’The execution of Curaçao’s 2015 budget is on course, however there are risk factors involved‘
Willemstad – The budget realization figures of the first months of 2015 seem to be positive, however there are a number of developments that pose a risk to the Curaçao budget. The biggest risks concern the social funds, some government companies and the new hospital which is under construction: Hòspital Nobo Otrobanda. Moreover, a clear list of priorities should be drawn up for new government investments.
In the last week of June, the Board of financial supervision of Curaçao and Sint Maarten (Cft) visited Curaçao, where meetings were held with the Governor, the Council of Ministers, the Minister of Finance and the financial committee of Parliament. The Board also spoke with the directors of the Curaçao Drydock Company and the Analytisch Diagnostisch Centrum, as well as the responsible ministers.
Execution 2015 budget
The Board evaluated the budget execution report on the first quarter of 2015. These preliminary figures seem positive. The budget is balanced and there seems to be room for a reinforcement of the general reserves or an addition to the ‘schommelfonds’. This may in fact prove to be quite necessary, because although the government has control over its own budget, there are risks which in time may lead to extra expenditures. These include the persisting deficits of the social funds, some ailing government companies, the delay in the construction of the new hospital and the operational deficits of the Sehos hospital. The Board requested a substantiation of the dividend payments made by the Curaçao Port Authority (CPA), as included in the draft of the first budget amendment.
Capital service and lending
The Board requested the drafting of a realistic capital account, with a clear list of priorities that is also more in line with the existing execution capacity. The investment amount of almost ANG 500 million (9% of GDP) which is included in the budget 2015 is not realistic and rather resembles a wish list. The planning of investments and the monitoring of their progress should be intensified. The borrowing room of the government, however, is limited by the financial norms. Still, considering the current historically low interest rates on government bonds, when new loans are issued, a sustainable debt position should be taken into consideration, besides the interest burden norm. This is quite crucial, seeing that Curaçao currently has a public debt of around 40% of its GDP, which the IMF deems as an upper limit. Caution is thus advised when issuing new loans. Therefore, an agreement was reached with the Minister of Finance that the upcoming petition for the issuance of a new loan will be harmonized with an realistic investment plan. This should create additional economic impulses.
Last year, the deficits of the social funds increased again which called for additional measures. Some of these measures have already been introduced, while others are delayed, which may potentially lead to less economization than expected. The implementation of the measures to make the AOV fund sound again, is the area that is most delayed. This is very cumbersome, considering that the exhaustion of the ‘schommelfonds’ is nearer than was initially assumed. Hence, it is of the utmost importance that all proposed measures are implemented as soon as possible, and that the situation is closely monitored, so that, if necessary, additional measures can be timely prepared.
Some public companies pose a risk to the budget. However, the plans of action that are in place seem to be executed in an expeditious way. In the coming period, it will become clear whether the steps included in the action plans are sufficiently adequate to make the public companies sustainably sound. On a brighter note, some public companies are performing well. The timely submission of annual reports remains crucial, especially in light of the intentions of the government to include dividend income in the budget. A dividend policy is necessary to that effect.
Hospital Nobo Otrobanda/Sehos
Progress is noticeable in the construction of the new hospital. However, the Board also identifies a number of risks. The delays in the construction process may lead to setbacks with regard to the total costs. The Board therefore requested an update of the business case. In addition, Sehos has an operational deficit, which underlines the fact that affordable and qualitative healthcare is not only a matter of infrastructure but also of effective management. The Board advised the Council of Ministers to encourage the ministerial steering group led by the Prime Minister to take charge and proactively monitor the progress of the new hospital. Further pressure on the budget should be prevented in any event.