WASHINGTON, USA – On September 10, 2024, the executive board of the International Monetary Fund (IMF) concluded the Article IV consultation discussions with the Kingdom of the Netherlands – Curaçao and Sint Maarten and endorsed the staff appraisal without a meeting on a lapse of time basis. These consultation discussions form part of the Article IV consultation with the Kingdom of the Netherlands.
Curaçao and Sint Maarten have continued to experience a vigorous post-pandemic recovery underpinned by strong stayover tourism, which is outperforming Caribbean peers. Headline inflation has declined rapidly led by international oil price developments, notwithstanding a recent uptick, while core inflation remains elevated. In both countries, current account deficits improved markedly from pandemic years but remain high. Fiscal positions remained strong and in compliance with the fiscal rule. The landspakket, the structural reform package agreed with the Netherlands in 2020, continues to guide both countries’ reform agenda.
Curaçao outlook
Growth is expected to accelerate in 2024 before gradually converging to its potential over the medium term. Stayover tourism supported by fiscal expansion is projected to drive economic growth at a robust 4.5 percent in 2024 due to new airlifts and further expansion in hotel capacity. Growth is then expected to moderate to reach 1.5 percent over the medium term, given subpar investment and productivity growth coupled with sustained population decline and beginning saturation in tourism flows, assuming no further reforms and diversification. Headline inflation is projected to decline mildly to 3.2 percent in 2024 from 3.5 percent in 2023, but to continue falling towards its steady state of around 2 percent by 2027 reflecting international price developments. Fiscal balances would be guided by the fiscal rule and debt would continue to decline, while surpluses narrow as investments return and social spending pressures mount. The current account deficit is expected to improve in the medium term but would remain elevated.
Sint Maarten outlook
Growth is expected to moderate in the medium term as tourism recovery and the reconstruction taper off. Growth is expected to be 2.7 percent in 2024 and 3 percent in 2025, supported by a delayed recovery in cruise passengers towards pre-pandemic levels. However, the near-term outlook is threatened by the electricity load shedding (since June) and political instability. From 2026 onwards, growth is expected to gradually converge towards 1.8 percent as the stimulus from the reconstruction peters out, and tourism growth becomes constrained by the island’s carrying capacity and ailing infrastructure. Inflation is expected to remain broadly contained while remaining vulnerable to international price developments. Over the medium term, the government will continue to comply with the golden fiscal rule and capacity constraints will continue to weigh on public investment.
Monetary Union
Monetary policy is appropriately targeted towards maintaining the peg. Efforts to absorb excess liquidity should continue while closely monitoring developments in core inflation driven by tourism-related services. The financial sector is sound and risks to financial stability have substantially diminished as the CBCS advances its reform agenda. Banks are highly liquid and adequately capitalized and systemic risks are contained. Building on the CBCS’s strong progress in strengthening supervisory and regulatory capacity, and the recent resolution agreement for ENNIA, staff welcomes CBCS’s continued efforts in its reform agenda, including financial stability and crisis management.
