Curaçao will continue its fiscal consolidation efforts in 2022-23. However, global inflation will slow down the economic recovery from the pandemic, and stimulatory fiscal spending will be required, which means that there will be less progress on fiscal consolidation than previously expected. 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; during his election campaign, Mr Pisas was highly critical of these conditions-including adopting austerity measures in non-urgent areas of spending-but has not managed to change the situation, as the lack of other fiscal options means that he has little bargaining power.

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. Although Curaçao has not requested liquidity support yet this year, we expect the next tranche of funding to come in the third quarter, as higher global energy prices will strain the island's fiscal position. Although the MFK government is in a slightly stronger negotiating position than previous administrations, it is unlikely to be able to drastically alter the underlying terms of Dutch financing.

Fiscal consolidation over the forecast period will be supported by a rebound in tourism, although the sector will not return to pre-pandemic levels. 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.