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 growth will decelerate from an estimated 5.8% in 2022 to 3.7% in 2023, as high global food and energy prices will weigh on private consumption and tightening global financing conditions will dampen investment. In addition, 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 tourist inflows. However, the deficit will remain large, assuming a continued recovery in domestic demand, and elevated oil and food prices will push up the import bill.
• 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 in 2023, after a consortium of US and Brazilian firms won the tender to restart it in June 2022. 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 September 13th

• We now forecast a sharper than previously anticipated economic slowdown in the US and Europe in 2023. As this will dampen disposable incomes and hit tourist arrivals, we have revised our 2023 real GDP growth forecast from 4.5% to 3.7%.
• As a result, we now project a wider current-account deficit of 13.5% of GDP (revised from 12.5% of GDP) in 2023, as we expect weakness in US and European tourism. Delays in the operationalisation of the Isla oil refinery will also result in a wider income balance.

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 refinery. A contract was expected to be signed by early September, but has not yet been announced; nevertheless, we still expect operations to recommence in the near term.
• TBC-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 early 2023.
• TBC-Tourism arrivals (Q1 2023): Tourist arrivals to Curacao continued to grow in September. However, we expect a downturn in economic activity in the US and the EU to subdue tourism (particularly as the US and Europe are Curaçao's main sources of tourists).