International Monetary Fund. Western Hemisphere Dept.
Aruba managed to contain the pandemic in the first months of the outbreak but experienced a resurgence of new infections in the summer. The economic impact of COVID-19 is particularly severe given Aruba’s high dependency on tourism. While the authorities’ swift response has helped contain the human and economic damage, it could not avoid a severe GDP contraction.
This Technical Assistance report on Kingdom of the Netherlands—Aruba focuses on the mission undertaken to assist the Central Bureau of Statistics (CBS) in assessing and improving the national accounts. The CBS plans to recompile and disseminate the revised annual current price estimates by January 2020, and improved constant 2013 price estimates by June 2020. The mission and the Director of the CBS met with the Minister of Finance, Economic Affairs and Culture to discuss the rebased estimates and the 2020–2025 action plan. The budget, staffing, and data coordination plans of the CBS were also discussed. The Minister agreed to establishing formal data coordination agreements between the CBS and other government institutions, and on the need for the legislation and related reporting procedures to be strengthened. She also agreed to the 2020–2025 action plan to implement the Special Data Dissemination Standard for real-sector statistics, the need for benchmark and regular surveys, and to incrementally increasing the CBS budget and staffing, subject to Cabinet approval.
Monetary independence is at the core of the macroeconomic policy trilemma stating that an independent monetary policy, a fixed exchange rate and free movement of capital cannot exist at the same time. This study examines the relationship between monetary autonomy and inflation dynamics in a panel of Caribbean countries over the period 1980–2017. The empirical results show that monetary independence is a significant factor in determining inflation, even after controlling for macroeconomic developments. In other words, greater monetary policy independence, measured as a country’s ability to conduct its own monetary policy for domestic purposes independent of external monetary influences, leads to lower consumer price inflation. This relationship—robust to alternative specifications and estimation methodologies—has clear policy implications, especially for countries that maintain pegged exchange rates relative to the U.S. dollar with a critical bearing on monetary autonomy.
Over the last decade, Aruba has faced three recessions resulting in a public debt of approximately 90 percent of GDP. Its current budget deficit needs to be reduced and Aruba should close a fiscal gap of 1.5-2 percent of GDP over the next two to three years to return to a sustainable path. Earlier this year, the authorities have introduced a crisis package, mainly by increasing the turnover taxes. This temporary tax measure should be replaced by a tax reform that will modernize and simplify the current system.
The new tax system should not only raise more revenue, but also shift the tax burden away from income and profits toward consumption. The current system is not well equipped to make these changes. In replacing the crisis levy, the Government sees an opportunity to streamline the current tax system, modernize it, and make it more sustainable for the future needs of Aruba.