Country Report Curaçao 3rd Quarter 2021

Outlook for 2021-22: Fiscal policy

The ongoing pandemic has increased the need for expansionary fiscal policy, and the government will have little recourse other than to rely on Dutch financing to fund economic recovery efforts, as domestic sources of revenue generation will remain inadequate in the near term. This will come with the condition of adopting austerity measures in other areas of spending that are not urgent. Although the MFK has criticised the PAR for conceding to Dutch-imposed conditions, it will have little option other than to rely on assistance from the Netherlands.

Curaçao's access to a sixth tranche of Dutch financing was delayed by the Pisas government's opposition to the creation of a new oversight body, a condition set by the Netherlands. With a revised agreement reached in early August, which increases Curaçao's influence over fiscal reforms, Dutch financing should now be forthcoming. However, the Pisas government may still have to concede to several Dutch conditions that it opposes, given its heavy reliance on Dutch financing. These conditions are likely to include austerity measures, especially on non-emergency spending. The national debt will also rise as a result; according to the IMF, the primary fiscal deficit widened from 0.4% of GDP in 2019 to 14.9% of GDP in 2020, causing the national debt stock to reach 89.1% of GDP in 2020. The Fund forecasts that the national debt will exceed 100% of GDP in 2021 (up from 55% of GDP in 2019). Reining in non-emergency expenditure (such as on remuneration, hiring and appraisals) will prove difficult, bearing in mind the implications for political stability, which in turn will pose risks to fiscal adjustment.

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