After a prolonged recession, growth returned to Curaçao in 2021 at 4.2%, supported by a strong recovery in tourism.
The International Monetary Fund (IMF) has called on Curacao and Sint Maarten to calibrate their policies to support an inclusive recovery while improving resilience to climate change and preserving debt sustainability.
The prompting comes from the IMF’s latest Article IV consultation on the two Caribbean countries that are part of the Kingdom of the Netherlands.
“Curaçao and Sint Maarten are recovering from major shocks,” the IMF said, adding, “Before the pandemic, Curacao had been negatively affected by the closure of the refinery, one of its main economic pillars. Sint Maarten’s recovery from the catastrophic 2017 hurricanes was incomplete. The pandemic has led to the collapse of tourism in both countries. Comprehensive economic support measures put in place by the authorities and funded by the Netherlands have been instrumental in protecting lives and livelihoods and helping to limit the economic fallout,” he continued. .
The closure of the 330,000 barrel-per-day Isla refinery in Curacao, amid a payment dispute between then-operator Petroleos de Venezuela (PDVSA) and US oil company ConocoPhillips, had a negative impact on the economy of this country.
“A strong rebound in tourism from the second half of 2021 – one of the strongest results in the Caribbean – underpinned an incipient economic recovery of 4.2% in Curacao and an estimated 8% growth in Sint Maarten. substantial external growth Union current account deficit, international reserves remained comfortable at 6.3 months of imports The banking system has withstood the shock of the pandemic with the help of appropriate policies as it remains relatively well capitalized and liquid, although pockets of vulnerability remain,” the IMF said. Noted. Despite the recovery highlighted so far, the IMF was quick to point out that the outlook is subject to significant uncertainty and risks, including a slowdown in Curacao and Sint Maarten’s major trading partners.
In its assessment, the IMF noted: “Since gaining autonomy in 2010, Curaçao has suffered multiple economic shocks. 2016 and unemployment remains high. The closure of the refinery raises questions about new sources of growth. Curaçao faces pervasive structural challenges, including governance vulnerabilities.
The closure of the 330,000 barrel-per-day Isla refinery in Curacao, amid a payment dispute between then-operator Petroleos de Venezuela (PDVSA) and US oil company ConocoPhillips, had a negative impact on the economy of this country. PDVSA’s lease expired at the end of 2019 and subsequent attempts by the island government to recruit a successor failed. In April, the Curaçao state-owned Refineria di Kòrsou (RdK) said it was evaluating bids from three parties to run the refinery and would select one by the middle of this year. It followed that indication in June, saying it would enter into negotiations with a consortium of seven companies to take over management of the island’s oil refinery and storage terminal. RdK said Caribbean Petroleum Refinery, identified as a group of six US companies and one Brazilian company, was selected from three finalists to manage and operate the facilities.
IMF…before the pandemic, Curaçao had been negatively affected by the closure of the refinery, one of its main economic pillars. Sint Maarten’s recovery from the catastrophic 2017 hurricanes has been incomplete.
“No later than September 1, 2022, an agreement should be concluded and immediately thereafter begin the start of operations,” RdK said in a June 19, 2022 statement.
The Caribbean oil refinery would employ more than 800 people and convert the facility to run on natural gas, RdK said. An oil storage terminal at Bullenbaai, on the west-central coast of Curacao, “will be put into operation immediately”, he added. “The lingering effects of the refinery closure mean that growth is not yet widespread and could delay full recovery to pre-pandemic levels until 2025-26.”
However, as problems with the operation of the refinery are resolved, the IMF acknowledged that “the country’s recovery from the pandemic is gaining momentum but faces headwinds from inflationary pressures driven by fuel prices. , foodstuffs and other imports”.
Inflation in the country is expected to reach 7.2% this year, double its level in 2018, before falling to 3% in 2023.
After a prolonged recession, growth returned to Curaçao in 2021 at 4.2%, supported by a strong recovery in tourism. “The hospitality sector is showing resilience and is expected to sustain growth of around 6% in 2022,” the IMF said, pointing out that data shows that resort tourism in the fourth quarter of 2021 has returned to levels of before the pandemic, suggesting no lasting effect on sector capacity, although the recovery in cruise arrivals is much slower. A relatively high vaccination rate helped to mitigate the economic consequences of the wave of the Omicron variant in early 2022, as stay arrivals were at 92% of 2019 levels in the first 4 months of 2022. Despite the recovery of the hospitality sector, the IMF pointed out that employment in the private sector fell by 5½% in 2021, in part due to supply-side considerations, including skills mismatch, although there are had some recovery in the second half of the year. Unemployment, which exceeded 19% in 2020, remains stubbornly high and is expected to reach 19.2% by the end of this year. According to IMF forecasts, it will fall to 16.6%. The overall outlook for the country’s economy “is subject to significant risks and uncertainties”.
The multiple shocks have led to a significant accumulation of public debt, which has raised concerns about debt sustainability. The debt ratio increased from 58% of GDP in 2019 to 89% of GDP in 2021 due to liquidity support from the Netherlands needed to finance large budget deficits, borrowing for the resolution of Girobank and the drop in GDP. Girobank’s resolution refers to the 2020 bailout of the bank, which was facing a liquidity crunch, threatening to topple Curacao’s economy, forcing the government to borrow 170 million guilders from the Dutch government to make payments to those whose funds were at risk. “The authorities will face significant financing needs in 2023, as all Covid-19-related liquidity support loans – 16% of GDP – mature in October 2023, having been rolled over in April 2022 at a rate zero interest.”