Update Country Report Curaçao 14 Oct 2020

Event

Curaçao's government has begun discussing additional ways to finance its budgetary needs for 2021. This indicates that the administration is not optimistic about the prospect of ongoing discussions with the Netherlands resulting in further financing and liquidity support.

Analysis

The government of the prime minister, Eugene Rhuggenaath, announced in late September that it was preparing a "Plan B" in case additional financing from the Netherlands does not come through. Although full details have not yet been made available, statements indicate that the government would receive fund transfers from the Algemeen Pensioenfonds van Curaçao (Curaçao's general pension fund). This would provide short-term liquidity to help to finance the budget deficit, but would also augment the government's debt burden.

The country has so far received two tranches of financing from the Netherlands. Discussions relating to a third tranche of liquidity support have been in progress for several months but have reached deadlock over Dutch requirements for Curaçao to make greater efforts to consolidate its fiscal position. The most controversial aspect is the requirement to create a Caribbean Reform Entity, through which funds would be disbursed (instead of funds being disbursed directly to the government). The Rhuggenaath administration considers that this contravenes Curaçao's sovereignty. The fact that the government is contemplating alternative proposals indicates that the negotiations with the Netherlands are faltering.

On the bright side, the opposition seems to be backing the government's cause; on October 10th Curaçao's parliament voted with a majority to provide the necessary support for the government to complete its negotiations with the Netherlands. Prior to this, the opposition had threatened to call for elections if it was against the terms of financing (the Rhuggenaath government holds a majority by only one seat). The recent vote reduces the risk of early elections, as it signifies that the government and opposition are currently on the same page.

Impact on the forecast

Although the Rhuggenaath administration is exploring alternative financing options, we maintain our view that funding from the Netherlands represents the best option for Curaçao's fiscal situation in 2021. However, given the government's move to mobilise alternative financing, we expect negotiations to progress very slowly, delaying the receipt of the third tranche.