Oranjestad – Kredietbeoordelaar Fitch heeft de ratingvooruitzichten voor Aruba bijgesteld van negatief naar stabiel. Aanleiding is het akkoord dat met Nederland is gesloten over de voortzetting van de coronasteun.
Fitch verwacht dat de overheidsschuld van Aruba die in 2021 een piek van 108% bereikte zal dalen door de herfinanciering via Nederland van buitenlandse schulden tegen een lagere rente.
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Fitch Ratings – New York – 07 Apr 2021: Fitch Ratings has affirmed Aruba’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB’ and has revised the Rating Outlook to Stable from Negative.
KEY RATING DRIVERS
The Outlook revision reflects Fitch’s expectation that the extraordinary external financial, health, and institutional support that Aruba has received from the Kingdom of the Netherlands in response to the COVID-19 pandemic will continue during 2021-2022. Aruba is a member of the Netherlands with ‘status aparte’. In November 2020 Aruba’s government agreed to certain fiscal and economic policy commitments in exchange for conditional low-interest loans and external debt service assistance from the Netherlands. This will put consolidated government debt/GDP on a downward trend after peaking at 108% (2021).
The financing package from the Netherlands will cover budgetary needs during the pandemic and external refinancing needs during 2021-2022, conditional upon implementation of fiscal and economic reforms outlined in a national program by the Aruban government, which will be monitored by the Board of Financial Supervision of Aruba (CAFT). Decisions about the quarterly disbursements would shift from the Kingdom Council of Ministers to a reform and investment institute (COHO) once both parliaments pass the parallel enabling legislation to establish COHO. Fitch believes Aruba’s debt burden and current deficit would present sustainability challenges if refinanced at market rates, in the absence of Dutch support.
The pandemic pushed the government deficit/GDP to 19.0% (2020) (up from 0.6% deficits during 2018-2019; the Dutch government agreed to waive fiscal targets). A steep loss in tourism earnings and large health and wage-subsidy outlays enlarged the deficit; public sector salaries were cut 12.6% to fund a business wage-subsidy program. Fitch expects the deficit/GDP to narrow to 14% (2021) reflecting an improved tourism outlook. Fitch expects a sharp narrowing of the 2022 deficit/GDP to 3.9%, supported by the cyclical economic recovery, lower transfers, and sustainable fiscal measures (new value-added tax, reforms to public sector employment and pay) agreed with the Dutch.
Aruba’s consolidated general government debt/GDP (net of APFA civil service pension fund holdings) will reach 108% (2021), well above the ‘BB’ median (60%). Government interest/revenues will peak at 22.3% (2020), nearly triple the ‘BB’ median (8%). Fitch expects that the sustainable budgetary reforms combined with near-zero interest re/financing costs from the Netherlands will lower Aruba’s government debt/GDP to 77% (2025).
Aruba met its 2020 government gross financing needs (USD679 million) primarily externally, via USD231 million Dutch zero-interest two-year bullet loans and USD226 million market financing (mainly 5.3% seven-year instruments), to avert pressure on the domestic market, which rolled over maturities. Fitch expects Aruba will favor the Netherlands’ loans to meet the estimated USD515 million gross needs this year and USD676 million next. Large maturities (USD524 million, 2022) will be covered by Dutch loans and domestic rollovers under Fitch’s baseline.
The urgency of Aruba’s financial and social stability needs surmounted political sovereignty concerns and facilitated agreement on the Dutch financing package after five months of negotiation. However, political risks are material. We do not expect the Aruban parliament, which resisted institutionalizing the CAFT mandate into Aruban law, to ratify the agreement and pass framework legislation until after the parliamentary elections (expected June-July 2021). Dutch elections in March signaled policy continuity, although a new coalition government could require several months to pass the parallel framework legislation. Political noise could also renew, such as around the reform agenda, requisite Aruban legislation, or an adverse report from the CAFT that delays a conditional quarterly disbursement during 2021-2022.
The SvB general pension fund will run an operational deficit (currently funded from its limited liquidity reserves) while contributions to the pay-as-you-go system remain low (2020-2022), requiring 0.6% of GDP (2021) and 1.1% (2022) additional government financing (included in our debt dynamics).
The economy is forecast to record double-digit growth in 2021-2022 as it recovers from 26% contraction in 2020. The growth path reflects tourism dynamics benefiting from market concentration in the US Northeast. Fitch expects 46% hotel occupancy in 2021 (up from 27% in 2020). Financial system stability has been maintained, banks’ regulatory capital is high (33.5%, 2020) with firm liquidity, positive ROE, and 5% NPLs fully provisioned.
Credibility of the exchange rate peg remains intact. Netherlands’ lending finances Aruba’s large current account deficits/GDP of 16% (2020) and 11% (2021). Net external debt/current external receipts will rise to 95% in 2021 (2019: 30%) above the ‘BB’ median (59%). However, we expect budgetary and maturity requirements in 2021-2022 to be financed close to the Netherlands’ treasury rate, which will keep Aruba’s external debt service in check. The central bank expects to relax capital controls (restrictions on foreign dividend repatriation and new FX licenses) in 2021-2022 provided that FX inflows recover.