Foreword
The latest estimates of the CBCS indicate that economic growth was uneven in the monetary union during 2019. While real GDP contracted by 1.9% in Curaçao, Sint Maarten recorded an
expansion of 5.5%. The development of inflation also diverged between the two countries. In
Curaçao, inflation rose from 2.6% in 2018 to 2.8% in 2019. Meanwhile, in Sint Maarten, inflation eased to 1.8% in 2019 after peaking at 2.7% in 2018.
Both domestic and net foreign demand caused the real GDP contraction in Curaçao in 2019. All components of domestic demand fell, but the decline was most pronounced in private
consumption on the back of lower disposable income due to the higher inflation and a worsened
labor market. Meanwhile, public consumption dropped as the government took measures to reduce the outlays on goods & services and wages & salaries to lower the fiscal deficit. In addition, both private and public investments went down. Net foreign demand contracted due to a decline in exports, moderated by lower imports. A sectoral assessment reveals that Curaçao’s real GDP contraction was attributable mainly to a decline in real value added in the transport, storage & communication, manufacturing, construction and wholesale & retail trade sectors, moderated by growth in the restaurants & hotels and financial intermediation sectors.
Sint Maarten is on a path of economic recovery following the devastation that Hurricane Irma
caused to the country’s production capacity in 2017. Sint Maarten’s economic expansion in 2019
was driven by increased domestic and net foreign demand. The growth in domestic demand stemmed from both private and public spending. Private spending rose by more investments,
particularly reconstruction activities. In addition, private consumption was supported by the improved labor market. Meanwhile, the increase in public spending was driven by higher government consumption while investments remained muted. The positive contribution of net foreign demand to GDP growth was the result of an increase in exports, moderated by higher imports. The rise in exports reflected primarily the robust growth in the number of tourists that visited Sint Maarten in 2019. A sectoral assessment reveals that Sint Maarten’s economic expansion was driven by increases in the manufacturing, utilities, construction, wholesale & retail trade, restaurants & hotels, transportation, storage & communication, financial intermediation, and real estate, renting & business activities sectors.
On the fiscal front, the government of Curaçao took several measures to improve public finances. On the revenue side, the government worked on improving tax compliance and collection. Also, the government increased the excises on tobacco, liquor, beer and wine, and the sales tax rate on imports from 6% to 9% as of September 1st, 2019. Furthermore, expenditures on particularly goods & services were reduced. Hence, according to the latest projections, the government will register a balanced current budget in 2019. In Sint Maarten, the deficit on the current budget is projected to decline as a result of an increase in government revenues, moderated by higher expenditures. However, the government still needs liquidity support to finance its deficit and comply with its financial obligations.
Growth is projected to remain uneven in the monetary union in 2020. In Curaçao, real GDP is projected to contract by 2.3% caused by a decline in domestic demand, moderated by an increase
in net foreign demand. In particular, the introduction of a general consumption tax (i.e., ABB) will affect domestic demand. However, if the refinery closes on January 1st, 2020, the contraction will be deeper and reach 5.2%. For Sint Maarten, a real expansion of 3.0% is forecasted driven by an increase in domestic demand. However, a decline in net foreign demand will put a drag on growth. Risks to the outlook include a further deepening of the crisis in Venezuela and a possible increase of sanctions on Venezuela. Furthermore, the future of the refinery, de-risking efforts by domestic banks, delays in the implementation of structural measures, policy uncertainties and political instability could affect the outlook for the monetary union.
