The government’s plans to reform the tax system and administration are well founded. The Central Bank of Aruba is to be commended for its prudent management of monetary policy, as demonstrated by the continued credibility and strength of the peg to the U.S. dollar, buttressed by a robust foreign reserve position. There has been significant progress in expanding and strengthening the supervisory and regulatory framework of financial activities. Renewed initiatives on structural reforms will improve efficiency in the use of resources and attract strategic investment.
This 2002 Article IV Consultation for the Kingdom of the Netherlands—Aruba highlights that after growing at more than 4 percent per year in 1996–2000, the Aruba economy experienced two years of retrenchment, with GDP falling an estimated 1.2 percent in 2001 and 3.8 percent in 2002. This downturn reflected a lull in investment activity, but especially weak tourism following the United States recession and the terrorist attacks of September 11, 2001. In 2003, sharply higher private and public investment and a modest revival in tourism should boost economic growth to more than 4 percent.
The staff report for the 2005 Article IV Consultation on the Kingdom of the Netherlands—Aruba highlights the economic developments and policies. Meeting the challenges of population aging requires policies that create conditions for faster productivity growth. IMF Staff recommended applying the successful model of public-private sector cooperation developed in the tourism industry to promote diversification in other areas, in particular in financial services. Staff urged the authorities to speed up the restructuring of public companies and reinvigorate their efforts to improve statistics.
This 1999 Article IV Consultation highlights that Aruba’s real GDP grew at an annual rate of some 3 percent in 1998, while inflation remained subdued at about 2 percent. Comparable rates of satisfactory growth and low inflation have characterized the island’s development since the mid-1990s, following a period of double-digit growth when an investment boom in the hotel sector brought about the transformation of Aruba into a tourism-based economy. The outlook for satisfactory growth and low inflation had been threatened, however, by an undue relaxation of fiscal policy in 1996 and continued laxity through mid-1998.
Aruba has an open economy with a history of stability-oriented macroeconomic policies. Adverse external shocks have led to a decline in tourism and disruption of oil refinery operations. Serious fiscal challenges need to be addressed and a fiscal adjustment program is needed to safeguard the sustainability of the public finances. Expenditure cuts and the central bank’s switch from a credit ceiling to an unremunerated reserves requirement as key policy tool is commended. The new monetary policy framework will likely increase the challenges to prudential regulation and supervision.
This 2013 Article IV Consultation highlights that economic output in Aruba remains 12 percent below its pre-crisis level, with recovery slower than others in the Caribbean region. The non-oil current account (CA) balance, which mostly reflects developments in the tourism sector, has improved since mid-2000 reaching a balanced position in 2012. The overall CA balance, however, after being in surplus for years, showed volatilities in recent years reflecting oil-sector developments. In 2012, it recorded a surplus of 5 percent of GDP. In 2013, real output is projected to grow by 1¼ percent. Robust tourism growth and some pickup in consumption from projected deflation will support the subdued near-term recovery.
This 2015 Article IV Consultation highlights that Aruba has been recovering from a severe double-dip recession. The economy faced two major shocks over the past five years—the global financial crisis and shutdown of the Valero oil refinery in 2012. After a strong recovery in 2013 with growth reaching 4.75 percent, the pace of activity moderated in 2014. In 2015, growth is projected to rise to 2.25 percent. The tourism sector—the mainstay of the Aruban economy—is envisaged to grow, albeit at a slower rate. Moreover, domestic demand is slated to recover notably amid subsiding policy uncertainty and as key public-private partnership projects move forward.