WILLEMSTAD - During the first half of 2020, the public finances of Curaçao worsened considerably compared to the first half of 2019. Following a surplus of NAf.43.6 million in the January – June period of 2019, the government of Curaçao recorded a deficit of NAf.186.0 million in the January – June period of 2020. This significant turnaround can largely be ascribed to the measures that were in effect during the months of April through June to contain the local spread of the COVID-19 coronavirus that brought economic activity basically to a halt, in particular the closure of the borders for commercial flights and maritime traffic and a total lockdown that lasted for approximately 6 weeks. Furthermore, the public debt-to-GDP ratio increased significantly in the half of 2020, by 19.6 percentage points compared to the end of December 2019, reflecting primarily the liquidity support in the form of 2-year zero-interest bullet loans that the government received from the Dutch State amid the corona crisis in the second quarter.
The drastic turnaround in the current budget balance was caused by a decline of NAf.148.7 million in government revenues combined with an increase of NAf.80.9 million in expenditures. Revenues went down primarily because of less tax proceeds (NAf.144.4 million) and a slight decrease in nontax revenues (NAf.4.3 million). The drop in tax revenues was reflected in all categories, with the drops in profit tax (NAf.41.5 million), sales tax (NAf.33.7 million), and wage tax (NAf.28.5 million) proceeds the most pronounced. The development in tax proceeds is consistent with the sharp decline in economic activity as a result of the containment measures, particularly the lockdown, that resulted in businesses running losses and people losing jobs. Furthermore, the decrease in nontax revenues was due primarily to less proceeds from license fees received from the central bank during the first half of 2020 compared to the first half of 2019 related also to the sharp decline in economic activity.
Government expenditures increased mainly by higher transfers & subsidies (NAf.77.0 million) caused largely by support provided (NAf.49.9 million) to the most affected groups in society amid the corona crisis, including payroll subsidies, income support, and food vouchers. However, the increase in expenditures was slightly mitigated by less spending on goods & services (NAf.5.8 million).
The public debt of Curaçao increased by NAf.320.2 million during the first half of 2020, reaching NAf.3.334 billion at the end of June. This surge was caused by an increase of NAf.368.6 million in the foreign debt component, because the domestic debt dropped by NAf.48.4 million. The foreign debt went up as a result of the liquidity support received from the Netherlands 7 in the form of 2-year zero-interest bullet loans. In April 2020, a first tranche of NAf.177.0 million was received, followed by second tranche of NAf.204.0 million transferred in May (NAf.141.0 million) and June (NAf.63.0 million). The rise in the foreign debt was mitigated, however, by the payment of arrears towards the Dutch government related to the common court of justice and an amortization related to a sinking bond issued in January 2015 for the financing of the new hospital. Meanwhile, the domestic debt component dropped as the government reduced its outstanding arrears towards the social security bank, SVB, by NAf.18.3 million and other creditors. Due to the effects of COVID-19 on the economy, Curaçao’s GDP is projected to decline in 2020.4 This decline combined with the increase in the public debt caused the debt-to-GDP ratio to rise from 54.3% at the end of December 2019 to 73.8% at the end of June 2020.