WILLEMSTAD - According to the Central Bank of Curaçao and St. Maarten, amid the COVID-19 pandemic and related containment measures, the outlook for the public finances worsened considerably since March 2020. As a result, the government amended the 2020 budget twice during the year to reflect the adverse effects of the corona crisis on the public finances. Even though the Kingdom Council of Ministers agreed to allow the government of Curaçao to deviate from the balanced budget rule stipulated in the Kingdom Law of Financial Supervision of Curaçao and Sint Maarten, the amended budgets reveal that liquidity support was indispensable. The support was aimed specifically at providing financial assistance to the most affected groups in society and compensating for the loss of government revenues amid the pandemic. Notwithstanding the urgent need, the government of Curaçao did not receive any liquidity support from the Netherlands in the third quarter of 2020, as negotiations regarding the conditions set for the continuation of this support were still ongoing. Against this background, the deficit on the current budget of the government of Curaçao widened by NAf.149.3 million in the third quarter of 2020 compared to the third quarter of 2019, reaching NAf.152.0 million. Additionally, Curaçao recorded a debt-to-GDP ratio of 72.6% at the end of September 2020, 0.2 percentage point less than at the end of June 2020.
The deterioration in the fiscal position of Curaçao during the third quarter of 2020 compared to the third quarter of 2019 was the result of a decline of NAf.103.9 million in government revenues combined with an increase of NAf.45.4 million in expenditures. Revenues went down primarily because of a decrease of NAf.54.2 million in tax proceeds combined with a decrease of NAf.49.7 million in nontax revenues. The drop in tax revenues reflected mainly a drop of NAf.18.3 million in wage tax, NAf.14.6 million in excises on gasoline, NAf.10.0 million in sales tax, and NAf.6.7 million in import duties. The development in tax proceeds reflects the adverse effects of the pandemic on the economy. The decrease in nontax revenues was caused primarily by NAf.41.8 million fewer tax grants received 6 Source: Financiële Management Rapportage of September 2020 of the government of Curaçao. As part of the BRNC tax arrangement, all withholding tax collected by the Dutch Tax Office on dividends paid by Dutch companies to their parent companies in Curaçao is transferred to the government of Curaçao. from the Netherlands. Furthermore, during the third quarter of 2020, the government received NAf.5.2 million less in proceeds from rent and leases and NAf.1.0 million less in license fees from the central bank than in 2019’s third quarter.
Government expenditures went up due mainly to an increase of NAf.45.3 million in spending on transfers & subsidies related to the financial support provided to the most affected groups in society to dampen the negative effects of the corona crisis. This support included payroll subsidies, income support, job loss benefits, and food vouchers. Furthermore, spending on goods & services rose by NAf.3.3 million. However, a NAf.2.5 million drop in outlays on wages & salaries mitigated the increase in total expenditures.
The primary balance of the government of Curaçao, defined as the budget balance excluding interest payments and used as an indicator of fiscal soundness, deteriorated by 3.2 percentage points to -3.2% of GDP in the third quarter of 2020 compared to the third quarter of 2019. The drop in revenues was the main cause of this deterioration, complemented by an increase in noninterest expenditures.
Public sector debt of Curaçao
The total outstanding public debt of Curaçao reached NAf.3.325 billion at the end of September 2020, NAf.9.2 million lower than at the end of June 2020. This decrease was due solely to a drop in the domestic debt component as the foreign debt component remained unchanged. The drop in domestic debt occurred mainly because the government paid off NAf.5.1 million and NAf.2.7 million of its outstanding arrears towards the social security bank, SVB, and the public pension fund, APC, respectively. As a result of the fall in the total public debt, the debt-to-GDP ratio dropped slightly from 72.8% at the end of June 2020 to 72.6% at the end of September 2020.