Annual Report 2018

Centrale Bank van Curaçao en Sint Maarten

July 30, 2019

Contents:I. Economic Developments

II. Monetary Developments

III. Economic Outlook

Economic DevelopmentsReal Sector

Part I

3

2016 2017 2018

Current account balance (in mln NAf.) -1,080.8 -1,120.3 -1,507.4

Change in gross foreign reserves of the

central bank (in mln NAf.)* -187.5 17.6 274.3

Change private loans (%) 0.5 1.4 1.4

Real GDP growth (%)

Curaçao -1.0 -1.7 -2.2

Sint Maarten 0.4 -4.8 -6.6

Inflation (%)

Curaçao 0.0 1.6 2.6

Sint Maarten 0.1 2.2 2.7

*- sign means an increase

Developments in the monetary union

4

2.9%

0.9% -0.5% 3.6%

2.4%

225,538% -

229,789%

2.1%

-15.0% to

-18.0%

1,087% to

1,327%

2.9% 2.7% 1.4% 1.7% 3.8%4.9%

8.9%

4.9%

11.0% to

26.4%

27.1% to

35.0%

4.4%

7.3%

-7.0% to

-13.0%

2.2%

2.0%Aruba

United States

Venezuela

Netherlands

Real GDP Consumer prices Unemployment rate

2017 2018 2017 2018 2017 2018

Macro-economic key figures: a comparison

5

Economic

development

CuraçaoI. Real GDP in Curaçao

contracted by 2.2% in

2018.

II. Inflation increased to

2.6% because of higher

food and oil prices.

6

-1.7%

-2.2%

1.6%

2.6%

-3%

-2%

-1%

0%

1%

2%

3%

2014 2015 2016 2017 2018

Real GDP Inflation Trend (Real GDP)

2017 2018

Domestic expenditure, of which: -0.4 -1.2

Private sector -0.2 -0.5

- Investment 0.2 0.1

- Consumption -0.4 -0.6

Public sector -0.2 -0.7

- Investment -0.3 -0.3

- Consumption 0.1 -0.4

Changes in inventory -0.1 0.2

Foreign net expenditure, of which: -1.2 -1.2

- Export of goods and services -0.9 0.2

- Import of goods and services 0.3 1.4

Real GDP by expenditure -1.7 -2.2

Source: CBCS estimates; real percentage changes.

GDP by

expenditure

of Curaçao

7

Sectoral performance in Curaçao in 2018

I. Decline in wholesale & retail trade sector

• Decline in domestic demand and free-

zone activities.

• Increase in tourism spending.

II. Decline in manufacturing sector:

• Decline in refining activities.

• Increase in ship-repair activities.

III. Decline in transport, storage &

communication sector:

• Fewer activities at the harbor.

• Slight increase in activities at the

airport.8

Sectoral performance in Curaçao in 2018 (cont.)

IV. Growth in financial intermediation sector:

• Increase in domestic and

international financial services.

V. Increase in restaurants & hotels sector:

• Increase in stay-over tourism.

• Increase in cruise tourism.

VI. Growth in utilities sector:

• Increase in water production.

• Decrease in electricity production.

VII. Zero-growth construction sector:

• Increase private investments in

construction projects.

• Decline in maintenance activities

at the Isla refinery. 9

I. Real GDP shrank by

6.6% in 2018.

II. Consumer price inflation

increased in 2018 due to

higher prices of

consumer goods,

construction materials

and insurance premiums.

Economic development Sint Maarten

10

-4.8%

-6.6%

2.2%2.7%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2015 2016 2017 2018

Real GDP Inflation Trend (Real GDP)

GDP by

expenditure

of Sint

Maarten

2017 2018

Domestic expenditure, of which: -0.4 -0.2

Private sector -0.2 1.9

- Investment 0.3 2.4

- Consumption -0.5 -0.5

Public sector -0.2 -2.1

- Investment -0.9 -0.4

- Consumption 0.7 -1.7

Changes in inventory -0.9 0.7

Foreign net expenditure, of which: -3.4 -7.1

- Export of goods and services -8.1 -4.0

- Import of goods and services -4.7 3.1

Real GDP by expenditure -4.8 -6.6

Source: CBCS estimates; real percentage changes.11

Sectoral performance

in Sint Maarten in 2018

12

I. Accelerated decline in the wholesale & retail

trade sector:

• Contraction in both domestic

consumption and tourism spending.

II. Deeper contraction in the restaurants & hotels

sector:

• Stay-over tourism plummeted,

mitigated by cruise tourism rebound.

III. Accelerated contraction in utilities sector:

• Sharp decrease in electricity and water

production.

Sectoral performance in

Sint Maarten in 2018 (cont.)

13

IV. Further contraction in transport, storage &

communication sector:

• Deep contraction in airport-related

activities.

• Contraction in harbor-related activities.

V. Decline in financial intermediation sector.

VI. Accelerated growth in construction sector:

• Increased private investments.

• Reconstruction and repair activities.

VII. Slower growth in manufacturing sector.

Economic DevelopmentsLabor market

14

Unemployment rate

15Sources : IMF, Worldbank, ILO, STAT Sint Maarten, CBS Curaçao and CBS NL, Bonaire office.

*Aruba data refer to 2017, *BES islands data refer to 2016

13.4%

9.9%

0%

5%

10%

15%

20%

25%

St. Lucia St. Vincent& the

Grenadines

Curacao TheBahamas

Sint Maarten Barbados Aruba* St Eustatius* Bonaire* Saba*

Economic DevelopmentsPublic Sector

16

Main developments CuraçaoI. According to the Financial Management Report of

May 2019, the government of Curaçao improved its

current budget by Naf.58.3 million compared to

2017, by recording a budget deficit of Naf.58.5

million.

II. The debt-to-GDP ratio rose to 52.8% due mainly to

an increase in the arrears towards the social security

bank, SVB.

17

Budget development Curaçao

18*2018 figures based on the Financiële Management Rapportage of the government of Curacao of December 2018.

-1.6

15.9

-116.8

-58.5

-140

-120

-100

-80

-60

-40

-20

0

20

40

2015 2016 2017 2018

NA

f. m

illi

on

Budget balance

Public debt and GDP: Curaçao

19

2,889 2,958

5,579 5,57952% 53%

20%

25%

30%

35%

40%

45%

50%

55%

0

1,000

2,000

3,000

4,000

5,000

6,000

2015 2016 2017 2018

Naf.

mln

Total public debt GDP Debt-to-GDP ratio (r.h.s.)

Main developments

Sint Maarten

I. Sint Maarten’s fiscal position

deteriorated further by NAf.17.8

million in 2018 compared to 2017,

reaching a current budget deficit of

NAf.90.2 million.

II. The government received a total

amount of NAf.82.6 million for

liquidity support during 2018 in the

form of two zero-interest loans, both

with maturities of 30 years.

20

Budget development SintMaarten

21* Source: Voorlopige Financiële Concernrapportage/Uitvoeringsrapportage, vierde kwartaal 2018 of the government of Sint Maarten.

-72.4

-90.2-100

-80

-60

-40

-20

0

20

40

2015 2016 2017 2018*

NA

f. m

ln

Budget balance

Public debt and GDP: Sint Maarten

22

607773

1,8641,791

33%

43%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2015 2016 2017 2018

NA

f m

ln

Total public debt GDP Debt-to-GDP ratio (r.h.s.)

Economic DevelopmentsExternal Sector

23

Main developments 2018I. Widened current account deficit.

II. External financing rose, albeit at a

slower pace than in 2017.

III. As the external financing and capital

transfers were not sufficient to cover

the current account deficit, gross

official reserves dropped. 24

Balance of payments (transaction basis, NAf. mln)

25

-191.9628.8241.0278.3Direct investment

962.71,004.51,183.8804.2External financing

33.6 -2.73.0 -7.1Capital account

-1,507.4 - 1,120.3 -1,080.8-887.4Current account

2018201720162015

340.1323.1373.2588.2Portfolio investment

814.552.7569.7-62.4Loans & credits

274.317.6-187.5-27.8Change in reserves

Balance of payments developments (in % of GDP)

26

-20.4%

13.0%

-30%

-20%

-10%

0%

10%

20%

30%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Current account balance External financing private sector

Contribution to foreign exchange income* in 2000 and 2018

(Curaçao)

*Income from the export of goods and services. 27

Freezone17%

Bunkering6%

Merchandise excl. freezone

11%Transportation7%

Refining16%

Tourism14%

International financial services

18%

Other services11%

2000

Freezone6%

Bunkering, 18%

Merchandise excl. freezone

5%

Transportation3%

Refining, 7%

Tourism32%

International financial services

8%

Other services22%

2018

Contribution to foreign exchange income* in 2000 and 2018

(Sint Maarten)

*Income from the export of goods and services. 28

Merchandise 10%

Transportation2%

Tourism79%

International financial services

2%

Other services7%

2000

Bunkering1%

Merchandise 17%

Transportation3%

Tourism57%

International financial services

4%

Other services16%

2018

Tourism sector

29

9861,061

1,127

811

0

400

800

1,200

1,600

2,000

2013 2014 2015 2016 2017 2018

NA

f. m

illi

on

Curacao Sint Maarten

International financial sector

30

240

304

25 20

0

150

300

450

2012 2013 2014 2015 2016 2017 2018

NA

f. m

illi

on

Net operational income Profit tax BRK windfall

Refining fee(Curaçao)

31

396

231

0

100

200

300

400

500

600

700

2012 2013 2014 2015 2016 2017 2018

NA

f. m

illi

on

Monthly import coverage

32

0

1

2

3

4

5

6

Mo

nth

s

Import coverage norm Import coverage

Monetary Developments

33

Part II

Main monetary developments

34

I. Money supply remained in 2018 at

almost the same level as in 2017.

II. Slight increase in net foreign assets

moderated by a decline in net

domestic assets.

III. Moderate increase in loans to the

private sector.

Money supply

35

3,753 3,699 3,679

4,3774,990 5,006

0

1,000

2,000

3,000

4,000

5,000

6,000

2013 2014 2015 2016 2017 2018

NA

f. m

illi

on

Net domestic assets Net foreign assets

Private credit extension(year-on-year growth)

36

-4%

0%

4%

Loans to the private sector Monetary Union Loans to the private sector Curaçao Loans to the private sector Sint Maarten

Monetary policy stance in 2018

I. Reserve requirement was kept at 18.00%.

II. Pledging rate increased by 50 basis points

to 2.00%.

III. At the bi-weekly auctions of Certificates

of Deposit, the Bank aimed at a gradual

reduction in the outstanding amount.

37

Economic Outlook

38

Part III

Expected developments in the monetary union in 2019 and 2020

2017 2018 2019** 2020**

Current account balance (in mln

NAf.)-1,120.3 -1,507.4 -1,831.3 -1,900.8

Change in gross foreign reserves

of the central bank (in mln

NAf.)*

17.6 274.3 136.0 120.0

Real GDP growth (%)

Curaçao -1.7 -2.2 -1.8 -0.1

Sint Maarten -4.8 -6.6 3.1 2.8

Inflation (%)

Curaçao 1.6 2.6 2.5 2.6

Sint Maarten 2.2 2.7 2.5 2.2

*- sign means an increase

** projection CBCS.39

Expected developments in Curaçao in 2019I. Curaçao’s economy is projected

to contract by 1.8% in 2019 due

to declines in net foreign and

domestic demand.

II. Inflationary pressures are

expected to decrease slightly to

2.5% in 2019 due to a fall in

international oil prices

moderated by an increase in

international food prices.40

Expected developments in Sint Maarten in 2019I. Sint Maarten’s real GDP is

estimated to expand by 3.1% in

2019, driven by an increase in

domestic demand.

II. Inflation is projected to ease to

2.5% due to a decline in

international oil prices.

41

Expected developments in Curaçao in 2020

42

I. For 2020, a slight GDP contraction

of 0.1% is expected as the decrease

in domestic demand will surpass

the increase in net foreign demand.

II. Inflationary pressures are expected

to increase slightly to 2.6% because

the drop in international oil prices

will be mitigated by an increase in

food prices.

Expected developments in Sint Maarten in 2020

43

I. Sint Maarten’s real GDP is estimated

to grow by 2.8% in 2020, driven

mainly by both domestic and net

foreign demand.

II. Following the price hikes in the

aftermath of the hurricane in 2017,

inflationary pressures are expected to

ease to 2.2%.

Projection balance of payments 2019 -2020(transaction basis, NAf. mln)

120.0136.0 274.3 17.6 Change in reserves

1,445.7 1,377.5 962.7 1,004.5 External financing

193.3 193.3 33.6 -2.7 Capital account

-1,900.8 -1,831.1 -1,507.1 -1,120.3 Current account

2020**2019**20182017

44

THEEND