{
  "title": "Kingdom of the Netherlands—Aruba: Staff Concluding Statement of the 2023 Article IV Mission",
  "publication": "IMF News, June 5, 2023",
  "sourceUrl": "https://www.imf.org/en/news/articles/2023/06/05/mcs060523-aruba-staff-concluding-statement-2023-article-iv-mission",
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  "summary": "An International Monetary Fund (IMF) staff team, led by Mr. Takuji Komatsuzaki, visited Oranjestad during May 22–June 2 to hold discussions on the 2023 Article IV consultation with the Aruban authorities.",
  "publishDate": "2023-06-05",
  "sections": [
    {
      "heading": "Economic rebound and recent performance",
      "content": "- Real GDP grew by 27.6 percent in 2021 and is estimated to have expanded by 7.3 percent in 2022.\n- Tourism recovery drove the rebound in activity and increased the current account surplus.\n- Inflation was 4.9 percent in April (driven by imported energy and food prices and increases of electricity and water tariffs in August 2022).\n- Unemployment rate decreased to 6.6 percent in June 2022 and appears to have fallen further in subsequent months.\n- Banking sector: well-capitalized, liquid, and profitable; credit growth has been slow.\n- Foreign reserves: 7.3 months of total imports at end-2022."
    },
    {
      "heading": "Outlook and risks",
      "content": "- Growth projections:\n  - Real GDP projected to slow to 2.3 percent in 2023.\n  - Medium-term growth projected at 1.1 percent.\n- Inflation projected to decelerate to 3.2 percent by end-2023.\n- Fiscal and external projections:\n  - Fiscal balance expected to display a surplus in 2023 and over the medium term.\n  - Central government debt projected to fall to 71 percent of GDP by 2028.\n  - Foreign reserve coverage projected to remain at around 7.1 months of total imports by 2028.\n- Downside risks highlighted:\n  - Steeper-than-expected global slowdown (especially in the U.S.) reducing tourist arrivals.\n  - Geopolitical fragmentation disrupting tourism or supply chains and raising commodity prices.\n  - Climate change risks (rising sea levels and more volatile weather events).\n  - Domestic risk from insufficient implementation of needed fiscal adjustment."
    },
    {
      "heading": "Fiscal position and recommendations",
      "content": "- Fiscal performance:\n  - Fiscal deficit declined to 0.5 percent of GDP in 2022 from 16.2 percent of GDP in 2020.\n  - Central government debt declined from 112.3 percent of GDP in 2020 to 90.7 percent of GDP at end-2022.\n  - Fitch upgraded Aruba’s long-term foreign debt rating from BB to BB+ in March 2023 (noted as due to post-pandemic economic and fiscal rebound).\n- Short-term fiscal policy:\n  - The 2023 budget’s envisaged government expenditure envelope is judged appropriate: plan to keep nominal current expenditure at last year’s level while introducing tax measures to increase revenue.\n  - Authorities encouraged to quickly introduce remaining planned tax reforms and to prepare a contingency plan to reduce spending if revenue falls short.\n- Medium-term fiscal strategy:\n  - Authorities’ objective: maintain a fiscal surplus while creating space for greater public investment.\n  - Mission assessment: recently implemented tax measures are not sufficient to achieve fiscal targets; further measures needed to increase revenue mobilization and scale back recurrent spending.\n  - Revenue options: introduce a broad-based value-added tax to replace the current indirect tax system; strengthen tax compliance.\n  - Expenditure measures: contain the wage bill, reprioritize spending on goods and services, streamline transfers and subsidies, and reallocate from current spending to growth-enhancing public investment.\n  - Planned World Bank Public Expenditure Review would help inform these efforts.\n- Fiscal framework and debt management:\n  - Strengthening the medium-term fiscal policy framework with a debt anchor and pre-determined escape clauses is recommended.\n  - Develop a sound debt management strategy in parallel."
    },
    {
      "heading": "Pension and long-term fiscal risks",
      "content": "- Pension outlook:\n  - Without further reforms, the pension system is expected to run deficits starting in around five to six years.\n  - Pension reserve projected to be depleted by the mid-2030s despite efforts to improve the AOV financial situation.\n- Recommended reforms:\n  - Further increase the contribution rate and/or reduce the replacement ratio to bolster solvency."
    },
    {
      "heading": "Financial sector policy and supervision",
      "content": "- Reserve requirements:\n  - Reserve requirement ratio increased to 25.5 percent (from 7 percent in March 2020), which has locked up liquidity; mission encouraged the Central Bank of Aruba (CBA) to reduce the reserve requirement ratio over time given declining inflation and adequate foreign reserves.\n- Financial stability and macroprudential policy:\n  - Overall financial stability risk assessed as low, but rising real estate lending to households raises potential concerns.\n  - Recommended actions: close monitoring of underwriting standards; consider caps on loan-to-value and debt service-to-income ratios; develop a comprehensive macroprudential policy framework supported by better, more granular, timely data (including on non-bank financial institutions).\n- Regulatory and supervisory strengthening:\n  - Mission welcomes CBA’s risk-based supervision and annual stress tests but recommends:\n    - A more structured approach to liquidity and solvency stress testing tied to macroeconomic scenarios.\n    - Adoption of Basel II international standards to enhance monitoring and management of financial sector risks."
    },
    {
      "heading": "Structural reforms, governance, and AML/CFT",
      "content": "- Structural priorities to boost potential growth:\n  - Increase value added of tourism and enhance non-tourism activities.\n  - Ease of doing business: remove obstacles, reduce red tape, stimulate entrepreneurship; note: “Business Policy Guidelines” and digital transition efforts seen as steps in the right direction.\n  - Labor market reforms: promote participation and hiring, address skills gaps, enhance productivity; promote greater labor market flexibility (such as reducing costs of dismissals) and introduce an unemployment insurance program; strengthen vocational training and improve education outturns to address skills mismatches and lessen gender gaps.\n- Governance:\n  - CBA survey indicates a widespread perception of corruption.\n  - Recommendations: align framework with the United Nations Convention Against Corruption; improve capacity of the Integrity Bureau; implement codes of conduct for public servants; implement robust asset declaration requirements for senior public servants.\n- AML/CFT and tax transparency:\n  - Commends efforts reflected in the 2022 CFATF mutual evaluation on AML/CFT; recommends continued strengthening of technical compliance and effectiveness, especially supervision of non-profits and non-financial business providers.\n  - Recommends establishment of a gaming authority for licensing and vetting, and a regulatory framework for licensing virtual asset service providers in accordance with FATF standards.\n  - Implement legal framework for beneficial ownership information held by the Chamber of Commerce and legal persons; strengthen law enforcement capacity to pursue money laundering and other financial crimes.\n  - Steps to increase tax information sharing and resolve issues related to implementation of OECD standards on tax transparency and exchange of information are essential."
    },
    {
      "heading": "Climate resilience and public investment",
      "content": "- Climate vulnerability:\n  - Aruba is a flat island with a substantial share of houses, primary infrastructure, and tourism assets near sea level; even modest sea-level rise will greatly affect the economy.\n- Recommended actions:\n  - Develop a concrete action plan under the National Climate Resilience Council to prioritize infrastructure investments that improve physical resilience of low-lying areas.\n  - Identify concrete financing sources for these projects and define how they fit within the medium-term fiscal framework.\n  - Ongoing initiatives noted: climate risk profile assessment, planned costing of climate change adaptation needs, and development of a national climate resilience strategy."
    },
    {
      "heading": "Key economic indicators (selected)",
      "content": "- Basic data and social indicators:\n  - Area (sq. km): 180\n  - Population (thousands, 2022q2): 107.4\n  - GDP per capita (thousands of USD, 2020): 32.8\n  - Nominal GDP (millions of USD, 2020): 3,521\n  - Literacy rate (percent, 2020): 98.0\n  - Life expectancy at birth (years, 2021): 74.6\n  - Percent of population below age 15 (2021): 16.8\n  - Age 65+ (2021): 15.5\n  - Population growth rate (percent, 2018-22 average): -0.2\n  - Unemployment rate (percent, 2020): 6.6\n- Selected macro aggregates and changes (2020–2023):\n  - Real GDP percent changes: 2020: -24.0; 2021: 27.6; 2022: 7.3; 2023 (proj.): 2.3\n  - Real domestic demand percent changes: 2020: -12.2; 2021: 7.9; 2022: 0.4; 2023 (proj.): 0.2\n  - Exports of goods and services percent changes: 2020: -44.1; 2021: 54.4; 2022: 29.8; 2023 (proj.): 4.2\n  - Imports of goods and services percent changes: 2020: -26.9; 2021: 15.1; 2022: 18.3; 2023 (proj.): 1.6\n  - GDP deflator percent changes: 2020: -5.0; 2021: 5.7; 2022: 3.2\n  - Consumer prices (period average) percent changes: 2020: -1.3; 2021: 0.7; 2022: 5.5; 2023 (proj.): 4.5\n  - Central government underlying balance (percent of GDP) 2020: -16.2; 2021: -9.2; 2022: -0.5; 2023 (proj.): 0.8\n  - Revenues (percent of GDP): 2020: 24.0; 2021: 19.7; 2022: 21.4; 2023 (proj.): 22.8\n  - Expenditures (percent of GDP): 2020: 40.2; 2021: 28.9; 2022: 21.8\n  - Gross central government debt (percent of GDP): 2020: 112.3; 2021: 101.8; 2022: 90.7; 2023 (proj.): 85.4\n  - Current account balance (percent of GDP): 2020: -12.4; 2021: 2.7; 2022: 11.2; 2023 (proj.): 7.4\n  - Gross official reserves (USD millions): 2020: 1,234; 2021: 1,534; 2022: 1,564; 2023 (proj.): 1,574\n  - Gross official reserves (months of next year’s imports): 2020: 7.6; 2021: 7.2; 2022: 7.3 (end-2022 noted in text); 2023 (proj.): 7.2\n  - External debt (percent of GDP): 2020: 132.9; 2021: 119.0; 2022: 89.6; 2023 (proj.): 85.9\n  - Credit to private sector (percent change): 2020: -1.4; 2021: 1.7; 2022: 3.1\n  - Broad money (millions of Aruban florins): 2020: 4,797; 2021: 5,366; 2022: 5,546; 2023 (proj.): 5,854\n  - NFA of Banking System (millions of Aruban florins): 2020: 2,056; 2021: 2,885; 2022: 3,112; 2023 (proj.): 3,154\n  - NDA of Banking System (millions of Aruban florins): 2020: 2,741; 2021: 2,481; 2022: 2,435; 2023 (proj.): 2,701\n  - Nominal GDP (millions of Aruban florins): 2020: 4,581.3; 2021: 5,555.6; 2022: 6,303.0; 2023 (proj.): 6,655.3\n  - Nominal GDP (millions of U.S. dollars): 2020: 2,559.4; 2021: 3,103.7; 2022: 3,521.2; 2023 (proj.): 3,718.0\n  - Unemployment rate (percent, 2022H1): 8.6\n\nKingdom of the Netherlands—Aruba: Staff Concluding Statement of the 2023 Article IV Mission\n\n---\n\n\n References\n\n- Kingdom of the Netherlands-Aruba and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2023/06/05/mcs060523-aruba-staff-concluding-statement-2023-article-iv-mission"
    }
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    "Published: June 5, 2023",
    "Real GDP grew by 27.6 percent in 2021 and is estimated to have expanded by 7.3 percent in 2022.",
    "Tourism recovery drove the rebound in activity and increased the current account surplus.",
    "Inflation was 4.9 percent in April (driven by imported energy and food prices and increases of electricity and water tariffs in August 2022).",
    "Unemployment rate decreased to 6.6 percent in June 2022 and appears to have fallen further in subsequent months.",
    "Banking sector: well-capitalized, liquid, and profitable; credit growth has been slow.",
    "Foreign reserves: 7.3 months of total imports at end-2022.",
    "Growth projections:",
    "Inflation projected to decelerate to 3.2 percent by end-2023.",
    "Fiscal and external projections:",
    "Downside risks highlighted:",
    "Fiscal performance:",
    "Short-term fiscal policy:",
    "Medium-term fiscal strategy:",
    "Fiscal framework and debt management:",
    "Pension outlook:",
    "Recommended reforms:",
    "Reserve requirements:",
    "Financial stability and macroprudential policy:",
    "Regulatory and supervisory strengthening:",
    "Structural priorities to boost potential growth:",
    "Governance:",
    "AML/CFT and tax transparency:",
    "Climate vulnerability:",
    "Recommended actions:",
    "Basic data and social indicators:",
    "Selected macro aggregates and changes (2020–2023):",
    "[Kingdom of the Netherlands-Aruba and the IMF](http://www.imf.org/external/country/ABW/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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