Update Country Report Curaçao 03 Dec 2020

Event

The prime minister, Eugene Rhuggenaath, has signed an agreement with the Netherlands home government, which will provide long-term financial support and supervision to Curaçao. The deal will help Curaçao to avoid a fiscal crunch in 2021 and will support economic recovery.

Analysis

The agreement, signed in early November, marked the end of several months of negotiation. Prior to this, Curaçao had several times rejected the deal proposed by the Netherlands, owing to conditions imposed by the Dutch authorities on the provision of new financing. As part of its emergency response following an economic shutdown in March 2020 to halt the spread of the coronavirus (Covid-19), Curaçao received two tranches of liquidity support without conditions.

However, the country's weakening fiscal situation drove the government to finalise the agreement with the Netherlands, although Sint Maarten and Aruba have yet to reach a similar agreement. Under the deal, the Dutch authorities will now release the third, NAf105m (US$58.8m) tranche of its planned liquidity support, which will help Curaçao to meet its expected spending requirements for the remainder of 2020 and the beginning of 2021.

Beyond this immediate fiscal support, the deal also includes a long-term investment package. Although the exact amount is yet to be finalised, it will include EUR30m for educational facilities, EUR25.3m to support law enforcement and EUR20m to improve the investment climate. Under the conditions of the deal, all spending disbursed will be overseen by a new Netherlands-based entity, the Entity for Reform and Development. This latter condition had been the major sticking point for Curaçao, with the government arguing that oversight on domestic spending was an infringement of sovereignty. In response, the Netherlands had argued that governance issues meant an independent oversight body was necessary.

Impact on the forecast

Support from the Netherlands will help to avert a fiscal crisis, improving some investor confidence in Curaçao. Encouraging investment will be a crucial aim for Curaçao in 2021, especially given the slow recovery prospects of the tourism sector.