IMF Executive Board Concludes 2024 Article IV Consultation Discussions with the Kingdom of the Netherlands—Curaçao and Sint Maarten
IMF News, September 17, 2024
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- Published: September 17, 2024
Overview
- On September 10, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation discussions with the Kingdom of the Netherlands—Curaçao and Sint Maarten and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
- The consultation discussions form part of the Article IV consultation with the Kingdom of the Netherlands.
- Context highlights:
- Vigorous post-pandemic recovery underpinned by strong stayover tourism, outperforming Caribbean peers.
- Headline inflation declined rapidly led by international oil price developments, notwithstanding a recent uptick; core inflation remains elevated.
- Current account deficits improved markedly from pandemic years but remain high.
- Fiscal positions remained strong and in compliance with the fiscal rule.
- The landspakket (structural reform package agreed with the Netherlands in 2020) continues to guide reform agendas.
Curaçao — Outlook and Executive Board Assessment
- Growth and inflation:
- Growth projected at 4.5 percent in 2024 driven by stayover tourism and fiscal expansion (new airlifts and hotel capacity).
- Growth expected to moderate to 1.5 percent over the medium term absent further reforms and diversification.
- Headline inflation projected to decline to 3.2 percent in 2024 from 3.5 percent in 2023, and to converge to a steady state of around 2 percent by 2027.
- Fiscal and external:
- Fiscal balances guided by the fiscal rule; debt expected to continue declining while surpluses narrow as investments return and social spending pressures mount.
- Current account deficit expected to improve in the medium term but remain elevated.
- Structural shifts and vulnerabilities:
- Shift to tourism-led growth created near-term gains but resulted in a low-skilled, informal labor market recovery and low investment in non-tourist sectors.
- Risks include growth slowdown in major economies, more persistent core inflation, delays in public investment, and population decline.
- Policy recommendations and reforms:
- Safeguard recently created fiscal space; avoid procyclical impulse by more gradual unwinding of pandemic wage cuts in 2024 and prudent liquidity management to repay a bullet loan in 2025.
- Strengthen tax administration, review procurement and domestic arrears management, and streamline transfers to public entities.
- Use fiscal space for priority investments including climate adaptation, guided by a medium-term fiscal framework steering towards the island’s debt anchor.
- Implement healthcare and pension reforms to address growing health and old-age pension deficits; consider efficiency gains in health spending, broaden contributor base, increase co-payments, and raise pension age.
- Boost public and private investment in infrastructure, electricity grid and energy storage, and deregulate transportation; pursue envisioned floating offshore wind park for hydrogen production.
- Scale up capacity in planning and execution to ramp up public investment.
- Pass and implement draft online gaming law, risk-based supervision, and new laws addressing EU grey listing and automatic information exchange; enhance coordination across agencies to reduce ML/FT vulnerabilities.
Sint Maarten — Outlook and Executive Board Assessment
- Growth and inflation:
- Growth expected at 2.7 percent in 2024 and 3 percent in 2025, supported by delayed recovery in cruise passengers.
- From 2026 onwards, growth expected to converge to 1.8 percent as reconstruction stimulus peters out and tourism approaches carrying capacity.
- Inflation expected to remain broadly contained but vulnerable to international price developments.
- Near-term threats:
- Electricity load shedding since June and political instability threaten the near-term outlook.
- Fiscal and public finances:
- Government will continue to comply with the golden fiscal rule; capacity constraints weigh on public investment.
- Revenue mobilization is essential; plans to lower tax rates should be avoided.
- Recommended revenue measures include: tax casinos’ profits, turnover, and winnings; enforce lodging tax on short-term rentals and tax income/profit from such rentals; update price of land leases; institute a tourist levy at the airport.
- Healthcare and pensions:
- Without reforms, health and pensions funds will run deficits by 2027; SZV would deplete liquid assets by 2027.
- By 2030, government would need to transfer about 4 percent of GDP per year to sustain the system if policies unchanged.
- Urgent reforms recommended: introduce the General Health Insurance, rationalize benefits, extend generics use, optimize referrals, strengthen preventive care, adopt out-of-pocket payments, increase contribution rates, and link retirement age to life expectancy.
- Energy and infrastructure:
- A comprehensive strategy to resolve the electricity crisis is required, including a masterplan with targets, projects, costing, timeline, and ancillary investment assessment.
- Consider a new mandate for the Trust Fund beyond 2028 to operate as a public investment agency for the energy transition.
- AML/CFT:
- Strengthen implementation: start UBO registration, improve investigation and prosecution of suspicious activities, grant FIU full independence, and increase FIU budget for recruitment and operations.
Monetary Union, Monetary Policy, and Financial Sector
- External and reserves:
- Large current account deficits in both countries expected to improve and remain well-financed; international reserves expected to remain broadly stable.
- Curaçao’s external position assessed as weaker than implied by fundamentals and desired policy settings due to elevated CAD and sustained real effective exchange rate appreciation.
- Sint Maarten’s external position considered in line with fundamentals and desired policy settings.
- Monetary policy:
- Appropriately targeted towards maintaining the peg.
- CBCS increased its benchmark rate during 2022-23 and has kept it unchanged since September 2023.
- Efforts to absorb excess liquidity should continue while closely monitoring core inflation driven by tourism-related services.
- Credit growth declined further and reached negative territory in real terms; mortgage credit increased.
- Absence of interbank and government securities markets weakens transmission mechanism; consider macroprudential limits on mortgage lending if mortgage acceleration continues.
- Financial sector resilience:
- Financial sector is sound; banks highly liquid and adequately capitalized; systemic risks contained.
- Risks to financial stability substantially diminished with controlled wind-down agreement for ENNIA and the start of restructuring.
- CBCS advancing reform agenda: establishing a financial stability committee, refining stress-testing, enhancing crisis management capacities including lender of last resort and a deposit insurance scheme.
- Staff welcomes CBCS’s progress in strengthening supervisory and regulatory capacity and crisis management.
Key Statistics (selected figures from the consultation)
- Curaçao projections and indicators (selected):
- Real GDP (percent change): -18.0 (2020), 4.2 (2021), 7.9 (2022), 4.5 (2023), 3.5 (2024), [2025 value blank in source table].
- CPI (12-month average, percent change): 2.2 (2020), 3.8 (2021), 7.4 (2022), 3.2 (2023), 2.4 (2024).
- CPI (end of period, percent change): 4.8 (2020), 8.4 (2021), 3.1 (2022).
- Unemployment rate (percent) 1/: 13.1 (2020), 13.5 (2021), 7.2 (2022), 7.0 (2023), 6.9 (2024), 6.6 (2025).
- Central Government Finances — Overall balance: -14.5 (2020), -10.0 (2021), 1.0 (2022), 1.3 (2023), 0.1 (2024).
- Central government debt 3/: 87.1 (2020), 90.3 (2021), 81.6 (2022), 70.8 (2023), 65.4 (2024), 61.1 (2025).
- Current account: -27.2 (2020), -18.6 (2021), -26.8 (2022), -19.7 (2023), -17.9 (2024), -16.5 (2025).
- Nominal GDP (millions of U.S. dollars): 2,534 (2020), 2,740 (2021), 3,075 (2022), 3,318 (2023), 3,578 (2024), 3,789 (2025).
- Per capita GDP (U.S. dollars): 16,492 (2020), 18,135 (2021), 20,648 (2022), 22,160 (2023), 23,775 (2024), 25,065 (2025).
- Sint Maarten projections and indicators (selected):
- Real GDP (percent change) 1/: -20.4 (2020), 7.1 (2021), 13.9 (2022), 2.7 (2023), 3.0 (2024), 2.8 (2025), 3.6, 2.1, 2.3 (additional entries in table).
- Unemployment rate (percent) 2/: 10.8 (2020), 9.9 (2021), 8.6 (2022), 8.5 (2023), 8.2 (2024).
- Central government debt 5/: 55.3 (2020), 49.3 (2021), 49.0 (2022), 46.2 (2023), 44.1 (2024).
- External debt 6/: 274.3 (2020), 253.7 (2021), 213.6 (2022), 206.3 (2023), 200.8 (2024), 194.0 (2025).
- Nominal GDP (millions of U.S. dollars): 1,141 (2020), 1,268 (2021), 1,479 (2022), 1,563 (2023), 1,645 (2024), 1,733 (2025).
- Per capita GDP (U.S. dollars): 26,796 (2020), 29,646 (2021), 34,437 (2022), 36,088 (2023), 37,570 (2024), 39,160 (2025).
IMF Press Release No. 24/330, September 17, 2024.