Country Report Curaçao 4th Quarter 2017

Outlook for 2018-19: Fiscal policy

Under the tutelage of the Kingdom Council of the Netherlands, the new government will intensify its fiscal consolidation efforts, as fiscal deficits continue to grow. The island recorded a fiscal deficit of Naf254.3m (US$142m) in 2016, but, including loans and grants, this grew to a surplus of 2.9% of GDP. Under the same mechanism, the government posted a final fiscal surplus of Naf51m (US$29m) in the first quarter 2017, which corresponds to 3.7% of GDP. 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 stabilise the fiscal deterioration. Although the financial arrangement with the Netherlands is useful in lowering 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/GDP ratio has continued to rise, reaching 46.3% of GDP by end-March 2017. However, relatively small fiscal deficits in future should prevent a significant rise in the debt stock.

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