Kingdom of the Netherlands – Curaçao: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, July 2, 2025
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- Published: July 2, 2025
Recent developments and macroeconomic conditions
- Economic activity expanded by 5 percent in 2024, driven by strong tourism performance that spilled over into wholesale trade, real estate, and construction.
- Stayover arrivals grew at double digits and continued to outperform Caribbean peers.
- Construction activity was driven mostly by holiday homes and hotels, supported by strong mortgage growth and a resumption of public investments under the Road Maintenance Plan.
- Average headline inflation declined to 2.6 percent in 2024 from 3.5 percent in 2023, aligned with global oil prices and lower US inflation.
- Real wages increased for the first time in five years; job creation was dominated by informal construction and tourism-related sectors while formal employment declined.
- The primary fiscal surplus continued to rise due to increased tax collection on goods and services.
- The current account deficit widened in 2024 due to higher merchandise imports, mainly related to construction activity.
Outlook and risks
- Growth projections:
- 2025 growth projected to moderate to 4 percent.
- Medium-term growth projected to gradually converge to 2 percent.
- Inflation projection:
- Headline inflation projected to stabilize at 2.5 percent in 2025, subject to oil price-related uncertainty.
- Fiscal and external outlook:
- Fiscal accounts expected to remain in surplus and fully compliant with the fiscal rule.
- Government may partially settle a large bullet loan in 2025 with own liquid reserves, accelerating debt reduction.
- The current account deficit expected to decline in the medium term but remain elevated.
- Key risks (tilted to the downside):
- External: trade policy and investment shocks inducing higher inflation and lower external demand, adversely impacting tourism arrivals.
- Domestic upside: faster-than-expected advances in the green hydrogen value chain and other energy sources.
- Domestic downside: lower-than-expected public investment disbursements and delays in infrastructure improvements could reduce potential growth gains.
- Financial: continued high mortgage credit growth fueling rising house prices could lead to financial sector and household balance sheet vulnerabilities.
- Buffers:
- Access to favorable refinancing conditions on the Dutch capital market, subject to compliance with the fiscal rule, grants substantial fiscal space for capital and emergency spending.
Fiscal policy priorities and structural reforms
- Overarching challenge: weigh the need to boost investments and address social spending pressures while reforming the tax system in an equitable manner to reach the medium-term debt target and sustain growth.
- Healthcare reforms (urgent):
- Annual deficits of the SVB healthcare fund amounted to around 5 percent of GDP over past years, excluding central government transfers.
- The Curaçao Medical Center runs an additional 1 percent of GDP annual deficit.
- Health expenses around 13 percent of GDP.
- Suggested efficiency gains: additional volume and price measures for pharmaceuticals, re-evaluation of laboratory tariffs, further expansion of primary care, and preventive care improvements (materializing over the longer horizon).
- Revenue options: broaden contributor base (e.g., include migrant workers), increase co-payments for higher-income households, allow price differentiation for privately insured, charge for add-on services, develop a secondary private insurance market, and expand medical tourism potential.
- Pensions and social insurance:
- Real per capita benefits declined by 23 percent between 2016 and 2024.
- Applying inflation indexation to residents’ pensions only would allow for a broadly balanced old-age pension scheme budget (before central government transfers).
- A supplement for low-income pensioners could cost around ½ percent of GDP per year; partially finance by broadening the contributor base.
- Legalizing young migrant workers and incentivizing formalization could increase revenues by about 0.3 percent of GDP.
- The draft law to make second-pillar occupational pension plans mandatory would reduce reliance on old-age pensions and increase private savings.
- Tax reform and revenue administration:
- Direct taxation expanded from a pre-pandemic average of 11 percent of GDP to 14 percent of GDP in 2024.
- Authorities plan to introduce a VAT designed to be revenue-neutral and equity-enhancing.
- Priorities: expand property taxation on second homes; purchase and implement digital infrastructure to modernize tax administration.
- Further considerations: introduce a tourism fee (by 2026), end tax holidays on import duties, and adjust permitting fees.
- Public investment and service delivery:
- Need to increase investment capacity to administer a planned investment increase of 2-3 percent of GDP in coming years.
- Recommendations: centralized investment planning unit, multi-year project budgeting, transparent procurement system, inclusion of adaptation investments for sea level rise, improve means-testing and maintain a registry for lower-income households.
Labor market, informality, and education
- Informality and formal employment:
- Strong decline in formal employment over the past decade driven mostly by a drop in registered jobs among men, especially prime working age.
- Half of the decline in formal employment not explained by demographics, migration, or unemployment—likely transition to informality.
- Tourism and construction offer more informal opportunities.
- Policy measures to reduce informality:
- Strengthen incentives for formal work, improve enforcement and monitoring, tighten eligibility criteria for benefits.
- Facilitate access to education, increase formal sector productivity, introduce in-work benefits for incomes between minimum and median wage, stricter eligibility for monthly assistance.
- Education and skills:
- 2023 census: education levels of new entrants below pre-retirement cohort; young employees in more precarious positions.
- Ongoing investments in schools’ physical and digital infrastructure aligned with landspakket recommendations.
- Initiatives to attract graduates back with tax incentives and expedited labor permitting for high-skill workers.
- Complementary measures: vocational training, employer-led vocational education incentives, integration of migrants into the workforce.
Competitiveness, diversification, and infrastructure
- Tourism management and diversification:
- Authorities focus on tourism value added and diversification of source markets, mindful of saturation and global context.
- Key bottlenecks: roads and transportation; needs more public investment to improve island connectivity.
- Maritime infrastructure investments to attract yacht tourists and move up the tourism value chain.
- Increasing taxi licenses and tapping South American markets (Brazil, Argentina, Colombia) with new flight routes.
- Non-tourism sectors and digital economy:
- Build on reforms to expedite business permits and promote digitalization in line with the National Export Strategy.
- Submarine cable connection from 2027 could help expand data center industry, conditional on electricity grid absorption capacity and moderation in electricity prices.
- Planned Aqualectra grid investments supported by funding from the Netherlands aim to lift renewables electricity production to 70 percent by 2027 from around 50 percent currently.
- Envisaged floating offshore wind park of 3-10 GW could cover Curaçao’s entire electricity demand and create export opportunities.
- Regional integration:
- Diversifying trade and regional integration viewed as key to mitigate exposure to external shocks.
- Imports concentrated in advanced markets—room to expand goods imports from Brazil and Colombia.
- As a new associate CARICOM member, continue strengthening regional cooperation, acknowledging limits on independent trade policy given Kingdom laws.
- Governance and anti-corruption:
- Online gaming law approved by parliament end-2024.
- Accession to the UN Convention Against Corruption and delisting from the EU grey list following legal updates in 2024.
- Mutual evaluations of the AML/CFT frameworks for Curaçao and Sint Maarten underway; results expected mid-July 2025.
Monetary union, external position, and financial sector
- External balance and reserves:
- Union current account deficit widened to around 17 percent of GDP in 2024 due to higher imports (mainly Curaçao’s construction) despite strong tourism receipts.
- Medium-term contraction of the Union’s current account deficit towards 10 percent of GDP projected, supported by stronger travel receipts, moderation in construction-related imports, and increases in renewables.
- Deficit financed by private investment inflows and decumulation of assets abroad; stock of international reserves expected to remain broadly stable and adequate.
- Staff’s preliminary assessment: external position in 2024 weaker than level implied by fundamentals and desirable policies in Curaçao; broadly in line in Sint Maarten; assessment for the Union same as for Curaçao due to larger size and current account deficits, subject to high uncertainty from measurement biases.
- Monetary policy and transmission:
- CBCS cut benchmark pledging rate by a cumulative 100 basis points in September and November 2024 to 4.75 percent, kept unchanged since then.
- Transmission to banking sector interest rates weak; deposit rates broadly constant; Union lending rates declined between 2018 and end 2024.
- Excess liquidity and absence of interbank and government securities markets impede transmission.
- Credit dynamics and macroprudential considerations:
- Credit growth accelerated, entirely driven by mortgages in Curaçao.
- Mortgage credit in the union is the second highest in the Caribbean, growing by double digits in real terms post pandemic; real overall credit growth negative.
- Mortgages expected to remain on an upward trajectory, including financing for second homes and vacation rental apartments.
- In Sint Maarten, mortgage credit growth turned negative in 2024.
- Credit to non-tourism sectors declining in real terms.
- Financial sector broadly sound: banks well capitalized (among highest in the region) but NPLs and provisioning weaker than CBCS early warning signal and peers; liquidity abundant; profitability somewhat below Caribbean median; concentration high.
- Recommendations: closely monitor mortgage growth; overcome data gaps; develop macroprudential toolkit (CCyBs, loan-to-value and debt-service-to-income thresholds); consider caps on mortgage credit growth or mortgage loan exposure if mortgage credit gap widens.
Mission engagement
- The IMF mission conducted discussions during June 18-25.
- Mutual evaluations and assessments noted with timelines (e.g., AML/CFT results expected mid-July 2025).
Kingdom of the Netherlands – Curaçao: Staff Concluding Statement of the 2025 Article IV Mission