IMF Executive Board Concludes 2019 Article IV Consultation with Curaçao and Sint Maarten

IMF News, April 1, 2020

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IMF Executive Board Concludes 2019 Article IV Consultation with Curaçao and Sint Maarten

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Bibliographic details

• Published: April 1, 2020

Overview and context

• Executive Board concluded the Article IV consultation with Curaçao and Sint Maarten and considered and endorsed the staff appraisal without a meeting.
• Analysis reflects discussions with the Kingdom of the Netherlands—Curaçao and Sint Maarten authorities in November 2019 and is based on the information available as of March 3, 2020.
• The note was prepared before COVID-19 became a global pandemic and therefore does not reflect the implications of COVID-19; the outbreak has significantly worsened the outlook and greatly amplified uncertainty and downside risks.

Recent economic performance

• Curaçao
  • Has been in a recession since 2016 largely due to spillovers from the Venezuela crisis.
  • Real GDP contracted by an estimated 2 percent in 2019.
  • Unemployment rate increased to 21.2 percent in April 2019.
• Sint Maarten
  • Economy severely damaged by Hurricanes Irma and Maria in 2017.
  • Despite €550 million pledged by The Netherlands for reconstruction, rebuilding has been slow.
  • Real GDP is estimated to have contracted by almost 17 percent in 2017−18 and rebounded by an estimated 5 percent in 2019.

Fiscal developments

• Curaçao
  • Primary fiscal deficit declined from 2½ percent of GDP in 2017 to 1.3 percent of GDP in 2019.
  • Net operating (current) deficit declined to 0.3 percent of GDP in 2019 due to revenue-raising and expenditure-containment measures.
• Sint Maarten
  • Hurricanes widened the primary fiscal deficit excluding Trust Fund operations to 4 percent of GDP in 2018.
  • Primary deficit declined to 0.8 percent of GDP in 2019 due to economic recovery.

External sector and reserves

• The Union’s external position worsened since 2016.
• Current account deficit (CAD) for the union widened from 15.2 percent of union GDP in 2017 to an estimated 21.8 percent of GDP in 2019, mainly because of a larger CAD in Curaçao where imports increased significantly.
• International reserves declined mildly from 4.4 to 4.0 months of imports of goods and services between 2017 and 2019 despite double-digit CADs.

Executive Board assessment — growth outlook and risks

• Growth projections
  • Curaçao: After 4 years of continuous recession, real GDP expected to remain flat in 2020 and grow by 1½ percent in 2021 as agreement with the Klesch Group is expected to revive the Isla refinery; medium-term growth expected to return to around ½ percent.
  • Sint Maarten: Real GDP expected to grow by 2.9 percent in 2020, gradually converging to 2 percent in the medium term.
• External positions in both countries are weaker than warranted by fundamentals and desired policy settings.
• Downside risks
  • Curaçao: Vulnerable to setbacks in reviving the refinery and to financial system fragilities; delays could lead to exchange rate pressures.
  • Sint Maarten: Recovery vulnerable to delays in key projects (e.g., airport reconstruction) and frequent government changes that impede reform implementation.
  • Both countries vulnerable to a slowdown in main trading partners.

Policy recommendations and priorities

• Fiscal policy
  • Introduce a Fiscal Responsibility Framework with a central government debt ratio as a long-term anchor and operational rules calibrated to meet it.
  • Set a relatively low debt target of 40 percent of GDP to provide more fiscal space for negative shocks.
  • Include clearly articulated escape clauses for justified deviations while retaining sustainable policies.
  • Curaçao: Signage of the Growth Accord with The Netherlands and implementation of measures are welcome; broaden the base of the planned general consumption tax to domestically produced goods in conjunction with a comprehensive tax offset mechanism.
  • Sint Maarten: Sustain reforms to improve revenue administration, strengthen PFM and restore financial sustainability of the health sector; secure financing for reforms to avoid delays.
• Monetary and exchange rate policy
  • CBCS should strengthen monetary policy to support the peg.
  • Develop a policy rate to communicate the stance of monetary policy and be prepared to increase interest rates to prevent capital outflows.
  • Use certificates of deposit more vigorously to absorb excess liquidity.
  • Over the longer term, consider revising the standing subscription framework to allow development of domestic debt markets.
• Financial sector
  • Develop a strategy to address financial sector vulnerabilities aimed at preserving financial stability while minimizing fiscal costs.
  • Conduct a thorough diagnostic of deposit takers and define a strategy to deal with identified issues.
  • Significantly strengthen supervision and completely overhaul the bank resolution framework.
  • Be prepared to recapitalize the CBCS if costs related to monetary policy or addressing financial system vulnerabilities reduce its capital buffer.
• Structural reforms and resilience
  • Implement broad structural reforms to raise potential growth: improve business environment, increase labor market flexibility while fine-tuning safety nets, and address skills gaps.
  • Update tourism master plans in both countries.
  • Sint Maarten should develop a comprehensive disaster resilience strategy.
• Governance, AML/CFT and institutional capacity
  • Improve governance framework across the board; address vulnerabilities in the financial sector governance.
  • CBCS needs to complete its governance structure by appointing a President.
  • Increase efforts to strengthen the AML/CFT framework in both countries.
  • Strengthen internal controls and public financial management to reduce opportunities for corruption.
  • Operationalize integrity bodies in both countries.
  • Develop capacity of public institutions and enhance quality of statistics; Sint Maarten should enhance capacity to absorb aid.
  • Significantly improve data availability and quality for effective surveillance.

Key statistics — Curaçao (selected)

• Area: 444 (km2)
• Population, thousand (2017): 160
• Percent of population below age 15 (2017): 18.7
• Literacy rate, in percent (2010): 96.7
• Percent of population aged 65+ (2017): 16.4
• Life expectancy at birth, male (2016): 74.8
• Infant mortality, over 1,000 live births (2016): 11.2
• Life expectancy at birth, female (2016): 81.1

Selected economic and financial indicators, 2016–21 (Real economy, balances, debt, external)

• Real GDP (percent change): 2016: -0.9; 2017: -1.7; 2018: -2.2; 2019: -2.0; 2020: 0.0; 2021: 1.5
• CPI (12-month average): 2016: 1.6; 2017: 2.6; 2018: 3.7; 2019: 2.9
• Unemployment rate (percent): 2016: 13.3; 2017: 14.1; 2018: 13.4; 2019: 19.0; 2020: 18.1
• Net operating (current) balance, central government (percent of GDP): 2016: -0.4; 2017: -2.1; 2018: -1.2; 2019: -0.3; 2020: -0.7; 2021: 1.1
• Primary balance, general government (percent of GDP): 2016: -3.1; 2017: -2.5; 2018: -1.0; 2019: -1.3; 2020: 0.8
• Central government debt 1/ (percent of GDP): 2016: 50.6; 2017: 54.5; 2018: 54.6; 2019: 54.0; 2020: 56.0
• Current account (percent of GDP): 2016: -18.7; 2017: -21.9; 2018: -28.7; 2019: -20.8; 2020: -20.5; 2021: -19.1
• Goods trade balance (percent of GDP): 2016: -34.1; 2017: -33.5; 2018: -38.6; 2019: -33.9; 2020: -35.5
• Exports of goods (percent of GDP): 2016: 11.6; 2017: 13.6; 2018: 16.9; 2019: 15.0; 2020: 13.8
• Imports of goods (percent of GDP): 2016: 45.7; 2017: 47.1; 2018: 55.5; 2019: 48.9; 2020: 47.3; 2021: 48.8
• Service balance (percent of GDP): 2016: 17.2; 2017: 11.8; 2018: 9.7; 2019: 12.7; 2020: 17.0
• Exports of services (percent of GDP): 2016: 45.5; 2017: 43.0; 2018: 44.5; 2019: 42.8; 2020: 44.7; 2021: 48.2
• Imports of services (percent of GDP): 2016: 28.3; 2017: 31.3; 2018: 34.9; 2019: 30.2; 2020: 31.1; 2021: 31.2
• External debt (percent of GDP): 2016: 125.5; 2017: 133.3; 2018: 145.7; 2019: 153.7; 2020: 158.9; 2021: 162.8

Memoranda (Curaçao)

• Nominal GDP (millions of U.S. dollars): 2016: 3,122; 2017: 3,117; 2018: 3,128; 2019: 3,146; 2020: 3,263; 2021: 3,408
• Per capita GDP (U.S. dollars): 2016: 19,473; 2017: 19,478; 2018: 19,714; 2019: 19,908; 2020: 20,668; 2021: 21,587
• Per capita GDP (percent change): 2016: -1.8; 2017: 1.2; 2018: 1.0; 2019: 3.8; 2020: 4.4
• Private sector credit (percent change): 2017: 2.4; 2018: 2.5; 2019: 2.2

Fund position and exchange rate (Curaçao)

• Curaçao is part of the Kingdom of the Netherlands and does not have a separate quota.
• The Netherlands Antillean guilder is pegged to the U.S. dollar at NAf 1.79 = US$1.

Sources: Data provided by the authorities; and IMF staff estimates. Note: 1/ Defined as balance sheet liabilities of the central government except equities. Includes central government liabilities to the social security funds.

Key statistics — Sint Maarten (selected)

• Area: 34 (km2)
• Population, thousand (2018): 41
• Percent of population below age 15 (2018): 20
• Literacy rate, in percent (2011): 93.8
• Percent of population aged 65+ (2018): 7.9
• Life expectancy at birth, male (year not specified in table): 74.0
• Infant mortality, over 1,000 live births (2010): 6.0
• Life expectancy at birth, female (year not specified in table): 80.6

Selected economic and fiscal indicators (series as presented in source)

• Real GDP (percent change): 2018: 0.4; 2019: -8.4; 2019/2018 entries in source vary (see original table for full year-to-year series).
• Primary balance excluding Trust Fund operations 1/ (percent of GDP): 2016: 2.0; 2017: -2.9; 2018: -4.0; 2019: -0.8; 2020: -2.3
• Current balance (Authorities' definition) 2/: 2016: -5.3; 2017: -1.9; 2018: -1.4
• Overall balance (percent of GDP): 2016: 1.4; 2017: -3.6; 2018: -3.8; 2019: -1.6; 2020: 1.3; 2021: 4.9
• Central government debt 3/ (percent of GDP): 2016: 46.0; 2017: 54.4; 2018: 51.3; 2019: 52.6; 2020: 55.3
• External debt (percent of GDP): 2016: 236.0; 2017: 267.1; 2018: 266.3; 2019: 265.0; 2020: 255.4; 2021: 252.8

Memoranda (Sint Maarten)

• Nominal GDP (millions of U.S. dollars): 2016: 1,072; 2017: 1,014; 2018: 954; 2019: 1,009; 2020: 1,064; 2021: 1,115
• Per capita GDP (U.S. dollars): 2016: 27,203; 2017: 25,010; 2018: 23,495; 2019: 24,526; 2020: 25,545; 2021: 26,423
• Per capita GDP (percent change): 2016: -8.1; 2017: -6.1; 2018: 4.2; 2019: 3.4; 2020: 0.9

Notes (Sint Maarten)

• Sint Maarten is part of the Kingdom of the Netherlands and does not have a separate quota.
• 1/ Excludes capital expenditure and Trust Fund-financed special projects.
• 2/ Revenue excl. grants minus interest income, current expenditure and depreciation of fixed assets.
• 3/ The 2016 stock is based on financial statements. Values in subsequent years are staff's estimates and are higher than under authorities' definition.

Press Release No. 20/128; IMF Communications Department, April 1, 2020. The analysis is based on information available as of March 3, 2020 and staff discussions in November 2019.

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• IMF COVID-19 Hub
• Policy Tracker
• Financial Assistance
• Questions & Answers
• PRESS CENTER
• http://www.IMF.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home