1. The Surinamese authorities are thankful to the Executive Board of Directors for their balanced assessment of the economic and financial developments and outlook of Suriname, and to the Article IV and the Financial Sector Assessment Program (FSAP) teams for the constructive discussions. The Article IV report, in spite of its unwarranted negative tone, recognizes Suriname’s favorable growth perspectives despite the challenges posed by lower commodity prices. It also acknowledges the significant efforts toward fiscal consolidation in 2014, in which the Surinamese authorities are determined to persevere. The first FSAP assessment is welcomed by the authorities. Its recommendations will be used as inputs to the ongoing efforts to modernize and strengthen the financial sector.
Recent macroeconomic developments and outlook
2. Suriname is one of the fastest growing countries in the Caribbean region and South America. The economy continues to expand at healthy rates, and the authorities forecast real GDP growth rates between 4 and 5 percent in the next few years on account of robust domestic investments, notably in the construction sector, and the large investments in oil and mining that will come on-stream in the period 2015–17.
3. In the oil sector, the start of operations of a new large refinery will all but eliminate oil derivative imports, improving the current account balance by an estimated 2 percent of GDP from 2015. A new gold mining project – the Merian Gold Project, involving investments of about 20 percent of GDP – will increase gold exports by around 8 percent of GDP starting in 2017. This project is a partnership between the US-based Newmont Mining Corporation and the Government of Suriname. While these ongoing projects will have an extraordinary effect on the balance of payments of Suriname, the staff decided to devote unusually little space to them in the report.
4. The authorities have embarked on a process of fiscal consolidation in 2014, following the slippages of 2013. In the first eight months of 2014, the deficit was reduced to 2.9 percent of the GDP projected for the year1, compared to 4.7 percent of GDP in the same period of 2013. Such improvement was entirely due to cuts in expenditure, as revenue has stagnated in nominal terms with the continued fall in fiscal receipts from the gold sector. Measures to enhance revenue have also been taken – such as increasing the royalty rate on small-scale gold miners, higher taxation on logging and mining concessions, and sales of government land to lease holders – but will only start to have an effect in the second half of 2014 due to the usual implementation and collection lags. Fiscal consolidation is taking place, as recognized by staff, but the report does not acknowledge the fact that this is happening in a pre-election year and was set in motion before the Article IV mission arrived in Suriname. More recently, some politically difficult decisions have been made, such as a gradual phasing out of electricity subsidies, which currently amount to about 2 percent of GDP. With such decisions, the authorities reaffirm their commitment to take adjustment measures as needed even in the run-up to the general elections of May 2015.
5. To correct for the imbalances of 2013 and arrest the decline in international reserves, the Central Bank increased the reserve requirement ratios on domestic and foreign currency deposits by 5 percentage points in late-2013 and the Central Bank will not hesitate to further tighten monetary policy if needed. To render monetary policy more agile, the Central Bank is broadening its monetary policy toolkit, modernizing the domestic payment system, and deepening money and capital markets. In the coming months, the introduction of open market operations will allow the Central Bank to better control liquidity.
6. Suriname is amongst the countries in the Caribbean with the lowest debt to GDP ratio. The Government’s external liabilities consist mainly of debt to multilateral creditors and official creditors. Commercial loans are negligible. In this respect, the 25 percent public sector participation in the Merian Gold Project will be owned and operated by the state-owned energy corporation Staatsolie.
The financial sector: Suriname’s first FSAP
7. The Surinamese authorities welcome the completion of the first FSAP. It comes after many years – and much insistence on the part of the Surinamese authorities and their representatives at the IMF. The authorities wish to express their appreciation to the staff for the significant effort that was undertaken and the meticulous care with which the FSAP was carried out. The authorities agree with the thrust of the conclusions, and intend to make the best use of the FSAP as guidance in their ongoing efforts to modernize and strengthen the financial system.
8. Prior to the FSAP mission, the Central Bank had embarked on an extensive reform program which included upgrading bank supervision. Some of the measures already taken were the introduction of the CAMELS2 approach to risk assessment and the strengthening of the classification of bank loans and credit risk frameworks. In light of the FSAP, a Central Bank inter-departmental working group has been created and tasked with amending or refocusing the existing reform program and with coordinating the implementation of the FSAP’s recommendations. The Central Bank implemented new capital rules as of July 1, 2014, increasing the capital adequacy ratio from 8 to 10 percent. Moreover, the Bank is preparing to issue financial stability reports regularly, starting in 2015. The Caribbean Financial Action Task Force follow-up reports recognize the significant progress Suriname has made and is still making in its Anti-Money Laundering/Combating the Financing of Terrorism framework.
9. The current administration has been committed from the very beginning to social inclusion and development. In pursuit of this guiding principle, the authorities have recently adopted legislation on a minimum wage, on national pensions, and a comprehensive health insurance reform. The adoption of these laws improves sustainable social equality, which has been a hallmark of this administration’s policy thrust. The authorities have been mindful of the possible fiscal costs of these reforms. Nevertheless, given the broad-based support these laws have gathered, the authorities are convinced that reallocations in the budget could create space for any unplanned additional financing related to these reforms in order to preserve fiscal sustainability.
10. In light of the historically high dependency of the economy on the mineral sector and of many episodes of volatility in commodity prices, the diversification of the economy is of high priority. In this regard, the Vice-President of Suriname, a former chairman of the Chamber of Commerce, has been tasked with coordinating the enhancement of the business environment. The Competitiveness Unit Suriname (CUS) was created under the Vice-Presidency to lead this process. Efforts currently underway focus on modernizing the legal framework for doing business. The Council of Ministers has recently approved draft laws on competition policy, limited liability companies, and electronic publication of the registration of new firms. Furthermore, 16 new laws in areas ranging from protection of intellectual property to access to finance for small and medium-sized enterprises (SMEs) are currently being drafted.
11. Global Competitiveness and Doing Business reports identify low access to financing as a key constraint for firms in Suriname. Given the links between access to finance and competiveness, the CUS elaborated a roadmap which identified three major areas for development. Initiatives in these three areas are already underway, including training programs for SMEs and support to banks’ own training programs focused on SMEs. In addition, a law on secured transactions has just been drafted and will pave the way for the creation of a registry of movable assets. Finally, a draft law for the establishment of a credit bureau is being finalized.
12. The Central Bank is spearheading financial education. It carries out several projects in this area on a regular basis, coordinated by its “Training Institute and Study Center”. Those projects target four groups: the young, the financial sector, SMEs, and the general public. The Central Bank has participated this year for the first time in the Global Money Week (GMW), an initiative of the Child and Youth Finance International Movement (CYFI) aimed at enhancing the financial capabilities of children and youth. The Bank was nominated for an award and was invited to share its experience on the CYFI’s high level stakeholder’s forum at the United Nations. Preparations for the 2015 GMW have commenced. This year, a financial literacy baseline study will be executed, which will result in a financial education strategic plan. The Central Banks of Suriname and Trinidad and Tobago have recently signed a memorandum of understanding regarding a “Knowledge Transfer” program aimed at financial education for SMEs. We encourage staff to focus on this issue in next year’s Article IV consultation.
13. Capacity building is a major and ongoing challenge for small states. The authorities highly appreciate the Fund’s training and technical assistance. Surinamese professionals have gained enormously from the support the Fund has provided in the field of statistics, monetary policy design, and others. Further capacity building efforts will be required in order to follow staff’s recommendations, including those from the FSAP. The Surinamese authorities will seek continued Fund’s technical support in their development endeavors.
The National Planning Office of Suriname projects real GDP growth at 3.5 percent in 2014.
Where the six letters stand for (C)apital adequacy, (A)sset quality, (M)anagement competence, (E)arning ability, (L)iquidity risk, and (S)ensitivity to market risk.