Kingdom of the Netherlands-Aruba: Staff Concluding Statement of the 2025 Article IV Mission

Kingdom of the Netherlands-Aruba: Staff Concluding Statement of the 2025 Article IV Mission

October 7, 2025

Washington, DC: An International Monetary Fund (IMF) staff team, led by Mr. Marco Arena, visited Oranjestad during September 23-October 6 to hold discussions on the 2025 Article IV consultation with the Aruban authorities. At the end of the consultation discussions, the mission issued the following statement, which summarizes its main conclusions and recommendations.

Seizing the Post-Pandemic Recovery to Further Strengthen Macroeconomic Stability and to Boost Economic Growth

Strong post-pandemic economic performance

Recent economic growth has been driven by a strong post-pandemic tourism rebound. Real GDP grew by 10.6 percent in 2022, with an estimated expansion of 8.9 percent in 2023 and 7.6 percent in 2024, driven by tourism arrivals and private hotel investment. Year-on-year inflation declined from 7.7 percent in August 2022 to -0.8 percent in August 2025, reflecting lower international food and energy prices. Unemployment fell to 4.3 percent in 2024, due to strong labor demand supported by higher labor force participation. The strong tourism recovery supported the current account, which swung from a deficit of 17.2 percent of GDP in 2020 to a 9.3 percent surplus in 2024. Foreign reserves remain adequate at 7.9 months of imports at end-2024. The banking sector is well capitalized, liquid, and profitable.

The fiscal balance improved, and public debt declined. The central government (CG) posted surpluses of 3.0 percent of GDP in 2023-the first since 2008-and an estimated 3.7 percent in 2024, supported by growth and revenue measures. Public debt (CG) declined from 116.3 percent of GDP in 2020 to 68.6 percent by end-2024.

Growth is expected to moderate as the post-pandemic rebound in tourism fades, gradually converging toward its estimated potential. Real GDP growth is projected at 3.9 percent in 2025, gradually slowing to 1.3 percent over the medium term. Inflation is projected to increase to 1.0 percent by end 2025, driven by U.S. and international price developments. Fiscal surpluses are expected to continue-complying with the fiscal rule-reducing central government debt to 50.4 percent of GDP by 2030. The current account surplus is projected to narrow as tourism growth slows. Foreign reserves are expected to remain adequate, reaching 12 months of total imports in 2030.

Risks to the outlook remain tilted to the downside. External risks include geopolitical tensions, escalating trade measures, and prolonged uncertainty that could weigh on growth, disrupt supply chains, and raise import prices, and climate change threats from sea-level rise and more volatile and extreme weather events. These external shocks could sharply reduce tourism, weakening economic growth and the fiscal and external balances. Domestic risks include delays in public investment that could leave infrastructure bottlenecks unresolved. Contingency planning and coordination across government stakeholders are essential to safeguard macroeconomic and financial stability, protect priority spending, and support vulnerable groups.

Fiscal policy: Advance debt reduction and strengthen the fiscal framework

The 2026 draft Budget submitted to Parliament complies with the Financial Supervision Law (LAft). The mission welcomes Aruba's first attempt at policy-based budgeting, looking to align spending with the government's policy priorities, which include increasing well-being and prosperity and enhancing purchasing power. These policies have started to materialize through the increase in pension allowance, coverage extension for the provision of medicines, and support for people under welfare benefits. While the draft budget complies with the LAft, it implies a slightly expansionary stance. To achieve a more neutral fiscal position, consistent with a closing output gap, additional savings of around 0.3 percent of GDP are recommended-primarily from revenue windfalls, with streamlining spending as a fallback. The mission also welcomes continued multi-year budget projections, which would benefit from a discussion and incorporation of future multi-year policies and/or cost developments (e.g., costs associated with demographics).

Additional revenues are key to supporting the government's social development and public investment goals. Additional revenue measures will be needed to finance expected expenditure increase and build fiscal buffers. Priority measures to support revenue generation and efficiency can include: (i) regulation of short-term vacation rentals (STVR) through mandatory registration and strict tax compliance; (ii) conducting a tax gap analysis, with IMF support, to assess Aruba's revenue administration performance; and (iii) evaluating the transition to a broad-based value-added tax (VAT) to enhance the efficiency of the indirect tax system. The mission welcomes both the government's policy initiatives to regulate and increase tax compliance in the STVR market and initiate a structured tax dialogue on the potential reform of the VAT. Ongoing formalization of the migrant population will also contribute to increase fiscal revenues.

Measures to improve spending efficiency and target resource allocation are equally important. These measures could include: (i) containing the wage bill-linking pay increases to performance and reviewing wage supplements and allowances, supported by new human resources policies on recruitment and a performance management system; (ii) streamlining transfers to state-owned enterprises (SOEs)-improving financial performance and transparency of SOEs to reduce reliance on public funds; (iii) strengthening social safety nets to ensure that social programs are cost-effective without disincentivizing work, means-tested, targeted, and regularly audited in order to protect the most vulnerable.

Strengthening the Medium-Term Fiscal Framework (MTFF) is essential to prioritizing spending and anchoring the path of debt reduction. The mission welcomes steps to strengthen public financial management (PFM), including the Ministry of Finance's (MoF's) strategic "May letter" advising the Council of Ministers (CoM) on measures to assure that financial targets get achieved and the Budget Call Circular that integrates the budget process with the MTFF. A legislated MTFF, guided by a debt anchor, will provide discretion to set binding ceilings on expenditure categories that satisfy the debt-to-GDP trajectory and guarantee a fiscal constraint. Continued efforts to clear the backlog in financial statements and audits are essential. The mission welcomes both the presentation of the 2023 financial statement and the authorities' efforts to implement the 3 Lines model in which the work processes and associated responsibilities are described and implemented. The mission encourages the authorities to continue their work for the introduction, under the Landspakket (the structural reform package agreed between Aruba and the Netherlands in November 2020), of accounting standards and certification.

The mission recommends that the authorities clarify the status, objectives, investment strategy, and governance of the proposed investment fund. Best practices include a sound legal framework, clear mission and role, strong governance, defined investment policies, sound risk management, and transparent annual reporting. Only projects with a multi-year horizon would need to be included in the fund, while shorter-term initiatives should follow the regular annual budget cycle. Establishing a multi-year investment agenda aligned with policy priorities and strengthening public investment management-including project evaluation, procurement, execution, and monitoring-are recommended. Positive lessons from projects executed under the Fondo de Desaroyo Aruba (FDA) could be incorporated in the design of the investment fund. As some investments are managed by SOEs, coordination is crucial to mitigate resource competition, prioritize projects, and optimize investment timing.

Large debt repayments over the next five years underscore the need for a prudent liability management strategy. Such a strategy should balance funding options and support diversification of financing sources to reduce refinancing risks. Continue the coordination-especially with the Central Bank of Aruba (CBA)-is essential to avoid crowding out private sector credit or putting undue pressure on reserves. Regarding potential treasury banking using surpluses of the Social Security Bank (SvB) and the National Health Insurance (AZV), the mission advises the authorities to weigh the potential benefits of using these resources for refinancing purposes against potential implementation costs and potential impacts on the debt maturity profile and banking sector liquidity, noting that these surpluses are expected to decline due to demographics.

SOE financial oversight and governance need to be strengthened. Delays in the submission of annual financial statements limit the government's ability to assess the health of SOEs and hinder an assessment of potential contingent liabilities. A comprehensive reform-covering legal, administrative, institutional, and technical aspects-is essential, including a clearer separation between policy and financial oversight, adopting standardized accounting principles, stronger Ministry of Finance's monitoring capacity, enforcement mechanisms, and SOE rationalization. The adoption and implementation of the Corporate Governance Law will help reduce these fiscal risks. The mission welcomes the recent approval at the Council of Ministers of the Participation and Dividend Policy, a project under the Landspakket, which creates a regulatory framework that will allow the government to give content to its role as a shareholder in SOEs and distribution of dividends (profits).

Additional measures are needed to prevent the healthcare and social security systems from straining the budget due to population aging. Healthcare costs could be contained by expanding preventive care. Consideration could be given to implementing targeted means-tested user fees and reassessing non-essential treatment entitlements. While the formalization of the migrant population will help to increase revenues though additional social contributions and help to reduce pressures on the healthcare and social security systems, parametric reforms could be needed to preserve the actuarial balance in the social security system. The mission recommends performing an analysis, with IMF support, of potential parametric reforms to assess outcomes of different reform options.

The draft Kingdom Act of Sustainable Public Finances strengthens many fiscal rule features. It streamlines fiscal rules to a debt anchor and an operational rule, establishes procedures to activate the escape clause, introduces a correction mechanism to address deviations from the rules, and sets a contingency reserve for fiscal shocks. The mission advises extending the operational rule on the primary balance from the CG to the general government. Public debt is projected to meet its target by 2035. Fiscal stability will ensure that the spending composition protects social programs and supports growth-enhancing investment. If the Kingdom Law is enacted, the interest rate on liquidity support loans provided during the pandemic by the Dutch government will be reduced from 6.9 percent to around 3.4 percent.

Continue protecting the peg and further strengthen financial sector resilience

The CBA should maintain its cautious and data-driven approach to liquidity management. Maintaining the reserve requirement ratio (RRR) at its current level is appropriate, as it balances macroeconomic and financial stability. A further reduction is not warranted in the current context given high liquidity, and there are no signs of pressure in goods or credit markets to warrant an increase. The mission advises the CBA to stand ready to raise the RRR if pressures on reserves or a surge in domestic demand (e.g., rapid credit growth) emerges.

The CBA needs to remain vigilant to financial system vulnerabilities. While overall financial stability risks are low, rising real estate and mortgage lending warrant close monitoring of underwriting standards and household debt and income. Establishing caps on loan-to-value and debt service-to-income ratios could help contain these risks. The mission also recommends monitoring the sovereign-financial linkages using the balance sheet approach. Developing a comprehensive macroprudential policy framework with supporting tools should help mitigate and manage vulnerabilities.

The CBA is encouraged to further strengthen the financial regulatory and supervisory frameworks, including financial integrity. The mission welcomes efforts to adopt the new charter of accounts, conduct risk-based supervision and annual stress tests, and recommends adopting Basel II standards, conducting self-assessments of core principles, implementing a risk-based deposit insurance premium system, and continue strengthening risk-based supervision through annual stress tests. It is also advisable to evaluate the potential impacts of the consumer loan interest rate cap that will be introduced in the Consumer Protection Law once it enters into a force, continue efforts to establish a credit registry and strengthen compliance with financial integrity standards.

The authorities should continue enhancing domestic legislative framework to further improve financial integrity and begin prompt preparation for the 2029 peer-review from the Caribbean Financial Action Task Force (CFATF). Removal from the EU list of non-cooperative tax jurisdictions in 2024 is welcome. Implementing recommendations from the 2024 OECD report on Peer Review of the Automatic Exchange of Financial Account Information and the 2023 CFATF peer-review requires further amendments to the domestic legislative framework. The mission encourages the authorities to promptly begin with the execution of a new national risk assessment, which is crucial to continue improving the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework ahead of the next mutual evaluation and to ensure comprehensive oversight of the entire ecosystem, including by regulating virtual asset service providers.

Fostering high value-added in tourism and diversification

Boosting tourism's value added and accelerating diversification beyond tourism are critical for sustained growth. The mission supports the authorities' efforts to continue advancing the High-Value, Low-Impact tourism model (HVLI) with high shared value for the population, which will strengthen the Aruba brand. Broadening source markets beyond the US and prioritizing high-end services are also encouraged. Given the limits to further tourism expansion, new growth engines are needed. The "Promising Sectors" initiative (agriculture, circular economy, creative industries, knowledge economy, which includes renewable energy, logistics, and niche tourism) presents a potential path for economic diversification. The mission welcomes the authorities' plans to expand renewable energy, which offers viable diversification and resilience benefits. Enhancing core infrastructure and improving the business climate remain critical to mobilizing private investment and support tourism and diversification.

Structural reforms to mitigate impacts of demographics and sea-level rise

Strengthening formal labor markets can help offset the negative growth pressures from the projected population decline. The mission recommends policies that boost labor force participation by improving childcare and elderly care access and affordability within the limits of the fiscal rule, flexible work options backed by unemployment insurance, encouraging older adults to remain in the workforce longer, and better youth integration. The mission supports the gradual integration into the labor market of undocumented migrants already in Aruba.

Boosting resilience to climate risks remains a priority. Ongoing risk assessments, adaptation costing, and the preparation of a National Adaptation Strategy are positive steps. A targeted action plan is needed to prioritize resilient infrastructure improvement and nature-inclusive urban development, in particular in coastal areas. The mission stresses the need to integrate adaptation planning into the macro-fiscal planning to help guide public investment and identify financing needs within the MTFF. Also, the mission welcomes the official incorporation of Aruba as a member of Coalition of Finance Ministers for Climate Action.

Enhancing data adequacy

Timely and reliable data are essential for informed policymaking. Aruba faces challenges in data adequacy, particularly in the compilation and timely dissemination of National Accounts. The mission welcomes the release of official GDP statistics for 2021 and 2022 and the progress in the implementation of the National Statistical System (NSS). Also, the mission urges the authorities to address staffing gaps at the Central Bureau of Statistics (CBS) to ensure that it can deliver timely and comprehensive data in line with its mandate.

The IMF team is grateful to the authorities and a broad range of public and private sector counterparts for their warm hospitality, cooperation, and constructive discussions.