WASHINGTON, DC – The International Monetary Fund (IMF) Tuesday said the economy of the Dutch-speaking Caribbean island of Sint. Maarten continues to recover thanks to strong stayover tourism and the reconstruction.
It said domestic imbalances have closed, with inflation declining towardstwo per cent and the fiscal balance returning to a surplus in 2023, but the current account deficit remains high.
The Washington-based financial institution said that an immediate solution is needed to resolve load shedding and, in the medium term, investments in renewable energy are strongly encouraged.
“Going forward, policies need to address long-standing structural challenges, including boosting medium-term growth, restoring the government’s competitiveness to recruit and retain talent, and dealing with mounting deficits in the healthcare insurance fund.”
The IMF said that Sint Maarten has experienced a strong post-pandemic recovery led by stayover tourism and construction. It said gross domestic product (GDP) growth is estimated at 3.5 per cent in 2023, following a sharp rebound of 13.9 per cent in the previous year, while high-frequency indicators point towards healthy growth rates across various sectors.
The IMF said growth has been supported by accelerated reconstruction activity, funded with large disbursements from the Trust Fund, and by stayover tourism, which is outperforming regional peers, while cruise tourism is lagging.
It said formal labour recovery continues to lag growth, with the unemployment rate estimated at 8.6 percent in 2023, still above the pre-Irma rate of 6.2 per cent.
The IMF said domestic imbalances have significantly improved, while the external imbalance has recently widened and the fiscal outturn returned to a surplus in 2023, thanks to stronger revenues and spending under-execution.
“The revenue pickup was partly due to the processing of the tax filings backlog and the improved collection of arrears. The spending under-execution was due to the inability to fill public vacancies and the late disbursement of financing for public investment.
“Average headline inflation declined to 2.1 per cent in 2023, in line with lower international oil prices. The current account deficit increased to almost seven per cent of GDP in 2023 from 3.6 percent in 2022 due to vigorous construction activity.”
The IMF said that growth would moderate in the medium term as both tourism recovery and the reconstruction taper off.
It said growth is expected to be 2.7 per cent in 2024 and three per cent next year, supported by a delayed recovery in cruise passengers towards pre pandemic levels.
However, the near-term outlook is threatened by the load shedding, since June, which resulted from inadequate maintenance and underinvestment in electricity generation capacity. “From 2026 onwards, growth is expected to gradually converge towards 1.8 per cent over the medium term as the stimulus from the reconstruction peaked in 2023, and tourism growth becomes constrained by the island’s carrying capacity and ailing infrastructure, worsened by years of low public investment.
“Inflation is expected to remain broadly contained while remaining vulnerable to international price developments. The current account balance is envisaged to gradually converge to a surplus of one per cent of GDP in the medium term as the reconstruction tapers off.”
The IMF said that the authorities remain committed to fiscal prudence. It said the 2024 draft budget is consistent with the fiscal rule and aims to enhance revenue mobilization, accelerate public investment by executing the proceeds from the 2023 loan from the Netherlands, and restore public employment to ensure service delivery and improve the government’s administrative capacity and overall efficiency.
“However, spending under-execution is likely to continue as recruitment efforts remain hindered by uncompetitive public wages, which are 10 per cent lower than in 2012 in real terms. Available resources for public investment, carried forward from 2023, are also unlikely to be fully executed this year given severe capacity constraints.”
The IMF said that over the medium term, revenue increases are needed to meet the golden fiscal rule while clearing arrears of about four per cent of GDP with the Social Insurance Bank (SZV), servicing liquidity support and capital loans from the Netherlands, and restoring public wage competitiveness and service delivery.
“Sint Maarten’s tax collection of about 14 per cent of GDP, is at the median of regional peers, suggesting some room to boost revenues. Casinos are currently only subject to a small fee, their profits, turnover, and winnings are notable sources of untapped tax revenues.”
The IMF said enforcing the lodging tax on short-term rentals, and income and profit tax on the proceeds from such rentals, could generate revenues of about one per cent of GDP.
“Additional revenues could be obtained by instituting a tourist levy at the airport; updating the price of land leases; adjusting the cost of vehicle registration by weight; introducing a ship register; adjusting the fees for work permits; enhancing the tax administration; and by digitizing and interfacing government’s systems,” the IMF said.
It said also that reforms are urgently required to address persistent healthcare deficits, currently cross-financed with pension funds.
“Health premiums and public transfers have been insufficient since 2010, leading to a cumulative deficit of the healthcare insurance funds of about 13 per cent of GDP. More than one-half of the reserves of the old-age pension fund, about 10 per cent of GDP as of 2022, have been used to cross subsidize growing deficits of the healthcare funds, endangering the sustainability of the system.”
It warned that under unchanged policies, given population aging and rising healthcare and administrative costs, both healthcare and pension funds could have deficits by 2025, and the liquid reserves of the SZV could be depleted by 2027.
