Update Country Report Curaçao 24 Feb 2020

Event

In mid-February the Netherlands Financial Supervision Board for Curaçao and Sint Maarten (CFT) warned that Curaçao needed to begin reducing its deficit as part of its overall goal of bringing the budget back into order.

Analysis

The CFT confirmed that the budget was in deficit in 2019 (as per our expectations) and stated that it believed that the government's failure to shore up public finances last year would exacerbate the difficulties that Curaçao would face in balancing the budget this year. Overseeing the budgets of the former Netherlands Antilles, the CFT can recommend whether a budget should be approved by the Netherlands, and this is not the first time that the CFT has expressed concern about Curaçao's fiscal position.

These concerns were demonstrated in mid-July 2019 when the Netherlands issued a legally binding budget instruction requiring the island to bring its finances back in line with the Kingdom Act requirements. This effort has run into problems; the CFT noted that some tax revenue had been overestimated, as operating costs for the island nation's new hospital reached an estimated Naf81m (about US$45m) in 2019- considerably higher than those of the old hospital. In addition, revenue from the Isla oil refinery and the Central Bank of Curaçao and Sint Maarten are not expected to be lower than budgeted.

As a result, the Netherlands is now likely to increase pressure on Curaçao, given that repeated requests to curb spending and introduce pension reform have had limited effect. This may well add to stresses in the bilateral relationship and compound Curaçao's economic situation; the government had pledged to put together an investment plan for economic development, which could have unlocked extra funding from the Netherlands. However, the government did not submit the plan by the deadline of September 2019, meaning that the funding cannot be released.

In response to the CTF's report, the government of Curaçao plans to submit a budget amendment to the Netherlands to compensate for reduced tax revenue and higher spending commitments (although no set date was given). Should the CFT reject the amendment, this could force the Netherlands to impose more stringent financing restrictions, entailing deep spending cuts.