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.
• EIU expects the government of the prime minister, Gilmar Pisas, 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 2023 we expect the government to make progress on implementing fiscal reforms introduced last year. 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.
• Real GDP will grow by 6% in 2022, aided by a robust-if only partial-recovery in global tourism. However, we expect growth to slow to 4.5% in 2023, as high global food and energy prices will weigh on private consumption and an economic downturn in the US and Europe in 2023 will hamper the tourism recovery.
• The current-account deficit will narrow in 2023, driven by a 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.
• The introduction of a new currency, the Caribbean guilder, is a long-term goal. However, little will happen in the short term, owing to more urgent concerns, such as pandemic recovery and high global inflation.
• The Isla oil refinery is set to come back online this year, after a consortium of US and Brazilian firms won the tender to restart it. Production stopped in 2018, owing to a dispute between PDVSA (Venezuela's state oil firm) and ConocoPhillips (a US oil firm).

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Key changes since June 13th

• We now forecast a sharp economic slowdown in the US and Europe in 2023; given that this will hit disposable incomes, and by extension tourist arrivals, we have cut our real GDP growth forecast for Curaçao in 2023 to 4.5% (from 8% previously).
• However, we now project a narrower current-account deficit of 12.5% of GDP (from 17.6% of GDP previously) in 2023, as we expect the Isla oil refinery to restart operations this year, shoring up the income balance and offsetting weakness in US and European tourism.

The quarter ahead

• TBC-Restart of operations at Isla oil refinery: The state-run Refineria di Korsou (RdK) has announced that a consortium of US and Brazilian firms will restart and operate the Isla oil refinery. A contract was expected to be signed by early September, but it has not yet been announced; nevertheless, we still expect operations to recommence this year.
• October-Resolution on creation of a Dutch-led oversight body: In September Curaçao, Aruba and Sint Maarten submitted to the Netherlands an alternative proposal for the establishment of the Caribbean Body for Reform and Development (COHO, a fiscal oversight body). The Dutch government signalled that it would respond in October.
• TBC-Global impact of Russia-Ukraine conflict: Our global assumptions incorporate a bleak economic outlook for the US and the EU. Russia's weaponisation of energy will raise global prices and interest rates, erode disposable incomes and subdue tourism (particularly as the US and Europe are Curaçao's main sources of tourists).