WILLEMSTAD - According to the International Monetary Fund (IMF) Curaçao’s fiscal deficits in the coming years are expected to be elevated given the lingering effects of the economic shock. The primary fiscal deficit would persist at 13.5 percent of GDP in 2021 despite the measures to control the wage bill, although it would subside to single digits in 2022-23 and revert to a surplus in 2024. The government debt is projected to peak at about 103 percent of GDP in 2021—in part reflecting the loan from The Netherlands for Giro Bank resolution—and gradually decline to about 85 percent of GDP in 2026 assuming that none of the pandemic liquidity support is converted to grants. Achieving a more forceful debt reduction trajectory—for example, reducing it to 60 percent of GDP in 2031—would require a primary fiscal surplus of 3.2 percent of GDP by 2026.
The IMF says it would be important to broaden the tax base, streamline the tax system, and make it growth friendly. Whereas the reform of the turnover tax planned by the new Curaçao government moves a step closer to a value added tax (VAT), significant deviations persist. Curaçao would benefit from moving to a full-fledged VAT with parameters calibrated to increase government revenue. It would also be important to incorporate other recommendations from the 2019 IMF technical assistance. The tax administration requires an urgent overhaul—this is a key prerequisite for any tax policy change.
The authorities’ plans to improve public financial management are steps in the right direction and should proceed expeditiously. The findings of the General Court of Audit on the 2019 financial statements need to be addressed, including rationalizing the human resources and the compensation system, adhering to regulations in subsidies and transfers to public entities, taking stock of the government assets, and improving the procurement procedures.