## Kingdom of the Netherlands – Curaçao: Staff Concluding Statement of the 2025 Article IV Mission

_IMF News, July 2, 2025_

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## Bibliographic details
- Published: July 2, 2025

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### 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*

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_Source: https://www.imf.org/en/news/articles/2025/07/02/07022025-curacao-staff-concluding-statement-of-the-2025-article-iv_