PHILIPSBURG--St. Maarten will record an improvement in its budget balance of NAf.10.3 million, reaching a surplus of NAf.2.1 million in 2015, ascribable to higher revenues mitigated by a slight increase in government expenditures.
This was the forecast of Central Bank President Emsley Tromp in Bank’s Economic Developments in 2015 and Outlook for 2016 report releases over the weekend.
“St. Maarten’s government revenues are expected to rise because of more tax proceeds. Meanwhile, expenditures will increase because of more outlays on subsidies and transfers, mitigated by less disbursement on wages and salaries,” the report cited.
Following an economic contraction during the past three years, the tentative conclusion is that St. Maarten’s economic growth slowed down from 1.5 per cent in 2014 to 0.3 per cent in 2015. Opposed to the economic contraction during the first half of this year, the economy of Curaçao expanded during the third quarter. This indicates that the economy of Curaçao will probably register a slight expansion of 0.2 per cent in 2015.
The economies of both Curaçao and St. Maarten “expanded modestly” during 2015 according to preliminary data released by the Central Bank of Curaçao and St. Maarten this week.
On the fiscal front, challenges remain for both countries, although it seems that both the governments of Curaçao and St. Maarten will record “a budget surplus in 2015,” said Tromp.
In both countries, inflationary pressures dropped during 2015 as a result of the significant fall in international oil prices, Tromp said. Meanwhile, the inflation rate in St. Maarten will decrease from 1.9 per cent in 2014 to 1.4 per cent in 2015, largely due to a decline in international oil prices.
For St. Maarten in 2015, both private and net foreign demand contributed positively to growth. Private demand was up, due to higher consumption and investments. Meanwhile, the increase in net foreign demand was caused by a drop in imports mitigated by lower exports. Economic growth was dampened, however, by the public sector as both consumption and investments dropped.
On the production side, St. Maarten’s economic slowdown resulted from weakened activities in the restaurants, hotels, transport, storage and communication sectors. Furthermore, real value added contracted in the financial services, manufacturing, and construction sectors.
The economic expansion in Curaçao was driven by a growth in public demand, as both government investment and consumption rose. In addition, net foreign demand contributed positively to GDP growth because the decline in imports offset the drop in exports.
By contrast, private demand dropped because of a further decline in investments. The decline in private investments indicates that investor confidence is not yet restored in Curaçao. A sectoral analysis reveals that the drivers of economic growth in Curaçao during 2015 were the transport, storage, communication, restaurants, hotels, wholesale and retail trade sectors. By contrast, the financial services and construction sectors contracted.
“To maintain a sustainable debt position, however, the Government of Curaçao needs to control the rapidly increasing debt to GDP ratio, which is already above the IMF’s benchmark of 40 per cent, Tromp said.
The Government of St. Maarten needs to implement the instruction it received from the Kingdom Council of Ministers in September 2015. The Bank has indicated on several occasions that St. Maarten needs to increase its revenues, in particular tax revenues, in order to cover its expenditures. “Otherwise, the country will remain in a vicious circle of unbalanced budgets and accumulating arrears,” said Tromp.
2016 Outlook
Looking to 2016, St. Maarten’s economy is projected by the Central Bank to expand by 0.7 per cent. The projected economic growth will result from higher domestic demand, attributable to increased private spending, mitigated by a decline in public spending. Private spending is projected to increase at a faster pace as a result of higher growth in consumption and investments, particularly in the tourism and transportation sectors.
Public (government) spending is expected by the Central Bank to contract, because of a decline in consumption, partly offset by an increase in investment. Contrary to the expansion in 2015, net foreign demand is projected to contract in 2016 as the rise in imports will exceed the increase in imports, said the Central Bank.
In 2016, both countries will benefit, albeit modestly, from the projected higher global economic growth. The economy of Curaçao is projected to expand by 0.5 per cent, attributable to an increase in both private and public demand, mitigated by a decline in net foreign demand. St. Maarten’s economy is projected to grow by 0.7 per cent on the back of increased private spending, while public spending and net foreign demand will drop.
Debt ratio decline
According to the Bank’s estimates, St. Maarten’s debt to GDP ratio dropped from 37.0 per cent at the end of 2014 to 35.2 per cent at the end of 2015 as a result of a decline in the domestic debt component while the foreign debt component remained unchanged. St. Maarten’s domestic debt dropped, because government reduced part of its arrears to the Social and Health Insurances SZV. Also, government reached an agreement with SZV on a downward adjustment of some disputed arrears, resulting in a substantial drop in the government’s debt to SZV
