Netherlands extends new loan to St. Maarten

PHILIPSBURG – The Netherlands extends a new loan of €33.5 million (60.8 million guilders or $34 million) to St. Maarten. The loan is intended for investments in wastewater treatment, physical and cultural infrastructure, education, school buildings, office equipment, sports facilities, vehicles, and Information and Communication Technology (ICT). The government will issue bonds for this amount.

The Kingdom Council of Ministers agreed last Friday to the proposal by Kingdom Relations State Secretary Alexandra van Hufffelen to subscribe to the bond issue, based on positive advice from the Board of financial supervision (Cft). The decision is still subject to approval by the Dutch parliament.

The term of the bond issue is 20 years. The interest St. Maarten will have to pay has not been made public yet, but it will match the actual yield on state loans for the same period of time. An overview of existing loans shows that the interest rate St. Maarten has committed to so far is between zero and 3 percent. The existing loans cover the period from 2010 until 2049 and total 555.8 million guilders. The current balance of these loans is 517.4 million, indicating that St. Maarten had repaid around 38.3 million since 2010 – that’s 6.9 percent of the total of the original loans. On ten of the fourteen outstanding loans, the government has not repaid anything at all.

From a risk review of the loans to St. Maarten, it appears that the country’s investment level (excluding the reconstruction fund) is low: less than 1 percent of gross domestic product, while, according to the International Monetary Fund (IMF), the average for comparable economies in the Caribbean is 4 percent.

St. Maarten’s 2023 budget mentions 90 million guilders for investments in 2023. These expenditures will be made possible by the Dutch loan of 60.8 million, while the country will finance the remaining 30 million from its own resources and contributions from the country package.

“The Netherlands considers it its responsibility to extend loans to St. Maarten to limit its interest burden and to increase the viability of its budget,” the risk analysis states.

Attracting loans from international financial markets would saddle the country with a high-interest burden. This in turn would have a negative effect on St. Maarten’s ability to service its debts.

The analysis dismisses the option of granting gifts to St. Maarten: “This would not do justice to the country’s responsibility for the state of its economy and the national budget.”

The analysis furthermore addresses the risks loans to St. Maarten pose for the Netherlands. It notes that the country’s debt-to-GDP ratio for 2023 is expected to be around 47 percent, well below the critical limit of 55 percent advised by the IMF. The risk is limited because the World Bank has offered 40 percent co-financing for the wastewater treatment facility. And: “Until now St. Maarten has met its interest and repayment obligations on loans granted by the Netherlands.”