Update Country Report Curaçao 16 Sep 2021

Event

In its 2021 Article IV consultation with Curaçao, the IMF projects that the country's economy will not return to pre-pandemic levels for a decade, owing to the prolonged economic impact of the coronavirus crisis. The recovery will depend on a pick-up in tourism and financing support from the Netherlands.

Analysis

The IMF forecasts zero economic growth for 2021, followed by 6.5% real GDP growth in 2022, largely driven by a pick-up in tourism arrivals, supported by the ongoing vaccination drive in Curaçao and key source countries. The Fund's forecasts differ from our own; we project that the economy will grow by 6.5% in 2021 (after contracting by an estimated 18.4% in 2020), mainly owing to base effects and a gradual increase in tourism activity. A total of 79,293 tourist arrivals were recorded in April-July, more than 700% higher than in the year-earlier period (although that figure is still well below pre-pandemic levels). We expect a firmer rebound in tourism to result in growth of 11.5% in 2022.

The Fund notes that renewed activity at the Isla oil refinery poses upside risks to its 2022 forecast. However, since the IMF's visit to Curaçao in late July, there has been little progress in implementing the deal agreed between the refinery and the Curaçao Oil Refinery Complex (CORC, a locally based consortium), especially after CORC's Brazilian partner pulled out of the deal. In early September the government warned that it may need to seek another operator for the refinery, which would probably push any revival of activity back into late 2022 or 2023.

On the basis that the resumption of activity at the refinery is likely to be delayed, the Fund emphasises that maintaining liquidity support from the Netherlands is crucial to the country's economic recovery. Curaçao received Naf95.5m (US$53.4m)-the rest of the sixth tranche of liquidity support-in early September, having received the first part in July. These disbursements will support spending and public-sector salaries into late 2021. A seventh tranche for a still undetermined amount is set to be agreed for the fourth quarter.

Impact on the forecast

The Fund's emphasis on Dutch financing underscores our view that the willingness of Curaçao's government to meet the austerity conditions that come with Dutch financing will be key to supporting the economic outlook in 2021-22. Any indications that the government is seeking to water down these conditions would pose a downside risk to our forecasts.