~Tourism remains the most important pillar~
WILLEMSTAD/PHILIPSBURG:--- “Soaring international commodity prices underscore the vulnerabilities on the balance of payments of the monetary union,” cautioned Centrale Bank van Curaçao en Sint Maarten (CBCS) president Richard Doornbosch in the Bank’s June 2022 Economic Bulletin. “As small and open economies, Curaçao and Sint Maarten are very dependent on imports. Consequently, increases in import prices, all other things being equal, will result in a higher deficit on the current account of the balance of payments. At approximately 17% of GDP over the past decade, the deficit on the current account of the balance of payments is relatively high,” he added. Despite a structural deficit on the current account of the balance of payments, gross official reserves have increased considerably due mainly to external financing, including the government borrowing from the Netherlands. “Hence, the balance of payments suffers two structural weaknesses: first, a high import bill that is not covered by exports, and second, a worsening international investment position,” Doornbosch pointed out.
“Although our import coverage is currently well-above the norm of 3 months, the balance of payments situation demands actions, the CBCS president urged. “Therefore, both governments could implement policies that reduce our dependence on imports and/or increase our exports. Our oil import bill represents approximately 20% of our total imports,” Doornbosch explained. “As the demand for fuel tends to be relatively inelastic in the short term, the current surge of international crude oil prices will result in a sharp increase in the oil import bill. It is recommended that the governments take the necessary steps, including fiscal incentives and regulation reforms, to accelerate our transition from fossil fuel to renewable energy. Curaçao and Sint Maarten are endowed with natural resources that can be used for alternative energy generation, such as the sun, sea, and wind. Investments in renewable energy sources will also create a new economic sector that can contribute to export revenues and stimulate economic growth,” he advised. “Meanwhile, we have so far been able to finance the large current account deficits, but this should not be taken for granted. Therefore, policies to strengthen the current account of the balance of payments will also improve our international investment position,” Doornbosch added.
“While diversification of the economy is called for, the reality is that tourism is - and likely will be - the most important economic pillar of both Curaçao and Sint Maarten,” Doornbosch emphasized. “In fact, the current economic recovery is primarily driven by stay-over tourism that
has rebounded faster than expected. There is still scope for increasing foreign exchange earnings from tourism activities. First, both countries could expand their tourism sector by focusing more on niche and special interest tourism that have generally higher value-added than traditional tourism. Second, the countries could benefit more from the tourism value chain by stimulating the participation of local businesses in tourism-related activities. Finally, fostering a skilled labor force focused on tourism will contribute to an improvement of the services and products we offer as a tourist destination thereby creating destination loyalty. These measures will increase the added value and hence the benefits of tourism for the people of Curaçao and Sint Maarten,” CBCS president Richard Doornbosch concluded.
The complete text of the June 2022 Economic Bulletin is available on the CBCS website at www.centralbank.cw/publications.
Willemstad, June 28, 2022
CENTRALE BANK VAN CURACAO EN SINT MAARTEN