Debt standard proposed for Curaçao, St. Maarten

~ CFT advices in 2015 annual report ~

By Suzanne Koelega

THE HAGUE–A debt standard with a maximum threshold should be introduced for Curaçao and St. Maarten to keep the debts of the countries manageable in case the interest rates of capital loans increase.

The Committee for Financial Supervision CFT for Curaçao and St. Maarten drafted an advice to this effect early in 2016 on the request of Dutch Minister of Home Affairs and Kingdom Relations Ronald Plasterk. The advice was mentioned in the CFT 2015 annual report which was presented in The Hague on Wednesday.

The CFT advised Plasterk that the two countries should be able to maintain a debt quota standard of 40 per cent on a medium term. A debt standard should prevent an increasing burden on the government’s finances in case of higher interest rates to refinance loans.

CFT Chairman Age Bakker explained in the 2015 annual report that the international and European interest rates remained for now at an “historic low level” that enabled Curaçao and St. Maarten to secure loans at very low interest rates. While this is good news for the countries, the CFT advocated that a controlled development of the national debts of Curaçao and St. Maarten was a “high priority.”
To mitigate economic shocks, the CFT further recommended the introduction of a bandwidth of 5 per cent on short term under or above the debt standard. This bandwidth would enable the national debts of Curaçao and St. Maarten to move between 35 and 45 per cent of the debt per gross domestic product (GDP) ratio.

A 35 per cent standard could be maintained during good economic times with low interest rates, while the 45 per cent norm would offer possibilities to stimulate the local economy in bad times.
St. Maarten had a debt quota of 33 per cent, including the payment arrears, at the end of 2015. Curaçao’s debt quota was 40 per cent at the end of last year. The increased debt ratio was caused by the acquiring of a large loan for the construction of Curaçao’s new hospital.
Aruba is another story: the national debt of that country topped 82 per cent of the GDP at the end of 2015. The national debt almost doubled in the past 10 years. Aruba was placed under financial supervision last year and will start reducing the national debt using the anticipated budget surpluses from 2018 and onwards.

Intense year
Bakker referred to 2015 as an “intense year” in the report’s foreword. The Dutch Caribbean countries Aruba, Curaçao and St. Maarten, and the public entities Bonaire, St. Eustatius and Saba have made improvements in the area of financial management, but further enhancement is necessary.
The CFT credited the islands for working hard on better finances with as ultimate goal an approved accountant’s declaration as the final chapter of the budgetary cycle. Curaçao has indicated that it will reach this point in 2018 and Bonaire in 2017. Saba has already managed this feat. The annual report did not mention St. Maarten and Statia in this regard.

St. Maarten anticipated closing off 2015 with a very small surplus on the capital service after four consecutive years of deficits. The deficit was especially high in 2014 due to the investments, including the purchase of the new Government Administration Building and Emilio Wilson Estate.
Investments were made in St. Maarten’s infrastructure in 2015, but were considerably lower compared to 2014. On the other hand, the consolidated deficit, which was 8.2 per cent in 2014, decreased to 4.1 per cent in 2015. No new loans were acquired in 2015, also due to the financial instruction issued by the Kingdom Council of Ministers, which resulted in an unchanged debt-per-GDP ratio of 33 per cent.

Economic growth
Powerful economic improvement in the Caribbean part of the Kingdom was not realised in 2015. Aruba, Curaçao and St. Maarten showed a very moderate economic growth in 2015, varying between 0.1 per cent and 0.3 per cent. Aruba and St. Maarten showed a “clear stagnation” of earlier economic development, while Curaçao closed off 2015 with a period of economic decline.
The three Dutch Caribbean countries are continuously facing structural problems. The local economies remain vulnerable because of insufficient economic diversification: the accent continues to be on tourism. Labour-market flexibility is lagging behind, while private-sector investments remain low. St. Maarten keeps having trouble having timely balanced budgets and the Government finances continue to be a source of concern.

On a positive note, St. Maarten does have “significantly higher” economic growth figures compared to the rest of the Kingdom. The average growth was 1.8 per cent in the past 10 years and growth figures of more than 4 per cent were realised in the period 2005-2007. Investments by the private sector were paramount in that growth period.

Economic growth decreased in St. Maarten in 2015. The CFT defined the economic growth of 0.3 per cent as “disappointing,” especially as the economic growth in 2014 was 1.5 per cent.
“The moderate growth in 2015 was mainly due to lower Government expenditures. The Government apparatus has capacity problems, in the sense of quality and execution. The political instability and the lack of continuity had a negative impact. The inflexible labour market and increased crime are also points of concern that require improving,” according to the CFT. The Central Bank of Curaçao and St. Maarten (CBCS) anticipated light economic growth for 2016 of 0.7 per cent.

Tourism down
The development of tourism in St. Maarten is acting up, it was stated in the annual report. “The growth of the number of stay-over tourists has slowed down, while the number of cruise tourists even decreased. The number of cruise ships that visited St. Maarten diminished in 2015 because a number of cruise ships that previously sailed the Caribbean have been moved to the Asian region.”
Investments to promote tourism were not realised in 2015 and neither was the establishing of the Tourism Authority. “This has resulted in a lack of policy regarding the tourism promotion,” stated the CFT. It also warned of the “possible threat” to the islands with the opening of the Cuban market for American tourists.

Source: Daily Herald Debt standard proposed for Curaçao, St. Maarten