WILLEMSTAD - The economic contraction in Curaçao was relatively stronger in connection with the Covid-19 crisis and the so-called 'fiscal activism' was relatively higher than in other Caribbean countries.
Financial and economic director, also member of the board of directors (Board) of the Central Bank of Curaçao and Sint Maarten CBCS, José Jardim concludes that 'Curaçao was an outlier in the region in 2020'.
With an average real economic contraction of 13.6 percent in 2020, the Caribbean appears to be one of the regions hardest hit by the Covid pandemic. According to Jardim, however, Curaçao with approximately -20 percent appears to be a special case. “The sharp contraction of Curaçao's real GDP (gross domestic product) in 2020 can be attributed not only to the pandemic, but also to Curaçao's structural macroeconomic weaknesses.”
Jardim also compares 'fiscal activism' in the Caribbean countries in 2020. The fiscal activism of Curaçao and Aruba was relatively strong in 2020 compared to other countries in the region. According to the top CBCS official, the higher budget activism can be attributed to the fact that Curaçao and Aruba Aruba, as countries within the Kingdom, have received liquidity support from the Netherlands.
“Although the liquidity support was subject to strict conditions, Curaçao and Aruba were in a more favorable position compared to other countries in the region – thanks to this liquidity support – to counteract the negative effects of the pandemic. After all, both countries received liquidity support from the Netherlands in the form of interest-free loans.”
“In addition, many Caribbean countries had already struggled with limited fiscal space due to a high debt burden before the pandemic. It is possible that these countries have pursued a more cautious fiscal policy because of the high debt burden,” says Jardim.
Despite higher fiscal activism in Curaçao, the real GDP contraction in 2020 was stronger than in the other countries in the region. Unemployment growth in 2020 was also stronger than in other Caribbean countries, "where the share of discretionary fiscal measures in GDP was relatively lower". These are deliberate changes in budgetary policy.
On the other hand, according to Jardim, it is striking that – unlike Aruba, where the vast majority of liquidity support has been used to support the private sector – in Curaçao the vast majority of liquidity support has been used to cover the government deficit created by the pandemic.
According to the financial-economic expert, the question then arises whether the support measures in Curaçao have been effective or whether Curaçao's budget multiplier is lower than in other countries in the region.
“In any case, the rise in unemployment poses major challenges for the economic recovery of Curaçao. The rise in unemployment could indicate a slower economic recovery than initially envisaged by the support measures. This emphasizes the need to stop delaying economic reforms,” concluded Jardim.