By The Daily Herald
PHILIPSBURG–St. Maarten’s economy expanded by 1.5 per cent in 2014, and inflation decelerated from 2.5 per cent in 2013 to 1.9 per cent in 2014, due to a decline in international oil prices, President of the Central Bank of Curaçao and St. Maarten (CBCS) Emsley Tromp announced on Thursday, at the presentation of the Bank’s 2014 Annual Report in St. Maarten.
The country’s real Gross Domestic Product (GDP) is estimated to grow by 1.4 per cent in 2015, and will be driven mainly by the tourism sector. Inflation will ease to 1.5 per cent due mainly to lower average international oil prices.
In 2016, the Bank official said St. Maarten’s real GDP is estimated to grow by 1.6 per cent benefiting from the projected higher economic growth in the United States. Inflationary pressure is expected, according to Tromp to rise to 1.8 per cent due to higher average international oil and food prices.
In contrast, Curaçao, the sister country with which St. Maarten shares a monetary union, has seen a 1.1 per cent contraction of its economy and an inflation rate of 1.5 per cent up from 1.3 per cent in 2013, due to growing price pressures. This year, Curaçao’s economy is projected to contract by 0.1 per cent and inflation will ease to 1.3 per cent.
St. Maarten’s economy benefited from “a surge” in the tourism sector, its main economic pillar, resulting in the increased real GDP growth, up from the expansion of 0.9 per cent recorded in 2013. The growth came from increased domestic demand reflecting higher private and public spending. Both private consumption and investment contributed to the increase in private demand.
The growth in public spending was caused solely by a rise in government investment with the purchase of the Emilio Wilson Estate and a new government administration building, according to Tromp. By contrast, government consumption dropped mainly as a result of lower disbursement on goods and services.
Net foreign demand dampened St Maarten’s economic growth during 2014, as the increase in imports, led by higher tourism and domestic spending, exceeded higher exports.
The “robust growth” in the restaurant and hotel sector was supported by increases in both stay-over and cruise tourism. Stay-over tourism “performed well,” driven by more visitors from all major markets. Meanwhile, the surge in cruise tourism was the result of more and bigger cruise ships visiting the port of Philipsburg in 2014.
Increased domestic demand and more tourism expenditures contributed to the growth in the wholesale and retail trade sector.
The positive outcome in the transport, storage and communication sectors was attributable to the growth in both the airport-related and harbour activities.
The utilities sector continued to grow in 2014, driven by higher water production, mitigated by a drop in electricity production. Following a contraction in 2013, the manufacturing sector contributed positively to St. Maarten’s real GDP expansion in 2014, owing to an increase in yacht repair activities as a result of more yachts, in particular mega yachts, visiting the country.
However, the financial intermediation and construction sectors “put a drag on real economic growth in St. Maarten during 2014,” said Tromp.
Output dropped in the financial intermediation sector as reflected by a decline in the net interest income of the commercial banks.
The contraction in the construction sector was ascribable to a decline in the number of private and public construction projects in 2014. Public sector construction activity dropped in the wake of the completion of the Simpson Bay Causeway and the building of the National Institute for Professional Advancement (NIPA).
Government continued its efforts in 2014 to develop its administration infrastructure and improve its financial management. “Despite these efforts, the budgetary situation worsened, as reflected by a turnaround from a surplus of NAf. 0.5 million in 2013, to a deficit of NAf. 8.2 million in 2014. This turnaround was the result of lower revenues, mitigated by a drop in expenditures.”
The decline in revenues was attributable to a drop in non-tax revenues resulting mainly from less concessions and fees collected by government in 2014 compared to 2013. A provision for the General Pension Fund APS was released in 2013, but did not occur in 2014. Tax revenues increased mainly because of additional efforts to reduce backlogs and improve tax compliance resulting in more proceeds from income and profit tax, wage tax, and motor vehicle tax. The marginal growth in tax income was not sufficient to realize the government’s development plans, according to the Bank official.
Tax revenues as a percentage of GDP are still relatively low in St, Maarten, approximately 18 per cent of GDP compared to the Caribbean average of 21 per cent. Therefore, increasing tax income and improving tax compliance remain challenges to expanding government spending and compensating previous budget deficits.
Meanwhile, government expenditures dropped on the back of lower social security transfers as a result of a cutback in the government’s contribution to the social insurances. In addition, outlays on goods and services decreased mainly because of underspending.
Bonds and Current Account
Both Curaçao and St. Maarten issued bonds in 2014. Due to the standing subscription, the Dutch State Treasury Agency (DSTA) was allotted the full amount of the bonds issued. Consequently, the debt to GDP ratio of both countries rose in 2014. By the end of 2014, the debt to GDP ratio of Curaçao amounted to 38.6 per cent while St. Maarten’s was 37 per cent.
As opposed to the decline of NAf. 47.9 million recorded in 2013, gross official reserves increased by NAf. 459.9 million in 2014, because the capital transfers and external financing were more than sufficient to cover the lower current account deficit. The average import coverage increased from 3.3 months in 2013, to 3.9 months in 2014 because gross official reserves rose while imports dropped.
There was more foreign exchange revenue from tourism activities in both Curaçao and St. Maarten.
Tromp said the deficit on the current account “narrowed” in 2014 compared to 2013, due mainly to a surge in net exports of goods and services complemented by higher net current transfers. Net exports increased because of a growth in exports combined with lower imports.
The current account deficit was financed primarily by external financing as reflected by a worsening of the portfolio investment, loans and credits, and direct investment balances. The issuance of bonds by Curaçao and St. Maarten purchased entirely by the Dutch State was one of the main causes of the deterioration of the portfolio investment balance. Another factor that contributed to the worsening of the portfolio investment balance was that matured foreign debt securities held by institutional investors were not entirely reinvested abroad during 2014.