WILLEMSTAD, PHILIPSBURG - “It is widely acknowledged that over the past decade several shocks amplified unemployment, inequality, and poverty across the monetary union,” states Centrale Bank van Curaçao en Sint Maarten (CBCS) president Richard Doornbosch in the Bank’s December 2022 Economic Bulletin. “In particular, the vulnerable groups in society, including the lower educated, youngsters and migrants, were affected by these shocks”, he adds. In a society with high economic and social disparities, opportunities to prosper are not equally distributed and, consequently, the full wealth potential is not achieved. Therefore, Doornbosch recommends that as the economic recovery from the COVID-19 crisis takes hold, both Curaçao and Sint Maarten should adopt an inclusive growth approach to not only achieve growth in terms of quantity of goods and services produced, but also tackle unemployment, inequality, and poverty.
The CBCS has recently conducted a study on the effects of inequality on economic growth in small economies. The Economic Bulletin of December includes a feature article with the main findings of this study. Due to a lack of up-to-date figures on inequality in Curaçao and Sint Maarten, the study used data from 43 other small countries that can serve as a proxy for Curaçao and Sint Maarten. “The study does not confirm recent findings in the economic literature in which large inequalities have a negative impact on economic growth. Alternatively, policies aimed at tackling inequality within society could be implemented without concern of constraining economic growth. However, since there is room for further research, the findings presented in this study should not be viewed as final answers to the complex relationship between inequality and growth for Curaçao and Sint Maarten”, Doornbosch explains.
“Growth is inclusive when it provides equal opportunities for all in society to contribute to and benefit from economic growth”, Doornbosch explains. “The policy agenda to achieve a higher growth path in Curaçao and Sint Maarten is, by now, widely known. Improving the investment climate, enhancing resilience to shocks through economic diversification, achieving sound public finances, strengthening the resilience of critical infrastructure to natural disasters, and ensuring financial and monetary stability are crucial conditions for higher economic growth in both countries”, he continues.
At the same time, however, Doornbosch argues that to make growth inclusive, the emphasis on these policy actions must shift. “For example, financial inclusion through better access to finance for small and medium enterprises should be included in the policy agenda to improve the investment climate. The economic diversification strategy should also include actions to encourage investments in alternative sources of energy such as sun, sea, and wind, of which both countries are endowed with”, he illustrates.
“In the area of the public finances, the tax system should be simplified to create a broader tax base and, as a result, reduce the burden on lower income groups and small businesses. Moreover, consolidation efforts should not be at the expense of the economic recovery. Hence, both Curaçao and Sint Maarten will have to focus on a fiscal consolidation path that also provides room for public investments”, he advises.
“In addition, to make growth more inclusive, local entrepreneurship should be encouraged in the tourism sector, which is the main economic pillar in both countries, to own more of the tourism value chain”, he recommends. “At the same time, both countries should conduct a more active labor market policy that, on the one hand, strengthens the incentives to work in the formal sector and, on the other hand, provides training and coaching to those who are unemployed or economically inactive to increase their chances on the labor market”.
Doornbosch also emphasizes that education is an important catalyst for inclusive growth. “Inclusive growth will not be achieved without investing in human capital. The preliminary reviews that have been conducted as part of the country packages on the status of the education systems in Curaçao and Sint Maarten reveal that both countries face many challenges in this area. Curaçao and Sint Maarten will therefore have to create the necessary fiscal space for and prioritize investments in their education systems to adequately prepare their populations for a productive working life”.