~ NAf. 545 million needed ~
PHILIPSBURG–Government must consider Dutch financial support because the “brutal” reality is that tourism will not bounce back quickly, the economy cannot sustain itself, societal reforms are necessary, and selling government assets will not guarantee a sound financial future.
This is what St. Maarten Hospitality and Tourism Association (SHTA) said in an open letter to Prime Minister Silveria Jacobs on Thursday. The full letter can be read on The Daily Herald’s website.
St. Maarten will need an enormous amount of money to avoid bankruptcy and ensure sustainable economy growth, said SHTA. However, the options for getting it are limited.
The recently-touted option of selling shares of government-owned companies to Social and Health Insurances SZV is unlikely to raise enough cash in time to prevent insolvency. SHTA characterised it as a stopgap measure at best. “Anyone can see this will only incite a never-ending merry-go-round of tax increases, as there is no other way for government to raise the capital to repurchase these shares and ensure the required return on investment to keep the AOV [general old age insurance – Ed.] fund healthy,” SHTA said.
Borrowing from the Central Bank of Curaçao and St. Maarten (CBCS) is not sound either, said SHTA, adding that CBCS’ analysis indicates that government will not be able to borrow after 2020 if it wants the country’s debt ratio to return to pre-crisis levels within 20 years.
St. Maarten’s economy – of which 85 per cent of gross domestic product (GDP) derives from tourism – has come to a virtual standstill because of the COVID-19 pandemic. No cruise passengers are arriving and hotel occupancy averaged less than 20 per cent in the second quarter of 2020, said SHTA.
“What is left of the local economy is staying afloat artificially with emergency help from several banks, insurance companies and private pension funds, as well as a temporary payroll support programme that covers only a part of the economy and ended with support for June,” said SHTA.
However, it is not as though St. Maarten’s economy was not in trouble before the pandemic, as was evident from the country requiring liquidity support in every year since 2017. “From its inception, Country St. Maarten has not been able to book an actual surplus in any of the years of its existence,” said SHTA.
Although the coronavirus crisis has rocked the global economy as a whole, St. Maarten’s commercial recovery is likely to lag behind other countries because it is so heavily dependent on tourism.
North American and European countries – the source market for the vast majority of St. Maarten tourists – are now being forecast to recover more slowly than previously thought. Consequently, “any local meaningful recovery should not be expected for years to come,” said SHTA.
On top of this, the tourism industry may not recover for several years. Cruise lines are extending their return dates far into the second quarter of 2021, and major fleet reductions may negatively impact cruise traffic in the near future. Additionally, cruise lines may consider adapting itineraries to “domestic-only” to overcome travel restrictions.
There is also reason to doubt the immediate rebounding of the stay-over segment, said SHTA. While Princess Juliana International Airport (PJIA) has only recently begun the bulk of its reconstruction, the International Air Transport Association (IATA) has said full recovery of the airline industry may not occur until 2024.
According to SHTA, government should rethink its current mass tourism strategy and instead target higher income tourists, “a strategy that’s also more naturally in line with the limitations of finite space on a small island and, considering we are bound to have a lot less guests in the very near future, what better time to reposition and upgrade now.”
Any repositioning initiatives will require significant investment and reform, said SHTA, adding that these should also include improvements to education, social security, healthcare, and state and government apparatuses.
According to SHTA, St. Maarten will need another NAf. 263.2 million to cover the shortfall in the 2020 budget. If the crisis continues well into next year, government will require a similar amount for 2021, and even more money will be needed if there are to be investments.
“The current situation demands an integrated approach which includes broad and sustainable economic reforms, public expenditure reduction and changed dynamics (for instance, the annual increase in wages and salaries is unsustainable), and increasing public revenues by improving compliance,” said SHTA.
The Netherlands is an option where the necessary funds can be acquired in time to prevent insolvency, said SHTA.
“St. Maarten must find the courage to confront these brutal realities and grab the opportunity to improve its outlook for the long term. Any possibility should be, with properly structured stakeholder involvement, considered at this point. Using autonomy, or the perceived infringement thereon, as an excuse not to exhaust all avenues for help amounts to throwing sand in people’s eyes. …
“St. Maarten has had the good fortune to have been offered help from the Netherlands during one of the worst economic crises in history. … While there will be a transition period in which the (political) autonomy may be temporarily affected, some strides can be made by ironing out some of the details as mentioned in the Council of Advice report,” said SHTA.
SHTA concluded by urgently advising St. Maarten to engage the Dutch government in “constructive consultations” about the proposed Consensus Kingdom Law.