Annual Report 2018

Press release no. 2019-031
Central Bank on balanced budget rule
Consolidation is crucial at a calibrated pace
WILLEMSTAD/PHILIPSBURG – Acting president of the Centrale Bank van Curaçao en Sint
Maarten Bob Traa stated in the Bank’s 2018 Annual Report that one of the challenges the two
countries face is to manage fiscal consolidation, while experiencing slow or negative growth. The
Kingdom Law of Financial Supervision was enacted in 2010 to ensure sound public finances in
the new countries of Curaçao and Sint Maarten. This law includes a balanced budget rule for
current revenues and expenditures. “Balancing the current budget is important and fiscal policy
needs to be appropriately paced,” Traa explained in the report. “To achieve a balanced current
budget, the government needs to reduce spending and/or increase taxation, thereby imparting a
negative fiscal impulse on activity. The valuable positive effects of regained confidence on
activity may require some time to take root.”
“Furthermore, the quality and the balance of intended measures is also important. In the short
term, policy includes measures on the revenue side of the budget, such as improving collection
of already legislated taxes,” Traa pointed out. “At the same time, fiscal adjustments tend to be
more durable if these include sustainable expenditure cuts. Therefore, the government should
explore medium term fiscal adjustment that provides efficient government services while slowing
expenditure pressures, so that the need for distortive taxation is minimized,” the interim central
bank president advised.
Because of the damage to the economy caused by Hurricane Irma in 2017, Sint Maarten and the
Netherlands agreed to use the escape clause in the Kingdom Law on Financial Supervision of
Curaçao and Sint Maarten that allows for temporary deviations from the balanced current budget
rule in case of major shocks. “While this provides welcome short-term relief, the government of
Sint Maarten needs to take measures to ensure the financial sustainability of the social insurances,
including increasing the retirement age, which are imparting a growing impact on fiscal
sustainability,” Traa said.
The acting central bank president added that both countries will benefit also from improving
their budget management procedures, i.e., the drafting, executing and measuring, and auditing
the budget, to ensure the effective control of the public finances. “The availability and quality of
data is key to assess budget implementation through reporting and auditing but also for fiscal
and macroeconomic diagnostics and policymaking. Besides fiscal data, there is also a need for
improvement of real sector and social indicators. Therefore, the authorities need to make the
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necessary resources available to improve the statistical capabilities of the countries. Efforts
should be made to increase the awareness of the importance of data across all sectors of society,”
Traa concluded.
The complete text of the Report of the President and the Bank’s 2018 Annual Report can be
viewed on the Bank’s website at http://www.centralbank.cw under the Publications section.
Willemstad, August 28, 2019
CENTRALE BANK VAN CURACAO EN SINT MAARTEN


 

Press release no. 2019-032
Curaçao and Sint Maarten economies contract
Circumstances challenging in 2018
WILLEMSTAD/PHILIPSBURG – “The economic circumstances in the monetary union
remained challenging in 2018 with both Curaçao and Sint Maarten recording a contraction,”
Centrale Bank van Curaçao en Sint Maarten (CBCS) acting president Bob Traa stated in the central
bank’s 2018 annual report. “Curaçao’s real GDP contraction remained significantly influenced by
the economic crisis in Venezuela that affected particularly the refining, harbor, and construction
sectors. Meanwhile, the lingering effects of Hurricane Irma on Sint Maarten caused an economic
contraction in 2018,” Traa explained. The acting central bank president pointed out that the
debt-to-GDP ratio rose in both Curaçao and Sint Maarten reflecting mainly an increase in
payables towards the social insurance and the public sector pension funds, and cautioned that the
deficit on the current account of the balance of payments increased and gross official reserves
dropped.
“Looking ahead, the economic outlook for the monetary union is diverse,” Traa continued.
“Curaçao is projected to remain in a recession due to the headwinds faced by the Isla refinery –
the structure of the economy in Curaçao is gradually changing away from industry towards
tourism and this will take some time to play out,” he pointed out. “Growth is expected to
rebound in Sint Maarten supported by a recovery in tourism and the reconstruction activities
after the hurricane – the downturn and subsequent recovery in Sint Maarten appears to be more
of a cyclical nature,” Traa added, but also cautioned that this combined outlook remains subject
to downside risks.
“The speed of Sint Maarten’s economic recovery depends on the rehabilitation and
reconstruction of the tourism infrastructure. Already two third of the hotel capacity has been
restored by the private sector,” Traa explained. “Furthermore, the reconstruction of the Princess
Juliana Airport will contribute to filling the rooms that became available.” He carefully added,
however, that delays in this key reconstruction effort could restrain the pace of economic
recovery. “Now that financing has been secured, the reconstruction of the airport can be
finalized, supporting the speed of economic recovery,” Traa pointed out.
Curaçao and Sint Maarten also need to implement a structural reform agenda to support the
aggregate supply side of the economy and thus boost growth potential. “Structural reforms
address obstacles to growth by improving the allocation of resources and encouraging job
creation. At the same time, credible structural reforms indicate medium-term policy commitment
and, hence, help restore confidence and stimulate investment. Moreover, structural reforms
bolster resilience to shocks,” Traa concluded.
The complete text of the Report of the President and the Bank’s 2018 Annual Report can be
viewed on the Bank’s website at http://www.centralbank.cw under the Publications section.
Willemstad, August 28, 2019
CENTRALE BANK VAN CURACAO EN SINT MAARTEN


Press release no. 2019-033
CBCS on decline in official reserves
Sound policy response needed
WILLEMSTAD/PHILIPSBURG – “The deepening current account deficit of the balance of
payments of the monetary union and gradual slippage in the gross official reserves require a
sound policy response,” stated Bob Traa, the acting president of the Centrale Bank van Curaçao en
Sint Maarten in the Bank’s 2018 Annual Report.
The deficit on the current account of the balance of payments widened in 2018 compared to
2017 as a result of a decline in the net export of goods and services, moderated by an increase in
the net current transfers received from abroad. “The net exports of goods and services dropped
because of a marked increase in imports, including the rebuilding of Sint Maarten following the
hurricanes, moderated by a smaller rise in exports. Net current transfers rose considerably as a
result of the inflow of funds related to the claims of local insurance companies to pay their
clients in Sint Maarten whose properties were damaged,” Traa explained.
“Gross official reserves of the central bank declined in 2018 as the external financing and capital
transfers from abroad fell short of the current account deficit of the balance of payments of the
monetary union”, Traa added. The average import coverage dropped from 5.0 months in 2017
to 4.2 months in 2018. Nevertheless, the average import coverage remained well-above the
benchmark of 3.0 months.
“The import coverage remains above three months of goods and services imports, and the Bank
will continue to monitor the developments on the balance of payments closely and take
appropriate action to safeguard the fixed exchange rate peg of our currency to the US dollar—
the long-running nominal anchor for our economies,” Traa pointed out. “Monetary policy needs
to be supplemented by strong fiscal and structural economic policies from the governments of
Curaçao and Sint Maarten directed at sustainable public finances and higher potential growth.
Achieving higher export growth and tempering import growth will contribute to a structural
improvement of our balance of payments and maintaining sound reserves. Coordination among
policy makers will maximize the effectiveness of these policies,” he added.
The complete text of the Report of the President and the Bank’s 2018 Annual Report can be
viewed on the Bank’s website at http://www.centralbank.cw under the Publications section.
Willemstad, August 28, 2019
CENTRALE BANK VAN CURACAO EN SINT MAARTEN

 

Annual Report 2018 can be downloaded from our website: https://www.centralbank.cw/publications/annual-reports-quarterly-bulletins/2018.

 

Dutch and Papiamentu versions can be found on our website: https://www.centralbank.cw/publications/press-releases/2019.

 

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