Abstract
IMF Country Report No. 21/280
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IMF Country Report No. 21/280
SURINAME
REQUEST FOR AN EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY—PRESS RELEASE; STAFF REPORT; STAFF STATEMENT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SURINAME
December 2021
In the context of the Request for an Extended Arrangement under the Extended Fund Facility, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on December 22, 2021, following discussions that ended on October 21, 2021, with the officials of Suriname on economic developments and policies underpinning the IMF arrangement under the Extended Fund Facility. Based on information available at the time of these discussions, the staff report was completed on December 9, 2021.
A Staff Statement updating information on recent developments.
A Statement by the Executive Director for Suriname.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
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Press Release
PR21/400
IMF Executive Board Approves Extended Arrangement Under the Extended Fund Facility for Suriname
FOR IMMEDIATE RELEASE
The IMF Executive Board approved a new 36-month arrangement under the Extended Fund Facility for Suriname, in an amount equivalent to SDR472.8 million (about US$688 million or 366.8 percent of quota). The decision enables an immediate disbursement equivalent to SDR 39.4 million (about US$55.1 million).
The IMF financial arrangement will support Suriname’s authorities’ homegrown economic plan aiming to restore fiscal sustainability, while protecting the vulnerable by expanding social safety net programs. It will also help bring public debt down to sustainable levels, upgrade the monetary and exchange rate policy framework, stabilize the financial system, and strengthen institutional capacity to tackle corruption and money laundering and improve governance.
Washington, DC – December 22, 2021: The Executive Board of the International Monetary Fund (IMF) approved a 36-month arrangement under the Extended Fund Facility (EFF) for Suriname in an amount equivalent to SDR 472.8 million (about US$688 million or 366.8 percent of quota). The Board’s decision enables an immediate disbursement equivalent to SDR 39.4 million (about US$55.1 million).
The IMF financial arrangement will support Suriname’s authorities’ homegrown economic plan aiming to restore fiscal sustainability through a discretionary fiscal consolidation of 10 percent of GDP during 2021–24, while protecting the vulnerable by expanding social safety net programs. The IMF-supported program will also help bring public debt down to sustainable levels, upgrade the monetary and exchange rate policy framework, stabilize the financial system, and strengthen institutional capacity to tackle corruption and money laundering and improve governance.
At the conclusion of the Executive Board’s discussion, Ms Kristalina Georgieva, Managing Director and Chair, issued the following statement:
“Suriname faces systemic fiscal and external imbalances as a result of many years of economic mismanagement. These developments, combined with the COVID-19 pandemic, have caused substantial fiscal and external current account deficits, unsustainable public debt, a run-down of reserves, an economic downturn, and high inflation. In recent months, the authorities have embarked on a comprehensive economic reform program to address Suriname’s challenges, including by starting to tighten fiscal policy.
“The main objectives of the authorities’ program are to restore macroeconomic stability and confidence, and to pave the way to economic recovery, while protecting the most vulnerable during the process of adjustment. Fiscal consolidation is a clear and critical ingredient of the program in order to restore “fiscal and external stability. The fiscal reforms designed by the authorities include eliminating costly and poorly targeted electricity price subsidies and introducing a value added tax, creating an efficient source of non-mineral revenue. To help soften the negative impact on the most vulnerable, the authorities’ agenda emphasizes the strengthening of the social safety net. To achieve debt sustainability, the authorities are negotiating debt relief from private and official creditors in line with program parameters.
“The program aims to rebuild Suriname’s foreign reserves. The authorities’ decision to move to a market-determined exchange rate will strengthen the economy’s resilience to external shocks. This step, together with the program’s catalytic effect on external financing, will address external imbalances and contribute to increasing foreign reserves to prudent levels.
“To reduce inflation, the program includes steps to tighten liquidity conditions. The adoption of a reserve money targeting framework and the roll-out of open market operations will support the goal of returning inflation to single digits. The Central Bank of Suriname also needs to address rising banking sector risks, including because of the shift in the exchange rate.
“Implementing the structural reform agenda is essential to ensure a more prosperous future for Suriname. The reforms will improve the institutional capacity for macroeconomic policies, maintain financial sector stability, tackle corruption, and strengthen AML/CFT and governance. These reforms will be supported by technical assistance from development partners including the IMF, the Inter-American Development Bank, and the World Bank Group.”
Suriname: Selected Economic and Social Indicators
Excluding the PBOC swap and ring-fenced banks’ FX required reserves.
Suriname: Selected Economic and Social Indicators
| Est. | Proj. | |||||
|---|---|---|---|---|---|---|
| 2020 | 2021 | 2022 | ||||
| (Annual percentage change, unless otherwise indicated) | ||||||
| Real sector | ||||||
| Real GDP Growth | -15.9 | -3.5 | 1.8 | |||
| Nominal GDP Growth | 21.8 | 46.7 | 38.6 | |||
| Consumer prices (end of period) | 60.7 | 58.3 | 25.8 | |||
| Consumer prices (period average) | 34.9 | 58.6 | 37.9 | |||
| Money and credit | ||||||
| Broad money | 65.0 | 49.6 | 28.0 | |||
| Private sector credit | 27.1 | 38.5 | 26.9 | |||
| (In percent of GDP, unless otherwise indicated) | ||||||
| Central government | ||||||
| Revenue and grants | 18.4 | 24.1 | 26.6 | |||
| Of which: Mineral revenue | 6.5 | 11.2 | 12.6 | |||
| Total expenditure | 31.8 | 32.0 | 30.8 | |||
| Overall Balance (Net lending/borrowing) | -13.4 | -7.9 | -4.1 | |||
| Primary Balance | -9.7 | -1.3 | 1.7 | |||
| Central government debt | 147.7 | 128.9 | 128.5 | |||
| Domestic | 53.4 | 40.6 | 38.8 | |||
| External | 94.3 | 88.2 | 89.7 | |||
| External sector | ||||||
| Current account balance | 9.0 | 4.1 | -0.9 | |||
| Capital and financial account | 6.6 | -1.0 | 3.1 | |||
| Memorandum Items | ||||||
| Gross international reserves (US$ millions) | 585 | 968 | 1,421 | |||
| In months of imports | 3.5 | 5.8 | 7.7 | |||
| Usable gross international reserves (US$ millions) 1/ | 118 | 501 | 955 | |||
| In months of imports | 0.7 | 3.0 | 5.2 | |||
| Official exchange rate (SRD per US$, (Average) | 9.3 | … | … | |||
Excluding the PBOC swap and ring-fenced banks’ FX required reserves.
Suriname: Selected Economic and Social Indicators
| Est. | Proj. | |||||
|---|---|---|---|---|---|---|
| 2020 | 2021 | 2022 | ||||
| (Annual percentage change, unless otherwise indicated) | ||||||
| Real sector | ||||||
| Real GDP Growth | -15.9 | -3.5 | 1.8 | |||
| Nominal GDP Growth | 21.8 | 46.7 | 38.6 | |||
| Consumer prices (end of period) | 60.7 | 58.3 | 25.8 | |||
| Consumer prices (period average) | 34.9 | 58.6 | 37.9 | |||
| Money and credit | ||||||
| Broad money | 65.0 | 49.6 | 28.0 | |||
| Private sector credit | 27.1 | 38.5 | 26.9 | |||
| (In percent of GDP, unless otherwise indicated) | ||||||
| Central government | ||||||
| Revenue and grants | 18.4 | 24.1 | 26.6 | |||
| Of which: Mineral revenue | 6.5 | 11.2 | 12.6 | |||
| Total expenditure | 31.8 | 32.0 | 30.8 | |||
| Overall Balance (Net lending/borrowing) | -13.4 | -7.9 | -4.1 | |||
| Primary Balance | -9.7 | -1.3 | 1.7 | |||
| Central government debt | 147.7 | 128.9 | 128.5 | |||
| Domestic | 53.4 | 40.6 | 38.8 | |||
| External | 94.3 | 88.2 | 89.7 | |||
| External sector | ||||||
| Current account balance | 9.0 | 4.1 | -0.9 | |||
| Capital and financial account | 6.6 | -1.0 | 3.1 | |||
| Memorandum Items | ||||||
| Gross international reserves (US$ millions) | 585 | 968 | 1,421 | |||
| In months of imports | 3.5 | 5.8 | 7.7 | |||
| Usable gross international reserves (US$ millions) 1/ | 118 | 501 | 955 | |||
| In months of imports | 0.7 | 3.0 | 5.2 | |||
| Official exchange rate (SRD per US$, (Average) | 9.3 | … | … | |||
Excluding the PBOC swap and ring-fenced banks’ FX required reserves.
Title page
SURINAME
REQUEST FOR AN EXTENDED ARRANGEMENT UNDER THE EXTENDED FUND FACILITY
December 9, 2021
EXECUTIVE SUMMARY
Context. Suriname faces systemic fiscal and external imbalances as a result of many years of economic mismanagement. Usable foreign reserves were depleted and, in the absence of other sources of budget financing, fiscal deficits were monetized. Inflation has, as a result, surged and there has been a significant depreciation of the exchange rate. Public debt, at 148 percent of GDP at end-2020, is unsustainable. In addition, there are important solvency problems embedded in the domestic banking system.
Recent Policies. Since taking office in July 2020, the current government has acted expeditiously and forcefully to tackle these macroeconomic challenges. The Central Bank of Suriname (CBvS) floated the currency in June 2021 and adopted a reserve money target. The fiscal deficit was reined in, despite the challenges posed by the COVID-19 pandemic. The legislature passed a fiscal plan that was aligned with the program and incorporated important policy efforts on both the spending and revenue side of the budget. Finally, the government has taken proactive steps to negotiate a needed restructuring of its official bilateral and privately-held external debt.
Program Strategy. Staff propose a 36-month Arrangement under the Extended Fund Facility with access of 366.8 percent of quota (SDR 472.8 million or USD 688 million). The foundation of the authorities’ economic plan is an increase in the central government primary balance of 14 percent of GDP during 2021–24. This will require a discretionary fiscal consolidation of 10 percent of GDP (with the remaining adjustment achieved by the expected recovery of the economy and the impact of real depreciation on the fiscal accounts). The social safety net will be expanded to better protect the vulnerable from the burden of this policy adjustment. Following the floating of the exchange rate in June, the CBvS will rely on reserve money as its nominal anchor while domestic interest rates have moved up significantly in support of achieving the CBvS’ quantity targets. Over the course of the Fund-supported program, usable foreign currency reserves are expected to be rebuilt to 175 percent of the ARA reserve adequacy metric with buffers being built to provide insurance against Suriname’s vulnerability to terms of trade shocks and potential future FX outflows associated with the post-restructuring debt obligations. The authorities’ policy efforts also aim to tackle corruption, strengthen governance, improve the institutional capacity for macroeconomic policies, and restore financial stability.
Approved By
Nigel Chalk and Wes McGrew
Virtual meetings were held over the past 15 months. A staff level agreement on an Extended Arrangement of SDR 472.8 million (USD 688 million) was reached on April 29, 2021. The team has consisted of A. Alichi and D. Ding (mission chief before and after October 2021), T. Dowling, A. Ho, S. Hove, B. Shukurov (all WHD), V. Balasundharam (FAD), R. van Greuning (FIN), F. Fernando (LEG), M. Gort, C. Lopez-Quiles, S. Mulema (all MCM), and T. Asonuma (SPR). V. Nanda, M. Park, and G. Ramos provided research and editorial assistance for the preparation of this report.
Contents
DIAGNOSIS
OBJECTIVES OF THE AUTHORITIES’ ECONOMIC PLAN
A. Restoring Fiscal Sustainability
B. Protecting the Vulnerable
C. Bringing Debt Down to Sustainable Levels
D. Upgrading the Framework for Monetary Policy
E. Adopting a Flexible Exchange Rate
F. Stabilizing the Financial System
G. Contingency Planning
H. Improving Central Bank Governance
I. Tackling Corruption, Improving Governance, and Strengthening the AML/CFT Framework
PROGRAM MODALITIES
PROGRAM RISKS
STAFF APPRAISAL
BOX
1. Selected Domestic Borrowing Arrangements in Foreign Currency
FIGURES
1. Fiscal Developments
2. External Sector Developments
TABLES
1. Selected Economic Indicators, Restructuring Scenario
2. Real Sector, by Expenditures, Restructuring Scenario
3. Central Government Operations, Restructuring Scenario (Millions of SRD)
4. Central Government Operations, Restructuring Scenario (Percent of GDP)
5. Balance of Payments, Restructuring Scenario (Millions of US dollars)
6. Balance of Payments, Restructuring Scenario (Percent of GDP)
7. Gross External Financing Requirements, Restructuring Scenario
8. Monetary Survey and Central Bank Accounts, Restructuring Scenario
9. Financial Soundness Indicators
10. Proposed Schedule of Reviews and Available Purchases
11. Program Monitoring—Indicators of Fund Credit Under the EFF Supported Program, Restructuring Scenario
ANNEXES
I. External Sector Assessment
II. Debt Sustainability Analysis
III. Capacity Development Overview
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
