WILLEMSTAD – Once again, the Central of Curaçao and St. Maarten (CBCS) had to adjust the economic projections of Curaçao downwards. A scenario of 18.6 percent real shrinkage in 2020 is now assumed.
Because after the closure of the (air) borders in mid-March due to the risks of the coronavirus, the subsequent lockdown lasted not one month, but six weeks, the CBCS expects an additional negative effect of 2.1 percentage points compared to April.
The first tranche of liquidity support from the Netherlands to Curaçao (177 million guilders, of which 63 million for the economy and employment, for the period April and mid-May) had a positive effect on the economy, namely 0.8 percentage points. The financial injection in the form of an interest-free loan mainly benefited private consumption, and – the CBCS adds – as a result, imports. Earlier, the Central Bank in Willemstad assumed growth of -17.7 percent, after initially calculating -14.9 percent. The different measures and actions affect the projections.
The generic discount on salaries in the (semi) public sector will also have an impact. This concerns 12.5 percent of the total package of employment conditions for all civil servants and all other employees in (semi) public service. Furthermore, the 25 percent reduction for members of Parliament and ministers. “This savings should be made in favor of general resources,” said the CBCS.
If this takes six months from July to December, it will have a negative effect of 0.4 percent. After all, government consumption and private consumption are decreasing due to a fall in the disposable income of these employees. On the other hand, the use of the second tranche of liquidity support (204 million guilders loan for a period until the end of June, of which 63 million for the economy and jobs) for wage subsidy and financial support for the most affected groups has a positive effect of 0.8 percentage point on growth. Consumption in particular will benefit from this.
Taken together, the total package of liquidity support from the Netherlands – first and second tranche combined – has a positive impact of 1.6 percentage points on economic development, while the reduction of salaries in the (semi) public sector contributes -0.4 percent. Incidentally, the latter only concerns government employees and personnel working at institutions that are paid from the government budget; the impact analysis does not measure the effect of the reduction of the salaries of staff employed by government companies or institutions funded by the Social Insurance Bank (SVB).
The Central Bank has requested information about the gross wages and salaries of public companies from Finance and the Central Bureau of Statistics (CBS). As soon as this information is available, “downward adjustment” of the growth projection – so “more negative” – will follow again.
The consequences for employment in the private sector as a result of the fall in demand have not yet been taken into account. It is also important to map the net effect on public finances, because the wage rebate will automatically lead to less income on at least wage tax, social security contributions and turnover tax (OB).
