PHILIPSBURG--No growth is the "optimistic" economic outlook for St. Maarten in 2011 while the economy actually might contract by 0.5 per cent in a more pessimistic scenario. This projection for 2011 is outlined in the 2010 annual report of the Central Bank of St. Maarten and Cura�ao, presented by bank President Emsley Tromp to the Council of Ministers and the media on Friday.
Tromp said the growth prospects for 2011 were poor despite a sound debt-to-GDP ratio compared to Caribbean neighbours. Apparently, Tromp said, despite having higher public debt levels, most countries in the Caribbean are recovering at a faster pace than St. Maarten and Cura�ao. "In other words, Cura�ao and St. Maarten are lagging behind in the region," Tromp said.
"To catch up with the region, we need to conduct policies that foster rapid and sustainable growth. Evidence suggests that well-targeted private investment is crucial for sustained growth. For example, to reach a two per cent GDP growth in 2011, similar to the Caribbean average, private investments in Cura�ao would need to rise by 17 per cent, all other things being equal.
"In the case of St. Maarten, an expansion in private investments by 34 per cent would be needed to achieve a real GDP growth of two per cent. It does not appear that we will reach these levels of private investment growth in 2011 or beyond," Tromp said.
Finance Minister Hiro Shigemoto told The Daily Herald in response to Tromp's presentation that this was why St. Maarten had to invest locally in infrastructural and other projects that would stimulate the economy by providing employment and encouraging the circulation of money here.
"St. Maarten has to build its infrastructure and for the first time it has institutions that have money available to be invested locally in sound projects that can serve several purposes, such as a profitable return on the investment, jumpstart the economy, improve the infrastructure, build up Country St. Maarten simultaneously," he said. "We need to invest locally to boost investors' confidence in our country's economy."
This is one of the reasons he is working diligently to secure a favourable sovereign rating for St. Maarten so that foreign investors can feel secure in investing here.
"Private sector investment is crucial at this point. Within the very near future one of the top three rating agencies will be selected to rate St. Maarten and once this hopefully positive rating is published, this will serve to boost investors' confidence in St. Maarten."
Tromp said that for private investments to grow at a faster pace, the investment climate must be improved.
"The bank has emphasised on many occasions that macro-economic stability, efficiently functioning markets and low administrative barriers are fundamental elements for an investment climate that fosters private investments and, hence, economic growth. By addressing these areas, Cura�ao and St. Maarten will become more competitive vis-�-vis the region. Unfortunately, in several of these areas we are moving in the opposite direction," Tromp said.
He said policy inconsistencies and uncertainties weakened investors' confidence and the governments of Cura�ao and St. Maarten should provide more clarity and decisiveness about their policy agendas. More clarity must be provided concerning the future tax system, he said.
Consequently, he continued, the tax rates, in particular the rates of direct taxes, must be lowered to reduce economic distortions created by the tax system. Moreover, the tax system should be simple, more transparent and more customer-friendly, making it easier to administer and improving tax compliance.
Looking back at 2010, Tromp said that after a contraction of 0.5 per cent in 2009, the economy of the former Netherlands Antilles had expanded by a mere 0.1 per cent in 2010. The economic expansion in 2010 was attributable mainly to increased government spending, while inflation in the Netherlands Antilles rose from 1.6 per cent in 2009 to 2.8 per cent in 2010.
"The general government recorded a cash surplus of NAf. 772.7 million in 2010, a slight improvement compared to 2009. This improvement was the result of increased revenues, mitigated by higher expenditures. Government revenues rose, associated mainly with the transfer of withholding tax grants by the Netherlands related to the BRK agreement combined with the debt relief grants received in 2010," Tromp said.
"The consistent and timely implementation of the necessary policy measures will result in higher and sustainable economic growth. At the same time, we need to focus on reaching consensus through reconciliation of different views and opinions. After all, policy initiatives will always be more successful when they are broadly accepted in our society.
"Now that unemployment, particularly among the youth, is a major issue and concern is growing about the recent increase in crime and violence, we need to take the right actions in a timely and consistent way to reach sustainable economic growth levels."
According to the Bank's latest projection, the Cura�ao economy most likely will contract by 0.7 per cent in 2011, or possibly expand by 0.1 per cent, basically no growth as well.
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