IMF: Aruba on the path to recovery
The International Monetary Fund (IMF) team recently had an official staff visit (‘mission’) to Aruba. They met with local authorities to analyze Aruba’s financial position. The mission issued the following statement, summarizing key conclusions and recommendations.
Aruba experienced a strong bounce back from the pandemic: Aruba’s economy bounced back strongly from the pandemic, with real GDP growth of 27.6% in 2021 and an estimated increase of 7.3% in 2022. Aruba has also made significant progress in its national budget, with the deficit/surplus ratio shrinking from -16.2% to -0.5% in the past two years. Furthermore, it is expected that by the end of 2023, Aruba’s budget will transition into a surplus of 1%. Based on this positive trend, the IMF affirms that Aruba’s financial trajectory is heading in the right direction.
Government spending: The envisaged government expenditure envelope in the 2023 budget is appropriate.
Public debt: Aruba has made significant strides in managing its government debt. After reaching a peak of 112.3% of GDP in 2020, the country successfully reduced it to 90.7% of GDP by the end of 2022. The IMF projects a further decline in government debt, expecting it to reach 71% of GDP by 2028. This achievement brings Aruba close to the target of 70% of GDP agreed upon with the Netherlands for the year 2031.
Unemployment: The IMF reports a positive trend in Aruba’s employment situation, indicating a decline in unemployment. Prior to the pandemic, the unemployment rate stood at 5.9%, but it rose to 8.8% as a direct consequence of the pandemic. However, in 2022, the rate decreased to 6.6%, demonstrating a significant improvement. Moreover, recent data indicates that the unemployment rate continues to decrease, indicating a growing number of individuals finding employment in Aruba.
Economic growth: According to the IMF’s projections, Aruba is expected to experience economic growth of 2.3% in 2023. Looking ahead, the forecast indicates a slightly lower growth rate of 1.1% for the subsequent years. These projections provide insight into the anticipated trajectory of Aruba’s economy, indicating a moderate but steady pace of expansion in the near future.
Inflation: In 2022, the IMF’s inflation forecast for 2023 stood at 5.5%. However, the current inflation rate is reported to be at 4.9%, and the IMF expects it to reach 3.2% by the end of 2023. The IMF has cautioned the government about several risks that need to be considered, including the potential impact of a global economic slowdown on inflation. Furthermore, the IMF expressed skepticism regarding the government’s ability to achieve the projected 1% surplus. To support the fiscal target for 2023, the IMF recommends implementing the remaining planned tax reforms, such as the introduction of the BBO at the border, the implementation of VAT, and stricter tax compliance measures. The IMF also suggests increasing the contribution rate for the AOV pension and/or lowering the replacement ratio to enhance the system’s solvency. These recommendations encompass not only the labor market but also focus on aspects of integrity and climate change. It is emphasized that the government is giving full attention to these recommendations put forth by the IMF.
Aruba recovering: Aruba has received recognition from the IMF for its impressive rebound from the pandemic. The IMF describes Aruba’s recovery as robust, as the adverse effects of the pandemic gradually receded, and the tourism sector emerged stronger than ever.
More information you will find in the concluding statement.
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