Curacao's need for stimulatory fiscal spending will persist throughout our forecast period, as a full economic recovery from the pandemic is unlikely to take hold within that time frame. As such, the fiscal deficit will narrow only slightly in 2022-23. The government will have little option but to rely on Dutch financing to fund economic recovery efforts, as domestic revenue sources will remain inadequate in the near term. Liquidity funding is tied to progress on specific reforms and fiscal goals set by the Netherlands; Mr Pisas was highly critical of these conditions-including adopting austerity measures in non-urgent areas of spending-during his election campaign but has not managed to change the situation, as the lack of other fiscal options means that he has little bargaining power.

The seventh tranche of liquidity funding from the Netherlands will support countercyclical spending in the first quarter of 2022. We expect the government to continue making progress on implementing fiscal reforms that were introduced late last year, which will ensure further liquidity support from the Netherlands throughout 2022. We expect the next tranche of support to come in April. Although the MFK government is in a slightly stronger negotiating position than previous governments, it is unlikely to be able to drastically alter the underlying terms of Dutch financing.

Although we do not forecast fiscal balance and public debt, we expect fiscal consolidation over the forecast period to be weighed down by an only gradual recovery in global tourism. According to the Centrale Bank van Curaçao en Sint Maarten (CBCS, the Curaçao and Sint Maarten joint central bank), the fiscal deficit narrowed in 2021 relative to 2020 (although its exact size has not been published) and public debt rose to 90% of GDP. Reining in non-emergency spending (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.