Fiscal policy will be countercyclical in the near term in response to the Covid-19 pandemic, but the depth of the economic shock means that Curaçao has little recourse but to seek additional funding from the Netherlands. Curaçao's fiscal position has been slightly strengthened by the recent agreement with the Netherlands, under which Curaçao received its third tranche of liquidity support from the Dutch to the tune of Naf181m (4.4% of estimated 2020 GDP), which will help Curaçao to meet its expected spending requirements at the start of 2021.

The first two tranches of fiscal support from the Netherlands totalled EUR460m. These included payroll subsidies for private-sector employees of up to 80% of wages (depending on the revenue loss to the company); income support of Naf1,335 (US$754) per month for self-employed people; support of Naf1,000 (US$557) per person per month for workers rendered unemployed since mid-March; credit support for small and medium-sized enterprises (SMEs); and compensation for the Social Security Bank's premium losses.

Curaçao will rely on additional support from the Dutch during much of the forecast period, but these will come at the cost fiscal tightening on the government's part. For example, the government introduced a range of measures to cut state expenditure in response to a sharp drop in revenue caused by the shutdown of the tourism industry (% of total revenue) during the ongoing pandemic. Many of these measures were requested by the Netherlands as conditions for the provision of new financial assistance to Curaçao to mitigate the impact of the economic slump, including a 25% cut in benefits for members of parliament and a 12.5% pay cut for civil servants that was introduced on July 1st 2020. The latter fuelled major protests in late June and the civil services union has pledged to continue protesting against the wage cut. Reining in fiscal spending in the medium term will prove difficult at a time when economic recovery is a major policy priority, but we expect the government led by the president, Eugene Rhuggenaath, to ultimately comply with Dutch requirements, which in turn carries the risk of triggering strikes and protests in 2021-25.