IMF Executive Board Concludes 2012 Article IV Consultation with Suriname

Public Information Notice (PIN) No. 12/106
September 10, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On September 7, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Suriname.1

Background

Economic activity in Suriname remains strong, and inflation pressures have abated considerably. Gross domestic product (GDP) growth is estimated to have picked up to about 4¼ percent in 2011, from 4 percent in 2010, supported by robust activity in the oil and gold sectors, as well as in public investment. In the wake of the 20 percent devaluation of the official exchange rate in January 2011, and the simultaneous increase in domestic fuel taxes, twelve-month inflation spiked to 22.6 percent in April 2011. Since then, it has fallen steadily, to 3.6 percent in May 2012. Core inflation has levelled off, at around 4½ percent.

The fiscal balance strengthened markedly in 2011, shifting from a deficit of about 3 percent of GDP in 2010 to an estimated surplus of just under 1 percent. Revenue benefitted from strong tax collections related to the devaluation and new taxes introduced during the year. On the expenditure side, savings on current spending were offset in part by a jump in capital outlays on infrastructure projects.

Monetary conditions in the wake of the devaluation have been appropriately tight. While the external current account surplus narrowed from 6½ percent of GDP in 2010 to 5½ percent in 2011, the capital and financial accounts improved noticeably. Gross international reserves rose to nearly US$1 billion (5¼ months of imports) at end-2011. The Surinamese dollar is now trading at virtually the same level in the official and parallel markets.

In May 2012, the authorities cleared long-standing arrears with the United States. Citing the clearance of external payments arrears and improved economic outlook, Fitch, Standards and Poor’s, and Moody’s have recently upgraded Suriname’s sovereign debt rating.

Executive Board Assessment

Executive Directors commended the authorities for their tight financial policies, implemented in the wake of the January 2011 devaluation, which have helped contain domestic demand pressures and stabilize prices. The outlook for the economy remains favorable, underpinned by strong prices for key commodity exports and large private and public investments. Once completed, these projects should raise the country’s growth potential, boost government revenue, and strengthen the balance of payments. Directors welcomed the clearance of all external payments arrears, which contributed to Suriname’s recent sovereign rating upgrades.

Directors underscored the need for sound management of future mining revenues and building policy buffers. They welcomed the plan to establish a sovereign wealth fund that has a strong governance structure with transparent operations, in accordance with best international practices and the Santiago Principles.

Directors welcomed the significant improvement in fiscal accounts, and the authorities’ commitment to prudent policies going forward. To broaden the revenue base, they looked forward to the timely introduction of a VAT and an efficient taxation regime for the mining sector. On the expenditure side, it will be important to continue current spending restraint, better target transfer payments to vulnerable groups, and prioritize capital investments. Moderation in public and private wage adjustments will avoid a new wage-inflation spiral and preserve international competitiveness.

Directors noted that tight monetary and fiscal policies contributed to a sharp decline in inflation and that there might be room for a more accommodative monetary policy stance. A moderate conclusion of the current wage negotiations and continued price stability will be essential preconditions for any monetary easing. Directors welcomed the stabilization of the exchange rate and the practical elimination of parallel market premiums. They encouraged the authorities to take steps towards removal of the remaining multiple currency practices, and to move gradually towards a more market-determined exchange rate regime, over time and as conditions permit.

Directors commended the steady progress in de-dollarization and the steps being taken to strengthen bank supervision. They welcomed the passage of the Bank Supervision Law and looked forward to additional prudential regulations. Directors called for further efforts to address the weaknesses of three small state-owned banks and effective implementation of the AML/CFT regime.

Directors supported the authorities’ efforts underway to diversify the economy by enhancing the business environment and pursuing other structural reforms, including improving the management of state-owned enterprises. They commended the important progress made in strengthening Suriname’s data compilation and dissemination capabilities, and encouraged the authorities to persevere in these efforts.


Suriname: Selected Economic Indicators
 
        Est. Proj.
  2008 2009 2010 2011 2012 2013
 
(Annual percentage change, unless otherwise indicated)

Real sector

           

GDP at 2007 prices

4.1 3.0 4.1 4.2 4.0 4.5

GDP at current market prices

20.3 10.2 11.8 25.8 11.9 11.7

Consumer prices (end of period)

9.3 1.3 10.3 15.3 5.7 5.0

Consumer prices (period average)

15.0 0.0 6.9 17.7 6.2 5.5

Money and credit 1/

           

Banking system net foreign assets

25.5 11.4 3.1 19.3 15.7 15.8

Broad money

11.3 26.6 11.2 11.7 14.9 12.8

Private sector credit

36.3 12.2 10.9 12.0 12.3 11.8
(In percent of GDP, unless otherwise indicated)

Savings and investment

           

Private sector balance (savings-investment)

5.0 1.9 9.6 4.7 -0.6 -2.0

Public sector balance

1.6 -2.4 -3.1 0.9 0.5 0.0

Foreign savings

-6.6 0.5 -6.4 -5.5 0.1 2.1

Central government

           

Revenue and grants

23.8 25.2 22.8 26.0 25.0 24.1

Total expenditure

22.2 27.6 26.0 25.2 24.5 24.1

Of which: noninterest current expenditure

17.6 20.1 20.1 18.5 17.8 17.5

Statistical discrepancy

0.3 -0.7 -0.1 0.3 0.0 0.0

Overall balance

1.6 -2.4 -3.1 0.9 0.5 0.0

Net domestic financing

-1.9 2.1 1.9 -3.5 -1.7 -1.6

Net external financing

0.3 0.3 1.2 2.7 1.2 1.7

Central government debt

15.6 15.5 18.5 19.1 18.6 18.1

Domestic

6.6 8.6 10.8 9.0 8.3 7.2

External

9.0 6.9 7.6 10.1 10.3 10.9

External sector

           

Current account balance

6.6 -0.5 6.4 5.5 -0.1 -2.1

Capital and financial account

2.7 3.5 -5.6 0.2 4.4 6.8

Change in reserves (US$ millions, - increase)

-232 -97 -22 -202 -222 -268

Gross international reserves (US$ millions)

666 763 785 987 1,209 1,477

In months of imports

4.4 5.2 4.9 5.3 5.6 6.6

Terms of trade (percent change)

3.3 -1.6 -0.2 0.6 0.9 -0.3

Exchange rate (SRD per US$, end of period) 2/

2.75 2.75 2.75 3.30 3.30
 

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

1/ Data for 2011 are at a constant exchange rate of SRD 2.75 per US$1.

2/ 2012 data as of end-May.


1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.



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