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Suriname

Author(s):
International Monetary Fund
Published Date:
February 2010
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I. Background and Economic Outlook

1. Over the past decade, social peace and a broadly benign external environment have helped promote social and economic development in Suriname. The country ranks 97th out of 182 countries in the UNDP’s 2009 Human Development Index. Suriname’s economy has been dominated by the mineral and energy sectors (gold, alumina, and oil, primarily), which account for about 30 percent of GDP. Over the years, the production of rice, shrimp and fish, bananas, and lumber has lost importance in economic terms, but remains an important employer.

Selected Caribbean Countries: Economic, Social, and Political Indicators
Trinidad&
GuyanaSurinameTobago
Economic Indicators
GDP per capita (US$, 2008)1,5095,92819,870
Moody’s sovereig (forex bank deposits LT)B2Baa1
Unemployment rate (percent, 2007)11.011.05.6
Social Indicators
Human development index (UNDP, rank) 1/1149764
Health and primary education index (WEF, rank) 1/675462
Mortality rate, infant (per 1,000 live births, 2007)45.027.431.1
Business Climate
Global competitiveness index (WEF, rank) 1/10410286
Regulatory quality (WB, percentile rank) 2/31.825.670.5
Political Indicators
Political stability (WB, percentile rank) 2/26.351.147.8
Rule of law (WB, percentile rank) 2/27.744.448.8
Sources: World Bank; UNDP; Transparency International.

2. Reflecting the global economic slowdown, economic activity in Suriname has weakened and price pressures have abated (Figure 1). Faced with a sharp output decline in the alumina sector and lower alumina and oil prices, economic growth is estimated to have slowed to 2½ percent in 2009, from 6 percent in 2008 (Box 1). Potential output growth is estimated at about 5 percent of GDP. Twelve-month inflation is estimated to have fallen from 14½ percent in 2008 to less than 1 percent in 2009, reflecting lower international prices for food and fuel, and softer domestic demand. Food, energy, and transportation weigh heavily in the CPI (55 percent), and their domestic prices have fallen rapidly over the past twelve months. More recently, an uptick has been registered in the price of these goods, but core inflation has continued to level off.

Figure 1.Suriname: Macroeconomic Developments, 2003-09

Sources: National authorities; and IMF staff estimates and projections.

3. The external current account balance is estimated to have shifted from a surplus of 4 percent of GDP in 2008 to a deficit of 2 percent in 2009 (Figure 2). The trade surplus narrowed significantly, despite an increase in gold and oil exports. Lower alumina exports allowed for some crude oil used in the refining process to be redirected for exports and, as a result, crude oil exports rose by around 35 percent in volume terms. In the capital account, a drawdown from the Netherlands Treaty Fund was used in August 2009 to clear longstanding arrears with Brazil, totaling US$118 million. Taking into account the recent SDR allocations of about US$125 million, international reserves were estimated at the equivalent of 5¼ months of imports at end-2009, up from 4¼ months in 2008.

Figure 2.Suriname: External Indicators

Sources: Suriname authorities; and IMF staff estimates and projections.

Box 1.Recent Developments and Outlook in the Energy and Mining Sectors

Suriname’s economy remains dominated by the mining and oil sectors. In 2008, alumina, gold, and oil exports amounted to 55 percent of GDP and accounted for some 95 percent of total exports of goods. Bauxite mining is the oldest sector, and the production of alumina dates back to the early 20th century. Oil production began in 1980 by Staatsolie, a state-owned company, while gold production by the formal sector started in 2004.

The production of alumina sharply contracted in 2009. The expected exhaustion of bauxite reserves in the mines around Paranam by 2010 prompted SURALCO (a subsidiary of ALCOA) to lower production levels by 40 percent, pending the development of a new mine in eastern Suriname by 2013. In July, SURALCO bought out BHP Billiton’s 45 percent share in their joint venture, and the government is considering to partner with SURALCO by taking a minority stake. The new company would develop a bauxite mine in the eastern Nassau region, with estimated reserves of 10 years. Negotiations are also ongoing between the government and various companies over the exploitation of large bauxite deposits in the Bakhuys mountains in western Suriname.

Gold production has become the main source of export earnings. Gold production from the formal sector at the Rosebel Gold Mines (a subsidiary of Canada’s IAMGOLD) started in 2004. It is now reporting a production capacity of 365,000 ounces/year, with reserves to last at least 20 years. Negotiations for the establishment of a joint venture (SURGOLD) between SURALCO, the Newmont Mining Corporation, and the government of Suriname are well advanced. Initial exploration points to possible reserves of up to 3 million ounces in the eastern Nassau region. The much larger informal gold sector accounts for 60 percent of total gold production. It is weakly regulated and largely untaxed. Gold extracted by miners is sold to seven licensed, private brokers who further process it for exports.

Government Revenue From Oil, Bauxite and Gold Production
20072008Proj.

2009
Proj.

2010
Gold revenues (mn US$)16.153.571.777.0
Bauxite revenues (mn US$)83.047.515.212.2
Oil revenues (mn US$)97.1178.3187.4151.2
Total Contribution
In millions of US$196.3279.3274.3240.4
In percent of GDP8.19.19.37.4
In percent of total revenue28.336.333.229.7

Oil production has so far been dominated by onshore extraction activities. By law, the exploitation of oil resources is granted exclusively to Staatsolie. Other companies can only access the market through production-sharing agreements with Staatsolie. Suriname’s oil output in 2008 reached a record high of 5.9 million barrels, making it broadly self sufficient. Suriname exported 45 percent of its crude oil production, while importing processed petroleum products of about equal value. Staatsolie has an ambitious investment program for the next four years, to expand its refining capacity and intensify exploration. Geological surveys estimate the potential oil reserves in the Guyana Basin at 15 billion barrels.

The mineral sector is a major contributor to fiscal revenue. Total tax and nontax revenues from the three major mining companies accounted for 36 percent of total fiscal revenues in 2008. Tax revenue from SURALCO is expected to decline substantially during 2009-10, due to both lower alumina production and prices. Government revenues from Staatsolie, boosted in 2009 by delayed large dividend payments covering 2008, are projected to decline in 2010. In contrast, revenues from IAMGOLD are expected to continue to grow as a result of both higher gold volume and prices.

4. Monetary and credit expansion moderated in 2009 (Figure 2). Broad money growth (y/y), which peaked at 33 percent in 2008Q1, decelerated to 8 percent in 2009Q1. However, it has since then risen again to 22 percent in September 2009, reflecting in part higher government spending financed by the central bank. Bank credit to the private sector declined from 42 percent in July 2008 to 17 percent in September 2009. Since 2007, the Central Bank of Suriname (CBvS) has kept the reserve requirements on deposits unchanged, at 25 percent on domestic currency deposits and 33 percent on foreign currency deposits.1

5. The fiscal balance is estimated to have deteriorated by 4 percent of GDP in 2009 (Figure 3). The underlying balance, which excludes one-off transactions related to the Brazilian debt, such as the receipt of the dedicated Netherlands grant and the payment of accumulated interest, is projected to deteriorate by close to 5 percent of GDP.

Figure 3.Suriname: Fiscal Indicators

Sources: Suriname authorities; and IMF staff estimates and projections.

  • Revenues: During 2006-08, the accounts of the public sector registered large surpluses (about 2 percent of GDP on average) thanks to rising revenues from robust economic growth, including from the buoyant mineral sectors. The drop in oil and mineral prices since 2008Q3 and a substantial reduction in alumina output depressed tax revenues in 2009. Indeed, the revenue situation would have been even worse, if not for exceptionally high dividend receipts from the state-owned oil company Staatsolie and from the central bank.

  • Expenditures: The cyclical deterioration in public finances in 2009 was amplified by a surge in noninterest current spending arising from: (i) civil service wage increases starting in March 2009 (3.1 percent of GDP, see Box 2); (ii) higher spending on goods and services (2.5 percent of GDP); and (iii) elevated pension and other transfer payments, including for a mortgage subsidy scheme covering 2009-10 (1.2 percent of GDP).

Box 2.Civil Service Wage Reforms

In 2009, Suriname embarked on a wage reform effort, as part of a wider civil service reform agenda. The wage reform was the culmination of many years of discussions between the government, consultants, and civil service unions, while the wider civil service reform program was developed with the assistance of foreign donors to streamline the civil service and increase its efficiency. The objective of these efforts was to improve the competitiveness of civil servants’ pay, while at the same time making the civil service leaner and more efficient over time, including through natural attrition.

The first stage of the wage reform (FISO-1) was launched in March 2009, with retroactive effect to January 1, 2008. It involved the grading of some 40,000 civil servant positions based on five criteria (skills and training; inconvenience; contact with others; management duties; and responsibilities), with the view to placing them into eleven pay grades, with three sub-grades each. Since the authorities had provided the assurance that no position under FISO-1 would be graded below its previous pay-grade, the exercise resulted in a considerable upward adjustment for nearly all positions. Thus, starting in March 2009, positions in various branches of the civil service were successively upgraded, with one month’s additional wage adjustment paid every month for 14 months to cover the back period from January 2008 through February 2009. As a result, the wage bill is expected to increase from SRD 760 million in 2008 to about SRD 980 million in 2009.

The second phase of the wage reform (FISO-2) is scheduled to be implemented in early 2010, with retroactive effect to January 1, 2009. The objective of FISO-2 is to decompress the wage bill. Consequently, the ratio between pay-grades would rise by providing wage increases to the higher civil service grades of up to 45 percent. While the overall additional cost of FISO-2 is still unclear, it is estimated that the wage bill would go up by at least another 20 percent. If back-pay provisions similar to FISO-1 are assumed, the impact on the wage bill in 2010 could be substantial. Accordingly, full implementation of FISO-1 and FISO-2 would result in a cumulative expansion of the wage bill by more than 50 percent, equivalent to 5.4 percent of 2009 GDP over two years.

Suriname: Main Economic Indicators, 2006-10

(In percent of GDP, unless otherwise indicated)

Proj.
20062007200820092010
Real GDP (annual percentage change)3.85.26.02.54.0
CPI inflation (average, percent)11.36.414.60.75.5
Broad money (annual percentage change)21.130.510.919.112.9
External current account balance7.57.53.9-2.0-5.3
Central government balance0.93.02.0-1.8-3.8
Total public debt30.221.117.919.220.8
Of which: external debt18.312.210.38.69.5
Gross international reserves (US$ millions)264.3433.4665.6777.8810.0
(in months of imports of G&S)2.63.64.25.24.6
Sources: Suriname authorities; and IMF staff estimates and projections.

6. Public debt has declined significantly in recent years. Healthy fiscal surpluses, together with robust economic growth and the clearance of longstanding arrears with bilateral creditors, have helped reduce the public debt-to-GDP ratio from 37 percent of GDP in 2005 to around 19 percent in 2009. This ratio is currently one of the lowest in the region. As a result of the clearance of Brazilian debt arrears—US$118 million, including a write-off of US$44 million—Suriname only has remaining bilateral arrears with the United States (estimated at US$31 million, or 1 percent of GDP, half of which in the form of accumulated penalties).

II. Medium-term Outlook and Risks

7. The medium-term economic outlook for Suriname is favorable. The mission prepared with the authorities a medium-term macroeconomic framework predicated on fiscal prudence, with the view of attaining fiscal balance by the end of the projection period. This scenario includes gradually phasing in the second stage of the wage reform program, starting in 2011 (see below). After a further small deterioration in 2010, mainly reflecting carry-over effects from the countercyclical policies initiated in 2009, the fiscal accounts would progressively improve and revert back to a small surplus beginning in 2014, as economic output and commodity prices recover. Over the medium-to-long term, revenues would be expected to benefit from a permanent boost from a higher level of government participation in the alumina and gold sectors (Appendix I). The external current account balance would deteriorate in the near term before rebounding beginning in 2013, when large bauxite and gold mines come on stream. The expansion of Staatsolie’s oil refining capacity would also help reduce the need for imported refined petroleum products beginning in 2013. Under this scenario, both the public and the external debt levels remain low and manageable over the medium term, at below 23 percent of GDP and 11 percent of GDP, respectively. By returning back to debt levels at the end of the projection period, similar to those going into the current downturn, this framework would provide the authorities with stable finances and welcome space to react to future shocks. Thus, even under standard and combined shocks, the public debt would not rise above 33 percent of GDP.

8. Economic risks to the outlook are broadly balanced for the near term, and tilted to the upside for the medium term. In the recent period, local gold production has surged in response to high prices, while the economic recovery in Asia has helped support alumina prices. In the short run, downside risks to the economic outlook are associated with the possibility of a slower global recovery than anticipated. There is also a risk that, in the run-up to the May 2010 elections, government spending on wages and goods and services increases excessively. Additional budgetary costs could also arise in connection with the need to recapitalize two state-owned banks and resolve the problems facing CLICO-Suriname (see below). Over the medium term, large capital projects by the government and Staatsolie are expected to sustain growth through 2013, when a major increase in alumina and gold production is expected (Box 1).

9. There are some political risks and uncertainties associated with the 2010 general elections. The newly elected legislature, the National Assembly, will be charged with choosing the President of the Republic by a two-thirds majority. If it fails to do so after two attempts, the election of the President will be referred to the larger People’s Assembly. The latter, which is empowered to elect the President by a simple majority, comprises Members of the National Assembly, as well as local and districts councilors. Given Suriname’s indirect and complex process for electing the President, there is a risk that the new office holder may not be determined for an extended period following the parliamentary elections. There is also a risk of political stalemate if the President is elected by the People’s Assembly and does not muster the support of the National Assembly.

III. Policy Discussions

10. Policy discussions focused on the effects of the global economic slowdown on suriname and the appropriate policy response. There was broad agreement that the authorities’ prudent management of the economy in recent years, during the commodity boom, was providing them with some fiscal space to respond to the global crisis. Discussions thus focused on how best to use this space without placing undue pressure on resources. Staff also discussed with the authorities their investment plans in the oil and mining sectors.

A. Fiscal Policies

11. With low public debt levels, suriname has space to implement countercyclical fiscal policies. Staff took the view that, in order to be effective, fiscal policies needed to be timely, targeted, and temporary. There was agreement with the authorities that the relaxation of the fiscal stance in 2009 had provided a welcome boost to domestic demand, at a time when the economy was growing below potential. At the same time, there was a recognition that fiscal policy needed to take into account the country’s capacity constraints and that the fiscal impulse would need to be withdrawn once the recovery was well entrenched. In that context, staffs main messages to the authorities were to:

  • (i) delay the second phase of the wage reform program, planned for early 2010, until the fiscal accounts had stabilized;

  • (ii) resist pressures to further boost spending ahead of the May 2010 elections, and rein in current spending in 2010 and over the medium term;

  • (iii) strengthen tax collections, including by making use of CARTAC technical assistance in this area; and

  • (iv) prudently expand foreign borrowing to finance the government’s expected investments in infrastructure and the mining sectors.

Revenue

12. In 2010, public sector revenue is projected to return to more normal levels than in 2009, when weaker direct tax revenue was more than offset by exceptionally high nontax revenue. Tax collections are expected to benefit marginally from the pickup in economic activity and domestic demand, while nontax revenue would revert back to historic levels. In an effort to enhance business activity, the authorities were considering reducing the corporate tax rate from its current level of 36 percent. The staff advised the authorities to resist such a reduction. It noted that, with over 75 percent of all corporate tax revenue collected from just three large companies in the mineral sector, such a tax rate reduction would essentially amount to a transfer payment to them. The staff took the view that such a cut was not advisable at a time of significantly weaker public finances.

Current spending

13. Staff projections show that, under prudent policies, noninterest current spending would rise from less than 20 percent of GDP in 2008 to around 24 percent in 2010. Although an important part of the increase is related to the wage reform, other recurrent outlays are also registering strong increases:

  • The mission estimated that the implementation of the first phase of the wage reform (FISO-1) led to an increase in the wage bill of 29 percent in 2009 (Box 2), boosting the wage bill to 12 percent of GDP in 2009.

  • The second phase of the civil service reform (FISO-2) is scheduled to be implemented in early 2010, with retroactive effect from January 1, 2009. Staff computations showed that full implementation of FISO-2 would have the effect of raising the wage bill to 13-14 percent of GDP. Thus, the staff recommended postponing the reform and implementing it gradually over several years.

  • Expenditure on goods and services is estimated to have risen from 5 percent of GDP in 2008 to 7½ percent in 2009. The staff suggested a more moderate path in 2010.

14. The mission recommended postponing the FISO-2 reform by at least one year and implementing it gradually. The staff underscored its support for improving the competitiveness of civil service pay. This would help enhance the recruitment and retention of qualified staff and increase efficiency in the civil service. However, the staff argued that implementing the full second stage of the reform in early 2010, as scheduled, would lead to an excessive widening in the fiscal deficit. It would also drive up private sector wages and likely lead to higher inflation, thereby undermining competitiveness. The staff therefore recommended implementing FISO-2 over a period of 3-4 years, beginning in January 2011.

15. The mission also advised the authorities to curb the rate of growth of nonwage current spending. The staff noted that the purchase of goods and services as well as other components of current spending, including civil service pensions, had grown very rapidly in 2009. Some of these increases would put a permanent strain on the country’s fiscal accounts. The staff recommended phasing in programmed increases in civil service pensions over several years, to avoid jeopardizing macroeconomic stability. With respect to the increase registered in 2009 in subsidies and transfers, the staff noted that it was largely attributable to a mortgage subsidy scheme introduced in early 2009. The staff considered that this increase was justifiable, given that the scheme, designed to promote low-income private home construction through the provision of subsidized mortgage interest rates, was temporary (through end-2010) and well targeted.

16. The authorities expressed their concern with the deterioration in the fiscal accounts. In particular, they acknowledged the risks that this posed of igniting a new wave of inflation. They explained that the wage agreements had been reached after lengthy deliberative consultations with civil society. While reiterating their intention to implement the wage reforms, they noted that these agreements also contained a clause allowing them to delay their implementation, if justified by fiscal considerations. The authorities explained that they would aim to curb expenditures to prevent a large budget deficit, including by delaying the implementation of FISO-2, even though pressures will be mounting for higher government spending in the run-up to the May 2010 elections.

Capital projects

17. Capital spending, which has been broadly stable at around 5 percent of GDP in recent years, is projected to rise in the coming years. Large investments are either underway, or expected to begin in the near future, for infrastructure and in the mining sector. The staff and the authorities agreed that public investment programs should be implemented in a sustainable way and consistent with the country’s absorptive capacity. Implementation of these projects will also raise the country’s growth potential. The staff welcomed the government’s program of enhancing vital infrastructure, such as roads and port facilities. It advised the authorities to seek to finance them through concessionary loans or grants. The authorities concurred, noting that most large public investment projects were being financed through concessionary foreign loans.

Public debt

18. Suriname’s public debt is projected to remain relatively low, at 21 percent of GDP by end-2010. Given that a significant proportion of the debt is at concessionary terms, the interest bill of the government is low, at around 1 percent of GDP. Staff encouraged the authorities to clear the remaining outstanding bilateral arrears with the United States. It noted that clearing these arrears would help improve Suriname’s credit ratings and reduce the costs of external commercial borrowing. The authorities explained that they had offered to pay the principal and interest, and asked the United States to waive the penalties, similar to the arrangements that they had reached with other donors.

B. Monetary and Exchange Rate Policies

19. The staff noted that, if the deterioration in public finances were to be larger than anticipated, there would likely be a need to tighten monetary policy. Notwithstanding the sharp decline in inflation, the mission advised the authorities not to ease the monetary policy stance at this stage, given that domestic demand is being boosted by government expenditure. At the same time, private sector credit growth remains relatively strong, at 17 percent. The staff cautioned that, should the fiscal situation deteriorate further, the authorities might need to consider tightening monetary policy through an increase in reserve requirements. The staff also recommended developing a secondary market for government securities, to gradually move toward relying on open market operations as the main monetary policy tool. It encouraged the CBvS to seek technical assistance to strengthen its capacity in this area.

20. Estimates of the equilibrium real effective exchange rate indicate that the rate in the official market may be slightly overvalued (Box 3). Suriname has a dual exchange rate regime, comprising the official and the commercial markets.2 In addition, there is an unofficial parallel market, in which the currency has been slightly more depreciated than in the official market by 5-7 percent in recent months. The spread in the parallel market rate has widened in recent months, which analysts generally explain by the growing uncertainty surrounding the May 2010 national elections. The observed depreciation in the parallel market appears to be also consistent with the results of the estimation of the equilibrium real effective exchange rate. These estimates suggest that, at end-2008, the official rate was slightly overvalued. Suriname also has extensive capital controls aimed at shielding the country from volatile capital movements.3

21. The mission encouraged the authorities to work toward gradually unifying the official and commercial foreign exchange markets. It also advised them to use the flexibility provided to them under the de jure managed-float regime to allow the unified exchange rate to find its equilibrium level. The CBvS could intervene, as needed, to smooth out fluctuations in the rate. The staff noted that Suriname’s current comfortable reserve position provided a good opportunity for such a move. The authorities agreed that unifying the official and commercial exchange rates would help reduce distortions. However, they did not support allowing the rate to float at this stage. They cautioned that such a shift would need to be gradual, as the upcoming election cycle was expected to bring additional uncertainty to the markets.

Financial Sector

22. The surinamese banking sector has weathered the global financial crisis reasonably well. It remains insulated from global finance, mainly because of its very limited external exposure to risky financial instruments and investments. In the recent past, commercial bank profitability has declined somewhat, in line with the weakening in domestic demand. The nonperforming loan (NPL) ratio for the banking sector as a whole rose moderately, from 7.9 percent at end-2008 to 8.5 percent in September 2009. While banks generally appear well capitalized, conditions in individual banks vary considerably. In particular, two small state-owned banks are significantly undercapitalized. The mission encouraged the authorities to recapitalize them promptly, given that the cost to the budget would be small, at about 0.4 percent of GDP. The authorities explained that they were planning to do so in the near future. They also agreed with the staff on the need to strengthen the supervision of the financial sector as a whole.

Box 3.Assessments of the Equilibrium Real Exchange Rate and Current Account

The real effective exchange rate has appreciated markedly since 2008. This follows two years of a broadly stable real effective exchange rate. Suriname’s lack of sufficiently long series for an adequate set of economic fundamentals precludes an analysis of the equilibrium exchange rate based on a single country model of the real exchange rate. Using CGERs’ estimates to implement the macrobalance approach would be unsuitable, because these are primarily based on a sample of non-mineral producers.

The external sustainability approach suggests that the exchange rate is slightly above its equilibrium level. In light of the large weight of mineral exports, staff adapted the external sustainability approach to consider the non-renewable nature of Suriname’s mineral resources. This approach assumes estimates of mineral reserves for bauxite, gold, and oil, as well as the completion of current and planned mining-related projects, as discussed in Box 1. The present value of these future revenue streams is calculated, based on similar extraction rates as the ones observed in recent years. Using the WEO assumptions to forecast the evolution of these three commodity prices, the calculations suggest that the infinite constant real annuity from mineral revenues would be consistent with a current account surplus of about 4 percent of GDP. This is slightly above the underlying current account surplus for 2008, estimated at around 3¾ percent. The differential implies an overvaluation of 3-6 percent under reasonable assumptions for trade elasticities.

Actual current account balance (2008)3.9
adjusted for mineral exports prices2.1
for cyclical FDI on imports0.5
for cyclical export boom on income payments-2.5
for temporary grants-0.7
for business cycle0.3
Underlying current account3.7

PPP-based estimates also point to a slight overvaluation of the currency. The exchange rate is somewhat above its expected value (by about 10 percent) in a sample of over 150 countries.1 The performance of the tradable non-mineral sector is mixed, suggesting that the exchange rate is broadly in equilibrium. Non-mineral exports have grown at single digit in volume terms during 2007-08, while healthy growth has been registered in tourism and banana and rice exports.

1 This result differs from that in IMF Country Report No. 07/87, primarily because of revised PPP estimates of GDP by the World Bank.

23. Although dollarization exposes the financial system to risks arising from potential currency mismatches, banks appear to be relatively well protected. After several years of decline, bank deposit dollarization has edged up in recent months. The share of foreign currency-denominated deposits rose from 51 percent of total deposits in April 2009 to 54 percent in September 2009. At the same time, the trend decline in the share of foreign currency loans in total loans has continued, to 43 percent in September.4 In order to contain banks’ lending operations in foreign currency, the CBvS has maintained a high reserve requirement of 33.3 percent on their foreign currency deposits (compared with 25 percent for local currency deposits), which banks are allowed to hold in interest-bearing accounts abroad. As a result, banks’ net foreign exchange position is broadly in equilibrium. In an effort to reduce dollarization in the economy, the Ministry of Trade and Industry has also recently announced that it will vigorously enforce regulations requiring that all goods be priced in Surinamese dollars.

24. As a whole, the foreign reserves coverage of the banking system has improved substantially. Official international reserves have increased significantly in recent years, to about US$800 million at end-September 2009, equivalent to 5.3 months of imports. This development has contributed to a sharp increase in the foreign reserves coverage of the banking system, from 87 percent of banks’ foreign currency deposits at end-2005 to 153 percent at end-September 2009.

25. In the rest of the financial system, early action will be needed to resolve the problems of CLICO-Suriname. Following a run by depositors and policyholders in July, a court approved a moratorium on payments by CLICO-Suriname, a subsidiary of the troubled Trinidadian conglomerate Colonial Life Financial (CLF). This decision provided the authorities with some time to facilitate the possible take-over of CLICO-Suriname by another local insurance company. The mission encouraged the authorities to resolve the situation expeditiously, to help stem the deterioration in its balance sheet and avoid possible contagion to other financial institutions. Such a resolution should aim at minimizing the cost to the budget, while at the same time addressing the risk of moral hazard by enforcing market discipline on policyholders and investors, who sought large gains at high risks.

26. The mission recommended that Suriname participate in the Financial Sector Assessment Program (FSAP). Such an exercise would assess the health of the financial sector and make practical recommendations on how to strengthen bank and nonbank supervision. It would also make recommendations toward the introduction of indirect monetary policy instruments. The authorities agreed on the merits of an FSAP exercise, and formally requested that an FSAP mission visit Suriname as soon as possible.

C. Public Investment in the Mining Sector and Structural Issues

27. The mission supported the authorities’ plan to increase Suriname’s share in the exploitation of its natural resources. Under these plans, which enjoy wide public backing, the government will undertake sizeable investments in the mining and energy sectors, primarily as a minority shareholder in private ventures. This would give Suriname an opportunity to boost its share in the development of the country’s natural resources, and ensure a greater flow of revenue to the government for the benefit of the broad population. The staff encouraged the authorities to also consider alternative fiscal measures to boost the government’s take in the mining sector. It noted that any direct equity investment entailed some risks to the government, and should be undertaken within the context of a long-term comprehensive growth strategy of diversification, and economic and environmental sustainability.

28. The staff encouraged the authorities to diversify the country’s economic base in the medium term. Such a diversification would help steer the economy away from over-reliance on the mining sector, and toward new opportunities for growth and employment. To this end, the mission welcomed the ongoing increase in the number of hotels and eco-tourism activities, demonstrating considerable growth potential in the tourism industry. Likewise, the rice and banana sectors continue to hold promise for growth and employment.

29. To further enhance long-term growth, staff recommended the adoption of structural reforms, which the authorities broadly endorsed. These reforms would aim at strengthening public finances and improving the efficiency of the Suriname economy over the medium term:

  • Strengthening revenue administration. Following up on the mission’s recommendations, the authorities have requested technical assistance from CARTAC to do preparatory work in early 2010 on options to improve the efficacy and administration of indirect taxes. This work would enable the successor government to take informed decisions on the way forward soon after taking office.

  • Restructuring of public companies. Sustained efforts have been undertaken in this area. The restructuring of the state-owned rice company is almost complete, and the full privatization of the banana company is scheduled to take place in 2010.

  • Improving the business environment. Suriname lags behind its neighbors with regard to a business-supportive environment. In its 2010 Doing Business Report, the World Bank placed Suriname 155th among 183 countries, the lowest ranking in the Caribbean region. The mission called on the authorities to intensify their efforts to reduce red tape and excessive bureaucratic steps associated with the establishment and running of private businesses. It emphasized that simplifying business licensing requirements and procedures would encourage greater domestic and foreign private investment.

IV. Staff Appraisal

30. Suriname has weathered the global economic crisis relatively well. While output growth fell below potential in 2009, it is estimated to have remained positive. Weaker activity in the alumina sector was partly offset by stronger performance in the gold and construction sectors. Inflation pressures have diminished markedly, and private credit expansion has eased. While the external current account balance has shifted to a deficit, this deficit was relatively small in 2009, and international reserves are at comfortable levels.

31. The prudent policies that were implemented in recent years provide Suriname with some space to undertake countercyclical fiscal policies. The authorities have reduced the public debt-to-GDP ratio to one of the lowest levels in the region, providing them with some room to relax the fiscal stance in order to cushion the impact of the global slowdown. In order to be effective and sustainable, such a relaxation will need to be consistent with macroeconomic stability and fiscal sustainability.

32. In that context, there is a need to avoid undue increases in fiscal spending. During 2009, fiscal outlays grew rapidly, reflecting the implementation of the first phase of the civil service wage reform, higher pension payments, and sharp increases in subsidies and in purchases of goods and services. The staff is concerned that the full implementation of the civil service reform in the months ahead could lead to excessive pressure on resources and set off an inflationary process. Delaying the implementation of the second stage of the civil service reform by at least one year, and implementing it gradually thereafter over a period of several years is advisable. The staff also recommends bringing the growth of other current outlays under control. It advises against weakening tax collections through undue reductions in the corporate tax rate and supports the authorities’ efforts to strengthen tax administration, including with technical assistance from CARTAC.

33. Monetary policy appears appropriate. However, if fiscal spending is not restrained in the months ahead, or if the rate of spending growth increases, there may be a need for an early tightening in monetary conditions. The staff encourages the authorities to develop a secondary market for government securities and gradually move over the medium term toward relying on open-market operations as the main monetary policy tool. Staff estimates suggest that the Suriname dollar may be slightly overvalued, although the computations suggest that this is within the margin of error. The staff encourages the authorities to work toward gradually unifying the official and commercial market exchange rates, and to introduce more flexibility in the exchange rate regime. The staff does not recommend approval of the multiple currency practices, as there is no timetable for their removal.

34. The Surinamese banking sector has weathered the global financial crisis reasonably well. While banks generally appear well capitalized, NPL ratios have increased slightly and conditions in individual banks vary considerably. The staff encourages the authorities to promptly recapitalize the two undercapitalized small state-owned banks and to resolve the situation in CLICO-Suriname expeditiously and at a minimum cost to the budget. It welcomes the authorities’ plans to strengthen the supervision of the financial sector and supports their request for an FSAP in the near future.

35. The medium-term prospects are favorable, with large investment projects in infrastructure, and in the mining and oil sectors. Over the medium term, the external current account balance is expected to shift to a robust surplus, benefiting from a sustainable boost in exports from large mining projects in the alumina and gold sectors. The staff encourages the authorities to continue financing public sector investments through foreign concessionary financing. It also endorses the authorities’ plan to increase Suriname’s share in the exploitation of its natural resources. Such investments can be justified by the country’s low public debt ratio and comfortable reserve position, and would ensure a greater flow of revenue to the government for the benefit of the broad population. The authorities are encouraged to intensify their efforts to simplify business licensing requirements, which will help promote investment.

36. The staff recommends that the next Article IV consultation with Suriname be held on the standard 12-month cycle.

Table 1.Suriname: Selected Economic Indicators
Est.Proj.
200520062007200820092010
(Annual percentage change, unless otherwise indicated)
Real sector
GDP at current prices (US$ millions) 1/1,7882,1292,4243,058
GDP at current prices (SRD millions) 1/4,9005,8456,6538,3948,1309,134
Real GDP 1/4.43.85.26.02.54.0
Nominal GDP 1/20.819.313.826.2-3.112.3
GDP deflator15.614.98.219.0-5.58.0
Consumer prices (end of period)15.84.78.49.35.75.5
Consumer prices (period average)9.911.36.414.60.75.5
Exchange rate (end of period)2.742.752.752.75
Money and credit
Banking system net foreign assets3.737.549.126.16.29.1
Broad money11.721.130.510.919.112.9
Private sector credit25.127.631.236.312.913.7
Deposit dollarization ratio (percent) 2/57.256.355.453.853.7
Credit dollarization ratio (percent) 2/50.152.951.046.342.6
Public sector credit (percent of GDP)-0.1-6.8-10.9-18.910.7
(In percent of GDP, unless otherwise indicated)
Savings and investment
Private sector balance (savings-investment)-12.36.64.62.0-0.2-2.2
Public sector balance-0.70.93.02.0-1.8-3.5
Savings3.74.27.97.03.32.2
Investment4.53.45.05.05.15.7
Foreign savings13.0-7.5-7.5-3.92.05.7
Central government
Revenue and grants27.627.430.527.531.227.8
Total expenditure30.128.728.325.633.131.3
Of which: noninterest current expenditure23.223.321.919.926.624.0
Statistical discrepancy1.72.20.70.00.00.0
Overall balance-0.70.93.02.0-1.8-3.5
Net domestic financing0.1-0.4-2.8-2.32.01.6
Net external financing0.6-0.4-0.20.3-0.21.9
Total public debt36.630.221.117.919.221.0
Domestic15.311.98.87.610.611.1
External21.418.312.210.38.610.0
Of which: arrears7.97.15.54.91.31.3
External sector
Terms of trade (percent change)-0.8-2.8-0.61.01.6-0.2
Current account balance-13.07.57.53.9-2.0-5.7
Change in reserves (- increase)-1.6-4.9-7.0-7.6-3.8-1.1
Gross international reserves (US$ millions) 3/161264433666778813
In months of imports1.62.73.64.25.24.8
Foreign reserves coverage 2/4/87.199.3119.7143.4153.2
Sources: Suriname authorities; and IMF staff estimates and projections.
Table 2.Suriname: Central Government Operations

(In percent of GDP)

Est.Proj.
200520062007200820092010
Revenue and grants27.627.430.527.531.227.8
Revenue25.926.028.625.227.925.0
Direct taxes11.010.411.710.59.39.5
Indirect taxes10.311.512.110.610.810.9
Nontax revenue4.64.04.84.17.84.6
Grants1.71.41.92.43.32.8
Expenditure and net lending30.128.728.325.633.131.3
Current expenditure25.525.123.320.627.925.0
Wages and salaries 1/11.010.410.49.012.111.2
Goods and services6.26.35.25.07.56.6
Subsidies and transfers6.06.66.35.87.06.2
Interest2.41.81.40.71.31.0
Domestic1.61.20.90.50.50.7
External0.80.60.60.20.80.3
Net lending0.10.20.00.00.00.6
Capital expenditure4.53.45.05.05.15.7
Statistical discrepancy1.72.20.70.00.00.0
Primary balance1.62.74.42.7-0.5-2.6
Overall balance-0.70.93.02.0-1.8-3.5
Excluding exceptional interest and grants 2/-0.70.93.02.0-2.8-3.5
Financing0.7-0.9-3.0-2.01.83.5
Net domestic financing0.1-0.4-2.8-2.32.01.6
Commercial banks-0.20.4-0.9-0.9-0.50.2
Central bank0.1-1.1-2.0-1.52.01.0
Other domestic private sector0.20.20.20.20.40.4
Net external financing0.6-0.4-0.20.3-0.21.9
Amortization 3/-1.8-1.9-5.5-0.6-4.0-0.6
Disbursements2.41.41.20.92.32.5
Bilateral agencies1.00.30.10.62.02.2
Multilateral agencies1.40.71.10.30.30.3
Foreign commercial banks-1.00.00.00.00.00.0
Foreign nonbanks, including trade credit0.70.00.10.00.00.0
Exceptional external financing4/4.21.5
Memorandum items:
Primary expenditure27.726.926.924.931.730.4
Non-mineral balance-8.1-6.8-5.1-7.2-11.1-10.9
Non-mineral primary balance-5.7-5.0-3.7-6.5-9.7-10.0
Mineral revenue7.47.78.19.19.37.4
Public debt36.630.221.117.919.221.0
Sources: Suriname authorities; and IMF staff estimates and projections.
Table 3.Suriname: Balance of Payments

(In millions of U.S. dollars)

Est.Proj.
2005200620072008200920102011201220132014
Current account-233160183121-59-184-157-127206287
Trade balance-2029925620139-342684483607
Exports, f.o.b.8541,2051,3811,7391,4911,6181,7691,8932,2572,498
Of which: alumina, gold, and petroleum7901,1351,3051,6471,4021,5261,6751,7962,1572,395
Imports, f.o.b.-874-906-1,125-1,538-1,452-1,652-1,743-1,809-1,774-1,891
Services, net-151-35-62-80-79-98-117-134-162-184
Exports204234253285267278287297309320
Imports-355-269-315-365-346-376-404-432-470-505
Income, net-85-140-89-88-101-137-154-168-210-234
Private sector-78-131-75-81-77-127-141-152-193-216
Public sector-7-9-14-7-24-10-13-16-17-18
Of which: NFPS interest-7-9-14-7-24-10-13-16-17-18
Current transfers, net22367787828588919598
Capital and financial account16525-9715917121921119034-35
Capital account (public sector grants)3133170731459146332711
Of which: debt relief10146
Financial account133-8-26786261281651577-46
Public sector11-9-1059766150502416
Disbursements43312927688070705050
Amortization-32-40-134-17-117-19-20-20-26-34
SDR allocations000012500000
Private sector1222-16177-5068115107-16-62
Foreign direct investment117138141169142209268272231200
Other5-136-303-93-192-142-153-165-247-262
Errors and omissions97-8183-47000000
Overall balance29104169232112355463240252
Change in reserves (- = increase)-29-104-169-232-112-35-54-63-240-252
Memorandum items:
Stock of gross international reserves 1/1602644336667788138679301,1711,422
In months of imports of goods and services1.62.73.64.25.24.84.85.06.37.1
Current account balance (in percent of GDP)-13.07.57.53.9-2.0-5.7-4.4-3.34.75.9
GDP in current US dollars1,7942,1302,4243,0582,9623,2363,5303,9114,3924,865
Sources: Suriname authorities; and IMF staff estimates and projections.
Table 4.Suriname: Summary Accounts of the Banking System
Proj.
200520062007200820092010
(In millions of Surinamese dollars)
Net foreign assets1,0351,4222,1202,6742,8393,098
Net international reserves4407251,1901,8272,1352,294
Net other foreign assets595697931847704804
Net domestic assets1,1381,2101,3041,1391,6361,953
Net claims on the public sector244107-158-757-381-379
Central government (net)386347153-5175185
Rest of the public sector (net)-142-240-312-706-456-564
Credit to the private sector9581,2231,6042,1862,4672,806
Claims on other financial institutions000000
Net unclassified assets472388-16-172-196
Official capital and surplus-111-142-229-274-278-278
Liabilities to the private sector2,1722,6323,4253,8134,4745,050
Broad money2,0032,4253,1653,5094,1804,720
Monetary liabilities6658531,0841,2451,5251,714
Currency in circulation279341409465571641
Demand deposits3865126757799551,073
Quasi-money (including gold certificates)352399553627769887
Foreign currency deposits9861,1731,5281,6371,8862,119
Other liabilities169207260304294331
(Percent changes, unless indicated otherwise)
Liabilities to the private sector12.321.230.111.317.412.9
Broad money11.721.130.510.919.112.9
Money7.528.427.014.822.612.3
Quasi-money17.513.338.513.422.615.4
Foreign currency deposits12.618.930.37.215.212.3
Credit to the private sector25.127.631.236.312.913.7
In percent of GDP19.620.924.126.030.330.7
In percent of beginning of period M253.461.066.169.170.367.1
Change in net credit to the public sector (% of beginning of period M2)-0.1-6.8-10.9-18.910.70.0
Broad money (percent of GDP)40.941.547.641.851.451.7
Memorandum items:
Deposit dollarization ratio (percent) 1/3/57.256.355.453.853.7
Credit dollarization ratio (percent) 2/3/50.152.951.046.342.6
Domestic currency interest rate spread (percentage per annum)9.68.76.65.35.2
Lending rate (nominal, end of period) 3/16.315.312.911.711.5
Deposit rate (nominal, end of period) 3/6.76.66.36.46.3
Lending rate (real) 3/0.410.14.22.215.1
Deposit rate (real) 3/-7.91.8-1.9-2.79.7
Foreign currency (US$) interest rate spread (percentage per annum)7.17.06.66.56.4
Lending rate 3/9.79.89.79.59.5
Deposit rate 3/2.62.83.13.03.1
Reserve requirement for domestic deposits (percent) 3/30.027.025.025.025.0
Effective reserve requirement for domestic deposits (percent) 3/4/22.718.315.415.116.5
Reserve requirement for foreign currency deposits (percent)33.333.333.333.333.3
Sources: Central Bank of Suriname; and IMF staff estimates and projections.
Table 5.Suriname: Financial System Structure and Banking System Soundness Indicators 1/
2005200620072008Sep-09
Number 2/
Banks88888
Large banks33333
Small banks55555
Reporting non-bank financial institutions
Pension funds2418181818
Insurance companies812101010
Credit unions and cooperatives610566
(In percent of total)
Assets100.0100.0100.0100.0
Banks68.171.172.773.5
Large banks57.159.560.760.7
Small banks11.011.612.012.8
Pension funds21.618.116.614.4
Insurance companies8.38.78.59.7
Credit unions and cooperatives2.02.12.22.4
Deposits
Banks100.0100.0100.0100.0100.0
Large banks78.478.277.376.576.7
Small banks21.621.822.723.523.3
(In percent)
Capital Adequacy
Regulatory capital to risk-weighted assets (*)10.111.710.510.110.4
Regulatory Tier I capital to risk-weighted assets (*)8.19.78.98.79.2
Capital (net worth) to assets5.05.55.35.65.4
Asset composition
Sectoral distribution of loans to total loans (*)
Agriculture5.14.83.74.24.3
Manufacturing9.69.18.67.96.3
Commerce32.930.929.126.925.9
Housing construction14.415.016.517.518.0
Other38.040.242.143.545.6
Asset quality
Foreign currency loans to total loans49.652.549.645.842.6
NPLs to gross loans (*)13.511.98.77.98.5
NPLs net of provisions to capital (*)80.265.147.249.857.0
Large exposures to capital (*)55.780.7110.0104.5107.2
Earnings and Profitability
ROA (*)3.03.13.12.81.9
ROE (*)40.844.256.152.735.0
Interest margin to gross income (*)73.073.570.272.967.0
Noninterest expenses to gross income (*)63.061.655.756.256.2
Personnel expenses to noninterest expenses59.659.261.259.860.9
Trading and fee income to total income31.032.230.828.134.5
Spread between reference loan and deposit rates10.510.88.48.18.1
Liquidity
Liquid assets to total assets (*)31.132.133.932.630.5
Liquid assets to total short-term liabilities (*)52.854.958.058.455.0
FX liabilities to total liabilities48.650.751.449.648.5
Source: Central Bank of Suriname.
Appendix I. Illustrative Medium-Term Projections and Debt Sustainability Analyses (DSAs)

The staff conducted debt sustainability analyses, based on a plausible medium-term outlook that was discussed with the authorities.

A. Government Finances

Key assumptions

Revenue is projected to decline over the next three years, and rebound starting in 2013, when the new bauxite and gold mining projects come on stream. Revenue collections will be further boosted by the government’s expected participation in the gold and alumina sectors, and higher revenue from the state oil company after the completion of its new refinery. In the outer years, indirect revenue collections are also assumed to increase marginally.

Meanwhile, the fiscal position will gradually improve through fiscal consolidation. FISO-2 is assumed to be implemented gradually over a number of years, capping the annual nominal wage growth at about ten percent. Spending on goods and services and on subsidies and transfers will also be brought under control. The improvement in revenue collections, starting in 2013, will help offset the expected drying up of financial assistance under the Netherlands Treaty Fund. The latter will lead to a reduction in grants-financed capital expenditure. In contrast, more spending associated with the government’s participation in the mining sector is expected, which is reflected in higher net lending during 2010-13. The overall fiscal deficit is projected to gradually decline to 2.7 percent of GDP in 2012. Once higher mineral revenues kick in, starting in 2013, the fiscal balance is expected to improve rapidly and turn positive in 2014.

The DSA assumes continuation of prudent public debt management. In particular, external debt is assumed to be contracted in line with the country’s implementation capacity and at favorable terms.

Assessment of the fiscal DSA

public debt remains manageable, although the debt burden could increase considerably under standard shocks. The public debt-to-GDP ratio is projected to increase moderately over the next few years, before declining in 2013, when higher mineral revenues are expected. During the whole projection period the debt-to-GDP ratio is expected to remain below 23 percent. On the other hand, the debt burden is sensitive to standard shocks. For example, a permanent ½-standard-deviation shock applied to the real interest rate or primary fiscal balance could push up the debt-to-GDP ratio to 32 percent.

B. Balance of payments

Key assumptions

The medium-term outlook is based on the assumption of a broad continuation of present policies, amid a sizeable increase in output beginning in 2013, as three major new projects in the non-renewable resources sector come on line. The main assumptions are the following:

  • Potential output is estimated at 5 percent. The economy will be growing below potential up to 2012, while alumina production remains below production capacity and the global recovery slowly gains momentum. In 2013, SURALCO is expected to increase its production of alumina back to the 2008 level. In addition, Staatsolie’s new enhanced refining capacity will come on stream in the same year. Finally, the new gold mine SURGOLD is assumed to start production in the Nassau region in 2013. These projects will boost GDP above potential by 2½ percent.

  • Inflation is expected to remain steady, at 5½ percent a year.

  • The increase in imports of capital and intermediate inputs related to the three projects outlined above will keep the current account in deficit through 2012. The reserve coverage will nevertheless remain stable, at about 5 months of imports, as capital inflows from FDI remain robust. In 2013, the current account balance will turn positive and reach 4¾ percent of GDP. The reserve coverage will rise to 7 months of imports by 2014.

  • The steady decline in grant inflows reflects the drying up of financial assistance from the Netherlands Treaty Fund.

Assessment of the external DSA

The path of the external debt remains flat at around 10 percent of GDP throughout the projection period. This debt represents less than half of the total public debt. The debt ratio is particularly sensitive to a non-interest current account shock, as the three major projects in the non-renewable resource sector are undertaken through 2012, increasing the current account deficit and the financing needs. Should the external current account balance be weaker than assumed, the external debt would reach 33 percent at the end of the projection period. On the other hand, a real depreciation shock of 30 percent would only raise the external debt to 18 percent of GDP by 2014.

Appendix 1-Table 1.Suriname: Medium-Term Outlook
Est.Proj.
20072008200920102011201220132014
(Annual percentage change, unless otherwise indicated)
Real economy
Real GDP 1/5.26.02.54.04.75.57.56.0
Nominal GDP 1/13.826.2-3.112.312.110.812.310.8
Consumer prices (period average)6.414.60.75.55.55.55.55.5
(In percent of GDP)
Savings and investment balances
Private sector balance (savings-investment)5.32.0-0.2-2.2-1.5-0.66.05.7
Public sector balance2.21.9-1.8-3.5-2.9-2.7-1.30.2
Savings7.27.03.32.21.21.02.13.2
Investment5.05.05.15.74.13.73.43.0
Foreign savings-7.5-3.92.05.74.43.3-4.7-5.9
Central government
Revenue and grants30.527.531.227.826.025.125.425.4
Total expenditure 2/27.625.633.131.329.027.826.725.3
Of which: noninterest current expenditure21.919.926.624.022.121.521.221.2
Overall balance3.02.0-1.8-3.5-2.9-2.7-1.30.2
Net domestic financing-2.8-2.32.01.61.51.40.8-0.5
Net external financing-0.20.3-0.21.91.41.30.50.3
Total public debt21.117.919.221.021.722.321.220.1
(In percent of GDP, unless otherwise indicated)
External sector
Current account7.53.9-2.0-5.7-4.4-3.34.75.9
Merchandise exports, f.o.b.57.056.950.350.050.148.451.451.4
Merchandise imports, f.o.b.-46.4-50.3-49.0-51.0-49.4-46.3-40.4-38.9
Capital and financial account-7.71.8-4.5-2.9-3.0-3.0-0.3-7.4
Of which: foreign direct investment5.85.54.86.57.67.05.34.1
Gross international reserves (US$ millions)4336667788138679301,1711,422
in months of imports3.64.25.24.84.85.06.37.1
Source: Suriname authorities; and IMF staff estimates and projections.
Appendix 1-Table 2.Suriname: Public Sector Debt Sustainability Framework, 2004-2014

(In percent of GDP, unless otherwise indicated)

ActualProjections
20042005200620072008200920102011201220132014Debt-stabilizing

primary

balance 9/
1Baseline: Public sector debt 1/39.136.630.221.117.919.221.021.722.321.220.1-0.9
o/w foreign-currency denominated25.621.418.312.210.38.610.010.310.610.09.3
2Change in public sector debt-1.9-2.4-6.5-9.1-3.11.31.80.70.6-1.1-1.1
3Identified debt-creating flows (4+7+12)-4.4-4.1-4.6-5.9-6.32.41.40.70.6-1.1-2.2
4Primary deficit0.60.1-0.5-3.6-2.60.52.61.91.60.2-1.2
5Revenue and grants26.427.627.430.527.531.227.826.025.125.425.4
6Primary (noninterest) expenditure27.027.726.926.924.931.730.427.926.725.624.2
7Automatic debt dynamics 2/-5.0-4.1-4.1-2.2-3.71.9-1.2-1.2-1.0-1.3-1.0
8Contribution from interest rate/growth differential 3/-5.8-4.3-4.1-2.2-3.71.9-1.2-1.2-1.0-1.3-1.0
9Of which contribution from real interest rate-3.0-2.9-2.9-0.9-2.72.4-0.5-0.30.10.20.2
10Of which contribution from real GDP growth-2.8-1.4-1.2-1.4-1.0-0.5-0.7-0.9-1.1-1.5-1.1
11Contribution from exchange rate depreciation 4/0.90.20.00.00.0
12Other identified debt-creating flows0.00.00.00.00.00.00.00.00.00.00.0
13Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
14Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
15Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.0
16Residual, including asset changes (2-3) 5/2.51.6-1.9-3.23.2-1.10.40.00.00.01.1
Public sector debt-to-revenue ratio 1/147.9132.7110.169.065.161.575.783.489.083.678.8
Gross financing need 6/12.412.29.810.02.98.96.86.86.55.13.6
in billions of U.S. dollars184.7219.0208.1242.087.3262.8219.5241.6253.0222.7175.0
Scenario with key variables at their historical averages 7/19.215.512.310.08.28.2-2.2
Scenario with no policy change (constant primary balance) in 2009-201419.219.018.318.017.418.1-0.8
Key Macroeconomic and Fiscal Assumptions Underlying Baseline
Real GDP growth (in percent)8.54.43.85.26.02.54.04.75.57.56.0
Average nominal interest rate on public debt (in percent) 8/5.07.45.95.44.27.35.65.75.75.65.6
Average real interest rate (nominal rate minus change in GDP deflator, in percent)-7.9-8.3-9.0-2.8-14.812.8-2.4-1.30.71.11.1
Nominal appreciation (increase in US dollar value of local currency, in percent)-3.3-0.9-0.20.00.0
Inflation rate (GDP deflator, in percent)12.915.614.98.219.0-5.58.07.05.04.54.5
Growth of real primary spending (deflated by GDP deflator, in percent)13.36.90.95.1-1.830.5-0.3-3.70.83.10.3
Primary deficit0.60.1-0.5-3.6-2.60.52.61.91.60.2-1.2

Appendix I-Figure 1.Suriname: Public Debt Sustainability: Bound Tests 1/

(Public debt in percent of GDP)

Citation: 2010, 44; 10.5089/9781451835342.002.A001

Sources: International Monetary Fund; country desk data; and staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.

2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.

3/ One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2009, with real depreciation defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).

Appendix 1-Table 3.Suriname: External Debt Sustainability Framework, 2004-2014

(In percent of GDP, unless otherwise indicated)

ActualProjections
20042005200620072008200920102011201220132014Debt-stabilizing

non-interest

current account 6/
Baseline: External debt25.621.418.312.210.38.610.010.310.610.09.3-4.0
Change in external debt-4.6-4.2-3.1-6.0-1.9-1.71.40.30.3-0.6-0.7
Identified external debt-creating flows (4+8+9)-0.62.3-17.4-15.6-12.0-3.1-1.1-3.6-4.2-10.7-10.6
Current account deficit, excluding interest payments7.910.6-9.9-9.5-4.70.54.93.52.3-5.7-7.0
Deficit in balance of goods and services3.49.5-12.4-8.0-4.01.34.22.61.3-7.3-8.7
Exports61.859.267.667.466.259.460.258.256.058.457.9
Imports65.268.755.259.462.260.764.460.857.351.149.2
Net non-debt creating capital inflows (negative)-6.1-6.6-6.5-5.8-5.5-4.8-6.7-7.6-7.0-5.3-4.1
Automatic debt dynamics 1/-2.4-1.7-1.0-0.3-1.71.20.60.50.40.30.5
Contribution from nominal interest rate2.32.52.41.90.81.40.90.90.91.01.1
Contribution from real GDP growth-2.2-0.9-0.7-0.8-0.6-0.3-0.3-0.4-0.5-0.7-0.5
Contribution from price and exchange rate changes 2/-2.5-3.3-2.7-1.4-2.0
Residual, incl. change in gross foreign assets (2-3) 3/-4.0-6.514.39.610.11.32.53.94.510.09.9
External debt-to-exports ratio (in percent)41.436.127.018.115.614.416.617.718.917.116.1
Gross external financing need (in billions of US dollars) 4/0.20.3-0.10.0-0.10.20.20.20.10.10.1
in percent of GDP11.814.8-5.6-2.0-3.45.96.55.03.81.61.8
Scenario with key variables at their historical averages 5/8.69.911.112.313.514.7-4.7
Key Macroeconomic Assumptions Underlying Baseline
Real GDP growth (in percent)8.54.43.85.26.02.54.04.75.57.56.0
GDP deflator in US dollars (change in percent)9.114.614.78.219.0-5.52.27.05.04.54.5
Nominal external interest rate (in percent)8.911.613.211.98.213.511.510.69.810.612.0
Growth of exports (US dollar terms, in percent)52.514.636.013.623.8-13.17.88.46.617.19.9
Growth of imports (US dollar terms, in percent)13.226.1-4.422.632.0-5.512.85.84.40.16.8
Current account balance, excluding interest payments-7.9-10.69.99.54.7-0.5-4.9-3.5-2.35.77.0
Net non-debt creating capital inflows6.16.66.55.85.54.86.77.67.05.34.1

Appendix I-Figure 2.Suriname: External Debt Sustainability: Bound Tests 1/

(External debt in percent of GDP)

Citation: 2010, 44; 10.5089/9781451835342.002.A001

Sources: International Monetary Fund; country desk data; and staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.

2/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.

3/ One-time real depreciation of 30 percent occurs in 2009.

Appendix II. Summary of Informational Annexes

Discussions

The 2009 Article IV consultation discussions were held in Paramaribo during October 20-30. The mission met with the Minister of Finance, Mr. Humphrey Hildenberg; the Governor of the Central Bank of Suriname, Mr. Andre E. Telting; the Minister of Natural Resources, Mr. Gregory Rusland; the Minister of Planning and Development Cooperation, Mr. Ricardo van Ravenswaay; the Minister of Internal Affairs, Mr. Mauritz Hassankhan; the Minister of Agriculture, Mr. Kermechend Raghoebarsing; senior staff of several government ministries and agencies; and representatives of the private sector, labor, the diplomatic community, and the opposition. The staff team comprised Gamal El-Masry (Head), Yi Wu, and Nazim Belhocine (all WHD). Ms. Anne Joseph (OED) joined most of the policy meetings.

Fund Relations and Exchange Arrangements

The last Article IV consultation with Suriname was concluded on June 2, 2008 (IMF Country Report No. 08/131). The country has accepted the obligations of Article VIII, Sections 2, 3, and 4. Suriname has a dual exchange rate regime, comprising an official and a commercial foreign exchange rate. The official rate (SRD 2.745 per US$1) is used for official transactions such as debt service. The commercial rate is used by commercial banks and cambios. The commercial SRD/US$ rate has been very close to the official rate in recent years at the suasion of the CBvS. Suriname maintains two multiple currency practices—one arising from the potential for the spread between the official and the commercial rates to exceed two percent, and the other from the existence of a special rate for imports of baby milk.

Relations with the Inter-American Development Bank (IADB) and World Bank Group

The IADB is the largest multilateral lender operating in Suriname at this time. As of November 2009, Suriname’s outstanding debt to the IADB stood at US$69 million. The most recent IADB Country Strategy with Suriname was approved in 2007 and covers the period 2006-10. The main thrust of the IADB strategy has been to support policy and institutional reforms as the basis for promoting private-sector-led growth. In addition, this approach has been supported by an active technical cooperation program.

World Bank involvement in Suriname has been limited. The last activity consisted of setting up an investment promotion agency in October 2004.

Statistical Issues

Data provision has some shortcomings, but is broadly adequate for surveillance. Although the quality and timeliness of economic statistics has been improving in recent years, national accounts estimates are published with very long lags, and there is still no breakdown of the national accounts from the expenditure side. In addition, data on external services and private capital inflows are subject to significant deficiencies. Due to capacity limitations, data on the country’s international investment position are not available

Banks are allowed to hold up to 10 percent of the reserve requirement on domestic deposits in mortgages for low-income housing.

The spread between the official and commercial rates is generally less than 2 percent.

All capital transactions require the approval of the Foreign Exchange Commission (FEC). Such controls apply to the contracting of foreign capital and money market instruments, derivatives, and credit. In particular, all inward or outward real estate transactions are subject to approval by the FEC. These capital controls may also explain in part the spread between the commercial and unofficial parallel market rates.

Despite the sharp decline in U.S. interest rates since 2007, foreign currency deposit rates in Suriname have remained broadly unchanged over the past three years, at 3-3½ percent. Lending rates on operations in U.S. dollars have also remained broadly unchanged, at 9½-10 percent.

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