Country Report Curaçao 3rd Quarter 2018

Outlook for 2018-19: Fiscal policy

Under the tutelage of the Kingdom Council of the Netherlands, the government will intensify its fiscal consolidation efforts, as fiscal deficits continue to grow. In 2017 the government posted a cumulative budget deficit of more than Naf 80m (US$43.5m), or around 1.4% of GDP. This was the result of large increases in expenditures, primarily contributions to the social security bank, SVB. However, this does not include further commitments of around Naf 50m that the government incurred towards the end of the year, which will raise the final budget deficit to around Naf113m (2% of GDP). With the economy recovering in 2018, a rise in tax revenue will bring the fiscal balance back to a small surplus.

A financial supervision arrangement with the Dutch government will maintain pressure for fiscal reform, but in the meantime expenditure is being held down (a spending freeze has been in place since 2012). Low economic growth in 2018-19 will discourage tax increases. However, aid from the Dutch government following the destructive hurricane season of 2017 will help to prevent further fiscal deterioration. Although the financial arrangement with the Netherlands is useful in reining in the deficit, the CBCS has criticised it for being too inflexible. Pressure to keep the island's numerous social funds well capitalised and to continue upgrading infrastructure will remain a constant challenge. The public debt continued to rise in 2017, mainly composed of domestic debt to the public pension fund, APC, and to the SVB. The public debt/GDP ratio reached 50.3% of GDP by end-2017. However, the return to a fiscal surplus in 2018-19 should help to mitigate the rise in the debt/GDP ratio.

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