Risk of 30.3 Million Caribbean Guilder loan to St. Maarten assessed as acceptable

THE HAGUE--The Government of the Netherlands has assessed the risk of a new capital loan of 30.3 million Caribbean guilders (approximately 15.2 million euros) to St. Maarten as acceptable. State Secretary for Kingdom Relations Eddie van Marum has informed the House of Representatives of this outcome in line with the central government’s risk framework for financial arrangements.

The loan will finance investments that St. Maarten has included in its 2025 budget for a total amount of 30.3 million Caribbean guilders. These investments concern:

• the purchase and installation of emergency power generators

• the construction of a new prison

• the purchase of ICT equipment

• the purchase of land for the construction of homes and community centers

St. Maarten has requested the Netherlands to provide a loan for the full amount of these investments. Under article 16 of the Kingdom Act on Financial Supervision for Curaçao and St. Maarten (Rft), the Netherlands is required to offer loans for capital expenditures if the country’s budget meets the norms set out in article 15 of the Act.

The Board of Financial Supervision (Cft) has confirmed that St. Maarten’s budget meets these norms. This means that the conditions in the Rft for Dutch financing have been fulfilled.

As part of the agreements made around the constitutional reform of 10-10-2010, the Rft provides that the Dutch State maintains a standing subscription for loans issued through open bidding procedures at the Central Bank of Curaçao and St. Maarten for the requested amount, at the prevailing yield on Dutch government bonds of the corresponding maturity, provided the Cft finds that the country’s budget meets the Rft norms. As an alternative, the Netherlands can also offer a private loan for capital expenditures.

The loan to St. Maarten will be provided in Caribbean guilders as a 30-year linear loan. The interest rate corresponds to the current yield on Dutch government bonds with the same maturity. By lending at this lower Dutch interest rate instead of market rates for small island states, the Netherlands helps reduce St. Maarten’s financing costs and supports the long term sustainability of its public debt. St. Maarten currently has no capital market loans, mainly because the Netherlands offers loans at favorable interest rates under the Rft.

As with any loan, there is a risk that the borrower may not be able to meet its obligations at some point. In this case, the Netherlands also bears a currency risk, since the loan is in Caribbean guilders, which are pegged to the United States dollar, while the Dutch budget is in euros. Fluctuations in the euro–dollar exchange rate can affect the euro value of repayments.

The risk of non-payment is considered limited. St. Maarten has so far consistently met its interest and repayment obligations to the Netherlands. Projections by the International Monetary Fund indicate that economic growth is expected to continue and that the country’s debt ratio will decline, which increases the likelihood that St. Maarten can continue to meet its obligations. The Cft has issued a positive opinion on this loan request.

Financial supervision as laid down in the Rft, the use of a Dutch government bond based interest rate, and the agreed loan structure together help keep the risks for the Netherlands manageable. The overall risk in terms of probability, impact, duration and controllability is therefore assessed as acceptable.

This loan and its associated risks will be included in the regular policy evaluation cycle under article 5 (debt restructuring, standing subscription and loans) of the Kingdom Relations budget. The role of the Cft in advising the Kingdom Council of Ministers on the financial position of St. Maarten remains unchanged.

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