[{"bbox": [97, 154, 385, 181], "category": "Section-header", "text": "## Developments in real economy"}, {"bbox": [95, 185, 1135, 611], "category": "Text", "text": "Aruba is one of the most tourism-dependent economies globally, with tourism direct and indirect contribution to GDP. This sector also accounts for about 80% of employment.²² Aruba was among the territories worst affected by the standstill in travel and collapse of related economic activities induced by the COVID-19 pandemic. International tourism arrivals dropped by 67% in 2020.²³ Voluntary social distancing and domestic containment measures compounded the impact on domestic activity. Tourism has strongly recovered in 2022 with a growth in total tourism expenditures of 45.2% compared to 2021. The growth in tourism has driven the estimates of real GDP up for 2022 with 9.6%. GDP developments in 2023 are expected to be affected by primarily two developments. First, growth in tourism is forecasted to continue in 2023 albeit at a slower pace. The Central Bank of Aruba (CBA) estimates 2023 growth in total tourism credits to 9.3% (pessimistic scenario) and 11.4% (in the optimistic scenario). Compared to pre-pandemic terms, tourists are spending more. As a consequence, it is expected that total tourism credits in 2023 will have fully recovered and are estimated to be 136.1% in 2019 terms. However, real GDP is negatively affected by lowered consumption and investment as a result of an estimated inflation of 5.5%. The inflation is partly imported related to the current global rise in food and fuel. Domestic fiscal policy has also an upward impact on inflation as a result of the increase in the sales tax (see section iii) on fiscal developments below). The combined effects of growth in tourism and lower domestic consumption is a forecasted contraction by 1.8% in 2023 (according to latest CBA figures)."}, {"bbox": [97, 622, 288, 649], "category": "Section-header", "text": "## Fiscal developments"}, {"bbox": [97, 654, 1135, 762], "category": "Text", "text": "The Budget Law 2023 was adopted by the Parliament of Aruba on 7 November 2022 well before the legal deadline of 15 December. The estimated fiscal deficit for 2023 is a surplus of EUR 32 000 000 (AWG 63 000 000). The surplus equals 1 % of GDP and is in compliance with the fiscal rules established by LaFT and the Protocol. Moreover, the medium-term budget prognoses surpluses for the period 2024 – 2027 larger than 1%."}, {"bbox": [97, 767, 1135, 874], "category": "Text", "text": "The turnaround of the deficit in 2022 to a surplus in 2023 is primarily a result of increased revenues. The increased revenues follow the positive GDP developments and are also driven by policy measures adopted through the Revenue Plan 2023. The Government of Aruba has taken a set of tax policy measures. The measures aimed to shift the tax burden from direct to indirect taxes. Three measures are especially critical for the increased revenues:"}, {"bbox": [134, 879, 586, 906], "category": "List-item", "text": "- Increasing the turnover tax from 6% to 7%.²⁴"}, {"bbox": [134, 907, 1135, 957], "category": "List-item", "text": "- Collection of the turnover tax at the border to increase compliance and broaden the tax base of the turnover tax."}, {"bbox": [134, 960, 1135, 1011], "category": "List-item", "text": "- Increasing the tourist levy and sharing the proceeds with the Aruban Tourist Authority (ATA) in a 40/60% share."}, {"bbox": [97, 1028, 1135, 1190], "category": "Text", "text": "In addition, the Government of Aruba has been cautious to increase expenditures. With regard to the largest expenditure item, salary costs, it applies a hiring freeze and it is committed to the target to achieve a reduction of the salary expenses year on year by natural turnover ('natuurlijk verloop'). The increase of salary expenditures in 2023 is a result of the termination of the mandatory salary cut of 12.5% that was imposed on the administration to counter the negative fiscal impact of covid. On a multi-annual basis, the Government of Aruba estimates a reduction of real salary expenditures in line with the fiscal rules included in the LAft."}, {"bbox": [97, 1194, 1135, 1299], "category": "Text", "text": "The fiscal surplus reflected in the Budget 2023 and the continuation of surpluses in the medium term estimates has a positive impact on the debt sustainability projections of the OCT. The debt ratio had increased to a maximum level of 111.3 % of GDP in 2020. Using the improved economic situation, the government of Aruba reduced the debt burden to 97 % in 2022."}, {"bbox": [97, 1307, 1135, 1493], "category": "Text", "text": "The medium-term development of the debt burden is conditional on a number of exogenous factors. Most importantly is the outcome of the negotiation with the Dutch Government on the re-financing of the liquidity support of EUR 442 000 000. The original repayment date of the liquidity loans was on 10 April 2022. However, the Kingdom Council of Ministers acknowledged in March 2022 that the islands Aruba, Curacao and St Maarten have not yet recovered sufficiently to be able to do so and the islands were given an additional 18 months. Repayment is now due in October 2023. Decisions on the interest rate and the repayment term are critical for the speed by which the Government of Aruba can reduce the debt burden to sustainable levels. The fiscal rules agreed"}, {"bbox": [86, 1524, 602, 1550], "category": "Footnote", "text": "²² https://country.eiu.com/article.aspx?articleid=1411635724"}, {"bbox": [86, 1549, 850, 1574], "category": "Footnote", "text": "²³ IMF Country Report on the Kingdom of the Netherlands - Aruba, No. 21/81, April 2021"}, {"bbox": [86, 1573, 1144, 1647], "category": "Footnote", "text": "²⁴ The increase of the turnover tax was included in the Aruban Revenue Strategy 2023 to compensate for the postponement of the VAT tax. The introduction of VAT was scheduled for 2023 as a measure to enhance the share of indirect taxes. For various reasons, the authorities decided in 2022 to postpone the VAT introduction."}, {"bbox": [1027, 1681, 1145, 1707], "category": "Page-footer", "text": "Page 10 of 28"}]