IMF Executive Board Concludes 2023 Article IV Consultation Discussions with the Kingdom of the Netherlands—Curaçao and Sint Maarten
July 28, 2023
Washington, DC : On July 24, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV consultation discussions [1] with the Kingdom of the Netherlands—Curaçao and Sint Maarten and endorsed the staff appraisal without a meeting on a lapse-of-time basis[2]. These consultation discussions form part of the Article IV consultation with the Kingdom of the Netherlands.
Context.Curaçao and Sint Maarten continue to recover from major shocks. Both countries have had two years of robust growth driven by a strong rebound of tourism, although the benefits of recovery have not reached all sectors. The recovery in tourist arrivals was among the fastest in the Caribbean and the current outcomes are above the pre-pandemic levels. Sint Maarten has further to go to reach levels seen before hurricane Irma in 2017. Similar to other countries, Curaçao experienced a strong bout of inflation, which affected the vulnerable. The international reserves of the monetary union of Curaçao and Sint Maarten remain at a comfortable level despite the elevated external current account deficit, which was due in part to higher import prices. The banking system remains well-capitalized and liquid.
Curaçao outlook.After a robust recovery in 2022, estimated at 7.9 percent, output growth is expected to moderate. Further expansion of the hospitality sector would support GDP growth of 3 percent in 2023 and 2024. The economy is projected to recover to its pre-pandemic level by 2026, later than the Caribbean average, as the decline of real GDP in 2020 was deeper than in Curaçao’s peers. The easing of oil and food prices, along with disinflation in major trading partners, is expected to reduce headline 12-month average inflation to 3.8 percent in 2023 and to the historical average in the medium term. Assuming that gains from a strong post-pandemic fiscal consolidation are preserved, public debt is projected to decline over the medium term.
Sint Maarten outlook. With post-pandemic recovery growth largely accomplished, activity is expected to encounter harder supply constraints going forward, including hotel room inventory and airport reconstruction. Growth is expected to slow to 3 percent in 2023 from an estimated 10 percent in 2022, and then converge to 2 percent over the medium term. Inflation will remain somewhat elevated this year, in line with trade partners, before normalizing. Fiscal policy is expected to remain generally tight over the forecast period, in line with the golden rule fiscal regime, and to put debt on a favorable downward path.
Executive Board Assessment
Curaçao
Realizing Curaçao’s significant economic potential requires a strong development strategy supported by buy-in from stakeholders. The development strategy needs to be supported by sectoral strategies. Integrating adaptation to climate change into the policy framework will be important for sustainable growth. It will be important to conduct supply-side reforms to reduce the cost of business and improve the business climate. Developing human capital and aligning migration and labor policies in line with specific labor market needs will be important for a sustainable and inclusive growth.
Fiscal policies should focus on improving the quality of expenditure, emphasizing growth-enhancing investment. Strengthening public investment management, including project implementation capacity, is needed to achieve good quality public investments required for supporting potential growth and boosting resilience. Budgeting adequate resources for priority areas such as implementation of reforms, improving data and information frameworks, AML/CFT and other areas, would improve the quality of public services. The level and skill composition of civil service employment needs to be consistent with the effective delivery of public services.
Developing a full-fledged medium-term fiscal framework would strengthen policy formulation, help avoid procyclical spending, and mitigate fiscal risks. In that regard, the authorities’ decision to adopt a medium-term debt anchor is a step in the right direction. It should be accompanied by setting out operational targets for fiscal deficits consistent with reaching the debt objective.
Reforms of the social security and the health sector are needed to restore their financial sustainability and safeguard against fiscal risks. A comprehensive health sector reform is needed to restore the sector’s financial sustainability, limit fiscal risks, and guarantee continuity of health services. While the reform is being prepared, it would be important to provide the sector with adequate resources to enable asset maintenance and guarantee service continuity. The old-age pension system also requires attention.
Timely implementation of reforms addressing governance weaknesses will be critical for sustained and inclusive growth. The publication of the National Risk Assessment was a significant step forward. It will be critical to address the weaknesses identified in the assessment, particularly the provision of sufficient resources to strengthen effectiveness of the AML/CFT framework.
Sint Maarten
With fiscal deficits in check, policies should focus on reversing earlier compression of high-quality expenditures. Public wages should be aligned within government and competitive for key skill areas. Key infrastructure maintenance, repair and renewal should be prioritized, and intergovernmental arrears should be cleared. The rate of debt reduction anticipated in projections is appropriate for a hurricane exposed economy in a non-hurricane year.
Building public investment capacity is a key priority. Sint Maarten marked important steps in building public investment management capacity this year, but substantial work remains to ensure this capacity can be nurtured, expanded, institutionalized, and maintained. Planned capacity development should help establish a roadmap to building effective institutions.
Progress on medium-term budgeting is welcome. Advances in medium-term budgeting this year is noteworthy, as is ongoing progress in deepening macroeconomic integration into planning. Credible medium-term budgeting should help facilitate multi-year investment planning and staffing capacity choices.
Streamlining procedures and reducing costs of doing business would help elevate Sint Maarten’s growth. Long known as a business-friendly environment, the private sector has recently pointed to slow processing times for licenses, permits, and tax payments as a constraint on growth. Important steps in e-governance need to be made end-to-end to fully realize their benefits while interagency cooperation and greater transparency would bolster confidence and promote growth.
Governance efforts need accelerating. Adequately staffing and empowering the Financial Intelligence Unit would attenuate risks around the timely completion of the National Risk Assessment and expand investigation activity. The establishment of the gaming authority and ultimate beneficial ownership registry would mark key milestones in the reduction of exposure to corruption risk.
The Monetary Union of Curaçao and Sint Maarten
The external current account deficit remained elevated in 2022 on account of a substantial widening of the deficit in Curaçao. The external position of Curaçao remained weaker than the level warranted by the fundamentals and desired policy settings, whereas in Sint Maarten the external position is in line with the fundamentals and desired policy settings. Despite the elevated current account deficit in the union, the international reserves remain at a comfortable level. The CBCS should continue to adjust monetary policy as needed to support the peg and further develop the monetary policy toolkit.
Apart from legacy issues at Ennia, the financial system weathered the pandemic well. Capital buffers in the Union’s banking system increased, profitability indicators improved, and non-performing loans declined to single digits. The CBCS should continue close monitoring of assets, especially those that have been restructured after the pandemic. It will be vital to finalize a resolution strategy for Ennia. A decision to recapitalize Ennia needs to be based on a thorough review of its long-term viability. Any solution needs to avoid creating a drain on the CBCS international reserves.
The authorities should continue making progress in their financial reform agenda. It would be important to finalize the deposit guarantee system. The CBCS and the governments of Curaçao and Sint Maarten need to closely coordinate on establishment of a well-designed Financial Stability Committee that would be instrumental for fostering collaboration and policy coordination within the monetary union.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. At the request or with the consent of the member, IMF staff may hold separate discussions with respect to territories or constituent parts of a member. These Article IV consultation discussions form a part of the member’s Article IV consultation. In such cases, a staff team visits the territory or constituent part, collects economic and financial information, and discusses with officials the territory or constituent part’s economic developments and policies. On return to headquarters, the staff prepare a report, which forms the basis for discussion by the Executive Board, which in turn constitutes an integral part of the member’s Article IV consultation for the relevant cycle.
[2] The Executive Board takes decisions under its lapse-of-time-procedure when the Board agrees that a proposal can be considered without convening formal discussions.
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Table 1. Curaçao: Selected Economic and Financial Indicators, 2019–24 (Percent change unless otherwise indicated
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Table 2. Sint Maarten: Selected Economic and Financial Indicators, 2019–24 (Percent change unless otherwise indicated) |
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2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
|
|
Est. |
Est. |
Est. |
Est. |
Proj. |
Proj. |
|
|
Real Economy |
|
|
|
|
|
|
|
Real GDP 1/ |
11.0 |
-13.3 |
4.6 |
10.0 |
3.0 |
2.5 |
|
CPI (12-month average) |
0.4 |
0.7 |
2.8 |
3.8 |
3.7 |
2.2 |
|
Unemployment rate (percent) |
8.5 |
16.8 |
11.3 |
8.1 |
7.8 |
7.6 |
|
Government Finances (% of GDP) |
|
|
|
|
|
|
|
Primary balance excl. Trust Fund operations 2/ |
-0.6 |
-8.0 |
-5.1 |
-0.5 |
-3.6 |
-0.3 |
|
Current balance (Authorities' definition) 3/ |
-1.4 |
-8.9 |
-5.9 |
-1.3 |
-3.2 |
0.0 |
|
Overall balance excl. TF operations |
-1.1 |
-8.6 |
-5.5 |
-1.0 |
-3.7 |
-0.9 |
|
Central government debt 4/ |
38.5 |
51.4 |
51.5 |
50.1 |
51.0 |
49.4 |
|
Balance of Payments (% of GDP) |
|
|
|
|
|
|
|
Current account |
-11.7 |
-23.5 |
-22.2 |
-2.7 |
-0.7 |
0.1 |
|
Goods trade balance |
-53.0 |
-37.5 |
-46.6 |
-57.1 |
-56.2 |
-56.5 |
|
Exports of goods |
12.9 |
10.8 |
10.7 |
13.6 |
11.6 |
11.4 |
|
Imports of goods |
65.9 |
48.4 |
57.3 |
70.7 |
67.8 |
67.9 |
|
Service balance |
42.7 |
18.6 |
31.0 |
60.6 |
60.6 |
62.7 |
|
Exports of services |
64.6 |
31.8 |
47.8 |
76.0 |
77.8 |
80.3 |
|
Imports of services |
22.0 |
13.2 |
16.8 |
15.3 |
17.3 |
17.7 |
|
External debt 5/ |
219.0 |
253.1 |
237.5 |
207.4 |
197.3 |
186.8 |
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Memorandum Items |
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Nominal GDP (millions of U.S. dollars) |
1,408 |
1,236 |
1,353 |
1,533 |
1,639 |
1,735 |
|
Per capita GDP (U.S. dollars) |
33,486 |
29,040 |
31,644 |
35,695 |
37,737 |
39,519 |
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Credit to non-government sectors 6/ |
1.4 |
2.4 |
1.3 |
4.5 |
3.5 |
… |
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Sources: The Sint Maarten authorities, World Bank, and IMF staff estimates and projections. |
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1/ GDP estimates for 2019-21 reflect the authorities' recently released growth estimates and IMF staff's deflator estimates in anticipation of the forthcoming update to the authorities' estimates. |
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2/ Excludes Trust Fund (TF) grants and TF-financed special projects. |
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3/ Revenue excl. grants minus interest income, current expenditure, and depreciation of fixed assets. |
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4/ The stock of debt in 2018 is based on financial statements. Values in subsequent years are staff's estimates and are higher than the values under authorities' definition in quarterly fiscal reports. |
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5/ The latest available datapoint is as of 2018. Values for 2019-22 are IMF staff estimates based on BOP flow data. |
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6/ 2023 value shows the latest available data (March). |
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