IMF Executive Board Concludes 2018 Article IV Consultation Discussions with the Kingdom of the Netherlands—Curaçao and Sint Maarten

IMF News, January 25, 2019

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IMF Executive Board Concludes 2018 Article IV Consultation Discussions with the Kingdom of the Netherlands—Curaçao and Sint Maarten

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Bibliographic details

• Published: January 25, 2019

Event conclusion and procedural note

• The Executive Board of the International Monetary Fund concluded the 2018 Article IV Consultation discussions with Curaçao and Sint Maarten on January 15, 2019, and considered and endorsed the staff appraisal without a meeting.
• The conclusion reflects the Executive Directors’ endorsement of staff’s appraisal.

Recent economic conditions (findings)

• Economic activity:
  • Curaçao: real GDP contracted in 2016–18 due to spillovers from one of its largest trading partners.
  • Sint Maarten: Hurricanes Irma and Maria in September 2017 caused an over 250 percent of GDP in damages and losses and led to a significant contraction in output in 2017–18.
• Fiscal and external positions:
  • Overall deficit reached 3½ percent of GDP in both Curaçao and Sint Maarten in 2017.
  • The union’s current account deficit continued to widen since 2016.

Outlook and projections

• Growth:
  • Curaçao: real GDP growth is projected to turn slightly positive in 2019 and remain below ½ percent in the medium term.
  • Sint Maarten: real GDP is projected to increase by about 2 percent in 2019 due to tourism recovery and strong reconstruction investment, keeping it slightly above its historical trend over the medium term.
• Fiscal:
  • Fiscal positions in both countries are expected to improve as economies recover and fiscal adjustment measures are implemented.
• Current account:
  • The union’s current account deficit is projected to reach 21 percent of GDP in 2019 and gradually narrow over the medium term.

Risks to the outlook

• Main downside risks:
  • Weaker-than-expected global growth that could curb tourism demand across the union.
  • Curaçao: continuing crisis in Venezuela.
  • Sint Maarten: exposure to hurricanes and slower-than-expected progress on reconstruction.
• External and domestic vulnerabilities create predominantly downside risks for the union.

Executive Board assessment — structural and policy priorities

• Growth and structural vulnerabilities:
  • Weak growth and underlying structural vulnerabilities persist in both countries; large negative external shocks have magnified these weaknesses.
  • Without major structural reforms, growth in Curaçao will remain weak; Sint Maarten’s priority is a speedy and sustainable post-hurricane recovery and rebuilding.
• Fiscal framework and fiscal sustainability (policy recommendations):
  • Adopt a medium-term fiscal framework with a long-term debt anchor to address structural fiscal challenges sustainably.
  • Ensure financial viability of social security funds and healthcare systems.
  • Systemically address budgetary arrears and fiscal risks.
  • Improve fiscal transparency, reporting and coverage, including by adopting international standards on government finance statistics.
  • Align budgetary decisions with governments' policy priorities.
  • Strengthen fiscal institutions and public financial management systems to support implementation, monitoring, and enforcement of the medium-term fiscal framework and rules.
  • Continue fiscal effort in both countries:
  • Curaçao: authorities’ multiyear fiscal adjustment package should improve the fiscal position from 2018; additional effort needed to put public debt on a sustainable downward path through structural reductions in current spending and enhanced revenue mobilization.
  • Sint Maarten: donor budget support is critical in 2018–20; significant fiscal effort within a well-prioritized and comprehensive fiscal plan is needed over the medium term to ensure debt sustainability and build fiscal resilience.
• Structural reforms to boost growth:
  • Tackle red tape, weak governance, antiquated regulations, skills mismatches, and infrastructure bottlenecks.
  • Reduce costs of doing business through streamlining and modernizing regulations.
  • Facilitate economic adjustment and attract investment via improved business environment, resilient infrastructure, and more dynamic labor markets.
• External stability and monetary/financial policy:
  • Fiscal policy and structural reforms should help safeguard external stability; external positions are moderately weaker than justified by medium-term fundamentals and desirable policies.
  • Fixed exchange rate regime limits monetary policy effectiveness; high excess liquidity in the banking system poses liquidity management challenges and could put pressure on official reserves.
  • Authorities should aim to reduce excess liquidity while monitoring official reserves and remain ready to act if pressures emerge.
• Financial sector oversight and integrity:
  • Urgent need to reinforce financial sector oversight and monitor risks from the withdrawal of CBRs.
  • Strengthen enforcement, address regulatory gaps, and collaborate internationally to alleviate CBR pressures.
  • Complete macroprudential databases and utilize macroprudential policy frameworks to bolster financial sector resilience.
  • Continue efforts to comply with international standards on AML/CFT, transparency and exchange of information for tax purposes (Curaçao), and OECD Common Reporting Standards (Sint Maarten).
  • Maintain a cautious approach to financial innovations to balance efficiency gains and risks to stability and integrity.
• Governance and anti-corruption:
  • Intensify efforts to improve governance by strengthening anti-corruption institutions.
  • Promptly operationalize the Integrity Chamber for Sint Maarten and establish one for Curaçao.
  • Complete the CBCS Executive Board, successfully carry out the NRA, and effectively implement the AML/CFT framework to comply with the 2012 FATF Recommendations.
• Capacity and statistics:
  • Developing capacity in public institutions and improving statistics remain key priorities.
  • Authorities’ efforts to seek technical assistance in fiscal and monetary policy areas are welcome.
  • Data quality and availability need to be strengthened significantly for effective surveillance.

Key country statistics (select figures preserved exactly as reported)

• Union-wide summary points:
  • Overall deficit in 2017: 3½ percent of GDP in both Curaçao and Sint Maarten.
  • Union current account deficit: projected to reach 21 percent of GDP in 2019.

• Curaçao (selected series, 2015–19 as reported)
  • Real GDP (percent change): 2015: 0.3; 2016: −1.0; 2017: −1.7 (Prel.); 2018: −2.0 (Proj.); 2019: 0.2 (Proj.).
  • CPI (12-month average): 2015: −0.5; 2016: 0.0; 2017: 1.6; 2018: 2.4; 2019: 2.2.
  • Unemployment rate (percent): 2015: 11.7; 2016: 13.3; 2017: 14.1; 2018: 14.5; 2019: 14.3.
  • Primary balance (percent of GDP): 2015: 0.1; 2016: −3.4; 2017: −2.3; 2018: 0.7; 2019: 0.4.
  • Current balance 1/ (percent of GDP): 2015: 0.9; 2016: 0.5; 2017: −0.6; 2018: 1.9; 2019: 1.8.
  • Overall balance (percent of GDP): 2015: −1.2; 2016: −4.4; 2017: −3.5; 2018: −0.5; 2019: −0.7.
  • Public debt (percent of GDP): 2015: 44.2; 2016: 45.5; 2017: 50.4; 2018: 48.9; 2019: 48.4.
  • Goods trade balance (percent of GDP): 2015: −33.8; 2016: −32.4; 2017: −32.1; 2018: −28.5; 2019: −28.3.
  • Exports of goods (percent of GDP): 2015: 14.8; 2016: 13.4; 2017: 15.3; 2018: 12.7; 2019: 12.5.
  • Imports of goods (percent of GDP): 2015: 48.6; 2016: 45.8; 2017: 47.4; 2018: 41.2; 2019: 40.8.
  • Service balance (percent of GDP): 2015: 18.8; 2016: 15.7; 2017: 10.4; 2018: 7.5; 2019: 7.7.
  • Exports of services (percent of GDP): 2015: 47.7; 2016: 43.9; 2017: 41.4; 2018: 34.5; 2019: 34.2.
  • Imports of services (percent of GDP): 2015: 28.9; 2016: 28.2; 2017: 31.0; 2018: 26.9; 2019: 26.5.
  • Current account (percent of GDP): 2015: −16.5; 2016: −18.7; 2017: −21.9; 2018: −22.4; 2019: −21.6.
  • Nominal GDP (millions of U.S. dollars): 2015: 3,153; 2016: 3,122; 2017: 3,118; 2018: 3,131; 2019: 3,207.
  • Per capita GDP (U.S. dollars): 2015: 19,834; 2016: 19,473; 2017: 19,485; 2018: 19,353; 2019: 19,590.
  • Per capita GDP (percent change): 2015: −1.4; 2016: −1.8; 2017: 0.1; 2018: −0.7; 2019: 1.2.
  • Private sector credit (percent change) 2/: 2015: −1.3; 2016: −1.1; 2017: 2.4; 2018: …; 2019: ….
  • Exchange rate: The Netherlands Antillean guilder is pegged to the U.S. dollar at NAf 1.79 = US$1.

• Sint Maarten (selected series, 2015–19 as reported)
  • Real GDP (percent change): 2015: 0.5; 2016: 0.5; 2016 (another column): 0.4; 2017 (Prel.): 0.4; 2017 (Prel., hurricane impact): −4.8; 2018 (Prel.): −4.8; 2018 (Proj. steep decline): −8.5; 2019 (Proj.): 2.1.
  • CPI (12-month average): 2015: 0.3; 2016: 0.3; 2016 (other): 0.1; 2017: 0.1; 2017 (Prel. hurricane): 2.2; 2018 (Prel.): 2.2; 2018 (Proj.): 2.7; 2019 (Proj.): 2.5.
  • Unemployment rate (percent): 2015: 8.9; 2016: 8.9; 2016 (other): 8.7; 2017: 8.7; 2017 (Prel.): 6.2; 2018 (Prel.): 6.2; 2018 (Proj.): 9.2; 2019 (Proj.): 8.7.
  • Primary balance (percent of GDP): 2015: −1.7; 2016: −1.7; 2016 (other): 1.5; 2017: 1.5; 2017 (Prel.): −2.8; 2018 (Prel.): −2.8; 2018 (Proj.): −6.3; 2019 (Proj.): −3.4.
  • Current balance 1/ (percent of GDP): 2015: −1.0; 2016: −1.0; 2016 (other): 1.4; 2017: 1.4; 2017 (Prel.): −3.3; 2018 (Prel.): −3.3; 2018 (Proj.): −3.8; 2019 (Proj.): 0.7.
  • Overall balance (percent of GDP): 2015: −2.3; 2016: −2.3; 2016 (other): 0.8; 2017: 0.8; 2017 (Prel.): −3.5; 2018 (Prel.): −3.5; 2018 (Proj.): −7.1; 2019 (Proj.): −4.2.
  • Public debt (percent of GDP): 2015: 36.3; 2016: 36.3; 2016 (other): 34.0; 2017: 34.0; 2017 (Prel.): 34.3; 2018 (Prel.): 34.3; 2018 (Proj.): 43.6; 2019 (Proj.): 45.8.
  • Goods trade balance (percent of GDP): 2015: −68.3; 2016: −68.3; 2016 (other): −67.6; 2017: −67.6; 2017 (Prel.): −61.2; 2018 (Prel.): −61.2; 2018 (Proj.): −57.4; 2019 (Proj.): −86.0.
  • Exports of goods (percent of GDP): 2015: 12.1; 2016: 12.1; 2016 (other): 12.3; 2017: 12.3; 2017 (Prel.): 11.8; 2018 (Prel.): 11.8; 2018 (Proj.): 11.3; 2019 (Proj.): 13.5.
  • Imports of goods (percent of GDP): 2015: 80.4; 2016: 80.4; 2016 (other): 79.9; 2017: 79.9; 2017 (Prel.): 73.0; 2018 (Prel.): 73.0; 2018 (Proj.): 68.7; 2019 (Proj.): 99.5.
  • Service balance (percent of GDP): 2015: 76.3; 2016: 76.3; 2016 (other): 70.9; 2017: 70.9; 2017 (Prel.): 52.0; 2018 (Prel.): 52.0; 2018 (Proj.): 34.4; 2019 (Proj.): 54.5.
  • Exports of services (percent of GDP): 2015: 102.4; 2016: 102.4; 2016 (other): 96.8; 2017: 96.8; 2017 (Prel.): 77.6; 2018 (Prel.): 77.6; 2018 (Proj.): 62.3; 2019 (Proj.): 82.4.
  • Imports of services (percent of GDP): 2015: 26.0; 2016: 26.0; 2016 (other): 25.9; 2017: 25.9; 2017 (Prel.): 25.7; 2018 (Prel.): 25.7; 2018 (Proj.): 27.9; 2019 (Proj.): 28.0.
  • Current account (percent of GDP): 2015: 1.7; 2016: 1.7; 2016 (other): −2.5; 2017: −2.5; 2017 (Prel.): 4.5; 2018 (Prel.): 4.5; 2018 (Proj.): −10.0; 2019 (Proj.): −19.8.
  • Nominal GDP (millions of U.S. dollars): 2015: 1,066; 2016: 1,066; 2016 (other): 1,072; 2017: 1,072; 2017 (Prel.): 1,043; 2018 (Prel.): 1,043; 2018 (Proj.): 980; 2019 (Proj.): 1,025.
  • Per capita GDP (U.S. dollars): 2015: 26,201; 2016: 26,201; 2016 (other): 26,163; 2017: 26,163; 2017 (Prel.): 25,284; 2018 (Prel.): 25,284; 2018 (Proj.): 23,622; 2019 (Proj.): 24,587.
  • Per capita GDP (percent change): 2015: 0.2; 2016: 0.2; 2016 (other): −0.1; 2017: −0.1; 2017 (Prel.): −3.4; 2018 (Prel.): −3.4; 2018 (Proj.): −6.6; 2019 (Proj.): 4.1.
  • Private sector credit (percent change) 2/: 2015: 1.7; 2016: 1.7; 2016 (other): 1.3; 2017: 1.3; 2017 (Prel.): −1.6; 2018 (Prel.): −1.6; 2018 (Proj.): …; 2019 (Proj.): ….
  • Exchange rate: The Netherlands Antillean guilder is pegged to the U.S. dollar at NAf 1.79 = US$1.

References

• IMF Policy Advice -- A Factsheet