Central Bank presents its annual report: Deficits declining, but monitor debt to GDP levelPOSTED: 08/20/14 6:33 PM
St. Maarten – President of the Central Bank Emsley Tromp said yesterday in press conference that if the current trend continues with St. Maarten’s budget, there will be a “positive and healthy situation soon, with a surplus on the budget.” The budget deficit has been declining and expenditures have been reduced. He did point out, however, that there has been a slower economic expansion this year compared to last year largely due to the public sector shrinkage as a result of budget cuts, and relying mostly on the private sector. Overall the Gross Domestic Product (GDP) grew by 0.9% in 2013 according to the country’s top economist, lower though than the 1.5% expansion of 2012. St. Maarten outperformed its monetary union partner Curacao in this category. The island saw a contraction in 2012 and an expansion of its GDP by 0.8% in 2013.
Tromp warned that while St. Maarten may be approaching a balanced budget, possibly even with surpluses in the future, it still needs to guard against unsustainable debt to GDP ratios. “Governments must be aware of that while still maintaining interest rate norms (borrowing money at acceptable rates of interest – ed), you may approach unacceptable levels of,” he said. St. Maarten’s public debt ratio increased from 22% in 2012 to 26% of total GDP in 2013. Total public debt stood at Naf 426 million compared to a GDP of Naf 1.824 billion, or roughly $ 1 billion.
Inflation eased from 4% in 2012 to 2.5% in 2013, Tromp explained. He warned though that monetary reserves have declined in order to finance public debt due to the phasing out or depletion of funds the Netherlands provided in 2010.
Tromp said that St. Maarten needs to strengthen its exports (tourism, and services), thereby reducing the need for external sources of financing. “Except for 2003, we have not been able to finance our balance of payments. We need to increase our attractiveness to export more services,” he said. “Becoming less dependent on tourism is something to be applauded.” Tourism remains by far the biggest economic contributor to St. Maarten’s GDP, making up about 71% of it. Fuel bunkering – mostly the result of mega yachts and private jets – and merchandise sales have largely helped further diversify the economy since 2000. “Only an export oriented approach will lay a solid macroeconomic foundation for our countries to prosper.”
“St. Maarten has benefited with global economic expansion,” he said in comparison to Curacao largely because it has a more open, free market economy. “But it must remain price competitive and increase the openness of the economy.” In contrast he said, “The Curacao economy has not been growing for the last ten years,” because of excessive bureaucracy, political instability and uncertainty, and a more closed approach to business. “When the economy is open it performs better.”
Tromp said that St. Maarten and Curacao currently benefit greatly from low interest rates when they borrow in comparison to other islands in the region. “It is important to understand the benefit from this arrangement. We are paying quite low interest rates.”