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DH | St. Maarten had 8 per cent economic decline in 2018

Cover of the CFT Annual Report 2018.

THE HAGUE/PHILIPSBURG–St. Maarten experienced an economic decline of a little more than 8 per cent in 2018, the year after Hurricane Irma. In 2019, an economic growth of 2.5 per cent is expected. Cruise tourism increased in 2018, while stay-over tourism decreased.

The Committee for Financial Supervision (CFT) included a number of interesting figures in its recently published 2018 annual report. The year of economic decline, an estimated 8.1 per cent in 2018, was the second successive year of an economic downturn: in 2017 there was a negative growth of 4.8 per cent, mostly due to Hurricane Irma which caused massive destruction in St. Maarten.

In 2018, the year that was marked by the recovery after the hurricane, the inflation was 2.7 per cent. Unemployment increased to 9.9 per cent. In that same year, cruise tourism went up by almost 30 per cent compared to 2017. However, the number of stay-over tourists decreased by 56 per cent because many hotels and other accommodations were closed due to damage by the hurricane.

The CFT report mentioned the initiative of some hotels, including Sonesta Maho, which was completely destroyed by Hurricane Irma, to keep their personnel in a labour pool and to train its employees.

This training took place through the Emergency Training Income Support, financed by the private sector and the Trust Fund, for which the capital was provided by the Dutch government. Via this programme, unemployed persons received training so they could work in sectors where manpower was direly needed, especially in construction work.

Activities in the construction and industry sector showed a large increase in 2018 and the first quarter of 2019. In the industrial sector, many cars and boats were repaired, while in the first half of 2018, many smaller repairs were done in the construction sector, mostly roofs. Several hotels that received money from their insurance at an early stage, started reconstruction in the first half of 2018, but most started in the latter part of that year.

Increased demand

The many construction projects resulted in an increased market demand for labour and increased the wages in the construction sector. Larger hotel projects flew in their own personnel from abroad, mostly project managers, but sometimes also construction workers. The price of construction material increased in 2018 as a result of a higher demand.

The reconstruction of the hotels has a positive aspect: the buildings are rebuilt based on modern tourism concepts. This may give these hotels an advantage over other locations in the Caribbean. The same goes for the reconstruction of the new, modern supermarkets on the island.

“If well-insured, an event like a hurricane can also lead to a leap in innovation. The advantages of such a leap can be reinforced if the physical planning is incorporated in future developments,” it was stated in the CFT report.

According to the CFT, there seems to be a difference between the reconstruction on the Dutch side and on the French side where it concerns planning of reconstruction projects. On the Dutch side, the reconstruction is done in a decentral manner, while on the French side the projects are carried out in a more central way. The advantage of decentral reconstruction is that it goes faster. The disadvantage is that with this way of reconstruction, the opportunity to tackle future bottlenecks often remains unused.

Higher debt

The CFT warned that in 2018, St. Maarten’s national debt increased. The island’s economy and government finances were heavily affected by Hurricane Irma and in order to pay its bills, the St. Maarten government received a NAf. 22 million loan from the Netherlands in 2017.

In 2018, St. Maarten received NAf. 83 million in liquidity support from The Hague. In that same year, the backlog payments at the General Pension Fund St. Maarten APS and the St. Maarten Telecommunication Holding or telephone company Telem, increased by NAf. 44 million.

In total, the collective sector debt increased by NAf. 124 million in 2018. By the end of 2018, the debt ratio of the collective sector stood at 39.4 per cent. The debt ratio increased by almost 9 per cent in 2018 compared to 2017. The increase is also due to the decrease of the Gross National Product GDP.

The St. Maarten government asked permission to deviate from the norms of the Financial Supervision Law for 2017 and 2018. Based on the advice of the CFT, the Kingdom Council of Ministers gave the green light, be it under a few conditions. One of those conditions was that St. Maarten had to report on a monthly basis regarding the execution of the budget. “St. Maarten complied with these conditions in 2018.”

Early October 2018, the CFT received the draft 2019 budget of the Country St. Maarten. The draft budget showed a deficit of NAf. 88 million and as such it did not meet the requirements of the Financial Supervision Law. The CFT advised to lower the budgeted expenditures.

Deviate

St. Maarten was again given permission to deviate from the norms of the Financial Supervision Law for the budgetary year 2019. Again, the Kingdom Government attached some conditions to this approval. The 2019 budget was withdrawn and later sent to the St. Maarten Parliament. Ultimately it took until late June 2019 for the budget of that same year to be approved by the St. Maarten Parliament.

The government finances for the years 2017 and 2018 showed a deficit of respectively NAf. 72 million and NAf. 90 million on the regular account. The balance of payments over 2018 showed a surplus of more than NAf. 100 million, which was mostly due to the payment of insurance money and financial support for the reconstruction.

The CFT was critical of St. Maarten’s lack of compliance where it concerns the cycle of the budget and the financial statements. St. Maarten hasn’t completed the cycles for the years 2013 up to and including 2017.

In November 2018, the CFT received the 2016 annual account, which showed a deficit of NAf. 8 million. It has been agreed with the St. Maarten government that the country will work towards having a certified accountant’s report with the 2021 annual account.

“The CFT considers solid financial management imperative for an adequate budget and financial statement cycle. That is why the CFT advised the St. Maarten government several times in 2018 to secure additional capacity to improve and strengthen the financial management and the financial organisation.”

Mid-December 2018, the Kingdom Council of Minister decided to prolong the financial supervision for Curaçao and St. Maarten, based on the advice of the Evaluation Committee Kingdom Law Financial Supervision.

Bron: Daily Herald

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