Political and economic outlook

• Curaçao is a tiny, open island economy and a constituent country of the Kingdom of the Netherlands that is heavily dependent on tourism. The Netherlands is the main source of tourists to the country and an important trade partner.
• EIU expects fewer challenges to governability for the government of the prime minister, Gilmar Pisas, owing to the centre-right ruling party's majority position in the legislature. Downside risks to political stability include social unrest stemming from austerity measures adopted by the government to satisfy conditions of Dutch financing.
• In 2022 we expect the government to make progress on implementing fiscal reforms introduced this year. The Kingdom Council of the Netherlands will continue to provide fiscal supervision, although disagreements with the government over certain financing conditions could disrupt the flow of Dutch financing, aggravating fiscal pressures.
• We estimate that real GDP will grow by 6.5% in 2021, owing to liquidity support from the Netherlands and modest recovery in tourism inflows. Growth will accelerate to 11.5% in 2022 as rapid vaccine coverage, both domestically and globally, bolsters tourism flows more significantly. Downside risks stem from the emergence of the Omicron variant.
• The current-account deficit will slightly narrow over the forecast period, driven by a partial recovery in tourism inflows. However, it will remain large as domestic demand recovery, coupled with rising oil prices, lifts the import bill.
• Reform of the currency union and the splitting of Curaçao and Sint Maarten's shared central bank will be a long-term objective, but will largely remain on hold in the short term, amid more immediate concerns such as economic recovery from the covid-19 pandemic.
• Curaçao's rapid vaccination rate compared with larger Caribbean islands will make it more attractive to tourists during the northern hemisphere summer season.

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Key changes since September 1st

• Progress on fiscal reforms has allowed the government to meet the conditions for receiving the seventh tranche of liquidity financing from the Netherlands. This will support government spending in the final month of the year, as well as in early 2022.
• Owing to a revision of historical inflation data from the Central Bureau of Statistics and stronger than expected inflation in March-August, we have revised our 2021 estimate and 2022 forecast for inflation upwards to 3.9% on average (from 3.1% previously).

The quarter ahead

• TBC-GDP (Q2 2021): The Centrale Bank van Curaçao en Sint Maarten (the joint central bank) reported that real GDP fell by 18.3% in the first quarter of 2021. In the second quarter, we estimate real GDP to have expanded dramatically in year-on-year terms, owing mainly to a very low base of comparison and a mild pick-up in tourism.