Update Country Report Curaçao 23 Nov 2021

Event

In early November the Dutch Undersecretary of the Interior and Kingdom Relations, Raymond Knops, confirmed that Curaçao had met the conditions for the next tranche of liquidity funding from the Netherlands. This will underpin fiscal provisions for the final quarter of 2021 and for the start of 2022.

Analysis

This marks the seventh tranche of liquidity funding that the Netherlands has provided to Curaçao since the beginning of the pandemic-led economic downturn in 2020. This tranche totals Naf76m (US$42.5m or 1.4% of GDP) and will mark the final batch of funding in 2021, although more is planned for 2022. With this, the island has received total financing worth Naf135m (or 4.4% of GDP) in 2021. The approval of the liquidity funding is welcome news for the government of the prime minister, Gilmar Pisas, given delays in liquidity disbursements earlier in the quarter. The liquidity funding is tied to progress against specific reforms and fiscal goals set by the Netherlands-conditions of which Mr Pisas was highly critical during his election campaign earlier in 2021, but has not managed to modify owing to the lack of other fiscal options for the island.

Mr Knops noted that Curaçao has made progress in several areas. In particular, a number of reforms to reduce excessive spending have been introduced at the Social Insurance Bank, while Curaçao has formulated an approach to reforming the tax authorities. The government has also taken steps towards reducing losses at the Curaçao Medical Centre. However, Mr Knops commented that ongoing implementation of these plans will be an issue and stated that the implementation agenda will form part of the goals for liquidity funding in 2022. This indicates that further disbursement delays in liquidity funding are likely in 2022, with the government maintaining its pattern of limited progress on goals followed by quick reforms in order to receive liquidity funding.

Impact on the forecast

The disbursement of the latest tranche of funding will support government spending at the end of this year, as well as at the start of 2022. We expect the forecast pick-up in economic activity in 2022 to support a rebound in domestic revenue, although liquidity funding will remain a key component of fiscal planning.