PHILIPSBURG--The Central Bank of Curaçao and St. Maarten (CBCS) has revised downwards its economic outlook for 2020 for Curaçao and St. Maarten.
In its previous projection, CBCS calculated the impact of the closure of the borders to commercial flights and maritime traffic. In the new projection, CBCS has included the effects of a lockdown.
“The economies of Curaçao and St. Maarten were already affected by the closure of the borders, but have basically come to a standstill as a result of the lockdown. Given the substantial economic sacrifices of the lockdown, efforts should be made to reactivate the economy in a responsible yet swift manner,” CBCS Interim President Dr. Jose Jardim said in a press release.
CBCS calculated in March the economic impact of the closure of the borders of Curaçao and St. Maarten for commercial flights and maritime traffic. The adverse effects are considerable.
In the case of a border closure for a period of three months followed by a gradual recovery after reopening, Curaçao will register a real economic contraction of 14.9 per cent. However, CBCS has revised this projection by 1.0 percentage point to -13.9 per cent, as the introduction of the General Consumption Tax ABB did not take place after all on April 1.
In the new outlook, CBCS assumes that the ABB will be introduced on July 1. The CBCS projected in March an economic contraction of 13.7 per cent for St. Maarten if the borders remain closed for a period of three months followed by a gradual reopening. This projection has been revised downward by 1.2 percentage points to -14.9 per cent.
In the meantime, the governments of both Curaçao and St. Maarten have escalated the preventive measures. As a consequence, a 24-hour curfew or lockdown is currently in place in both countries. In Curaçao, the measures are currently being gradually deescalated, while St. Maarten has recently extended its lockdown.
The economies of both Curaçao and St. Maarten have basically come to a standstill as a result of the lockdown. Based on the scenario of a closure of the borders for a period of three months followed by a gradual recovery after reopening, CBCS has calculated for both countries the impact of a lockdown for a period of one month, two months and three months.
“In the case of a total lockdown of one month, the economy of Curaçao will contract by 17.7 per cent. The economic contraction could, however, reach 25.4 per cent in the case of a lockdown of three months. The economy of St. Maarten will also be severely affected by a lockdown with a contraction between 17.0 per cent (lockdown of one month) and 21.1 per cent (lockdown of three months),” according to Jardim.
CBCS explains further that the contraction in Curaçao is deeper than in St. Maarten due to the higher inflation rate in Curaçao. In addition, before the COVID-19 crisis, the economy of St. Maarten was projected to grow in 2020 while a contraction was forecast for Curaçao. An inflation rate of 3.5 per cent is projected for Curaçao while the inflation rate of St. Maarten will reach 2.3 per cent.
“The higher inflation in Curaçao is caused by, among other things, the surcharge that the government introduced on oil products on March 1 and April 1. Moreover, in the outlook it is assumed that the government will introduce the ABB on July 1, 2020. The increase in inflation is, however, moderated by a strong decline in international crude oil prices. The higher inflation will reduce the purchasing power and worsen the country’s competitiveness,” Jardim stated.
“St. Maarten, by contrast, will benefit from the drop in international crude oil prices leading to a lower inflation than in Curaçao.”
However, he emphasises that the economic projections are currently surrounded by extreme uncertainties. “The world is experiencing a pandemic that has resulted in a global economic crisis. Some of the downside risks to the current outlook include the development and duration of the pandemic, the pace at which the preventive measures will be lifted, and how demand will recover.”
In addition, the longer the preventive measures last, the greater the adverse effects on the economy will be. The adverse effects depend also on how fast the economy will recover.
“The longer the lockdown lasts, the less the still-operating economic activities are able – partly out of solidarity – to contribute to the halted economic activities and the less sustainable the government’s debt becomes. For this reason, efforts should be made to reactivate the economy in a responsible yet swift manner,” Jardim noted.
