Published On: Sun, Mar 29th, 2020

CFT: decision about liquidity support by April 15

CFT Sint Maarten - 20191030

PHILIPSBURG – The Board Financial Supervision (CFT) has advised the Kingdom Council of Ministers (KCOM) to allow St. Maarten to deviate from article 15 of the consensus kingdom law financial supervision. The CFT is however unable to advise how far the country should be allowed to deviate, due to a lack of pertinent information.

The CFT sent its advice to the KCOM in a letter dated March 24. Article 15 of the financial supervision law stipulates that the country’s budget has to be balanced. The interest burden on capital investment loans is capped at 5 percent of the average state revenue over the previous three budget years.

Article 25 allows deviating from the requirements established in article 15 in case of “damages caused by extraordinary events.” The KCOM has recognized that the outbreak of the corona-virus qualifies as such an event. The KCOM asked the CFT which of the article 15-requirements qualify for deviation and up to which point.

In the conclusion of its 6-page long advice, the CFT emphasizes the need for St. Maarten to establish its 2020 budget by May 1. Furthermore it advises to let St. Maarten (the advice also applies to Curacao and Aruba) to report monthly to the CFT about its available liquidity. “These reports are conditional for handling request for liquidity support.”

The CFT also wants to develop a rapid procedure for handling requests for liquidity support and asks the KCom to approve this initiative. The financial supervisor asks the KCOM to finalize the first tranche of liquidity support by April 15.

The CFT notes that due to the collapsed tourism industry many employers will be forced to close down and that a large group of inhabitants will be confronted with job loss in the short term. Due to this situation, St. Maarten will not be able to comply with financial supervision law requirements.

The financial supervisor foresees “inevitable budget deficits” but also shortages of liquidity and foreign currency and an increase of the debt quote. St. Maarten’s debt quote exceeds the ceiling of 40 percent advised by the International Monetary; in 2016 it was already 45 percent and in 2019 it increased to 52 percent. The projected debt quote for 2020 is 56 percent – but that was before the outbreak of the corona pandemic.

The Central Bank projects that the country’s economy will shrink between 3.2 and 15 percent in case the economy recovers quickly. In case of a gradual recovery the economy will shrink between 8.5 and 29.2 percent. These scenarios are also reflected in expected unemployment: a quick economic recovery will see 8.6 to 17.4 percent unemployment. A gradual recovery will make the situation much worse: unemployment will reach 12.5 to 28.1 percent – depending on how long the island remains closed off.

The Central Bank projects for St. Maarten a monthly budget deficit of between 11 and 14 million guilders ($6.1 to $7.8 million).

So far, the CFT does not have a complete picture of the financial impact of the corona-crisis on St. Maarten. This is also true for Curacao and Aruba. “The merit of the different scenarios is unclear and it also unclear which scenarios are the most realistic,” the CFT observes it its advice. “This depends on the developments in the coming weeks and months and on the moment when the restriction on air traffic will be lifted.”

The countries have informed the CFT about several emergency measures but the picture is not complete and therefore there is no insight in the consequences for the government finances either, the advice states. Therefore, the financial supervisor needs additional information: “It is not possible for the CFT to indicate which requirements the countries are unable to meet and up to what point.” Further down in the advice, the CFT notes: “There is insufficient foundation for taking decisions with extensive and far-reaching financial consequences.”

It is unclear, the CFT observes, what the countries, within the restrictions of their budgets, could generate on their own to pay for intended emergency measures.

To move matters forward, the CFT needs an approved budget combined with actual data about St. Maarten’s liquidity position and a substantiated request for deviating from the established standards. “At that stage the conditions for liquidity support can be established for Curacao and St. Maarten and agreements can be made about accountability and control over the funds that are made available.”

The CFT advises the KCOM a form of control that guarantees an efficient use of the money “that does not constitute a bureaucratic hindrance.”

Lastly, the CFT advises to provide liquidity support in the form of a loan and to make agreements about repayment in an early stage.