CBCS: Countries’ public debt sustainable.

“The question arises whether the projected development in the public debt-to-GDP ratio is sustainable. A country’s public debt is sustainable if the government can meet all its current and future payment obligations without being forced to undertake major budgetary adjustments or restructure debt owed to creditors and investors,” CBCS president Richard Doornbosch pointed out.

DSA 2023-027

The latest Economic Bulletin includes a public debt sustainability analysis (DSA) for both Curaçao and Sint Maarten that covers 2023 – 2027. Such an analysis aims to assess public debt vulnerabilities. Specifically, risks to public debt sustainability are evaluated under the future evolution of fiscal and macroeconomic variables such as the primary fiscal balance, real GDP growth, interest rates, and inflation. “Overall, the debt analysis reveals that in the baseline scenario, the public debt of both Curaçao and Sint Maarten is sustainable over the medium term as the debt-to-GDP ratio is projected to decline. However, some important observations should be made in this regard,” the CBCS president cautioned.

 

“First, the projected debt path is predicated on the assumption that both countries can refinance the COVID-19 liquidity loans that mature later this year against a 3.6% interest rate. In addition, the countries should be able to continue to finance capital investments against favorable conditions as stipulated under the standing subscription rule,” Doornbosch explained.

“Second, it is assumed in the baseline that real GDP will grow on average by 3.4% in Curaçao and 2.4% in Sint Maarten over the forecast horizon. Looking back, however, it becomes clear that the economic performance of the two countries over the past decade was substantially below the currently projected average annual growth rate,” he continued. “In Sint Maarten, this was even the case excluding the shock caused by Hurricane Irma in 2017 – 2018. As the economies of Curaçao and Sint Maarten rebounded stronger from the pandemic than initially expected, it is key to build momentum and ensure economic growth over the medium term,” Doornbosch advised.

 

“The debt sustainability analyses underscore that the public debt sustainability of both countries is particularly vulnerable to real GDP shocks. The ongoing investment projects across the monetary union are a welcome development in this regard as they add to the productive capacity of Curaçao and Sint Maarten. The two countries' governments need to take further steps to support growth. The policy agenda should include measures to address vulnerabilities in the labor market and reduce red tape and the cost of doing business,” he added.

“Third, an important precondition for both Curaçao and Sint Maarten's public debt sustainability is the implementation of health care and social security reforms. Without the necessary reforms, these systems will continue putting pressure on the public finances and adding risks to public debt sustainability, particularly due to the aging of the population,” the CBCS president cautioned. “Reforming these systems is a complex process that will entail difficult measures. Therefore, involvement of key stakeholders in designing and implementing these reforms is key,” he further advised.

 

“Finally, the results of the analyses should be interpreted with caution as they only cover the government's debt. For a thorough analysis of the risks associated with public debt, the debt of all public entities and state-owned companies should be included,” Doornbosch pointed out. “With the collaboration of the governments and all their entities, the CBCS would be able to deliver such a complete debt sustainability analysis,” the CBCS president concluded.

The complete text of the March 2024 Economic Bulletin is available on the CBCS website at