The Dutch College Financieel Toezicht (CFT, the independent public-sector financial supervision body) has warned the government that it needs to reduce its 2015 revenue projections and find a way to contribute Naf200m (US$111.7m) in past-due contributions to public pension and insurance funds.
Despite a four-month delay in forming a government after the August 2014 legislative elections, the administration of the new prime minister, Marcel Gumbs, was able to submit the 2015 budget to the CFT ahead of its January 31st deadline. But Mr Gumbs, who leads a coalition dominated by the United People's party (UP), still needs the approval of the CFT in order to remove several stumbling blocks before the budget can be passed. During a visit to Sint Maarten in late February, the CFT told Mr Gumbs that revenue estimates of US$248.6m included in the budget's current draft should be revised downward to US$238.1m, which is in line with the revenue receipts of previous years. The government has argued that revenue will rise by an additional US$8.4m at least, but has yet to provide supporting documentation to the CFT.
Additionally, the government is likely to have ended 2014 with a small deficit (US$4.5m), which is part of US$30.7m in previously accumulated deficits to be compensated for in future years. However, the biggest issue remains arrears owed to SZV (a publicly run social and health insurance fund) and Algemeen Pensioenfonds (APS, the general pension fund). According to the CFT, those arrears, as well as the accumulated deficits, will be addressed in May. Following the CFT's visit, the government proposed changes to the budget in line with a March 2nd deadline, although the results of those changes have not been made public.
Beyond the budget negotiations, the CFT praised the Gumbs administration's commitment to creating a multi-year plan that would reform the country's tax agencies, pass new tax laws, propose economic-development initiatives and tentatively create a budget surplus in 2016. In recent years the Dutch Council of Ministers has threatened to place Sint Maarten under fiscal guardianship, owing to budget delays and a perceived unwillingness to reform public finances. This threat appears to have lessened for now.
Impact on the forecast
The event supports our forecast scenario that the government will struggle with fiscal challenges amid modest economic growth and disagreements over how to proceed with fiscal reforms. However, the threat of financial guardianship will continue to encourage fiscal responsibility over the outlook period.