Household debt, higher interest rates and external shocks are increasing financial vulnerability
The first part of this series centered on one question: how much of a household’s income is actually left at the end of the month?
That question becomes even more important when a household is dealing not only with a higher cost of living, but also with interest payments and repayments on existing debt. Someone with little financial room may be able to temporarily absorb a higher bill by cutting spending elsewhere. But households that also have recurring debt payments have far less room to absorb financial setbacks.
The Problem Does Not Begin With the Next Bill
The results of the Central Bureau of Statistics’ Enkuesta Sosial 2025 provide an important warning sign. According to the survey, 64.1% of households say they do not have sufficient financial room to cover interest and repayments on loans or other debts.
This does not mean that 64.1% of households have problematic debt. It means that a large proportion of households report that they do not have sufficient financial room to comfortably meet these obligations.
A loan in itself does not have to be a problem. A mortgage, car loan or business financing can be a legitimate and necessary part of financial planning.
The problem arises when monthly financial obligations consistently consume too much of a household’s disposable income.
At that point, the household becomes dependent on one important condition: that nothing goes wrong.
Interest Rates Add to the Pressure
Interest-rate developments add another dimension to the problem.
The U.S. Federal Reserve raised its policy rate by 25 basis points on September 16 to 3.75%–4.00%. The Central Bank of Curaçao and Sint Maarten subsequently increased its pledging rate to 4.50% on September 17.
The economic principle is straightforward: when financing becomes more expensive, a larger share of income may have to be spent on interest and debt repayment.
For a household with little financial buffer, even a relatively small change can therefore make a significant difference.
Financial Vulnerability Goes Beyond Poverty
Financial vulnerability is also not the same as official poverty.
A household can be above the poverty line and still have almost no financial reserves.
As long as income remains stable, its obligations may continue to be paid. But illness, job loss, an unexpected repair or a sharp increase in prices can quickly change the situation.
A person therefore does not have to be officially poor to be financially vulnerable.
A recent United Nations analysis places this vulnerability in a broader context. According to the UN, Curaçao has achieved strong results in human development and improved macroeconomic stability, but the island remains vulnerable to external shocks. Among the risks identified are increasing dependence on tourism, energy-price volatility, climate change and geopolitical developments.
In a small, open economy, these developments can ultimately affect households through employment, prices, energy costs and government revenues.
From a Household Problem to an Economic Problem
Household debt therefore becomes more than an individual financial issue.
When many households have to spend a large portion of their income on interest and debt repayment, less money remains for other expenditures. This can weaken consumption and, consequently, economic activity.
The government may eventually feel the effects as well. Lower economic activity can affect tax revenues, while at the same time increasing pressure on social services, debt assistance, housing and other public services.
The Council of Advice, in its opinion on the 2027 budget, also points to the broader consequences of household debt. It identifies potential effects on financial stability, disposable income, consumption, economic activity and tax revenues, as well as possible additional pressure on social services, debt assistance, housing and social cohesion.
This leads to an important economic conclusion:
What begins as a problem at the kitchen table can eventually become a problem for the entire economy.
The Risk Lies in the Combination
That is precisely why we should not focus on a single indicator.
Inflation is not the only thing that matters. Neither is income. Nor interest rates. Nor even the amount of debt by itself.
What matters is the combination.
When electricity, water and fuel become more expensive, households have less money left. Add existing debt and interest obligations, and the available financial room becomes even smaller. If a household is then confronted with an unexpected expense, it may be forced to finance that setback by taking on additional debt.
That is how a temporary financial setback can develop into a structural problem.
The Real Financial Buffer
The discussion about purchasing power should therefore go beyond whether incomes are keeping pace with inflation.
Ultimately, the relevant question is:
How much money does a household actually have left after paying both essential expenses and financial obligations?
That amount determines how much financial breathing room truly exists.
A household with a reasonable income but high fixed expenses and substantial debt obligations may have less financial security than its income on paper would suggest. A household with savings or other reserves has greater capacity to absorb a temporary setback without immediately taking on new debt.
Financial buffers are therefore not a luxury. They are an important component of economic resilience.
The challenge for Curaçao is not only to address problems once households are already deeply in debt. It is also to prevent more households — including working households that are not officially considered poor — from reaching the point where a single unexpected bill can upset their financial balance.
Because real purchasing power is ultimately not only about how much someone earns. It is also about how much financial breathing room actually remains each month.
Drs. Luigi A. Faneyte MSc. CFE CICA CCS
Economist, financial expert and PAR parliamentary staff member in the Curaçao Parliament