Summary: KEY ISSUES Context: Aruba is a small, tourism-dependent economy with a pegged exchange rate regime against the USD and one of the highest living standards in the Caribbean. The economy is recovering from the double-dip recession of the global financial crisis and the end of oil refining activity, but real GDP is projected to return to its pre-crisis level only by the end of the decade. Risks to the outlook are mainly external in nature. Despite the major entitlement reforms undertaken, debt surpassed 80 percent of GDP in 2014. Policy recommendations: • Rebuild policy space while supporting the ongoing recovery. In particular, putting debt on a downward trajectory is an immediate policy priority. A fiscal effort is needed to attain a surplus of 1½ percent of GDP by 2020, which would put debt on a downward path. • The accommodative monetary policy stance is appropriate and international reserves are currently adequate to safeguard the peg. • Increasing labor market flexibility and reducing the costs of doing business would improve Aruba’s competitiveness and resilience to shocks. Future growth initiatives, including those related to renewable energy, should be financed through FDI.

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