RaboResearch - Economic Research

Country Report Sint Maarten

Country Report


Sint Maarten flag

Since its independence in 2010, St. Maarten has been building and extending its own institutional framework, whereby this process is executed slower than expected. Furthermore, economic performance has been weak in recent years.

Strengths (+) and weaknesses (-)

(+) High income level

Compared to other countries in the region, St. Maarten has a relatively high standard of living, with an income per capita of USD 22,179 in 2011. This gives the country some ability to adjust in times of economic difficulty.

(-) Delay in building its institutional framework

In October 2010, St. Maarten became an independent country within the Kingdom of the Netherlands. Since then, St. Maarten has been extending its institutional framework, although the process proceeds slower than expected.

(-) Narrow economic base

Around 80% of St. Maarten’s economy consists of tourism, whereby a substantial proportion of tourists comes from the US.

(-) Weak external position

A large current account deficit and a low level of foreign exchange reserves, within the monetary union, exposes the local economy to economic instability.

Key developments

1. New government after claims of corruption

In May 2013, the Minister of Justice resigned after he was accused of nepotism and corruption by members of the Dutch parliament. After continuing public protests - demanding new elections – five additional ministers resigned. On June 14, Prime-Minister Sarah Wescot-William’s new cabinet was sworn in. The new cabinet is however incomplete, as the candidate for the post of Minister of Tourism, Romain Laville, did not pass the screening test.

2. Still no final budget for 2013

St. Maarten still does not have a final budget for 2013, as approval from the Governor and the CFT is still missing. “Het College financieel toezicht Curacao and St. Maarten (CFT)”, has been set up to oversee St. Maarten’s fiscal accounts, and is allowed to reject budget proposals in case it considers them as unrealistic. Even as the Governor gives his approval to the budget, it is questionable whether the CFT will turn his pre-conditional advice into a final positive one. First, St. Maarten did not met the preconditions. Second, St. Maarten’s parliament voted in favor of some motions in April, without including the financial consequences of the motions into the budget proposal. Third, legislation to increase government revenue still hasn’t been implemented. Current estimates point to a total setback of ANG 30m (2% of GDP) while the total expenditure ceiling is set at ANG 419m (26.2% of GDP, based on last year’s government revenue'.

3. Rutte opens the door for further independence

Dutch Prime-Minister Mark Rutte visited the Caribbean islands that are part of the Kingdom of the Netherlands in July, and announced that the islands could become independent countries. There was only one condition; a majority of the people should support independence. According to a Dutch newspaper, Rutte is concerned about the quality of public governance and is afraid that the islands will need additional financial support, something he is not willing to provide.

4. Foreign exchange reserves under pressure

St. Maarten forms a monetary union with Curacao, whereby the Antillean guilder (ANG) is pegged to the US dollar. Main implication of having a joint central bank is that the foreign exchange (FX) reserves and current account of both countries matter for the financial stability of St. Maarten. Both the FX reserves and the current account deteriorated in recent years. First, the FX reserves of the monetary union declined by USD 161.8 million, resulting in an import cover ratio of just 3 months at end-2012 (Figure 1). Second, both countries together ran a total current account deficit of 19.5% of GDP in 2012, whereby St. Maarten is the positive exception in some quarters. This deficit is partly offset by the financial account, mostly due to inflows of portfolio investment in financial services in Curacao. Next to a high current account deficit, and a decline of the FX reserves, Curacao was experiencing rapid credit growth. The latter was caused by a liquidity excess in the economy due the debt relief in 2010 by the Netherlands, depriving the market of the possibility to invest in government bonds. Measures were taken to fight these problems. First, the reserve requirement for banks was raised from 10.5% at the end of 2011 to 14.25% at the end of 2012. Line of reasoning was that this would lead to higher interest rates, in turn leading to a decline of both consumption and imports. Second, a temporary credit freeze was instated between March and August 2012. The measures had the desired effect, as the level of FX reserves stabilized. Since then, the Central Bank allowed credit to grow by 1%, while the reserve requirement rate was raised to 16%.

Figure 1: Foreign exchange reserves
Figure 1: Foreign exchange reservesSource: Centrale Bank van Curacao en St. Maarten
Figure 2: Balance of payments
Figure 2: Balance of paymentsSource: Centrale Bank van Curacao en St. Maarten

5. Own central bank

Even after St. Maarten and Curacao agreed upon having a joint central bank in 2010, St. Maarten still thought of having its own central bank and adopting the US dollar. These thoughts were triggered by the debate on who to appointed as the seventh commissioner of the Central Bank. Besides, St. Maarten was unhappy with having only a small Central Bank subdivision on the island. In August 2012, these disputes were solved and both countries agreed that they would stick to the agreement of 2010, to have a joint central bank.

6. First credit rating

On November 5th 2012, St. Maarten received its first credit rating. Moody’s assigned St. Maarten’s government a local and foreign currency bonds rating of Baa1. According to Moody’s, the rating is supported by a comparatively high level of economic development and moderate debt levels, partly due to the debt relief received from  the Netherlands in 2010. The rating is constrained by the limited economic diversification and by the doubts about the strength of the institutions, especially when assistance of the Netherlands will diminishes.

Factsheet of Sint Maarten
National facts of Sint MaartenSource: CIA World Factbook, Centrale Bank van Curaçao en St. Maarten, Moody’s, EIU

Background information

St. Maarten is a small island in the Caribbean, with a population of nearly 40,000 people and an economic size of less than USD 1 billion. As a result of the breakup of the Netherlands Antilles in 2010, St. Maarten became an independent country within the Kingdom of the Netherlands. Since then, the country has been building and extending its own institutional framework. St. Maarten receives some assistance from the Netherlands, in the form of Dutch support with issuing government debt, fiscal oversight and assistance on security matters. Besides, St. Maarten’s received debt relief from the Netherlands, which helped the country to lower its debt ratio from 28% to GDP in 2010 to 22% in 2011 [1]. St. Maarten is also developing its own economic and financial statistics. As this process is far from finished, is it highly likely that economic data will be revised in the coming years. This makes it difficult to draw conclusions on St. Maarten’s current economic performance.

St. Maarten has problems with different types of crime, which are difficult to solve due to understaffing of the police force. As a result, drug smugglers have been attracted to the island, who are also drawn to St. Maarten’s favorable geographical location. Moreover, money laundering is taking place on a large scale. Furthermore, stories about corruption and nepotism are frequently popping up. Although most are not proven, public administrators – including ministers – seem to be involved. Another not crime related issue is that due to its high standard of living – GDP per capita amounted to USD 22.179 per head in 2011 – St. Maarten is an attractive destination for immigrants. It is estimated that there are currently 15.000 illegal immigrants on the island, having a big impact on both the labor market and public finances.

St. Maarten has a narrow economic base, as its economy consists for 80% out of tourism, mostly hosting US visitors. This makes the country highly vulnerable to the US economic business cycle. In addition, its potential growth level is low, as it is hard to reach substantial productivity gains in the services sector. The country also has an high import dependency, making the country vulnerable for strong price fluctuations of both oil and foodstuffs. Since 2010, St. Maarten forms a monetary union with Curacao, and thus have the same central bank and currency; the Antillean guilder (ANG). The ANG is pegged to the US dollar, which implies that the inflation rates, foreign exchange reserves, current account balance, and competitiveness of both countries are important to maintain financial stability.

Economic indicators of Sint Maarten
Economic indicators of Sint MaartenSource: Centrale Bank van Curaçao en St. Maarten, Moody’s.
*Own calculations

Due to very limited data availability, figures presented in this report should be regarded as indicative.


[1] ^ We note that the debt relief is not reflected in St. Maarten’s own debt statistics.

Maarten van der Molen
Rabobank KEO
+31 30 21 62666

naar boven