IMF Executive Board Concludes 2023 Article IV Consultation Discussions with the Kingdom of the Netherlands—Curaçao and Sint Maarten

IMF News, July 28, 2023

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Published: July 28, 2023

Context and near-term outlook

Both Curaçao and Sint Maarten have had two years of robust growth driven by a strong rebound of tourism; recovery in tourist arrivals was among the fastest in the Caribbean and current outcomes are above pre-pandemic levels.
Sint Maarten has further to go to reach levels seen before hurricane Irma in 2017.
Curaçao experienced a strong bout of inflation that affected vulnerable groups.
The international reserves of the monetary union of Curaçao and Sint Maarten remain at a comfortable level despite an elevated external current account deficit, partly due to higher import prices.
The banking system remains well-capitalized and liquid.

Curaçao — outlook and Executive Board assessment

Findings and projections:

Real GDP growth: estimated 7.9 percent in 2022; projected 3 percent in 2023 and 2024.
Economy projected to recover to its pre-pandemic level by 2026, later than the Caribbean average.
Headline 12-month average inflation projected to reduce to 3.8 percent in 2023 and to the historical average in the medium term.
Public debt projected to decline over the medium term, assuming gains from a strong post-pandemic fiscal consolidation are preserved.

Policy recommendations:

Adopt and implement a strong development strategy supported by sectoral strategies and stakeholder buy-in; integrate adaptation to climate change into the policy framework.
Implement supply-side reforms to reduce the cost of business and improve the business climate.
Develop human capital and align migration and labor policies with specific labor market needs.
Fiscal policy should focus on improving the quality of expenditure with emphasis on growth-enhancing investment.
Strengthen public investment management, including project implementation capacity.
Budget adequate resources for priority areas such as implementation of reforms, improving data and information frameworks, AML/CFT and other areas.
Ensure the level and skill composition of civil service employment is consistent with effective delivery of public services.
Develop a full-fledged medium-term fiscal framework; the authorities’ decision to adopt a medium-term debt anchor is a step in the right direction and should be accompanied by operational targets for fiscal deficits consistent with reaching the debt objective.
Reform the social security and health sectors to restore financial sustainability and safeguard against fiscal risks; provide adequate resources during reform preparation to enable asset maintenance and guarantee service continuity.
Timely implement reforms addressing governance weaknesses identified in the National Risk Assessment, including provision of sufficient resources to strengthen the AML/CFT framework.

Key statistics (Curaçao, selected):

Real GDP growth (percent change): 2019: -3.2; 2020: -18.0; 2021: 4.2; 2022 (Prel.): 7.9; 2023 (Proj.): 3.0; 2024 (Proj.): (value shown as 3 percent in prose).
CPI (12-month average): 2019: 2.6; 2020: 2.2; 2021: 3.8; 2022: 7.4; 2023: (Proj.) 3.8 in prose.
CPI (end of period): 2019: 2.3; 2020: 4.8; 2021: 8.4; 2022: 3.2.
Unemployment rate (percent): 2019: 17.4; 2020: 19.1; 2021: 19.7; 2022: 13.1; 2023: 12.8; 2024: 12.6.
Central government debt 1/: 2019: 57.3; 2020: 87.1; 2021: 90.3; 2022: 77.2; 2023: 81.4; 2024: 76.8.
Current account (% of GDP): 2019: -17.9; 2020: -27.2; 2021: -18.5; 2022: -28.5; 2023: -24.5; 2024: -23.9.
Exports of services (percent of GDP): 2019: 45.5; 2020: 29.3; 2021: 37.6; 2022: 48.6; 2023: 51.7; 2024: 52.4.
Nominal GDP (millions of U.S. dollars): 2019: 3,026; 2020: 2,534; 2021: 2,740; 2022: 3,075; 2023: 3,287; 2024: 3,486.
Per capita GDP (U.S. dollars): 2019: 19,371; 2020: 16,492; 2021: 18,135; 2022: 20,648; 2023: 21,955; 2024: 23,165.

Notes on data definitions:

1/ Defined as balance sheet liabilities of the central government except equities. Includes central government liabilities to the social security funds.
2/ Budgetary central government consolidated with the social security fund (SVB).
3/ The stock of debt in 2018 is based on financial statements. Values in subsequent years are staff's estimates and are higher than the values under authorities' definition in quarterly fiscal reports.

Sint Maarten — outlook and Executive Board assessment

Findings and projections:

Activity: post-pandemic recovery growth largely accomplished; supply constraints (hotel room inventory, airport reconstruction) expected to limit further expansion.
Growth projected to slow to 3 percent in 2023 from an estimated 10 percent in 2022, then converge to 2 percent over the medium term.
Inflation expected to remain somewhat elevated in 2023 in line with trade partners before normalizing.
Fiscal policy expected to remain generally tight over the forecast period, in line with the golden rule fiscal regime, and to place debt on a favorable downward path.
Rate of debt reduction anticipated is judged appropriate for a hurricane-exposed economy in a non-hurricane year.

Policy recommendations:

With fiscal deficits in check, reverse earlier compression of high-quality expenditures; align public wages within government and make them competitive for key skill areas.
Prioritize key infrastructure maintenance, repair and renewal; clear intergovernmental arrears.
Build public investment management capacity: nurture, expand, institutionalize, and maintain capacity; use planned capacity development to establish a roadmap for effective institutions.
Continue progress on medium-term budgeting and deepen macroeconomic integration into planning to facilitate multi-year investment planning and staffing decisions.
Streamline procedures and reduce costs of doing business (licenses, permits, tax payments); complete end-to-end e-governance implementations and improve interagency cooperation and transparency.
Accelerate governance efforts: adequately staff and empower the Financial Intelligence Unit; complete the National Risk Assessment; establish the gaming authority and ultimate beneficial ownership registry to reduce exposure to corruption risk.

Key statistics (Sint Maarten, selected):

Real GDP (percent change): 2019: 11.0; 2020: -13.3; 2021: 4.6; 2022: 10.0; 2023 (Proj.): 2.5; 2024 (Proj.): 0.7 (table shows multiple series and notes on definitions).
Overall balance excl. TF operations (percent of GDP): 2019: -1.1; 2020: -8.6; 2021: -5.5; 2022: -1.0; 2023: -3.7; 2024: -0.9.
Central government debt 4/: 2019: 38.5; 2020: 51.4; 2021: 51.5; 2022: 50.1; 2023: 51.0; 2024: 49.4.
External debt 5/: 2019: 219.0; 2020: 253.1; 2021: 237.5; 2022: 207.4; 2023: 186.8.
Nominal GDP (millions of U.S. dollars) (selected series in table): 2019: 1,408; 2020: 1,236; 2021: 1,353; 2022: 1,533; 2023: 1,639; 2024: 1,735.
Credit to non-government sectors (percent change): 2019: 2.4; 2020: 1.3; 2021: 4.5; 2022: 3.5.

Notes on data definitions and caveats:

1/ GDP estimates for 2019-21 reflect the authorities' recently released growth estimates and IMF staff's deflator estimates in anticipation of the forthcoming update to the authorities' estimates.
2/ Excludes Trust Fund (TF) grants and TF-financed special projects.
3/ Revenue excl. grants minus interest income, current expenditure, and depreciation of fixed assets.
4/ The stock of debt in 2018 is based on financial statements. Values in subsequent years are staff's estimates and are higher than the values under authorities' definition in quarterly fiscal reports.
5/ The latest available datapoint is as of 2018. Values for 2019-22 are IMF staff estimates based on BOP flow data.
6/ 2023 value shows the latest available data (March).

The Monetary Union of Curaçao and Sint Maarten — assessment and recommendations

Findings:

External current account deficit remained elevated in 2022 due to a substantial widening of the deficit in Curaçao.
The external position of Curaçao remained weaker than warranted by fundamentals and desired policy settings; Sint Maarten’s external position is in line with fundamentals and desired policy settings.
Despite the elevated current account deficit in the union, international reserves remain at a comfortable level.
Apart from legacy issues at Ennia, the financial system weathered the pandemic well: capital buffers increased, profitability indicators improved, and non-performing loans declined to single digits.

Recommendations:

The CBCS should continue to adjust monetary policy as needed to support the peg and further develop the monetary policy toolkit.
CBCS should continue close monitoring of assets, especially those restructured after the pandemic.
Finalize a resolution strategy for Ennia; any recapitalization decision should be based on a thorough review of long-term viability and avoid creating a drain on CBCS international reserves.
Finalize the deposit guarantee system.
CBCS and the governments of Curaçao and Sint Maarten should closely coordinate on establishing a well-designed Financial Stability Committee to foster collaboration and policy coordination within the monetary union.

Source: IMF Press Release No. 23/279, July 28, 2023.