that would be instrumental for fostering collaboration and policy coordination within the monetary union.

The IMF mission would like to thank the authorities for their cooperation and the candid and constructive discussions that took place during May 12-24.

IMF Communications Department

PRESS OFFICER: Randa Elnagar

Phone: +1 202 623-7100Email: