Journal Issue

Suriname: Staff Report for the 2014 Article IV Consultation—Supplementary Information

International Monetary Fund. Western Hemisphere Dept.
Published Date:
October 2014
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Staff wishes to highlight some developments supplementary to the staff report issued to the Board. The passage of the minimum wage law alters the thrust of the staff appraisal.

1. Recent available high frequency indicators are broadly in line with staff projections. Bank credit growth to the private sector has continued trending down to 13.4 percent (y/y) in July from 15 percent in April. June data show that public spending remained contained, amounting to about 11.7 percent of annual GDP in H1 2014 compared to the projected 28.2 percent of GDP for the full year. International reserves remain broadly stable, and stood at about US$800 million in end-August, close to 4 months of imports. Foreign exchange market conditions have remained orderly. Inflation has risen moderately to almost 4 percent in July, primarily reflecting movements in food and fuel prices.

2. In line with staff’s recommendations, the authorities announced a phased withdrawal of electricity subsidies on September 7. Electricity tariffs for large corporations and foreign embassies are to rise from US$0.06/kWh to market rates (US$0.26/kWh), while rates for households will rise from US$0.06/kWh to US$0.08/kWh, implying that households will still enjoy a sizable electricity subsidy. The authorities have indicated that further adjustments to electricity subsidies for households could come after the completion of a study on its distributional impact. The exact timing for the transition to the new tariff rates was not mentioned.

3. The authorities introduced a minimum wage on August 28, effective January 2015, starting around the bottom end of the public sector wage scale, but rising by 43 percent in the next two years. A tri-partite labor council was also established to make future recommendations about the minimum wage and other labor market policies. Sizable data gaps on wage distribution make it difficult to accurately assess the impact of this measure, but the authorities’ view is that the initial level will not significantly affect the distribution of wages in the public and formal private sector, which has some support in staff’s past assessments though these are hampered by data constraints.1

4. However, the substantial increases planned for the next two years raise concerns, particularly given recent external pressures and fiscal slippages, and staff would advise deferring further increases. Moreover, the ability of the new labor council to maintain the minimum wage at a level that does not undermine competitiveness is untested. Staff are also concerned that this measure could hurt job creation among the low-skilled or drive some low-wage activities underground, which would be detrimental to the very people the law is designed to help. It would be advisable to gather more data about the distribution of wages to inform the decision on the appropriate minimum wage.

Details of staff’s past assessment can be found in chapter V of the 2013 Selected Issues Paper, as well as the 2013 Staff Report and chapter II of the 2014 Selected Issues Paper.

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