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 tourism to the country and an important trade partner.
• The government of the prime minister, Gilmar Pisas, is expected to encounter few challenges to governability, as the ruling coalition of centre and centre-right parties has a legislative majority. However, austerity measures adopted by the government to satisfy Dutch financing conditions could cause social unrest, posing risks to political stability.
• In 2022 EIU expects the government to make progress on implementing recently introduced fiscal reforms. The Kingdom Council of the Netherlands will continue to provide fiscal supervision, but disagreements over certain financing conditions could disrupt the flow of disbursements, aggravating fiscal pressures.
• After a partial recovery of an estimated 4% in 2021, real GDP growth will accelerate to 6% in 2022, aided by continued Dutch liquidity support and a robust, if partial, recovery in global tourism. However, high global food and energy prices-stemming from the Russia-Ukraine conflict-will be a headwind to growth in the 2022-23 forecast period.
• The current-account deficit will narrow slightly over 2022-23, driven by a partial recovery in tourism inflows. However, the deficit will remain large, as a recovery in domestic demand and a surge in oil and food prices will push the import bill up.
• Reforms to the currency union between Curaçao and Sint Maarten, and the splitting of their shared central bank, will be long-term goals. However, little will happen in the short term, owing to more urgent concerns, such as pandemic recovery and high global inflation.
• Curaçao's high vaccination rate compared with larger Caribbean islands will make it more attractive to tourists during the northern hemisphere summer season and will allow the authorities to keep borders open.

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Key changes since March 11th

• We now expect real GDP to grow by 6% in 2022 (from 12.3% previously). We do not expect tourism to return to pre-pandemic levels until 2023, as global inflation and a weakened euro (stemming from the war in Ukraine) are making travel less affordable.
• Higher commodity prices and global supply-chain disruptions caused by the ongoing Russia-Ukraine conflict have prompted us to revise up our inflation forecast for end-2022, to 7.2% (from 4.5% previously).

The quarter ahead

• TBC-Restarting operations at Isla oil refinery: In mid-year the state-run Refineria di Korsou (RdK) is expected to announce the winner of bids to restart and operate the Isla oil refinery. The refinery has been idle since 2018, when a payment dispute between PDVSA (Venezuela's state oil firm) and ConocoPhillips (a US oil firm) stopped production.
• TBC-Global impact of Russia-Ukraine conflict: Stricter US and EU sanctions than those already announced would cause a sharper price spike, thereby raising inflation pressures and curtailing tourism from the US and Europe-Curaçao's main source markets.