WILLEMSTAD - The Central Bank of Curaçao and St. Maarten (CBCS) has calculated two scenarios for the balance of payments in 2020. If the Isla refinery remains open13, the current account deficit of the monetary union will drop from 20.5% of GDP in 2019 to 19.5% of GDP in 2020. The lower deficit is caused primarily by an increase in the net export of goods and services mitigated by a worsening of the income and current transfers balances.
The net export of goods and services is projected to increase because of a rise in exports, moderated by higher imports. The gain in exports reflects mainly the projected increase in tourism activities in both Curaçao and Sint Maarten over the course of 2020. In particular, foreign exchange receipts from stay-over tourism and activities that cater to stay-over tourism in both countries are projected to increase. Moreover, more earnings from ship repair activities in Curaçao will contribute to the gain in exports.
However, a decline in the revenues from refining and the related transportation activities in the harbor of Curaçao will dampen the growth in exports. Furthermore, foreign exchange earnings from bunkering activities will drop on the back of a projected decline in international oil prices. Meanwhile, the import bill will rise due to, among other things, an increase in the import of construction material reflecting ongoing investments in Curaçao and reconstruction activities in Sint Maarten. Furthermore, the wholesale & retail trade sector in Sint Maarten will import more merchandise supported by the projected increase in domestic spending. In Curaçao, however, merchandise imports by the wholesale & retail trade sector will drop as a result of the introduction of the general consumption tax, ABB, that will reduce consumer spending. In addition, more construction services will be acquired from abroad in Sint Maarten related to the reconstruction of key infrastructure that was damaged by the hurricanes in 2017.
The increase in the import bill will be moderated by a decline in oil imports caused by a projected decline in international oil prices.
The income balance is projected to deteriorate in 2020 caused primarily by a decline in interest earned on foreign investments. Meanwhile, the worsening of the current transfers balance is caused by a decline in current transfers received from abroad, moderated by lower current transfers paid to abroad.
If the refinery closes on January 1st, 2020, the deficit on the current account of the balance of payments of the monetary union is projected to reach 21.4% of GDP. The higher deficit will be caused mainly by a decline in the net export of goods and services as export growth will lag behind the rise in imports. Compared to the previous scenario, export growth will be less pronounced because of the loss of the refining fee earnings and the revenues from activities in the harbor that are related to the refinery.
Capital transfers into the monetary union are projected to increase in 2020 because of the inflow of financial aid from the Netherlands through the World Bank for the reconstruction of Sint Maarten. As the external financing and capital transfers will be insufficient to cover the deficit on the current account in 2020, gross official reserves will drop further but the import coverage will remain above the target of 3 months. If the refinery stays open, the average import coverage is projected at 3.5 months in 2020 while, if the refinery closes by January 1st 2020, the average import coverage will be 3.3 months.
Finally, the Bank will continue the tightening of its monetary policy as long as the gradual decline in official reserves and the import coverage persists.
