A. Restoring Fiscal Sustainability

10. An ambitious reduction in the fiscal deficit is at the center of the government’s economic plan. The fiscal deficit rose to historic levels over the last few years due to ballooning expenditures on civil servant compensation and an expansion of untargeted electricity subsidies. Upon taking office the government reined in spending and lowered the primary deficit from about 19 percent of GDP in 2019 to 9.7 percent of GDP in 2020.³ Despite these efforts, the fiscal imbalance remains an important destabilizing force that calls for further policy efforts.

11. The authorities’ economic plan, which has been endorsed by the legislature, targets an improvement in the primary balance of around 14 percentage points of GDP over 2021–2024. Social spending will be prioritized to ensure the most vulnerable groups in society are able to weather the needed adjustment. Discretionary policy measures will generate around 10.5 percent of GDP in deficit reduction with the remainder achieved from an expected increase in mineral exports, the impact the real exchange rate depreciation (50 percent of government revenue is in FX, while only a small share of expenditure is in FX), and a recovery in the real economy. The parliament approved a 2021 budget in line with program parameters alongside a set of policy measures including:⁴

Suriname: Cumulative Fiscal Adjustment, 2021–24

(Cumulative percent of GDP relative to 2020)

Citation: IMF Staff Country Reports 2021, 280; 10.5089/9781616359799.002.A001

Source: IMF staff calculations and projections

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Suriname: Cumulative Fiscal Adjustment, 2021–24

(Cumulative percent of GDP relative to 2020)

Citation: IMF Staff Country Reports 2021, 280; 10.5089/9781616359799.002.A001

Source: IMF staff calculations and projections

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Suriname: Cumulative Fiscal Adjustment, 2021–24

(Cumulative percent of GDP relative to 2020)

Citation: IMF Staff Country Reports 2021, 280; 10.5089/9781616359799.002.A001

Source: IMF staff calculations and projections

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• An increase in the sales tax on imported goods by 2 percentage points (to 12 percent) in January and on domestic goods and services in October by 4 percentage points (to 12 percent).

• A plan to replace the sales tax with a new value-added tax (VAT). The government intends to fully replace the sales tax with a VAT on July 1, 2022. The government will ensure that all accompanying laws needed to implement the VAT are passed by March 2022 (structural benchmark). To support the change the government will also: (i) appoint a Ministry of Finance and Planning (MoFP)-led Steering Committee to supervise the VAT implementation; (ii) name a full time Implementation Team (including Tax, Customs, and IT officials); (iii) develop a detailed action plan for the transition and a time-bound communications strategy. The government is also working to develop regulations, build necessary IT systems, deploy a Taxpayer Advisory Team, and produce manuals for taxpayers. As part of the communication strategy, the government has been meeting with business trade groups and consumer protection advocates groups to answer questions and concerns.

• An increase in the royalty rate to 7.5 percent for all gold production. A decree to raise the royalty rate for small-scale gold exporters from 2.75 percent to 7.5 percent was issued in January. However, implementation has been delayed due to problems in administering the higher tax rate. The government is actively considering measures to expedite the implementation (including through a phased increase to 4.5 percent at the beginning of 2022 before reaching 7.5 percent by July 2022). The government also plans to raise the royalty on large-scale (multinational) gold exporters from 6.0 percent to 7.5 percent. If the latter is precluded by contractual agreements with these multinational exporters, the government will seek technical assistance from the Fund and other development partners with a view to developing feasible options for raising applicable taxes and fees on large-scale gold exporters so that additional revenue equivalent to that from a 1.5-percentage point increase in the royalty rate can be achieved (structural benchmark, March 2022). Meanwhile, the government has stepped up efforts to improve tax compliance and revenue collection, especially in the mining sector. As a first step, a multi-departmental government task force has been commissioned in November to review the process of revenue collection from small-scale gold exporters. The task force will publish their recommendations to improve the process by April 2022.

• A one-time solidarity tax of 10 percent on household and business income in excess of SRD 150,000 in the 2021 calendar year.

• Limiting the nominal increase in the wage bill. Personnel costs rose to about 10.5 percent of GDP in 2020 (from a historical average of 8.3 percent of GDP), above the average for Latin American and Caribbean countries.⁵ The government is committed to limiting the nominal increase of wages and benefits to 25 percent in 2021 and to lowering the wage bill to below 7 percent of GDP by 2024. This reduction will be achieved through capping the nominal growth of an individual’s compensation at below the projected inflation rate and by workforce reduction (including not renewing temporary contracts and eliminating ghost workers to partially reverse the 14 percent increase in the size of the public workforce in 2020).

• An increase in the average electricity tariff to achieve full cost recovery by 2024. Suriname’s electricity tariffs average USD 0.04 per KWH (around 30 percent of cost-recovery) and are one of the lowest in the world. The parliament approved a plan to phase out subsidies to the electricity company Energie Bedrijven Suriname (EBS) by 2024. The average tariffs were increased by 103 percent in July. The government has committed to an additional 25 percent average tariff increase by May 2022. Average tariffs will continue to be periodically increased to achieve full cost recovery by end-2024 and then adjusted on a quarterly basis by the Suriname Energy Authority to reflect the evolution of energy generation costs.⁶ The government is providing a universal lump-sum subsidy to households (SRD 260) and businesses (SRD 150) as part of their monthly electricity bill to mitigate the impact of the tariff increases. This amounts to an average 50 percent subsidy for the smallest consumers, who are generally the most economically vulnerable. The government is committed to gradually improving the targeting of these lump-sum subsidies and to retaining a low social tariff for vulnerable households, by first improving information sharing between the EBS and the Ministry of Social Affairs.

• Reducing untargeted and poorly targeted transfers and subsidies. Transfers and subsidies rose from around 4 percent of GDP in the early 2010s to 14 percent of GDP in 2019, mostly due to a 3.5 percent of GDP increase in electricity subsidies, and a 4 percent of GDP increase in transfers to ministries overseeing health, education and social affair programs. Subsidies outside of electricity averaged about 4 percent of GDP per year in the last four years. To support the consolidation efforts, in addition to phasing out untargeted electricity subsidies, the government will review non-electricity transfers and subsidies with a view to reducing the budget allocation to around 3 percent of GDP by 2024 by improving spending efficiency of public agencies and better targeting the programs.

• A modest increase in capital spending. Capital spending was cut to 2.2 percent of GDP in 2020 and further to 1.1 percent of GDP 2021. The economic plan envisages an increase in capital spending by around 1.6 percent of GDP in 2022–23.

12. The draft 2022 budget, currently under debate in the National Assembly, envisages a further consolidation of the primary balance to a surplus of 1.6 percent of GDP.⁷ The budget includes a 2.4 percentage point of GDP consolidation in primary expenditure mostly through the wage bill and poorly-targeted transfers and subsidies, while revenues are expected to improve by 0.5 percentage point of GDP. Capital expenditure is expected to increase by 1.2 percent of GDP. The authorities plan to submit a supplemental budget by March 2022 to fully align the budget with the program. To curb tax base erosion, the government plans to levy withholding taxes on interest payments, royalty and services fee. The government is currently holding public consultation to determine the scope of the withholding tax. The required legislation is expected to be approved by the National Assembly by June 2022.

Text Table Suriname: Contributions to Fiscal Adjustment

(Percent of GDP)

Sources: Authorities and IMF staff calculations.

Text Table Suriname: Contributions to Fiscal Adjustment

(Percent of GDP)

					2021	2022	2023	2024	Total
Annual change of Primary Balance					8.4	3.0	1.8	1.0	14.2
		Adjustment from Policy Changes			2.9	2.5	2.5	2.6	10.5
			Revenue measures		0.2	2.1	1.7	0.3	4.2
				VAT implementation	0.0	0.4	1.0	0.0	1.4
				Sales tax increase on G&S	0.2	0.4	0.0	0.0	0.5
				Royalties increase for gold miners	0.0	1.1	0.4	0.0	1.5
				Income tax administration improvements	0.0	0.1	0.1	0.1	0.3
				Corporate tax administration improvements	0.0	0.1	0.1	0.1	0.3
				Customs duties administration improvements	0.0	0.0	0.0	0.1	0.1
			Expenditure measures		2.8	0.4	0.8	2.3	6.3
				Wage bill restraint	1.6	1.3	0.6	0.3	3.8
				Other transfer and subsidies restraint	0.7	0.2	0.0	0.4	1.3
				Phased electricity subsidy elimination	-1.1	-0.2	1.3	1.7	1.8
				Goods and services expenditure restraint	1.0	-0.3	0.0	0.0	0.7
				Social programs spending	-0.5	0.0	0.0	0.0	-0.5
				Capital spending	1.1	-0.6	-1.0	0.0	-0.6
		Adjustment Contributed by Non-Policy Factors			5.5	0.5	-0.7	-1.6	3.7
		Affecting
			Revenue		5.5	0.5	-0.7	-1.6	3.7
			Expenditure		0.0	0.0	0.0	0.0	0.0
Memo
	Primary Balance				-1.3	1.7	3.5	4.5

Sources: Authorities and IMF staff calculations.

View Table

Text Table Suriname: Contributions to Fiscal Adjustment

(Percent of GDP)

					2021	2022	2023	2024	Total
Annual change of Primary Balance					8.4	3.0	1.8	1.0	14.2
		Adjustment from Policy Changes			2.9	2.5	2.5	2.6	10.5
			Revenue measures		0.2	2.1	1.7	0.3	4.2
				VAT implementation	0.0	0.4	1.0	0.0	1.4
				Sales tax increase on G&S	0.2	0.4	0.0	0.0	0.5
				Royalties increase for gold miners	0.0	1.1	0.4	0.0	1.5
				Income tax administration improvements	0.0	0.1	0.1	0.1	0.3
				Corporate tax administration improvements	0.0	0.1	0.1	0.1	0.3
				Customs duties administration improvements	0.0	0.0	0.0	0.1	0.1
			Expenditure measures		2.8	0.4	0.8	2.3	6.3
				Wage bill restraint	1.6	1.3	0.6	0.3	3.8
				Other transfer and subsidies restraint	0.7	0.2	0.0	0.4	1.3
				Phased electricity subsidy elimination	-1.1	-0.2	1.3	1.7	1.8
				Goods and services expenditure restraint	1.0	-0.3	0.0	0.0	0.7
				Social programs spending	-0.5	0.0	0.0	0.0	-0.5
				Capital spending	1.1	-0.6	-1.0	0.0	-0.6
		Adjustment Contributed by Non-Policy Factors			5.5	0.5	-0.7	-1.6	3.7
		Affecting
			Revenue		5.5	0.5	-0.7	-1.6	3.7
			Expenditure		0.0	0.0	0.0	0.0	0.0
Memo
	Primary Balance				-1.3	1.7	3.5	4.5

Sources: Authorities and IMF staff calculations.

13. The authorities’ recovery program includes steps to strengthen the institutional framework for fiscal policy:

• Better data reporting and monitoring. The government is committed to improving the frequency, timeliness, and quality of fiscal data reporting. To this end, they will resume monthly publication of the central government’s liabilities on the website of the debt management office within four weeks after the end of the month. By June 2022, the authorities will pass legislations to expand the legal mandate of the debt management office to include the monitoring and reporting of all liabilities of the nonfinancial public sector (including suppliers’ arrears, guarantees provided by public sector entities, and contingent liabilities, structural benchmark). They are also committed to beginning monthly publication of the full scope of public sector obligations by December 2022. The MoFP has resumed the publication on its website of monthly central government outturns and will also publish the audited annual central government financial statements for FY2017-FY2021 by June 2022. In addition, the government is preparing the terms of reference for hiring external experts (structural benchmark, January 2022) to conduct an audit of domestic supplier arrears to ensure the accuracy of the claims (commencement of the audit is a structural benchmark for April 2022). The government is seeking technical assistance to review the expenditure control process to improve the capacity to track the accumulation and repayment of supplier arrears and, ultimately, avoid the accumulation of supplier arrears.

• Strengthening the budget framework and process. The government is developing a medium-term fiscal strategy (with technical assistance from IFIs) that establishes clear expenditure and debt targets consistent with the program. The strategy will define binding spending envelopes for line ministries and agencies and the mechanism to ensure these envelopes are observed. The strategy will be published on the website of the MoFP after receiving approval from the Council of Ministers, the State Council and the National Assembly.

• Strengthening cash and liquidity management. Treasury functions are currently being carried out by various departments of the MoFP and the CBvS. The MoFP intends to adopt the recommendations provided by recent Caribbean Reginal Technical Assistance Centre (CARTAC) technical assistance to streamline all treasury functions through a Treasury Single Account (TSA), and will publish a time-bound action plan to monitor the implementation progress (structural benchmark, January 2022). The IMF and other IFIs are supporting the authorities in their efforts to strengthen capacity for liquidity forecasting, debt management, cash planning, and commitment control.

• Improving revenue administration. Increasing taxpayer compliance is an important objective of the authorities. The establishment of a large taxpayer unit is a key step in this regard (structural benchmark, June 2022). The government intends to undertake a comprehensive review of the existing work processes and the legal framework for tax administration to identify areas of improvement and will publish a time-bound plan to help monitor the implementation of identified reform priorities. The government plans a similar review of the customs administration that focuses on risk management, post-clearance audit, and the monitoring and verification of duty concessions, waivers, and exemptions.

• Strengthening the management and accountability framework for state-owned enterprises. By December 2022, the government will publish audited financial reports for FY2017-FY2021 for the ten largest state-owned enterprises by total assets, as well as a report that identifies the main fiscal risks from these enterprises and steps to be taken to mitigate such risks (structural benchmark).

• Improving the management of public investment. The government will create a public investment and Public-Private Partnership (PPP) unit by June 2023 to undertake a full cost-benefit review of all ongoing government investment projects and cost and feasibility studies for all new public investments and PPPs. To strengthen governance and mitigate fiscal risks, the government will introduce a gateway process for PPPs, establish limits on PPP stocks and flows, properly monitor the guarantees associated with PPP projects, and publish beneficial ownership information for all companies that receive contracts for new government capital projects and PPPs.

B. Protecting the Vulnerable

14. Suriname is burdened with significant social and income inequality. The poverty rate was estimated at 26 percent in 2017, with the rate significantly higher (at 48 percent) in the country’s interior.⁸ Although government expenditure on health and education is comparable to countries in the high Human Development Indicator group, education and health indicators in Suriname are below most countries in that same group.⁹ There is a clear need to improve the quality and efficiency of social spending. Additionally, data and information gaps hinder analysis and limit the government’s ability to make informed policy recommendations.

15. The existing social safety net programs need to be expanded. Suriname already has in place a system of targeted cash transfers to protect vulnerable groups (including children, elderly, persons with disabilities, and poor households). However, the overall size of these targeted transfers is very small compared to the scale of the poverty facing the country (only 1.4 percent of GDP in 2020).¹⁰ Social assistance spending through cash transfer programs has been increased by 0.5 percent of GDP in 2021, primarily by increasing the size of transfers to eligible recipients, to ensure that the economically vulnerable are at least partially compensated for the ongoing increases in the cost of living. The authorities are in the process of digitalizing records to better identify eligible recipients that are not receiving benefits and to eliminate duplication. Going forward, the authorities intend to review the income thresholds for means-tested social assistance programs and take other steps to improve the targeting of social benefits. The authorities’ program proposes, as an indicative target, a spending floor for cash transfers to ensure they are fully protected over the next three years.

C. Bringing Debt Down to Sustainable Levels

16. Public debt is unsustainable. The high levels of central government debt—a product of a long history of fiscal imbalances and the large depreciation of the real exchange rate—makes achieving a primary balance that would be needed to stabilize the debt neither economically, socially, or politically feasible (Annex II).

17. The authorities are committed to restoring debt sustainability under the Fund-supported program. Their objectives are to: (i) reduce public debt to under 120 percent of GDP by 2024 and to below 60 percent of GDP by 2035, (ii) lower gross financing needs to an average of 9 percent of GDP in 2023–35 (and no more than 12 percent of GDP in any one year), and (iii) ensure the fiscal position is fully financed during 2022–2024.

18. Achieving debt sustainability will require important debt relief from Suriname’s private and official creditors. To that end, the government appointed financial and legal advisors in September 2020 and engaged its creditors in an early and constructive dialogue to secure a reasonably timely and orderly agreement to restructure the country’s external debt. Since July, Suriname has been in arrears with its private external bondholders and commercial loan holders. However, the government has shared relevant, non-confidential information with all of its creditors on a timely basis. Suriname also provided its private sector and official creditors with opportunities to give input on the design of restructuring strategies. With respect to private creditors, staff consider the authorities’ actions to have met the good-faith requirement of the Lending Into Arrears (LIA) policy.

19. Official bilateral creditors are expected to provide debt relief that is compatible with the parameters of the authorities’ Fund-supported program. The Surinamese authorities are committed to continuing working with all creditors to achieve a debt treatment consistent with program parameters. Recognizing that servicing debt on the original terms would not be consistent with debt sustainability, they are committed to resolving debt to all official bilateral creditors on comparable terms. Paris Club creditors have provided specific and credible financing assurances indicating that they will provide debt relief in line with program parameters. Once the restructuring agreement with official creditors is reached, the authorities would repay part of the arrears accumulated as of end-2021 during the program period. Suriname owes arrears to China and India, which have provided assurances, although less specific than those provided by the Paris Club creditors, that they intend to work with Suriname towards a debt restructuring that will restore sustainability. China has consented to Fund financing notwithstanding these arrears. India has requested more time to consider consenting to Fund financing notwithstanding these arrears. An fupdate will be circulated to the Executive Board not later than one week prior to the scheduled Board consideration. On the basis of the Surinamese authorities’ commitment noted above, staff expect that debt to China and India will be treated on comparable terms with other bilateral creditors. The arrears constitute a form of financing contribution to the program. China and India have acknowledged that Suriname will continue to run arrears on their official debt until a debt treatment can be agreed.

20. There would be little to gain from restructuring Suriname’s domestic debt. About 26 percent of GDP of debt is in the form of obligations to the CBvS and the program provides a progressive repayment of some of these obligations by June 2024. 22 percent of GDP in debt is held on the balance sheet of local commercial banks and non-bank financial institutions. However, some of the banks are already undercapitalized, and any write down of this debt would likely need to be offset by an increase in public resources to recapitalize these institutions.¹¹ Furthermore, efforts to restructure domestic debt could well create further instability in the domestic financial system, increasing the incentive for deposit runs, or creating solvency problems in non-financial institutions (which hold 6 percent of GDP in domestic debt). As of September 2021, the authorities have cleared SRD 58 million of domestic debt arrears to commercial banks and SRD 127 million of the supplier arrears. However, based on the authorities’ preliminary data, there still remains a large amount of outstanding domestic arrears, including an accumulation of about SRD 527 million, or 1 percent of GDP, of supplier arrears over the last 11 months.

21. The government is committed not to provide guarantees to debt contracted by other parties during the course of the program. It intends not to contract new public debt that is collateralized by natural resource revenues (or allow the public sector to contract such debt on behalf of the central government). The CBvS will not issue new FX-linked or FX-denominated debt. In addition, to underscore their commitment to transparency, the authorities have provided Fund staff with all existing central government foreign and foreign currency domestic debt contracts and have confirmed that Staatsolie’s debt does not include guarantees from the central government and/or collateral. The authorities have agreed to provide to Fund staff all future contracts for public sector borrowing.

D. Upgrading the Framework for Monetary Policy

22. Since July 2021, the CBvS has been operating monetary policy based on a reserve money anchor. The reserve money targeting regime (RMT) aims to achieve a steady decline of inflation to 12 percent by the end of the program. Near-term reserve money growth is intended to be maintained at a level well below the expected growth in nominal GDP. The framework has been operationalized in the Fund-supported program through a proposed NIR floor and NDA ceiling (with monthly indicative targets and quarterly performance criteria). The CBvS has made substantial progress in implementing the RMT. It has drained liquidity through weekly, fixed quantity/variable rate, auctions of certificates of deposit and/or term deposits. Between end-July and early December, around SRD 2.3 billion (26 percent of SRD reserve money) has been drained from the system. Interest rates on weekly and monthly notes have gradually risen (from 12 percent in July to 68 percent in early December). In the initial months of the RMT implementation, full adherence to the RMT framework was delayed—the CBvS did not meet its reserve money goals in September-November—by commercial banks’ strong demand for precautionary reserves, the high growth of currency in circulation, and delays in the market becoming accustomed to the new framework. Nonetheless, the monetary operations have shown an important effort to tighten policy and helped to push inflation downwards from its August peak. To further help implement the framework, the CBvS has introduced reserve averaging for local currency reserve requirements and will begin to remunerate these reserve requirements by mid-2022.

23. The CBvS has put in place a standing lending facility and is working towards developing an emergency liquidity assistance (ELA) framework. Restrictions on access to the standing lending facility have been removed. The CBvS does, though, intend to initiate supervisory investigations (and, if needed, supervisory actions) for banks that are recurrent users of the facility. The facility is priced on the basis of the weighted average interest rate of open-market operations plus a modest spread (to incentivize banks to seek market funding first). Net injections of liquidity through the standing facility will be fully sterilized—primarily through the auction of certificates of deposit and/or term deposits—so as to ensure reserve money remains aligned with program targets. An ELA framework is being developed to provide emergency liquidity to banks, should conditions warrant.

24. CBvS liquidity monitoring and forecasting is being improved. Stronger coordination with the MoFP is critical to understanding the future path for government expenditures and revenues as a means to improve forecasting of future open market operations. A Memorandum of Understanding (MoU) has been signed between the Governor of the CBvS and the Minister of Finance to formalize a regular exchange of data and improve the CBvS forecasting of government expenditure and revenues flows.

E. Adopting a Flexible Exchange Rate

25. On June 7, the CBvS unified the official and parallel exchange rates and allowed the exchange rate to be fully market-determined. The CBvS is calculating and publishing (three times a day) the official exchange rate based on a weighted average rate from actual executed trades in the FX market. Banks and cambios are allowed to set exchange rates without any restrictions. From June 7 to mid-November, the CBvS bought around USD 73 million through FX surrender requirements (USD 64 million) and direct purchases from the FX market. The CBvS, in collaboration with the MoFP, also sold about USD 5 million directly to market participants during this period (in addition to the MoFP sale of USD 22 million to oil importers). Between June and mid-November, the nominal exchange rate has traded in the range of SRD 20.96 to 21.6 to the USD and the parallel premium has remained at less than 1 percent. This has led to an appreciation of the real effective exchange rate (estimated at 4 percent by end-2021). The unified, market-determined exchange rate is expected to help facilitate Suriname’s adjustment to external shocks and help rebuild international reserves.

26. The CBvS is committed to increasing commercial banks’ role in the foreign exchange market. The unification of the official and parallel market rates was an important step in this direction and is expected to help increase liquidity of the interbank market. The CBvS intends to establish an electronic trading platform for interbank foreign exchange trading that will be open to both commercial banks and cambios (structural benchmark, June 2022). The authorities will amend the FX surrender regulations to redirect these FX inflows from exporters to the interbank market (instead of to the CBvS) and remove the FX surrender requirements for banks and cambios.¹² It is expected that this will help deepen liquidity in the interbank market and remove the CBvS as an intermediary that is both buying and selling in the market.

Suriname: FX Cash Flow Projections (Restructuring Scenario)

(Millions of USD)

Suriname: FX Cash Flow Projections (Restructuring Scenario)

(Millions of USD)

				2021	2022	2023	2024	Total
Inflow of FX				587	566	538	492	2,182
		Public sector		506	566	538	492	2,101
			Govt mineral revenues	211	171	141	152	675
			SDR allocation	176	0	0	0	176
			IFI financing (budget support)	0	168	166	166	500
			IMF financing	56	228	230	174	688
			Other	62	0	0	0	62
		Private sector		81	0	0	0	81
			FX purchases by CBvS	81	0	0	0	81
	Use of FX by CBvS/CG			204	112	172	140	629
		Public sector		142	112	172	140	567
			Debt service	101	71	130	97	399
			Transfers to CG units	41	41	42	43	167
		Private sector		62	0	0	0	62
			FX sales by CBvS/CG	62	0	0	0	62
Change in Foreign Reserves of CBvS (+: Increase)				383	454	365	352	1,553
		Private sector		19	0	0	0	19
		Public sector		364	453	365	352	1,534

View Table

Suriname: FX Cash Flow Projections (Restructuring Scenario)

(Millions of USD)

				2021	2022	2023	2024	Total
Inflow of FX				587	566	538	492	2,182
		Public sector		506	566	538	492	2,101
			Govt mineral revenues	211	171	141	152	675
			SDR allocation	176	0	0	0	176
			IFI financing (budget support)	0	168	166	166	500
			IMF financing	56	228	230	174	688
			Other	62	0	0	0	62
		Private sector		81	0	0	0	81
			FX purchases by CBvS	81	0	0	0	81
	Use of FX by CBvS/CG			204	112	172	140	629
		Public sector		142	112	172	140	567
			Debt service	101	71	130	97	399
			Transfers to CG units	41	41	42	43	167
		Private sector		62	0	0	0	62
			FX sales by CBvS/CG	62	0	0	0	62
Change in Foreign Reserves of CBvS (+: Increase)				383	454	365	352	1,553
		Private sector		19	0	0	0	19
		Public sector		364	453	365	352	1,534

27. The authorities intend to use FX intervention sparingly and only to counter episodes of disorderly market conditions. The buying/selling of FX by the CBvS will only be undertaken with banks and cambios through transparent fixed allotment/variable price auctions (structural benchmark, December 2021). FX sales will only be undertaken insofar as the intraday depreciation in the bilateral exchange rate versus the U.S. dollar exceeds 2 percent. In such circumstances, the CBvS reserves the option, but not the requirement, to sell up to USD 2 million per day to counter disorderly market conditions. These sales would be unsterilized and gross sales will be capped at USD 20 million per quarter. The CBvS’ intervention rule is operationalized through an adjustor to lower the NIR floor by up to USD 20 million per quarter (insofar as the CBvS sales are consistent with the intervention rule described above). All SOEs and private sector importers will be required to buy/sell FX directly from/to commercial banks (i.e., not bilaterally from/to the CBvS or the government).

28. The shift to a flexible exchange rate, limited CBvS FX sales, and financing inflows from IFIs will allow foreign reserves to be rebuilt over the course of the program. The government will sell all net FX receipts (i.e., from IFI budget support net of payments of FX obligations of the government) to the CBvS at the prevailing market exchange rate. In return, the government will receive a counterpart deposit in domestic currency. This will help build the CBvS’ FX reserves. The CBvS has the option, but not the requirement, to intervene to purchase foreign currency to build its international reserves. However, these purchases would need to be through transparent, market-based auctions and fully sterilized (with an adjustor that lowers the NDA ceiling by the amount of FX purchases from the market by the CBvS). Under the program baseline, the level of usable international reserves is expected to rise steadily to 175 percent of the ARA reserve adequacy metric (equivalent to around 9 months of imports) by end-2024, 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; however, reserves would fall back gradually to 138 percent of the ARA reserve adequacy metric by 2034 as the restructured external debt service payments come due.

29. The monetary framework and intervention limits will be reassessed at each program review. Once there has been some experience with the working of the reserve money targets and the flexible exchange rate regime, staff and the authorities will assess the relative benefits of the reserve money framework in the context of achieving the authorities’ economic objectives. If needed, adjustments will be proposed to the framework for Board consideration.

F. Stabilizing the Financial System

30. Vulnerabilities in the banking system have the potential to exacerbate the fiscal and balance of payments pressures facing the country. Suriname’s banking sector is composed of nine banks. As of September, their size in total assets stood at 93 percent of GDP. With respect to bank concentration, the assets of the three largest banks represent 69 percent of GDP and 74 percent of total bank assets. The government owns or partially owns three banks, representing 32 percent of total assets. Currently, four banks fall below the minimum capital requirement of 10 percent, three of which have significant capital shortfalls. The asset size of these three banks is around 7 percent of GDP and 8 percent of total bank assets. Non-performing loans (NPL) are elevated and likely to deteriorate going forward. There are indications that there may be an issue with loan classifications, preventing NPLs from being recognized and delaying provisioning. Banks have significant exposure to the public sector through holding of government securities and direct lending, with most of these exposures now non-performing. The current NPL framework does not require banks to classify these exposures as non-performing and provision for them. However, this will change with the transition of all banks to IFRS9, thus increasing the size of shortfalls in regulatory capital. Based on data provided by authorities, even without IFRS9 adjustments, almost half of the banks do not meet minimum capital requirements. There are also important questions regarding the consistency and quality of regulatory data.

31. Bringing the system back to compliance with the regulatory framework is essential to safeguard financial stability. The authorities’ macroeconomic framework assumes an injection of public resources into the banking system of 5 percent of GDP (in line with preliminary staff estimates of the capital needs).¹³ More precise estimates will be arrived at when asset quality reviews are completed. To this end, the CBvS has hired an internationally reputable specialist firm to undertake these reviews for all banks. The asset quality review for the largest two banks will be completed on an expedited basis (structural benchmark, September 2022) and for the remainder of the banking system shortly afterwards (structural benchmark, December 2022). Following the asset quality reviews, the CBvS will require banks to submit time-bound recapitalization and restructuring plans for all institutions that are not in full compliance with regulatory requirements. The plans will be reviewed to verify their credibility and the CBvS will oversee their implementation. While this broader strategy is being prepared, the CBvS will intensify its supervision activities and stands ready to take appropriate action, including imposing prompt corrective actions, for banks experiencing difficulties. To this end, the CBvS has increased the intensity of its supervision activities for all banks aided by templates agreed with staff.

32. A roadmap for the restructuring and governance reform of commercial banks will be developed. The roadmap will set out the CBvS’ plans to triage banks based on the outcome of the asset quality reviews, determine conditions for the use of public funds, and outline the steps to unwind regulatory forbearance that is currently in place (structural benchmark, May 2022). Governance reforms will be put in place at the government-owned banks to ensure they are run on a fully commercial basis.

33. There is an urgent need to strengthen the CBvS’ crisis management capabilities. Key steps include:

• Submitting the Credit Institutions Resolution Act to the State Council (structural benchmark, January 2022) with a view to adoption by the National Assembly by September 2022, to increase the CBvS’ powers and tools for early intervention, recovery, and resolution of financial institutions.

• Operationalizing a Bank Resolution Unit within the CBvS with appropriate governance arrangements, staffing, funding, and clear internal guidelines on how crisis management and enforcement actions would be undertaken (structural benchmark, February 2022).

• Establishing and operationalizing a new Financial Stability Committee (composed of representatives from MoFP and the CBvS) to both diagnose risks to financial stability and develop concrete plans to manage and mitigate those risks (structural benchmark, January 2022).

• Revising the Banking and Credit Supervision Act to facilitate the risk-based supervision of banks and submitting it to the State Council (structural benchmark, January 2022) with a view to adoption by the National Assembly by July 2022.

34. The authorities are determined to implement other important reforms to modernize the management of the financial sector. Draft laws are being prepared to improve the supervision of the insurance sector and pension and provident funds, to establish centralized reporting of creditors’ obligations, and to introduce a deposit insurance scheme once the financial sector has been stabilized. The authorities will work together with the banking sector to increase financial inclusion through electronic banking. The authorities will prepare a comprehensive plan to coordinate and integrate these various initiatives to ensure timely implementation and to organize capacity development investments by a range of providers.

G. Contingency Planning

35. There is a risk that program projections prove optimistic or that the economic environment worsens, requiring additional steps to keep the program on track. The largest risks to program objectives arise from lower growth, an inability to achieve the program’s primary balance goals (including due to a worsening of the terms of trade), or a more depreciated real exchange rate (see Box 1, Annex II). In the event that some or all of these risks materialize, the authorities have identified immediate steps that could be taken including foregoing capital spending, raising royalties on natural resource producers, and accelerating the phase out of electricity subsidies (alongside an augmentation of the social safety net).

36. There is a risk that the banking system comes under greater pressure in the months ahead. Self-imposed restrictions by banks on cash withdrawals and the conversion of domestic to foreign currency deposits are currently in place. Nonetheless, if there were to be a burgeoning outflow of deposits, the CBvS is prepared, in consultation with Fund staff, to consider introducing further measures. In the event that such measures give rise to exchange restrictions or multiple currency practices (MCPs), staff would assess whether a modification of program conditionality or a waiver of non-observance of program performance criteria is warranted. A roadmap would then be developed to gradually eliminate such restrictions.

H. Improving Central Bank Governance

37. The 2021 update of the safeguards assessment concluded that the CBvS’ institutional framework is weak and governance failures in recent years have led to financial and reputational loss for the CBvS. The control environment has not been tested because, until May 2021, the CBvS lacked an internal audit function. In addition, annual external audits have been disrupted over the last five years, and the CBvS has extended significant monetary financing to the government, undermining its operational autonomy.¹⁴ To address these shortcomings, the following critical reforms have been put in place:

• To protect the CBvS’ financial autonomy, the MoFP and the CBvS have signed a MoU in July to prohibit any new direct or indirect monetary financing of the budget.

• To ensure the adequacy of controls in operations and build internal audit capacity, the CBvS appointed a Chief Audit Executive and contracted a consultant to co-source the internal audit function.

• To reinforce the governance and control environment, the CBvS Supervisory Board adopted and published a bank-wide Governance Reform Implementation Plan in June. The first quarterly review by the Supervisory Board was conducted in September, after which a report and an updated Plan were published on the CBvS website.

• To reduce the risk of misreporting, a special audit of program monetary data (i.e., Net International Reserves and Net Domestic Assets) was completed in July to verify the opening stocks of data. Similar audits will be completed at each test date to confirm the data underlying the measurement of the performance criteria.

• To restore transparency and accountability, the CBvS will publish its FY 2016–18 external audit results (structural benchmark, December 2021).

38. To strengthen the CBvS’ mandate, autonomy, and decision-making structures, the National Assembly will pass amendments to the CBvS Act (structural benchmark, January 2022). These amendments will eliminate Government influence over the CBvS, introduce collective decision-making for the executive management and policy decisions of the CBvS, provide for adequate internal oversight, revise the CBvS’ mandate, and prohibit monetary financing. These amendments are currently being prepared in close cooperation with Fund staff. The CBvS plans to publish the FY 2019 audit results by February 2022 and the FY 2020–21 audited financial statements will be published by June 2022 based on International Financial Reporting Standards (structural benchmark).

39. The MoFP and the CBvS will jointly develop a plan to recapitalize the CBvS. The authorities will undertake a full financial audit of the CBvS by an internationally reputable firm to establish the size of the capital shortfall (structural benchmark, June 2022). Following the results of this audit, the authorities will prepare a plan to recapitalize the CBvS (structural benchmark, September 2022). This plan will include a clear target level of capital, a trigger point for recapitalization, and a binding time frame to complete the recapitalization. The macroeconomic framework assumes an injection of government bonds of 5 percent of GDP to bring the CBvS to a reasonable level of capital (although the actual size of the recapitalization needs may be larger).

I. Tackling Corruption, Improving Governance, and Strengthening the AML/CFT Framework

40. Suriname faces widespread corruption across many aspects of government. These vulnerabilities include gaps in legal frameworks, institutional weaknesses, implementation challenges, capacity constraints and an overall lack of accountability, transparency and awareness in systems and processes. Suriname is a signatory to the Inter-American Convention against Corruption and enacted an Anti-Corruption Act in 2017. However, implementation of this Act has been delayed due to capacity and resource constraints.

41. The authorities intend to take steps to strengthen the anti-corruption framework. The government has received the National Assembly’s approval of the ratification of the United Nations Convention Against Corruption (UNCAC) with a view to finalizing the ratification by end-January 2022 (structural benchmark). They also intend to amend the 2017 Anti-Corruption Act to ensure criminalization of all relevant corruption acts, to bring it into line with the requirements of the UNCAC (structural benchmark, June 2022). The anti-corruption legal framework should be amended to allow for the routine verification of income and asset declarations by high-level and high-risk public officials. This information will be provided to the public and proportionate sanctions will be established for non-compliance. Finally, the government will soon operationalize an Anti-Corruption Commission to oversee its efforts in this area (structural benchmark, March 2022).

42. The program aims to upgrade the institutional framework and enhance the transparency of public procurement. There is no single agency with a mandate for formulation of procurement policy, for planning or for monitoring compliance. The procurement process is currently administered by the Ministry of Public Works and the MoFP but is still largely paper-based with a low level of digitalization, limited transparency, and weak contract and project management. There is no central procurement database and public access to information on procurement is limited. To mitigate corruption risks, the authorities will enhance transparency and accountability in the procurement processes. A draft procurement law has been prepared and submitted to the National Assembly for its approval by end-June 2022 (structural benchmark) to:

• expand the existing Integrated Financial Management Information System to cover procurement, audits, and controls; and

• In addition, authorities will enact a state decree to require the mandatory publication on a government website of all public procurement tenders and contracts, including the names of the awarded entities and their beneficial owners, the names of the public officials awarding the contracts, and an ex-post validation of delivery of the contracted services (structural benchmark, August 2022).

43. Significant shortcomings in the AML/CFT framework need to be urgently addressed. The authorities recently completed their National Risk Assessment which started in 2019 and identified several technical compliance gaps in the legal framework and effective implementation challenges. Immediate efforts are required to mitigate key money laundering/terrorism financing risks to Suriname and to ensure Suriname’s AML/CFT framework meets international standards. Suriname is currently being assessed by the Caribbean Financial Action Task Force.¹⁵ To address AML/CFT technical compliance gaps, steps will need to be taken (and will be supported by technical assistance from Fund staff) to enact amendments to the AML/CFT law (and other relevant laws and regulations), to bring them in line with the FATF international AML/CFT standard, particularly on the treatment of politically exposed persons and beneficial ownership requirements (structural benchmark, August 2022).

44. Suriname joined the Extractive Industry Transparency Initiative (EITI) in 2017 and has published reports for fiscal years 2016 and 2017. Noting the importance of the extractive industries sector to Suriname (gold, bauxite, newly discovered oil fields) the authorities are committed to ensuring there are strong safeguards in place to protect these sectors and guard against corruption risks. In addition to ongoing improvements to the anti-corruption framework, the authorities intend to address EITI’s recommendations with respect to improvements to the mining law to reduce room for discretion in investor incentives, strengthen the framework for mining titles, and ensure the publication of beneficial ownership information.

45. Suriname should adopt a uniform approach to beneficial ownership. The disclosure of beneficial ownership information is relevant for a number of structural benchmarks, including with respect to improving the management of public investment, public procurement contracts, and as part of the EITI requirements. Accordingly, the authorities should adopt a consistent understanding of beneficial ownership for all these measures, by defining this clearly in the AML/CFT law and in line with the FATF international standards that relate to the transparency of beneficial ownership information.