Country Report Curaçao 1st Quarter 2016

Outlook for 2016-17: External sector

The current-account deficit widened in the third quarter of 2015, and we now expect it to have reached 17.9% of GDP for the year as a whole, down from 20.4% of GDP in 2014. This deterioration owes primarily to a narrowing of the services surplus (mostly on account of non-tourism services), whereas the trade deficit actually improved. The latter trend is the result of a decline in trade-related oil refinery activities (which have large import components), and also of weak demand for consumer imports, which is outstripping a decline in export earnings. We expect these trends to continue in 2016 and 2017 as GDP growth remains lacklustre. An end to the recession and modest investment growth will begin to push up demand for imported goods, but the trade deficit will still shrink as average oil import costs remain contained. We expect a further widening of the surplus on the services account as tourism growth continues to recover, but this will be partially offset by growth in the deficits on the income and current transfers accounts. The overall impact of these trends is expected to result in a modest further decline in the current-account deficit. Inward direct investment is showing signs of an upturn in response to recovering tourism, but inflows will remain subdued until government reform efforts improve competitiveness. Curaçao has access to bilateral and multilateral loans, and we expect this to remain the case, minimising the risk of a balance-of-payments crisis.

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