## Kingdom of the Netherlands—Aruba: Staff Concluding Statement of the 2023 Article IV Mission _IMF News, June 5, 2023_ ## Source details **Canonical URL:** [Kingdom of the Netherlands—Aruba: Staff Concluding Statement of the 2023 Article IV Mission](https://www.imf.org/en/news/articles/2023/06/05/mcs060523-aruba-staff-concluding-statement-2023-article-iv-mission) ## Other formats - [Markdown version](/en/news/articles/2023/06/05/mcs060523-aruba-staff-concluding-statement-2023-article-iv-mission/index.md) - [Structured JSON version](/en/news/articles/2023/06/05/mcs060523-aruba-staff-concluding-statement-2023-article-iv-mission/index.json) - [Bundle manifest](/en/news/articles/2023/06/05/mcs060523-aruba-staff-concluding-statement-2023-article-iv-mission/bundle-manifest.json) ## Bibliographic details - Published: June 5, 2023 --- ### Economic rebound and recent performance - 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. ### Outlook and risks - Growth projections: - Real GDP projected to slow to 2.3 percent in 2023. - Medium-term growth projected at 1.1 percent. - Inflation projected to decelerate to 3.2 percent by end-2023. - Fiscal and external projections: - Fiscal balance expected to display a surplus in 2023 and over the medium term. - Central government debt projected to fall to 71 percent of GDP by 2028. - Foreign reserve coverage projected to remain at around 7.1 months of total imports by 2028. - Downside risks highlighted: - Steeper-than-expected global slowdown (especially in the U.S.) reducing tourist arrivals. - Geopolitical fragmentation disrupting tourism or supply chains and raising commodity prices. - Climate change risks (rising sea levels and more volatile weather events). - Domestic risk from insufficient implementation of needed fiscal adjustment. ### Fiscal position and recommendations - Fiscal performance: - Fiscal deficit declined to 0.5 percent of GDP in 2022 from 16.2 percent of GDP in 2020. - Central government debt declined from 112.3 percent of GDP in 2020 to 90.7 percent of GDP at end-2022. - 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). - Short-term fiscal policy: - 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. - Authorities encouraged to quickly introduce remaining planned tax reforms and to prepare a contingency plan to reduce spending if revenue falls short. - Medium-term fiscal strategy: - Authorities’ objective: maintain a fiscal surplus while creating space for greater public investment. - 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. - Revenue options: introduce a broad-based value-added tax to replace the current indirect tax system; strengthen tax compliance. - 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. - Planned World Bank Public Expenditure Review would help inform these efforts. - Fiscal framework and debt management: - Strengthening the medium-term fiscal policy framework with a debt anchor and pre-determined escape clauses is recommended. - Develop a sound debt management strategy in parallel. ### Pension and long-term fiscal risks - Pension outlook: - Without further reforms, the pension system is expected to run deficits starting in around five to six years. - Pension reserve projected to be depleted by the mid-2030s despite efforts to improve the AOV financial situation. - Recommended reforms: - Further increase the contribution rate and/or reduce the replacement ratio to bolster solvency. ### Financial sector policy and supervision - Reserve requirements: - 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. - Financial stability and macroprudential policy: - Overall financial stability risk assessed as low, but rising real estate lending to households raises potential concerns. - 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). - Regulatory and supervisory strengthening: - Mission welcomes CBA’s risk-based supervision and annual stress tests but recommends: - A more structured approach to liquidity and solvency stress testing tied to macroeconomic scenarios. - Adoption of Basel II international standards to enhance monitoring and management of financial sector risks. ### Structural reforms, governance, and AML/CFT - Structural priorities to boost potential growth: - Increase value added of tourism and enhance non-tourism activities. - 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. - 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. - Governance: - CBA survey indicates a widespread perception of corruption. - 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. - AML/CFT and tax transparency: - 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. - 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. - 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. - Steps to increase tax information sharing and resolve issues related to implementation of OECD standards on tax transparency and exchange of information are essential. ### Climate resilience and public investment - Climate vulnerability: - 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. - Recommended actions: - Develop a concrete action plan under the National Climate Resilience Council to prioritize infrastructure investments that improve physical resilience of low-lying areas. - Identify concrete financing sources for these projects and define how they fit within the medium-term fiscal framework. - Ongoing initiatives noted: climate risk profile assessment, planned costing of climate change adaptation needs, and development of a national climate resilience strategy. ### Key economic indicators (selected) - Basic data and social indicators: - Area (sq. km): 180 - Population (thousands, 2022q2): 107.4 - GDP per capita (thousands of USD, 2020): 32.8 - Nominal GDP (millions of USD, 2020): 3,521 - Literacy rate (percent, 2020): 98.0 - Life expectancy at birth (years, 2021): 74.6 - Percent of population below age 15 (2021): 16.8 - Age 65+ (2021): 15.5 - Population growth rate (percent, 2018-22 average): -0.2 - Unemployment rate (percent, 2020): 6.6 - Selected macro aggregates and changes (2020–2023): - Real GDP percent changes: 2020: -24.0; 2021: 27.6; 2022: 7.3; 2023 (proj.): 2.3 - Real domestic demand percent changes: 2020: -12.2; 2021: 7.9; 2022: 0.4; 2023 (proj.): 0.2 - Exports of goods and services percent changes: 2020: -44.1; 2021: 54.4; 2022: 29.8; 2023 (proj.): 4.2 - Imports of goods and services percent changes: 2020: -26.9; 2021: 15.1; 2022: 18.3; 2023 (proj.): 1.6 - GDP deflator percent changes: 2020: -5.0; 2021: 5.7; 2022: 3.2 - Consumer prices (period average) percent changes: 2020: -1.3; 2021: 0.7; 2022: 5.5; 2023 (proj.): 4.5 - Central government underlying balance (percent of GDP) 2020: -16.2; 2021: -9.2; 2022: -0.5; 2023 (proj.): 0.8 - Revenues (percent of GDP): 2020: 24.0; 2021: 19.7; 2022: 21.4; 2023 (proj.): 22.8 - Expenditures (percent of GDP): 2020: 40.2; 2021: 28.9; 2022: 21.8 - Gross central government debt (percent of GDP): 2020: 112.3; 2021: 101.8; 2022: 90.7; 2023 (proj.): 85.4 - Current account balance (percent of GDP): 2020: -12.4; 2021: 2.7; 2022: 11.2; 2023 (proj.): 7.4 - Gross official reserves (USD millions): 2020: 1,234; 2021: 1,534; 2022: 1,564; 2023 (proj.): 1,574 - 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 - External debt (percent of GDP): 2020: 132.9; 2021: 119.0; 2022: 89.6; 2023 (proj.): 85.9 - Credit to private sector (percent change): 2020: -1.4; 2021: 1.7; 2022: 3.1 - Broad money (millions of Aruban florins): 2020: 4,797; 2021: 5,366; 2022: 5,546; 2023 (proj.): 5,854 - NFA of Banking System (millions of Aruban florins): 2020: 2,056; 2021: 2,885; 2022: 3,112; 2023 (proj.): 3,154 - NDA of Banking System (millions of Aruban florins): 2020: 2,741; 2021: 2,481; 2022: 2,435; 2023 (proj.): 2,701 - Nominal GDP (millions of Aruban florins): 2020: 4,581.3; 2021: 5,555.6; 2022: 6,303.0; 2023 (proj.): 6,655.3 - Nominal GDP (millions of U.S. dollars): 2020: 2,559.4; 2021: 3,103.7; 2022: 3,521.2; 2023 (proj.): 3,718.0 - Unemployment rate (percent, 2022H1): 8.6 *Kingdom of the Netherlands—Aruba: Staff Concluding Statement of the 2023 Article IV Mission* --- ## References - [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) _Source: https://www.imf.org/en/news/articles/2023/06/05/mcs060523-aruba-staff-concluding-statement-2023-article-iv-mission_