The Central Bank of Curaçao and St. Maarten (CBCS) was on the mark by pointing out in its June 2022 Economic Bulletin (see Thursday edition) that balanced budgets should currently not be pursued to such an extent that this becomes counterproductive. According to the monetary authority “amid heightened uncertainties, the question arises whether the current fiscal consolidation path is realistic. With increased inflation pressures moderating the pace of economic recovery and higher government spending required to provide targeted support to the most vulnerable in society, a balanced budget should not come at the expense of a continued recovery.”
This is important, because during a lecture at Simpson Bay Resort reported on in the same edition, Committee for Financial Supervision CFT Chairman Raymond Gradus reiterated that St. Maarten should achieve a balanced budget next year and a surplus in 2024. To this end, the Dutch Caribbean country must get its spending under control, while levying and collecting more as well as new taxes.
Enhancing fiscal compliance is always desirable also to create a level playing field, but anything that significantly increases the cost of living and doing business is risky at best under the circumstances. Instead of no deficit from 2023, CBCS suggests “a medium-term fiscal consolidation path that balances the effects of retrenchment on growth.”
Healthcare and pension reforms, financial management and other measures are still needed, but given capacity constraints cannot be implemented in one year. As alternative, a four-year programme is proposed that “should be based on prudent assumptions regarding economic growth and fiscal targets and include clear medium-term priorities. In addition, the pace of fiscal adjustment should in the recovery phase be linked to a debt anchor instead of a balanced budget rule.”
As stated in this column earlier, the impact of the war in Europe coming on top of production and supply issues that occurred due to COVID-19 has created yet another unmistakable global crisis that is hitting especially communities depending largely on food imports hard. Revising plans and timelines made during the pandemic to reflect the added challenges facing the islands today would seem like the sensible thing to do.
After all, the final objective ought to remain success rather than failure.
