WASHINGTON D.C. - In its report, the International Monetary Fund (IMF) states that Curaçao is prioritizing the improvement of fiscal policies to bolster its economic resilience and promote sustainable growth. Moving forward, policies will concentrate on enhancing the quality of expenditure, with a particular emphasis on investments that foster economic growth. The insufficient level of government investment, partly attributed to the absence of a multiyear investment framework, has led to a decline in public capital stock and poses a threat to potential growth. To address this issue, the Council of Ministers recently made the decision to prepare a multiyear investment agenda and establish a Project Management Bureau. These measures will strengthen project implementation capacity, paving the way for a robust and sustainable public investment program that is essential for supporting potential growth and enhancing resilience. It is imperative to improve public investment management to maximize investment returns. Allocating sufficient resources to priority areas, such as the implementation of the landspakket, will enhance reform efforts and improve the quality of public services. Given Curaçao's vulnerabilities, it is prudent to maintain a portion of the accumulated liquidity as a fiscal buffer to be utilized in the event of realized risks.
IMF says that the progress made towards developing a medium-term fiscal framework supported by a debt anchor is highly encouraging. The current fiscal rule, which mandates a zero current account balance, has notable drawbacks, including procyclicality, a lack of medium-term perspective, and limited applicability during periods of economic shocks. The Council of Ministers' decision to adopt a medium-term debt anchor represents a positive step in the right direction. To complement this, it is essential to establish operational targets for fiscal deficits that align with the debt objective. Implementing a medium-term fiscal framework will strengthen policy formulation, help mitigate procyclical spending patterns, and mitigate fiscal risks.
According to the IMF, the ongoing efforts to enhance tax administration should continue, followed by comprehensive tax policy reform. Finalizing the restructuring of tax departments and bolstering their capacity will contribute to improved performance. Once tax administration reaches an optimal level of capacity, authorities should consider replacing the sales tax with a value-added tax (VAT) to reduce distortions. However, careful consideration should be given to the costs and benefits associated with implementing the proposed reform, as the introduction of automatic withholding by banks may increase system complexity. The authorities have appropriately rolled back most of the price-mitigating measures on fuel taxes and are currently reviewing the pricing structure to ensure its effectiveness.