## 1surea2019001 ## Source details **Canonical URL:** [1surea2019001](https://www.imf.org/-/media/files/publications/cr/2019/1surea2019001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1surea2019001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1surea2019001.pdf.json) --- ### Recent developments: macroeconomic and external conditions - Real GDP growth: "2.6 percent in 2018" following "1.8 percent growth in 2017". - Monthly Economic Activity Indicator (MEAI): "2.5 percent (y/y; 12-m moving average) in July" 2019. - Sectoral drivers: expansions in wholesale and retail, construction, hotels, restaurants, and manufacturing; gold and oil production broadly flat; gasoline production increased in 2018 due to earlier refinery improvements. - Unemployment: fell to "7.6 percent in 2017" and estimated to have declined further in 2018. - Exchange rate regime: de jure floating; de facto stabilized arrangement implied by official central bank exchange rate path. - FX market details: - CBvS provides FX directly to the private sector at the official rate for specific import items (notably fuel and pharmaceuticals). - On October 18, 2019, cambios varied between "8.0−8.40", about "6−11 percent more depreciated" than the official rate. - Foreign Exchange Commission decree: small-scale gold miners must sell "20 percent" of FX proceeds of their gold exports or their gold exports themselves to the CBvS. - Monetary stance and liquidity: - CBvS maintained a restrained monetary stance, mopping up excess liquidity partly by unwinding foreign currency swap lines with commercial banks. - Ex-ante real interest rates became positive in 2018. - Banks increased the share of assets held as reserves with the central bank; private sector credit partially recovered. - Inflation: has fallen below "5 percent"; decline is broad-based. Exchange rate stability, control over excess liquidity, and price controls on fuel and eggs helped contain inflation. - External position (2018): - Current account: from "+1.9 percent of GDP in 2017" to "-3.4 percent of GDP in 2018". - Current account norm: between "-0.9 to 1.1 percent of GDP". - REER: appreciated by "4.9 percent (y/y) in 2018"; staff assesses REER is overvalued by "5 to 9 percent". - International reserves: "73 percent of the Fund’s Reserve Adequacy (ARA) metric in end-2018"; expected to rise to around "83 percent of the ARA metric by end-2019". - Total external debt: "more than 90 percent of GDP". - Fiscal position (2018): central government overall fiscal deficit "7.1 percent of GDP" and debt "72.1 percent of GDP". About half of the deficit accounted for by untargeted electricity subsidies. Public debt limit raised from "60 to 95 percent of GDP". - Extractive sector transparency: first EITI report published in 2019 based on 2016 information; compliance assessment scheduled at end-2019. - Banking system vulnerabilities (July 2019): - Capital adequacy ratio: "10.5 percent" (above "10 percent" minimum). - Non-performing loans: "12.5 percent of gross loans". - Profitability: "0.7 percent return on assets". - Deposit and loan dollarization: remain high. - Some large banks reportedly do not meet minimum regulatory capital requirements. - IFRS implementation: annual financial statements in accordance with IFRS starting "January 1, 2021". - Monetary financing: resumed in early-2019 after revocation of a memorandum of understanding; CBvS provided new credit to government up to "10 percent of government revenues" limit; excess should be repaid within three months per CBvS interpretation. - FX reserve management changes: - Banks required to place half of U.S. dollar required reserves, and all euro required reserves, under CBvS management. - Strategic Investment Subcommittee gives banks more representation over reserve management decisions; governor retains veto. - Legislative drafting: Bank Act, Credit Institutions Resolution Act, Banking and Credit Supervision Act, Insurance Supervision Act, Deposit Insurance Act, Pension Funds and Provident Funds Act, General Pensions Act, Money Transactions Offices Supervision Act, Electronic Payment Transactions Act, Credit Bureaus Act. - AML/CFT: National Risk Assessment launched in 2019 with IDB support; reforms to strengthen corrective action, suspicious transaction reporting, domestic PEP coverage, and international coordination. - CBvS supervisory actions: increasing on-site inspections and off-site monitoring; implementing an ML/TF institutional risk rating system. ### Outlook and risks (staff baseline and drivers) - Staff baseline projections (2019−24): - Real GDP: expected to expand annually by "2¼ to 2½ percent during 2019−24". - Fiscal tightening: assumed "around 3.3 percent of GDP by 2022", including a "15 percent VAT" replacing the sales tax in late-2021, improved revenue and customs administration, and lower electricity subsidies after Afobaka dam transfer in late-2019. - Inflation: expected to remain low with a temporary increase due to VAT introduction in late-2021. - Fiscal deficit: expected to rise to "almost 9 percent of GDP in 2020" (falling to "7½ percent of GDP over the medium term"). - Public debt: forecast to rise to "around 87 percent of GDP by 2024". - Current account deficit: forecast to peak at "6.1 percent of GDP in 2019" then decline. - International reserves: projected at "3.6 months of imports by end-2019", slightly increase before declining to "3.3 months of imports in 2024". - Key drivers of current account outlook: - Continued Staatsolie oil exploration during "2019−20" keeps imports high; ending planned explorations lowers service imports in 2021. - Implementation of VAT in "2022" reduces imports. - From "2022" lower gold production schedules suggest lower mineral exports and related imports. - Balance of risks: assessed as negative. - Short-term upside risks: looser global financial conditions; higher reserves; potential new oil or gold discoveries; near-term fiscal expansion supporting growth. - Downside risks: non-implementation of fiscal measures (No-policy scenario); high public debt with high foreign-currency share and external financing shortfalls; monetary financing combined with fiscal slippage accelerating inflation and depleting reserves; banking sector vulnerabilities amplifying shocks. ### Authorities' views and scenarios - Authorities consider staff's baseline fiscal assumptions passive and too pessimistic. - Authorities' medium-term fiscal scenario: - Continued consolidation through higher revenues (VAT in "2021", customs modernization, expiration of accelerated depreciation of past mining investments) and much lower expenditures (primarily subsidies and interest, also wages and salaries). - Assume some non-debt-creating financing and believe debt is on a downward path beginning in "2019". - Project growth outlook similar on average to staff’s baseline. - Emphasize potential large upsides from offshore oil discoveries and three new gold mines under development. - No-policy scenario (staff definition): electricity subsidies maintained at "2019 levels as a share of GDP" and VAT not implemented throughout the projection horizon; implies worse fiscal outcomes and higher debt. ### Monetary framework, implementation, and recommendations - Historical switch: 2016 CBvS switched nominal anchor from exchange rate to reserve money, but de facto framework drifted back toward exchange rate anchor. - De facto instruments: reserve requirements and ad hoc instruments (foreign exchange swaps and occasional loans to banks). - Since early 2019: steps toward reserve money targeting and liquidity management: - Introduced certificates of deposit (and gold-indexed certificates), 1- and 5-day lending facilities, and a short-term (multi-day) interest-bearing deposit facility. - New coordination committees instituted in 2019. - Recommendations: - Publish explicit short-term, annual, and long-term monetary targets. - Set annual and longer-term target paths for reserve money based on nominal GDP–reserve money link analysis. - Produce a forecast for currency in circulation to provide a target path for total bank reserves. - Expand the monetary toolbox: develop open market operations (e.g. weekly 7-day repo/reverse repo), convert part of government debt to CBvS into marketable securities for liquidity operations. - Introduce a policy rate as markets develop (potentially 7-day repo). - Strengthen CBvS–government coordination: reinstate and formalize a Memorandum of Understanding on sharing liquidity management burdens. ### Monetary financing and exchange rate policy - Recommendation: discontinue monetary financing of the budget. - Reinstate and enforce the Memorandum of Understanding that prohibited monetary financing until contents fully reflected in law. - Rationale: monetary financing undermines monetary framework and central bank independence, erodes international reserves, and creates vulnerabilities. - Exchange rate recommendation: allow exchange rate to act as shock absorber; move toward a market clearing (fully flexible) exchange rate. - Interim measure: CBvS should publish a reference for the parallel FX rate, ideally daily. ### Central bank governance, audits, and recapitalization - Actions taken: engaged external auditor for past financial statements; established an audit committee. - An international firm appointed to audit 2015−18 financial statements; completion expected by March 2020. - Draft Bank Act revisions in process; draft amendments submitted to staff for review per 2016 safeguards recommendations. - CBvS plans to implement IFRS starting in 2020. - CBvS proposed recapitalization plan pending government agreement. - Recommendation: recapitalization agreement should specify target level of capital, trigger point for recapitalization, and binding time frame. ### Monetary policy instruments and committees (Box 1 highlights) - Instruments implemented: - 1-Day Liquidity Facility (intra-day; no interest if settled intra-day). - 5-day Lending Facility (annual interest starts at 6 percent; 20 percent haircut if collateral recovered after default). - Multi-day Deposit Facility (interest 1 percent per annum; max 5 working days). - Emergency Liquidity Assistance (ELA) with collateral and conditionality. - Gold-indexed Bonds (interest 2–3 percent; maturities 1–5 years). - Certificates of Deposit (6–24 months; interest 8−12 percent). - Committees formed: - Monetary Policy Advisory Committee (MPAC). - Monetary and Fiscal Policy Coordination Committee (MFPCC). - Commercial Bank Credit Oversight Committee (CBCOC). ### Bank supervision, crisis management, and legal impediments - Supervisory recommendations: - Require asset quality reviews for banks with high NPLs/insufficient capital. - Prohibit dividends and require time-bound recovery plans; resolve NPLs via restructurings, write-offs, and collateral sales. - Trigger CBvS resolution tools for non-compliance. - Identified legal impediments: - Emergency measures on a bank require court decision (not CBvS). - Appeals can stop CBvS actions within two months. - CBvS lacks powers to undertake purchase-and-assume, establish a bridge bank, nationalize, fire managers/board members, or suspend shareholder rights. - Recommendation: finalize Bank Resolution Act to provide CBvS powers to intervene in failing banks consistent with international best practice. - Bank Resolution Law key elements needed: - Operationalize Financial Stability Committee. - Regularly test/update contingency plans with moderate and pessimistic scenarios. - Provide CBvS with tools: purchase-and-assume, bridge bank, write-down/convert ownership instruments, require mergers, inject public capital. ### AML/CFT regime - Priority: complete a comprehensive national risk assessment (NRA) to prepare for the 2020 Mutual Evaluation. - Substantial efforts needed to meet technical FATF compliance and demonstrate effective tools to mitigate ML/TF risks. - Main priorities: implement risk-based supervision of financial institutions and DNFBPs; pursue ML/TF investigations and prosecutions; strengthen Financial Intelligence Unit dissemination. - Authorities advancing NRA and preparing for Mutual Evaluation Report. ### Restoring fiscal sustainability — required adjustment and measures - Large, front-loaded fiscal deficit reduction needed; staff estimates fiscal measures of about "8.5 percent of GDP" over the medium term are required (with "3.3 percent of GDP" already in staff’s baseline). - Proposed measures: - Increase sales tax from "8–10 percent to 22 percent by 2020"; in 2022 sales tax replaced with "15 percent VAT". - Increase electricity tariffs by "15 percent per year during 2020−22" and by "20 percent per year during 2023−24"; exempt low-income households via social tariff. - Raise social safety net spending by "0.2 percent of GDP in 2020–21" and by "0.4 percent of GDP thereafter" relative to staff’s baseline through targeted cash transfers. - Implement tax and customs administration, public financial management, and public investment allocation/procurement improvements. - Note: further resources may be needed for central bank recapitalization; ensure pension reforms do not add fiscal costs. ### Structural fiscal improvements (Box 2) - Revenue administration improvements: taxpayer services; new tax identification numbers; comprehensive tax estimate and penalty systems; customs efficiency; data exchange; IT interoperability; transform tax department into semi-autonomous revenue agency. - Public financial management: finalize procurement law; implement new PFM law; improve budget planning and credibility; strengthen treasury operations and internal controls. - Public investment system: establish public investment and PPP unit; introduce operational planning and feasibility studies for investments and PPPs. - VAT introduction: comprehensive 18 month-VAT introduction plan with law finalization, threshold decision, regulations, customs tariff adjustments, VAT refund mechanism, taxpayer education, IT adaptation, and staff training. ### Authorities’ views on fiscal and supply-side policies - Authorities believe intended fiscal policies align closer to staff’s adjustment scenario than staff’s baseline; see staff baseline as passive non-implementation. - Authorities cited VAT implementation and comprehensive subsidy reduction plans as designed and scheduled. - Supply-side reforms: - Minimum wage: National Assembly set minimum wage at SRD 8.4 per hour, effective July 10, 2019; National Wage Board to advise biennially starting 2020. - Maternity and paternity support: Labor Protection for the Family Act approved April 2019; new fund to be established by end-2019 to collect company contributions. ### Staff appraisal — key findings, risks, and recommendations - Key findings: - Government stabilized the real economy; Real GDP growth healthy in past two years; inflation below 5 percent. - External position weaker than implied by fundamentals: current account well below norm; exchange rate increasingly overvalued; external debt high; reserves inadequate. - Main risks: - Downside: failing to address fiscal situation; monetary financing causing reserve losses and depreciation; banking sector vulnerabilities; delayed legislation. - Upside: looser global financial conditions; new oil or gold discoveries; higher reserves. - Staff recommendations (selected): - Strengthen monetary policy framework; publish explicit monetary targets; expand operational toolbox; strengthen CBvS–government coordination; adopt more flexible exchange rate; discontinue monetary financing; submit draft laws to National Assembly. - Revamp supervisory actions; develop crisis management system; introduce deposit insurance; improve AML/CFT regime and complete NRA. - Fiscal measures to reduce deficit: accelerate VAT introduction, increase electricity tariffs, improve tax administration, protect vulnerable groups via social tariff and targeted cash transfers. - Supply-side: improve business climate, labor market flexibility, governance and transparency in extractive industries, invest in education. ### Debt sustainability and stress tests (Annex IV highlights) - Public debt: total gross debt reached "72.1 percent of GDP in 2018". - Large external bond: US$550 million (16.8 percent of GDP) issued late 2016. - Staatsolie syndicated loan May 2018: US$625 million (16.3 percent of GDP) at 4.7 percent average annual interest rate and 8-year tenor. - External public debt: "49.6 percent of GDP" at end-2018—about three quarters of total public debt. - Baseline projections: public debt-to-GDP ratio increases to "87.4 percent of GDP by 2024". - Gross financing needs: increase from "17 percent of GDP in 2017" to "21 percent of GDP by 2020", rising to "over 33 percent of GDP in 2024". - Stress tests: - Real GDP growth shock, primary balance shock, interest rate shock, and real exchange rate shock all materially raise debt ratios. - Combined shock can push debt to "175 percent of GDP by 2024" and financing needs to "more than 70 percent of GDP". - External debt sensitivity (Annex IV/B and Box A4.6): - A "30 percent" real depreciation could push external debt to "147 percent of GDP in the short term" and "135 percent of GDP in the medium term". - A one-half standard deviation increase in the non-interest current account deficit would raise public external debt to "104 percent of GDP by 2024". - Baseline external debt series: 2018: "102.3 percent of GDP"; 2019: "96.4"; 2020: "90.7"; 2024: "83.3". ### Monetary policy instruments and liquidity management details (Annex VI) - ILF: loan ceiling "1 percent of the SRD reserve base"; no interest if settled intra-day. - 5-day Lending Facility: interest starts at "6 percent" annual; collateral haircut "20 percent" when recovered after default; max use five days per month; supervisory triggers. - Multi-day Deposit Facility: interest "1 percent per annum"; duration up to 5 working days. - Gold-indexed bonds: interest "between 2 and 3 percent"; maturities "1 to 5 years". - Certificates of Deposit: maturities "6-24-month", interest "8−12 percent". - ELA: collateralized; maximum duration one month with possible extension to three months; non-repayment considered default. - Institutional committees (MPAC, MFPCC, CBCOC) defined with roles in policy advice, liquidity forecasting, and bank liquidity oversight. ### Implementation of past Fund advice (Annex I summary) - Avoid monetary financing: implemented in 2016 via MoU, revoked early 2019; intention to delete monetary financing provision in draft Bank Act. - Develop indirect instruments and reserve targets: in progress; new short-term facilities and open market operations department set up. - Move to market-determined exchange rate: implemented in 2016 with later stabilization actions; CBvS continues providing FX for selected importers. - Recapitalize CBvS and amend Bank Act: in progress; draft amendments include recapitalization plan; external audits and IFRS implementation underway. - Financial sector and PFM reforms: extensive measures in progress across prudential regulation, bank resolution framework, AML/CFT, VAT introduction (postponed to 2022), fuel taxes, procurement, and social safety nets. *Source: 1surea2019001 — IMF staff report excerpt.* ### 1. Recent Central Bank Measures ________________________________________________________________ 12 ### 1. Recent Central Bank Measures ### Recent developments: macroeconomic and external conditions - Real GDP growth: "2.6 percent in 2018" following "1.8 percent growth in 2017". - Monthly Economic Activity Indicator (MEAI): slowed during 2019 to "2.5 percent (y/y; 12-m moving average) in July". - Sectoral drivers: expansions in wholesale and retail, construction, hotels, restaurants, and manufacturing; gold and oil production broadly flat; gasoline production increased in 2018 due to earlier refinery improvements. - Unemployment: fell to "7.6 percent in 2017" and estimated to have declined further in 2018. - Exchange rate regime: de jure floating, with the official central bank exchange rate path indicating a de facto stabilized arrangement. - FX market details: - CBvS provides FX directly to the private sector at the official rate for specific import items (notably fuel and pharmaceuticals). - Occasional reports indicate cambios offer a parallel exchange rate more depreciated and more volatile than the official rate (example cited: on October 18, 2019, cambios varied between "8.0−8.40", about "6−11 percent more depreciated" than the official rate). - A Foreign Exchange Commission decree requires small-scale gold miners to sell a portion (currently set at "20 percent") of FX proceeds of their gold exports or their gold exports themselves to the CBvS. - Monetary stance: CBvS maintained a restrained monetary stance, mopping up excess liquidity partly by unwinding foreign currency swap lines with commercial banks. Ex-ante real interest rates became positive in 2018. - Banking behavior: private sector credit partially recovered; banks increased the share of total assets held as reserves with the central bank. - Inflation: has fallen below "5 percent"; decline is broad-based. Exchange rate stability, control over excess liquidity, and price controls on certain household items (fuel and eggs) helped contain inflation. - External position (2018): - Current account balance worsened from "+1.9 percent of GDP in 2017" to "-3.4 percent of GDP in 2018". - Current account norm implied by medium term fundamentals and desirable policies assessed to be between "-0.9 to 1.1 percent of GDP". - Real effective exchange rate appreciated by "4.9 percent (y/y) in 2018"; staff assesses REER is overvalued by "5 to 9 percent". - International reserves: "73 percent of the Fund’s Reserve Adequacy (ARA) metric in end-2018"; expected to rise to around "83 percent of the ARA metric by end-2019". - Total external debt: "more than 90 percent of GDP". - Fiscal position (2018): central government overall fiscal deficit "7.1 percent of GDP" and debt "72.1 percent of GDP". Around half of the fiscal deficit accounted for by untargeted electricity subsidies. Public debt limit raised from "60 to 95 percent of GDP" by new law. - Extractive sector transparency: Suriname’s first EITI report published in 2019 based on 2016 information; compliance assessment scheduled at end-2019. - Banking system vulnerabilities (July 2019 data): - Capital adequacy ratio: "10.5 percent" (above "10 percent" minimum). - Non-performing loans: "12.5 percent of gross loans". - Profitability: "0.7 percent return on assets". - Deposit and loan dollarization: remain high. - Some large banks reportedly do not meet minimum regulatory capital requirements. - IFRS implementation: CBvS and all CBvS-supervised financial institutions to prepare annual financial statements in accordance with IFRS standards starting "January 1, 2021". CARTAC providing technical assistance. - Monetary financing: monetary financing of the budget resumed in early-2019 after revocation of a memorandum of understanding. CBvS provided new credit to government up to the limit of "10 percent of government revenues" specified in legislation; excess should be repaid within three months according to CBvS interpretation. A new draft Bank Act would eliminate these types of direct monetary financing. - FX reserve management changes: - Banks now required to place half of their U.S. dollar required reserves, and all euro required reserves, under CBvS management. - A Strategic Investment Subcommittee for banks gives banks more representation over reserve management decisions, though the CBvS governor retains veto power. - Legislative progress: CBvS drafting a suite of laws to strengthen monetary and financial policy frameworks (Bank Act, Credit Institutions Resolution Act, Banking and Credit Supervision Act, Insurance Supervision Act, Deposit Insurance Act, Pension Funds and Provident Funds Act, General Pensions Act, Money Transactions Offices Supervision Act, Electronic Payment Transactions Act, Credit Bureaus Act). - AML/CFT: a money laundering and terrorist financing (ML/TF) National Risk Assessment (NRA) launched in 2019 with IDB support; NRA to underpin a risk-based AML/CFT approach ahead of CFATF Mutual Evaluation scheduled for 2020. Authorities amending regulations to: - Strengthen legal basis for corrective action against non-compliant institutions; - Introduce procedures for reporting suspicious transactions; - Cover domestic politically-exposed persons in AML/CFT rules; - Enhance international coordination. - CBvS supervisory actions: increasing on-site inspections and off-site monitoring; implementing an ML/TF institutional risk rating system. ### Outlook and risks - Staff baseline projections (2019−24): - Real GDP: expected to expand annually by "2¼ to 2½ percent during 2019−24". - Fiscal tightening: assumed "around 3.3 percent of GDP by 2022", including a "15 percent VAT" replacing the sales tax in late-2021, better revenue and customs administration, and lower electricity subsidies after Afobaka dam transfer in late-2019. - Inflation: expected to remain low with a temporary increase due to VAT introduction in late-2021. - Fiscal deficit: expected to rise to "almost 9 percent of GDP in 2020" (falling to "7½ percent of GDP over the medium term"). - Public debt: forecast to rise to "around 87 percent of GDP by 2024". - Current account deficit: forecast to peak at "6.1 percent of GDP in 2019" then decline. - International reserves: projected at "3.6 months of imports by end-2019", slightly increase before declining to "3.3 months of imports in 2024". - Key drivers of current account outlook: - Continued oil exploration by Staatsolie during "2019−20" keeps imports high; ending planned explorations lowers service imports in 2021. - Implementation of VAT in "2022" reduces imports. - From "2022" lower gold production schedules suggest lower mineral exports and related imports. - Balance of risks: assessed as negative (Annex III). - Short-term potential upsides: looser global financial conditions reducing debt-service burden; higher reserves reducing exchange rate pressures; potential new oil or gold discoveries; near-term fiscal expansion supporting growth. - Downside risks: non-implementation of fiscal measures (No-policy scenario) would increase public debt; high public debt with a high foreign-currency share and external financing shortfalls could put pressure on the currency, raise inflation, harm growth, and increase the debt-GDP ratio. - Monetary financing combined with fiscal slippage could accelerate inflation and deplete international reserves. - Banking sector vulnerabilities could amplify risks, especially if deposit insurance and crisis resolution frameworks are delayed. ### Authorities' views and scenarios - Authorities consider staff's baseline fiscal assumptions to be a passive non-implementation and therefore too pessimistic. - Authorities' medium-term fiscal scenario: - Project continued consolidation through higher revenues (VAT introduction in "2021", modernization of customs, expiration of accelerated depreciation of past mining investments) and much lower expenditures (primarily subsidies and interest expenditures, also wages and salaries). - Assume some non-debt-creating financing and believe debt is on a downward path beginning in "2019". - Project a very similar growth outlook on average to staff’s baseline. - See risks as limited and emphasize potential large upsides from offshore oil discoveries and three new gold mines under development. - No-policy scenario (staff definition): assumes electricity subsidies maintained at their "2019 levels as a share of GDP" and VAT not implemented throughout the projection horizon; implies worse fiscal outcomes and higher debt. ### Policy implications and ongoing reforms - Monetary policy and reserve management: - Maintain restrained monetary stance and control excess liquidity. - Continue adjustments to FX reserve management (bringing FX reserves under central bank’s management). - Banking sector and supervision: - Strengthen supervision to address high non-performing loans ("12.5 percent of gross loans") and low profitability ("0.7 percent return on assets"). - Implement IFRS and enhance supervisory guidelines on credit risk management, loan loss allowances, capital treatment, and regulatory reports ahead of "January 1, 2021". - Develop deposit insurance and robust crisis preparedness and resolution frameworks to mitigate systemic risks. - Fiscal policy: - Implement fiscal tightening measures (estimated "around 3.3 percent of GDP by 2022") including a "15 percent VAT" and reduction of electricity subsidies to stabilize debt dynamics. - Avoid renewed monetary financing of fiscal deficits beyond the legal limit of "10 percent of government revenues". - Governance and transparency: - Follow EITI recommendations to strengthen extractive sector governance (Annex V). - Advance AML/CFT reforms ahead of CFATF Mutual Evaluation in 2020. - Legal and institutional reforms: - Enact drafted legislation (Bank Act, Credit Institutions Resolution Act, Banking and Credit Supervision Act, Deposit Insurance Act, pension and insurance acts, AML/CFT-related amendments) to align with international best practice and reduce macro-financial vulnerabilities. *Source: SURINAME — INTERNATIONAL MONETARY FUND, section "Recent Developments" and related sections in the provided chapter.* ### 17. The CBvS switched its nominal anchor from the exchange rate to reserve money in ### 17. The CBvS switched its nominal anchor from the exchange rate to reserve money in ### Monetary framework, implementation, and recommendations - 2016: The CBvS switched its nominal anchor from the exchange rate to reserve money, but the new monetary regime was largely not implemented; the de facto framework drifted back toward an exchange rate anchor. - Main instruments used de facto: reserve requirements and ad hoc instruments (e.g. foreign exchange swaps and occasional loans to banks) to manage liquidity. - Since early 2019: Steps to build a reserve money targeting regime and more closely manage systemic liquidity, including introduction of: - certificates of deposit (and gold-indexed certificates), - 1- and 5-day lending facilities, - a short-term (multi-day) interest-bearing deposit facility. - New coordination committees were instituted in 2019 (see Box 1). Recommendations: - Publish explicit short-term, annual, and long-term monetary targets. The CBvS produces but does not publish such targets. - Set annual and longer-term target paths for reserve money based on an analysis of the link between nominal GDP and the demand for reserve money. - Produce a forecast for currency in circulation to provide a target path for total (required and excess) bank reserves; achieving that path should be the goal of short-term liquidity management operations. - Further expand the monetary toolbox: - Develop capacity to undertake open market operations (e.g. through weekly operations in 7˗day repo and reverse repo instruments). - Convert part of government debt to the CBvS into marketable securities to be used in liquidity management operations. - As markets develop, introduce a policy rate (potentially the 7-day repo rate) and increasingly rely on it as the main gauge of policy stance. - Strengthen CBvS coordination with government: reinstate and formalize a Memorandum of Understanding to clarify modalities for sharing the financial burden arising from liquidity management operations between the CBvS and the Ministry of Finance. ### Monetary financing and exchange rate policy - Recommendation: Monetary financing of the budget should be discontinued. - Reinstate and enforce the Memorandum of Understanding that prohibited monetary financing of the fiscal deficit until its contents are fully reflected in the law. - Rationale: Monetary financing undermines Suriname’s monetary framework and central bank independence, erodes international reserves, and creates unnecessary vulnerabilities. - Exchange rate: Allow the exchange rate to act as a shock absorber; move toward a market clearing (fully flexible) exchange rate to eliminate the parallel market and support FX reserve accumulation. - Interim measure: CBvS should publish a reference for the parallel FX rate, ideally at a daily frequency, to provide clarity. ### Central bank governance, audits, and recapitalization - Steps taken: engaged an external auditor to audit past financial statements and established an audit committee. - An international firm was appointed to conduct the 2015−18 financial statements' audits; they expect completion by March 2020. - An audit committee of the Supervisory Board was recently established. - Draft revisions to the Bank Act are in process; draft amendments have been submitted to staff for review, based on 2016 safeguards recommendations. - CBvS plans to implement the IFRS starting in 2020. - CBvS has a proposed plan for recapitalization that still needs government agreement. - Recommendation: Any recapitalization agreement should provide a framework to ensure full capitalization, including a law specifying a target level of capital, a trigger point for recapitalization, and a binding time frame to complete the recapitalization. ### Box 1 — Recent Central Bank Measures (Monetary Policy Instruments, Committees, Draft Legislation) - Monetary Policy Instruments Implemented: - 1-Day Liquidity Facility (ILF): Intra-day lending facility for banks to improve transaction payments. - 5-day Lending Facility: Lending facility to help banks meet temporary liquidity needs. - Multi-day Deposit Facility: Interest-bearing deposit facility to mop excess liquidity and serve as a fund for other lending facilities. - Emergency Liquidity Assistance (ELA): Helps banks cover temporary liquidity shortages. - Gold-indexed Bonds: Pay a fixed interest rate over the nominal gold value of the gold certificates, expressed in gold but paid out in Surinamese dollars. - Certificates of Deposit: Pay fixed interest rate over the nominal value in Surinamese dollars. - New Committees Formed: - Monetary Policy Advisory Committee (MPAC): To provide advice on monetary policy. - Monetary and Fiscal Policy Coordination Committee (MFPCC): To forecast liquidity needs and ensure consistency of fiscal and monetary policies. - Commercial Bank Credit Oversight Committee (CBCOC): To develop a framework for liquidity assistance to banks. - Draft Legislations Prepared: - Bank Act - Credit Institutions Resolution Act - Banking and Credit Supervision Act - Insurance Supervision Act - Deposit Insurance Act - The Pension Funds and Provident Funds Act - General Pensions Act - Money Transactions Offices Supervision Act - Electronic Payment Transactions Act - Credit Bureaus Act ### Authorities’ views on monetary and FX policy - Authorities report liquidity monitoring and forecasting framework is operational; liquidity targets are already being set. - CBvS actively managing excess liquidity using lending and deposit facilities, certificates of deposit, and gold certificates. - Authorities requested Fund TA to set targets for M0 and develop the interbank market. - Authorities believed the new Central Bank Act, to be tabled in the National Assembly end-2019, will end direct monetary financing of the government; they view existing law as precluding indirect forms of monetary financing. - CBvS is engaging CARTAC on IFRS implementation and contracted Ernst and Young to implement IFRS and act as external auditor. - Authorities expected to complete external audits by 2020 and publish delayed central bank annual reports. - Authorities remain committed to a flexible exchange rate and plan to accumulate more reserves. - Recent FX injections into banks were presented as measures to counteract market imperfections from the seizure of a FX cash shipment in 2018. - Measures to boost reserves include: agreement with commercial banks to place a larger portion of required foreign exchange reserves under CBvS management and purchase of gold proceeds against local currency from small gold exporters (claimed voluntary). - Authorities believed convergence of parallel FX rates with official CBvS rate is occurring and expected inflation to remain below 4 percent in 2019. - Authorities did not consider data quality from the highly fractured parallel FX market sufficient for publication. ### Bank supervision and crisis management - Recommendation: Revamp supervisory efforts. - Require banks with high NPLs and/or insufficient capital to undertake asset quality reviews. - Prohibit such banks from issuing dividends and require time-bound recovery plans to return to regulatory compliance (building capital through injections and operational changes). - Banks should develop specific plans to resolve NPLs via restructurings, write-offs, and sales of collateral. - Non-compliance should trigger CBvS use of resolution tools to maintain continuity of critical functions, ensure financial stability, and minimize taxpayer costs. - Legal impediments in current framework that impede swift action: - (i) emergency measures on a bank can only be decided by a court (not by the CBvS); - (ii) anyone claiming their interests are affected by a CBvS decision can file an appeal within two months and stop CBvS actions; - (iii) CBvS lacks powers to undertake purchase and assume transactions, establish a bridge bank, or nationalize a bank; - (iv) CBvS is unable to fire a manager or Board member; - (v) no provision for CBvS to take control of the bank and suspend shareholder rights. - Recommendation: Finalize amendments to the Bank Resolution Act to give CBvS powers to intervene in banks determined to be failing or likely to fail, consistent with international best practice. ### Bank Resolution Law: key elements needed - Establish a coordination framework on financial stability issues (operationalize Financial Stability Committee based on MoU between Ministry of Finance and CBvS). - Regularly test and update contingency plans including: - background on macro conditions, banking system structure, and bank conditions; - well-defined moderate and pessimistic crisis scenarios; - description of key legal tools to address systemic risk; - strategic options for bank resolution: liquidity support, bank recapitalization, measures to contain deposit outflows (e.g. assuming public ownership, announcing a bank holiday, or introducing capital controls); - plans for coordination with domestic and international authorities. - Provide CBvS with powers and tools consistent with international best practice: - ability to undertake purchase and assumption transactions, establish a bridge bank, write-down or convert instruments of ownership, require mergers, or inject public capital into an insolvent bank. ### AML/CFT regime - Priority: complete a clear and comprehensive national risk assessment to enable efficient allocation of resources and prepare for the next AML/CFT assessment scheduled to start in 2020. - Substantial efforts needed to bring Suriname’s regime into technical compliance with current FATF standard and demonstrate effective use of tools to mitigate risks. - Main priorities: implement a risk-based approach to supervision of financial institutions and DNFBPs, actively pursue money laundering and terrorist financing investigations and prosecutions (law enforcement or via dissemination of financial intelligence by the Financial Intelligence Unit of Suriname). - Authorities are advancing work on the NRA and preparing for the Mutual Evaluation Report. ### Restoring fiscal sustainability — required adjustment and measures - A significant, front-loaded reduction in the fiscal deficit is needed to ensure fiscal sustainability (Annex IV). - Public debt-GDP: staff estimate fiscal measures of about 8.5 percent of GDP over the medium term are required (3.3 percent of GDP of which have already been incorporated in staff’s baseline). - Proposed measures include: - Increase the sales tax from 8–10 percent to 22 percent by 2020. In 2022 the sales tax would be replaced with a VAT of 15 percent. - Increase electricity tariffs by 15 percent per year during 2020−22 and by 20 percent per year during 2023−24; this would bring average tariffs in line with regional averages by 2024. Exempt low-income households (e.g. social tariff for monthly usage below a certain threshold). - Raise social safety net spending by 0.2 percent of GDP in 2020–21 and by 0.4 percent of GDP thereafter (relative to staff’s baseline) by expanding targeted cash transfer programs. - Implement improvements to tax and customs administration, public financial management, and allocation and procurement of public investment (see Box 2). - Note: Further resources may be needed over the medium term for central bank recapitalization; ensure pension reforms do not add fiscal costs. ### Structural fiscal improvements (Box 2) - Improving revenue administration: - develop taxpayer services; - strengthen internal revenue operations (including introducing new tax identification numbers and comprehensive tax estimate and penalty systems); - improve customs operations (including preparing for the VAT and increasing efficiency in processing at customs); - review and update legal framework for tax and customs administration; - enhance exchange of data between tax and customs offices; - improve interoperability of IT systems for better use of third-party information; - transform tax department into a modern, semi-autonomous revenue agency using a risk-based approach. - Better public financial management: - finalize procurement law; implement recently approved public financial management law; - improve Ministry of Finance’s business model for budget planning, budget credibility, and quality of fiscal information; - improve the medium-term fiscal framework; - strengthen treasury operations and internal financial controls. - Strengthening public investment system: - establish a public investment and PPP unit; - introduce an operational plan for planning and feasibility studies for public investments and PPPs. ### Authorities’ views on fiscal policies - Authorities believe their intended fiscal policies are closer to staff’s adjustment scenario than staff’s baseline. - Authorities see staff’s baseline as passive non-implementation of their stated policies; they maintain their revenue and expenditure projections are broadly in line with staff’s adjustment scenario. - Authorities acknowledged some policy intentions have not been fully publicly communicated and will require stakeholder discussion. - VAT implementation and a comprehensive plan to reduce subsidies were cited as policies already designed and scheduled for implementation. ### Supply-side reforms to bolster growth and protect the poor - Minimum Wage: - July 2019: National Assembly approved an update of the Minimum Wage Act setting minimum wage at SRD 8.4 per hour, effective July 10. - Starting 2020, every two years a National Wage Board will advise on a new minimum wage to the Minister of Labor. - Maternity and paternity support: - April 2019: National Assembly approved the Labor Protection for the Family Act providing maternity and paternity leave for parents of newly-born children. - A new fund will be established by the end of 2019 to collect company contributions to finance this leave. - Successful implementation expected to enhance female labor force participation. *Source: IMF staff report excerpt.* ### Box 2. Needed Structural Improvements to Fiscal Policy (Concluded) ### Box 2. Needed Structural Improvements to Fiscal Policy (Concluded) ### Introducing the Value-Added Tax (VAT) - Undertaking a comprehensive 18 month-VAT introduction plan that would establish a timeline to finalize the VAT law, decide on the threshold for entities subject to the VAT (based on the tax administration’s capacity), design and publish regulations, adjust customs tariffs, redesign tax returns, introduce an effective VAT refund mechanism, launch a comprehensive taxpayer education program (online and/or through newspapers, outreach activities, and workshops), review existing internal administrative processes, adapt tax and customs IT systems, and train staff; - Re-structuring tax administration along with its functional lines and re-organizing field delivery by type of taxpayers; - Strengthening core administration functions (taxpayer registration, services, audit, collection); and - Designing and implementing a risk-based compliance improvement plan. ### Authorities’ Views - The authorities mentioned that they have many ongoing structural policies to achieve sustainable growth. - They are working towards improving the business climate as well as seeking potential investors in Suriname, particularly in non-traditional sectors. - The authorities are also diversifying the economy through promoting tourism and agriculture, as they believe Suriname has abundant untapped potential in these sectors. - They noted that many programs for innovation and development in these sectors are being undertaken with external expertise and financing. - The authorities are committed to implementing the EITI recommendations, have published the first Suriname report covering 2016, and will submit the second report before end-2019. ### Staff Appraisal — Key Findings, Risks, and Recommendations - The government has successfully stabilized the real economy. Real GDP growth has been healthy in the past two years and inflation has dropped below 5 percent. - There are upside risks to growth: - Looser global financial conditions could make debt service less burdensome on public finances and the confidence provided by a higher level of international reserves could reduce pressures on the exchange rate. - There are upsides from potential new oil or gold discoveries. - Downside risks to the outlook are growing: - Failing to address the precarious fiscal situation would add to the upward path for public debt, potentially lead to shortfalls in external financing, and increase pressure on the currency (which would feed back to increase the debt-GDP ratio). - Greater monetary financing of the fiscal deficit would lead to a loss of international reserves and eventually result in a depreciation of the exchange rate that would quickly feed into higher inflation. - Vulnerabilities in the banking sector pose risks, especially if there are further delays in implementing the related legislations drafted by the central bank. - The external position is assessed to be weaker than implied by medium-term fundamentals and desirable policies: - The current account balance is well below the current account norm, the exchange rate is becoming increasingly overvalued, external debt is high, and international reserves coverage is inadequate. - Monetary policy recommendations: - Further strengthen the monetary policy framework. - Publish explicit monetary targets. - Further expand the operational tool box to effectively implement a reserve money target. - Further strengthen the CBvS’s coordination with the government on liquidity projections and operations. - Adopt a more flexible exchange rate as a shock absorber. - The CBvS should discontinue monetary financing of the fiscal deficit. - Draft laws to strengthen the legal framework, including those on governing the CBvS (in line with the 2016 Safeguards recommendations) should be submitted to the National Assembly. - Banking sector recommendations: - The CBvS should revamp its supervisory actions and take a more assertive approach to ensuring banks return to compliance with regulatory requirements over a pre-determined time horizon. - Develop a comprehensive crisis management system to give the CBvS power to intervene in banks’ governance and operations when necessary, require contingency plans, improve the process of bank resolution, and introduce a deposit insurance system. - Continue improvement in the AML/CFT regime to help ensure correspondent banking relationships can be maintained. - Completing a clear and comprehensive National Risk Assessment (NRA) will put Suriname in a better position in advance of its next AML/CFT mutual evaluation in 2020. - Fiscal policy recommendations: - Fiscal measures are needed to reduce the deficit and put the debt on a sustainable footing. - Policies are needed to accelerate the introduction of the VAT, increase electricity tariffs, and improve tax administration and collection. - Implement these policies while protecting the most vulnerable members of society through a social tariff for a certain base usage of electricity and by improving social safety nets through a well-targeted system of cash transfers. - Supply-side and governance recommendations: - Supply-side reforms are necessary to boost potential growth and diversify the economy. - Improve the business climate through reduction of regulatory burdens and introducing labor market flexibility to attract foreign direct investment (FDI). - Improving governance and transparency, especially in the extractive industries, will help attract new investment. - Investing in education has long-term benefits to entrepreneurship and will assure new investments will have access to a well-trained workforce. ### Figures and Projections (notes) - Figure: Suriname: Baseline and Adjustment Scenarios — charts include Real GDP Growth (Percent; annual), Fiscal Balance (Percent of GDP), Current Account Balance (Percent of GDP), Gross International Reserves (Millions of USD), Inflation (Percent; annual), Public Debt (Percent of GDP). - Sources: Central Bank of Suriname; Ministry of Finance; National Planning Office; and IMF staff calculations and projections. - Footnotes on scenarios: - 1/ IMF staff's projections are based on policy intentions expressed by the authorities. These policies are mostly similar to those assumed in the authorities' projections, but IMF staff’s costings of some are very different from the authorities’. - 2/ IMF staff's adjustment scenario assumes policies recommended by IMF staff. - 3/ Authorities' projections were provided to staff during July 2018 staff visit. *Source: 1surea2019001 - Box 2. Needed Structural Improvements to Fiscal Policy (Concluded).* ### 43. Staff recommends that the next Article IV consultation with Suriname be held on the ### 1surea2019001 - 43. Staff recommends that the next Article IV consultation with Suriname be held on the standard 12-month cycle. ### Macro outlook and real sector - GDP developments and growth - "Suriname's GDP was one of the hardest hit by the commodity-driven shock of 2014-2016 but has almost recovered since then." - Real GDP (Table 1, Real sector): 2016: -5.6; 2017: 1.8; 2018: 2.6; 2019: 2.3; 2020: 2.5; 2021: 2.4; 2022: 2.0; 2023: 2.4; 2024: 2.5. - Prices and inflation - "Inflation spiked in 2016 but has been low since 2018." - Consumer prices (period average): 2016: 55.5; 2017: 22.0; 2018: 6.9; 2019: 4.5; 2020: 5.8; 2021: 4.7; 2022: 10.2; 2023: 5.1; 2024: 4.8. - Consumer prices (end of period): 2016: 52.4; 2017: 9.3; 2018: 5.4; 2019: 4.8; 2020: 4.8; 2021: 5.7; 2022: 8.3; 2023: 5.2; 2024: 4.4. - Exchange rate and competitiveness - "The exchange rate has remained stable for about 3 years." - "REER depreciated strongly in 2016, but has been appreciating since then mainly due to lower inflation." - Effective Exchange Rates: REER appreciated in 2018 but faced some depreciation pressures in 2019. - External sector and trade - "The current account deficit worsened in 2018, due to strong growth of imports." - Current account balance (Table 1): 2016: -5.1 percent of GDP; 2017: 1.9; 2018: -3.4; 2019: -6.1; 2020: -5.9; 2021: -4.5; 2022: -3.3; 2023: -4.8; 2024: -4.3. - Exports, f.o.b. (Table 5): 2016: 1,439; 2017: 2,034; 2018: 2,129; 2019: 2,213; 2020: 2,495; 2021: 2,580; 2022: 2,634; 2023: 2,671; 2024: 2,711 (Millions of USD). - Imports, f.o.b. (Table 5): 2016: -1,252; 2017: -1,363; 2018: -1,582; 2019: -1,724; 2020: -1,943; 2021: -2,012; 2022: -2,023; 2023: -2,144; 2024: -2,137 (Millions of USD). - Trade balance, goods (Table 6, percent of GDP): 2016: 6.0; 2017: 20.9; 2018: 15.8; 2019: 12.8; 2020: 13.1; 2021: 12.9; 2022: 12.8; 2023: 10.6; 2024: 10.9. - International reserves and financial flows - Gross international reserves (Table 1): 2016: 381; 2017: 424; 2018: 581; 2019: 710; 2020: 819; 2021: 814; 2022: 857; 2023: 847; 2024: 813 (USD millions). - "Note: The recent increase in reserves is due to the policy requiring banks to place part of their reserves under the management of the CBvS." - Capital and financial account (Table 5): 2016: 16.1 (Percent of GDP); 2017: 3.5; 2018: 8.6; 2019: 9.5; 2020: 8.5; 2021: 4.4; 2022: 4.2; 2023: 4.6; 2024: 3.6. ### Fiscal developments and public debt - Fiscal balances and revenues - "Fiscal deficits remain larger than many other commodity exporters and the region..." - Total revenues (Table 1, percent of GDP): 2016: 18.9; 2017: 22.0; 2018: 23.9; 2019: 25.4; 2020: 24.9; 2021: 24.9; 2022: 26.3; 2023: 26.2; 2024: 26.0. - "Total revenues are recovering driven by mineral revenues... especially from oil sector." - Mineral resource revenues (Table 3, Millions of SRD): 2016: 569; 2017: 1,075; 2018: 1,098; 2019: 1,123; 2020: 1,242; 2021: 1,319; 2022: 1,371; 2023: 1,407; 2024: 1,449. - Expenditures and primary balance - Total expenditure (Table 1, percent of GDP): 2016: 28.0; 2017: 30.9; 2018: 31.0; 2019: 34.0; 2020: 33.8; 2021: 33.2; 2022: 32.7; 2023: 33.8; 2024: 33.5. - Primary balance (Table 1, percent of GDP): 2016: -6.5; 2017: -5.3; 2018: -3.5; 2019: -4.8; 2020: -5.0; 2021: -4.1; 2022: -2.7; 2023: -2.6; 2024: -2.7. - "Expenditures contracted in 2016, but have increased afterwards... with subsidies increasing." - Electricity tariff subsidy financed through the budget (Table 3, Millions of SRD): 2016: 377; 2017: 1,026; 2018: 1,244; 2019: 1,298; 2020: 1,364; 2021: 1,316; 2022: 1,450; 2023: 1,482; 2024: 1,537. - Public debt - "External debt has remains at a significantly more elevated level than comparators." - Central government debt (Table 1, percent of GDP): 2016: 76.1; 2017: 74.6; 2018: 72.1; 2019: 72.3; 2020: 74.6; 2021: 79.5; 2022: 79.5; 2023: 83.8; 2024: 87.4. - External public debt is higher than comparator medians (figures and captions). ### Monetary policy, money, and financial sector - Money and credit - "More FX required reserves have boosted reserve money growth... Credit to private sector contracted in both nominal and real terms in 2018 but has partially recovered in recent months..." - Broad money (constant exchange rate, Table 1, percent change): 2016: 5.9; 2017: 8.6; 2018: 8.1; 2019: 9.5; 2020: 9.4; 2021: 7.6; 2022: 7.5; 2023: 7.5; 2024: 7.0. - Private sector credit (constant exchange rate, Table 1, percent change): 2016: -5.7; 2017: 0.9; 2018: -4.5; 2019: -4.7; 2020: 7.4; 2021: 12.8; 2022: 10.6; 2023: 14.5; 2024: 12.8. - Reserve money (constant exchange rate, Table 1, percent change): 2016: 8.1; 2017: 22.2; 2018: 35.4; 2019: 14.8; 2020: 12.6; 2021: 8.6; 2022: 8.5; 2023: 8.5; 2024: 7.6. - Dollarization and interest rates - "Dollarization indicators spiked in 2016, principally due to the valuation effect, and have been slowly declining afterwards." - Dollarization indicators (Figure 7): deposit and credit dollarization series shown, with spiked levels in 2016 and gradual decline through May-19. - "Average deposit and lending interest rates have been stable, while average interbank rate remains volatile with few transactions." - Financial soundness indicators (Table 8) - Capital adequacy: Regulatory capital to risk-weighted assets: 2016: 5.5; 2017: 9.3; 2018: 9.9; Jul. 2019: 10.5. - Asset quality: NPL to gross loans: 2016: 10.8; 2017: 13.0; 2018: 10.8; Jul. 2019: 12.5. - Liquidity: Liquid assets to total assets: 2016: 32.7; 2017: 37.9; 2018: 40.2; Jul. 2019: 43.2. - Profitability: Return on assets (ROA, annualized): 2016: -0.7; 2017: 0.9; 2018: 0.1; Jul. 2019: 0.7. ### Key projections and balance of payments outlook - Projections (selected) - Real GDP growth projections (Table 2 headline): 2019: 2.3; 2020: 2.5; 2021: 2.4; 2022: 2.0; 2023: 2.4; 2024: 2.5. - Nominal GDP (Table 1): 2016: 19.1; 2017: 23.3; 2018: 7.4; 2019: 11.8; 2020: 12.6; 2021: 8.0; 2022: 10.7; 2023: 6.0; 2024: 6.7. - External debt (Table 5, Percent of GDP): 2016: 94.6; 2017: 97.4; 2018: 102.3; 2019: 96.4; 2020: 90.7; 2021: 89.2; 2022: 85.0; 2023: 84.3; 2024: 83.3. - Balance of payments - Current account (Millions of USD, Table 5): 2016: -160; 2017: 61; 2018: -118; 2019: -232; 2020: -248; 2021: -199; 2022: -159; 2023: -240; 2024: -223. - Financial account composition (Table 5, Millions of USD): Foreign direct investment: 2016: 300; 2017: 98; 2018: 119; 2019: 111; 2020: 164; 2021: 188; 2022: 219; 2023: 252; 2024: 302. - Reserve adequacy (Table 5, memorandum): Reserve adequacy (risk-weighted measure), USD millions: 2016: 669; 2017: 733; 2018: 797; 2019: 841; 2020: 879; 2021: 904; 2022: 928; 2023: 963; 2024: 998. ### Staff recommendation and notable policy-relevant findings - Staff recommendation - "Staff recommends that the next Article IV consultation with Suriname be held on the standard 12-month cycle." - Notable policy-relevant findings (from figures and tables) - Fiscal: "Total revenues are recovering driven by mineral revenues... Expenditures contracted in 2016, but have increased afterwards... with subsidies increasing. Fiscal deficits are high... so is the public debt." - Debt profile: "Public debt is in line with the Caribbean median, but significantly higher than the median of commodity exporters... while external public debt is higher than all comparator group medians." - Monetary/FX: "More FX required reserves have boosted reserve money growth... Reserves were bolstered by one-off inflows in 2018, and increased by the new reserve policy in 2019." - External: "The current account balance worsened in 2018 and further in 2019Q2 due to increase in imports. The financial account improved in 2018Q2 due to a syndicated loan to Staatsolie, and marginally slowed down in 2019Q2." *Source: IMF staff report content as provided in the supplied PDF extracts.* ### Annex I. Implementation of Past Fund Advice ### Annex I. Implementation of Past Fund Advice ### Monetary and exchange rate policies - Avoid monetary financing (2016 Art. IV). - Status: In progress, after being implemented in 2016 and backtracked in 2019. - Implemented in 2016 through a signed MoU between the CBvS and MoF; MoU revoked by the MoF in early 2019, monetary financing of the deficit resumed. - Authorities indicated intention to stop further monetary financing by deleting the existing provision in a revised draft Bank Act. - Develop indirect instruments of monetary policy including reserve targets, open market operations and standing facilities (2011−18 Art. IV). - Status: In progress. - Actions: framework for monitoring, forecasting and managing liquidity and growth of reserve money introduced; introduction in 2019 of short-term bank lending and deposit facilities, gold certificates and certificates of deposits; open market operations department set up; monetary policy advisory committee reestablished. - Move to a market-determined exchange rate regime (2012 Art. IV). Preserve exchange rate flexibility. Phase out the central bank's role as a distributor of foreign exchange to importers of fuel and other essential imports (2016−18 Art. IV). - Status: Implemented in 2016, with some backtracking afterwards. - Events: exchange rate floated in May 2016; period of flexibility in 2016 followed by CBvS interventions to stabilize the exchange rate; temporary exchange rate band for cambios set in July 2019; CBvS continues providing foreign exchange for selected importers. - Implement institutional reforms to prevent fiscal dominance. Amend the Central Bank Act and prepare a strategic plan for addressing the CBvS's weakening financial position (2016 Art. IV). - Status: In progress. - Actions: intention to delete monetary financing provision in draft Bank Act; steps to strengthen audit function; Ernst and Young contracted to support IFRS implementation. - Eliminate remaining multiple currency practices (2012 Art. IV). - Status: Implemented. - Recapitalize the CBvS. - Status: In progress. - Note: Draft amended Bank Act includes a recapitalization plan; authorities expect discussion in the National Assembly in the fourth quarter of 2019. ### Financial sector policies - Strengthen prudential regulation (2012 Art. IV). Enhance financial sector stability by strengthening bank capital and the regulatory and supervisory framework in line with 2014 FSAP recommendations (2014, 2018 Art. IV). - Status: Implemented. - Actions: new regulations on capital adequacy, asset classification and provisioning, corporate governance, internal audit, FX risk, liquidity risk, interest rate risk, large exposures, and net FX positions; Suriname National Electronic Payment System operationalized in August 2015; Financial Stability Department established in 2014; first Financial Stability Report published in March 2016. - Develop a robust contingency planning framework (2014, 2016, 2018 Art. IV): - Strengthen coordination mechanism between MoF and CBvS on financial stability issues, establish the Financial Stability Committee. - Strengthen the framework for emergency liquidity support. - Status: In progress. - Actions: CBvS working on a new Bank Resolution Law; draft law expected to be submitted to National Assembly by end-2019. - Modernize the bank resolution framework. Develop legal instruments for bank intervention and resolution (2014, 2016, 2018 Art. IV). - Status: In progress. - Actions: Bank Resolution Act, amendment to the Bank Act, amendment to Bank Supervision Act, and Deposit Insurance Act are being prepared. - Closely monitor the banking sector and conduct an asset quality review (2018 Art. IV). - Status: In progress. - Actions: central bank monitors banks and requires remediation plans; asset quality review has not yet been conducted. - Improve AML/CFT regime (2012 Art. IV). Continue reform to align with international standards; enhance surveillance of foreign exchange bureaus (2016, 2018 Art. IV). - Status: In progress. - Updates: CFATF announced Suriname has substantially addressed deficiencies from 2009 Mutual Evaluation Report. - Needs: CBvS increased capacity for AML/CFT supervision but has not yet demonstrated effective supervision of banking and foreign exchange sectors; further increases in annual on-site inspections and active use of administrative sanctions likely required; sustained efforts to implement current FATF standard and ensure effectiveness in mitigating ML/TF risks required. ### Fiscal policies - Introduce VAT (2011, 2018 Art. IV). - Status: Not implemented. - Note: Substantial preparatory steps taken; implementation postponed to 2022. - Raise fuel taxes (2016, 2018 Art. IV). - Status: Implemented. - Details: Fuel taxes reset in March 2017 from percentage collection to flat rates at higher effective levels: diesel at SRD 0.70 per liter, unleaded gasoline at SRD 1.30 per liter, premium gasoline at SRD 1.40 per liter. Tax on gasoline subsequently reduced to SRD 1.13 per liter in April 2018. - Improve management of key public utility companies; set operations on a commercial basis, adjust tariffs and clarify cross-subsidization and arrears (2011, 2012, 2018 Art. IV). Phase out electricity subsidies (2018 Art. IV). - Status: Partially implemented. - Details: Government nearly doubled electricity tariffs in late 2015 and implemented another substantial increase in mid-2016, but increases eroded by fuel cost increases and depreciation; current tariffs cover currently about a third of costs; no subsidies on gas and water. - Launch a broad-based reform of the civil service (2016 and 2018 Art. IV). - Status: Partially implemented. - Actions: stop in hiring of non-academic personnel; FISEG program (MoF/SDMO/Planning Office) and cadre training programs implemented. - Strengthen the social safety net (Art IV 2016). Implement social support programs targeted at low-income households (Art. IV 2011, 2012). - Status: In progress. - Actions: New health system launched in 2015; minimum wage law passed in July 2019 to update the minimum wage every other year to align closely with the poverty line. - Establish a sound fiscal framework considering sensitivity of revenues to mineral sector developments (2013 Art. IV). Develop a fiscal anchor rooted in the non-mineral balance, define an appropriate MT target for non-mineral balance (2016, 2018 Art. IV). - Status: Partially implemented. - Actions: GFS accounting and statistics compilation framework set up; aggregates such as NRPB outcome included in published data; FPP working group established; MoF and SDMO proceeding with joint internal fiscal sustainability analysis and debt management plan. - Establish a Sovereign Wealth Fund (Art. IV 2016). Develop framework for sound management of future mining revenues and building of policy buffers (2012 Art. IV). - Status: Implemented. - Implement PFM reforms (new PFM Law) (2016, 2018 Art. IV). - Status: In progress. - Updates: New PFM law approved by the National Assembly in September 2019; FISEG program component 2 centers around implementing the PFM reform. - Improve tax and customs administration (2018 Art. IV). - Status: In progress. - Actions: developing taxpayer services, strengthening internal revenue operations, improving customs operations, updating legal framework; eleven top-of-the-line scanners purchased. - Improve government procurement practices (2016, 2018 Art. IV). - Status: In progress. - Note: New procurement law being discussed in the National Assembly; approval expected before end-2019. - Strengthen social safety nets to lower the impact of fiscal adjustment on vulnerable groups. - Status: In progress. ### Structural policies - Implement supply-side reforms to improve business environment (2016−18 Art. IV): legal reforms to start a company, promoting competition, protecting investors, registering property, expanding access to finance. - Status: In progress. - Actions: Reformed the Companies Act; passed the Business and Professions Licensing law; established the national trade facilitation committee; passed the Electronic Transaction Law granting legal status to electronic documents; developed a development plan to improve the investment climate. - Revise the Law on Investment (2016−18 Art. IV). - Status: In progress. - Increase labor market flexibility, supported by well-targeted social safety net (2016 and 2018 Art. IV). - Status: Partially implemented. - Actions: Labor market protection overseen through the Dismissals and Disputes intermediation Council; Minimum wage in effect; Parent Pregnancy and birth Leave protection Law and Insurance fund established; Ministry of Social Affairs cleaned its database and is targeting deserving groups; electronic payment mechanisms introduced. - Invest in education (2018 Art. IV). - Status: In progress. *Source: Annex I. Implementation of Past Fund Advice (IMF staff compilation of Article IV recommendations and implementation status).* ### 2014. High dependence on ### 1surea2019001 - 2014. High dependence on ### Economic dependence and near-term risks - High dependence on the mining sector remains a source of risk to the economy. - Suriname does not have adequate buffers to withstand another strong price shock. - Lower commodity prices would: - dampen exports, and - adversely affect investments in the mining sector. - Policy recommendations: - Diversify the economy away from the extractive industries and accelerate structural reforms to support non-oil sector growth. - Build reserves and undertake countercyclical fiscal policies. - Continue fiscal consolidation to increase fiscal space. ### Market and global risk channels - Sharp rise in risk premia: - An abrupt deterioration in market sentiment (e.g., prompted by policy surprises, renewed stresses in emerging markets, or a disorderly Brexit) could trigger risk-off events such as recognition of underpriced risk. - Higher risk premia cause higher debt service and refinancing risks; stress on leveraged firms, households, and vulnerable sovereigns; disruptive corrections to stretched asset valuations; and capital account pressures—all depressing growth. - Identified high risks: - External borrowing costs could rise. - External debt service could rise. - Policy note: Fiscal consolidation reduces the risks of higher external borrowing costs. ### Annex IV. Debt Sustainability Analysis — A. Public Sector DSA: key findings - The Public Debt Sustainability Analysis (DSA) indicates: - Significant weaknesses in the baseline debt profile. - Exposure to risks from high financing needs. - Vulnerabilities to various shocks. - The level of public debt will rise over the projection period and financing needs will double. - Vulnerabilities have increased since the last assessment (2018 Article IV), largely due to a fiscal expansion. - A high share of foreign currency debt amplifies the risk from a currency depreciation. - A large fiscal adjustment is required to place public debt firmly on a downward path. ### Debt profile and recent developments (selected facts and figures) - Definition: “public debt” refers to Suriname’s central government debt. - Total gross debt reached 72.1 percent of GDP in 2018. - The increase was due to large fiscal deficits and exchange rate depreciation. - The government issued a large external bond of US$550 million (16.8 percent of GDP) in late 2016. - About a half of the external bond proceeds was on-lent to the state oil company Staatsolie to cover its external debt service. - Staatsolie placed a syndicated loan in May 2018 for US$625 million (16.3 percent of GDP) with an average annual interest rate of 4.7 percent and an 8-year tenor. - Staatsolie paid the government US$261.5 million to settle debts and US$76 million to purchase the government’s equity in the Newmont gold mine. - At the end of 2018, external public debt amounted to 49.6 percent of GDP—about three quarters of total public debt. - The share of short-term debt in the total stock fell slightly in 2018, declining 0.6 percent of GDP. - The spread on the external bond exceeds 800 basis points, suggesting unfavorable market sentiment towards Suriname. - Around 5 percent of public debt is domestic debt denominated in foreign currency. ### Outlook and baseline projections - The DSA baseline features adjustment measures starting 2022. - The primary fiscal deficit is projected to: - rise from 3.5 percent of GDP in 2018 and peak 5.0 percent of GDP in 2020, - decline to 2.7 percent of GDP in 2024, mostly due to the introduction of a VAT in 2022 and reduced electricity subsidies following the transfer of the Afobaka Dam to the government in late-2019. - Staff considers the baseline realistic under the assumption of no major shock; it assumes a shock of the magnitude seen in 2015−16 will not be repeated. - Under the baseline, Suriname’s public debt-to-GDP ratio will gradually increase to 87.4 percent of GDP by 2024. - Gross financing needs: - forecast to increase from 17 percent of GDP in 2017 to 21 percent of GDP by 2020, - rising sharply to over 33 percent of GDP in 2024. - Financing composition assumption: 75 percent external (mostly multilateral) and 25 percent domestic, where supplier credit is the residual. - Fan charts and risk distributions: - Symmetric shocks: debt ratio tends to gradually increase over the medium term, though some shock combinations reduce it. - Asymmetric scenario (only negative shocks to the primary balance): the debt ratio rises under most shock realizations. ### Alternative scenarios and stress tests — implications - Alternative scenarios confirm fiscal consolidation is essential: - Historical scenario: - Assumes historical averages for real GDP growth of (1.5 percent) and the primary balance from 2020 onward (-2.2 percent of GDP). - Implies a 3.6 percent of GDP primary fiscal adjustment in 2020. - Debt-to-GDP ratio increases over the medium term as the primary balance remains below the debt stabilizing value of 0.2 percent of GDP. - Constant primary balance scenario: - Assumes the primary deficit is maintained at its projected 2019 value of 4.8 percent of GDP. - This would increase the debt-to-GDP ratio to 104.7 percent of GDP by 2024, with public gross financing needs rising to 44.0 percent of GDP. - Stress test calibrations and impacts: - Real GDP growth stress: reduce GDP growth by its 10-year historical standard deviation for 2 consecutive years. - Primary balance stress: worsen the projected primary balance by half of the 10-year historical standard deviation. - Interest rate shock: increase the interest rate by the difference between the maximum real interest rate in the 10-year history and the average projected real interest rate. - Real exchange rate shock: repeat the worst depreciation episode from the past ten years (calibrated to the 2016 episode with real and nominal depreciations of 19 and 85 percent, respectively). - Downside scenario: assumes risks in the risk assessment matrix materialize — relative to baseline, growth falls 2 percent in the first year and 1 percent each year thereafter; nominal exchange rate rises by 16 percent in the first year with a corresponding rise in inflation. - Stress test outcomes: - Individual shocks drive public debt to 96-106 percent of GDP in the medium term and increase gross financing needs to around 50 percent of GDP. - A combined shock (largest effect of individual shocks) pushes the debt stock to 175 percent of GDP by 2024 and increases financing needs to more than 70 percent of GDP. - Banking sector vulnerabilities also pose contingent fiscal risks, though difficult to quantify. ### Annex IV. Debt Sustainability Analysis — B. External Debt Sustainability Analysis: key points - External sector debt increased sharply during 2015–18: - rose from 53 percent of GDP in 2015 to 95 percent of GDP in 2016, - rose further to 102 percent of GDP by 2018 as borrowing costs increased, the real exchange rate depreciated, and GDP growth declined. - Baseline projection: external debt is projected to decline to around 83 percent of GDP by 2024. - Although central government external debt to GDP ratio is increasing, total external debt to GDP ratio is falling due to expected repayments of loans to the IMF and by Staatsolie to external lenders. - The decline is also explained, in part, by base effects as external debt accumulates at a slower pace than nominal GDP growth. - Gross external financing needs are expected to decline to about 4 percent of GDP by 2024, from 9 percent in 2018. - Fiscal consolidation in the medium term is needed to reduce pressure on the current account and put debt accumulation on a downward trend. *International Monetary Fund — Annex IV. Debt Sustainability Analysis, Suriname* ### 12. The external debt is sensitive to real exchange rate and non-interest current account ### 1surea2019001 - 12. The external debt is sensitive to real exchange rate and non-interest current account shocks ### Key findings - A 30 percent depreciation of the real exchange rate could push up external debt to 147 percent of GDP in the short term, falling to 135 percent of GDP in the medium term. - A one-half standard deviation increase in the non-interest current account deficit would put the public external debt ratio on an increasing trajectory, reaching 104 percent of GDP by 2024. - Growth and interest rate shocks have limited impact on external debt dynamics when applied individually. - Combined shocks (permanent one-quarter standard deviation applied simultaneously to the real interest rate, growth rate, and current account balance) would also significantly raise the debt level. ### Stress-test scenarios and average scenario outcomes (selected) - Baseline external debt (box values shown in Figure A4.6): 83 (percent of GDP). - Historical scenario (box): 99 (percent of GDP). - Interest rate shock (permanent one-half standard deviation): 86 (percent of GDP). - Growth shock (permanent one-half standard deviation): 90 (percent of GDP). - Non-interest current account shock (one-half standard deviation increase): 104 (percent of GDP) by 2024. - Combined shock (permanent 1/4 standard deviation to real interest rate, growth rate, and current account balance): 99 (percent of GDP). - Real depreciation shock (one-time real depreciation of 30 percent in 2019): 135 (percent of GDP) in the medium-term projection shown; text notes 147 percent of GDP in the short term and 135 percent of GDP in the medium term. ### Baseline projections and key external-debt indicators (selected series from Table A4.1) - Baseline: External debt (percent of GDP) — 2014: 40.0; 2015: 53.2; 2016: 94.6; 2017: 97.4; 2018: 102.3; 2019: 96.4; 2020: 90.7; 2021: 89.2; 2022: 85.0; 2023: 84.3; 2024: 83.3. - Debt-stabilizing non-interest current account: -7.4 (percent of GDP). - External debt-to-exports ratio (in percent) — 2014: 89.1; 2015: 137.3; 2016: 182.2; 2017: 142.4; 2018: 153.8; 2019: 153.2; 2020: 139.9; 2021: 139.2; 2022: 139.7; 2023: 142.7; 2024: 146.0. - Gross external financing need (in billions of US dollars): 2014: 0.5; 2015: 0.9; 2016: 0.4; 2017: 0.2; 2018: 0.3; 2019: 0.4; 2020: 0.4; 2021: 0.3; 2022: 0.3; 2023: 0.3; 2024: 0.2. - Gross external financing need (in percent of GDP) — examples shown: 9.8; 19.4; 12.8; 6.3; 8.6 (table truncated in source). - Identified external debt-creating flows (percent of GDP): 2014: 4.2; 2015: 14.8; 2016: 7.5; 2017: -6.5; 2018: -5.3; 2019: 1.3; 2020: 0.0; 2021: -1.6; 2022: -2.7; 2023: -2.0; 2024: -3.3. - Current account deficit, excluding interest payments (percent of GDP): 2014: 7.6; 2015: 16.1; 2016: 3.6; 2017: -4.4; 2018: 0.8; 2019: 4.0; 2020: 3.6; 2021: 2.2; 2022: 1.0; 2023: 2.4; 2024: 1.8. ### Policy implications and considerations - External debt is highly sensitive to large real exchange rate depreciations; exchange rate management and foreign-currency risk mitigation are critical. - Non-interest current account developments materially affect external debt dynamics; policies to reduce the non-interest current account deficit (or bolster non-debt inflows) would help stabilize external debt. - Although individual growth and interest-rate shocks have limited effects, combined adverse macro shocks can substantially raise external debt—highlighting the importance of macroeconomic buffers and contingency planning. - Given elevated external debt-to-exports ratios (e.g., 153.2 percent in 2019) and recurring gross external financing needs, strengthening external liquidity positions and access to financing should be policy priorities. *International Monetary Fund — staff estimates and projections as presented in the source content.* ### Annex VI. Strengthening the Monetary Policy Framework ### Annex VI. Strengthening the Monetary Policy Framework ### New monetary policy instruments and liquidity management tools - 1-day Liquidity Facility (ILF) - Purpose: prevent stagnation in payment transactions by providing intra-day credit to eligible banks. - Collateral: e.g., treasury bills or any other assets deemed acceptable by the CBvS and valued at nominal value. - Loan ceiling: 1 percent of the SRD reserve base of the relevant general bank. - Availability: every working day during the Bank's opening times. - Interest: no interest charged if settled intra-day; if not settled intra-day or the bank has insufficient funds to meet its payment obligation, the facility will be converted automatically to an interest-bearing lending facility. - 5-day Lending Facility - Purpose: short-term lending for up to 5 days to meet temporary liquidity needs and smooth liquidity positions. - Collateral: valued at nominal value registered with the CBvS; if not repaid in time, a haircut of 20 percent on the nominal value will apply when the collateral is recovered. - Interest: starts with an annual interest rate of 6 percent and will be settled at the end of the loan and will be determined by the CBvS quarterly. - Access: a bank can gain access through the ILF. - Use limits and supervisory triggers: - Facility can only be used for a maximum of five days in a month. - If a bank uses the loan facility for three consecutive months for five days, the CBvS’s Bank Supervision department will conduct an in-depth investigation into the liquidity management of the bank. - Multi-day Deposit facility - Purpose: short-term (multi-day) interest-bearing investment product aimed at mopping excess liquidity in the banks; offers an alternative low risk investment instrument and serves as a fund for the short-term lending facilities and emergency liquidity assistance. - Accessibility: accessible to all banks but not to banks that are already using other liquidity support facilities. - Interest: 1 percent per annum. - Duration: offered for a maximum of 5 working days, but can be extended for more days, under some circumstances at adjusted interest rate. - Gold-indexed bonds - Payment: pay a fixed interest rate over the nominal gold value of the gold certificates, expressed in gold but paid out in Surinamese legal tender. - Interest rates and maturities: annual interest rate between 2 and 3 percent and maturities from 1 to 5 years. - Transferability: these certificates are transferable. - Certificates of Deposit - Payment: pay a fixed interest rate over the nominal value of the instrument in Surinamese legal tender. - Maturities and interest: available with 6-24-month maturities, at annual interest rates of 8−12 percent. - Transferability: transferable during the term. ### Emergency Liquidity Assistance (ELA) - Purpose: provided to banks to help them cover temporary liquidity shortages. - Nature: offered on a discretionary basis in very specific circumstances to solvent banks at an interest rate set by the CBvS. - Access requirements: - Bank must provide reasons why it is unable to meet its liquidity needs, supported by a short- and medium-term liquidity forecast. - Bank must demonstrate that other sources of liquidity have already been fully utilized. - Collateral and terms: - Support is collateralized; the central bank applies a discretionary haircut to the market value of the accepted collateral (such as treasury bills and other marketable securities). - The value of the collateral after application of the haircut must always be equal or less than the amount of credit granted. - ELA is provided for collateral with a maximum duration of one month with the possibility of extension to three months. - Conditionality and supervision: - Increased supervision and conditionality are necessary conditions for granting the ELA to ensure that banks continue to actively comply with its liquidity recovery plans. - Non-repayment of the ELA is considered as default, which allows the CBvS to terminate the ELA loan agreement. ### Institutional arrangements and coordination committees - Monetary Policy Advisory Committee (MPAC) - Nature: internal professional body established to provide advice on appropriate monetary policy instruments to foster price stability. - Functions: meets every month to analyze relevant data and intelligence reports on monetary, financial, and other macroeconomic developments to help monitor liquidity and identify excess liquidity in the banking system; prepare a monetary policy report with appropriate recommendations; provide regular discussions and advice on economic policy issues. - Additional role: MPAC may establish thematic working groups or suggest specific research or analysis to improve policy advice. - Monetary and Fiscal Policy Coordination Committee (MFPCC) - Composition and leadership: joint committee of the Ministry of Finance and the CBvS, chaired by the Minister and Governor. - Purpose: better forecasting of liquidity needs by the private and public sectors and ensure macroeconomic consistency of fiscal and monetary policies. - Commercial Bank Credit Oversight Committee (CBCOC) - Purpose: establish and maintain a framework for liquidity assistance to commercial banks, including developing or modifying lending and deposit facilities, rules for collateral requirements, solvency, duration and penal rates; develop and maintain the lending portfolio and operations; determine collateral and counterparts’ limits and rules of commitment. - Responsibilities: establish necessary information systems and review operations to ensure compliance; review and analyze the system; evaluate the effectiveness of mandated lending facilities and framework; assess adherence of mandated facilities to requirements in terms of credit types, durations, collateral and counterpart limits; evaluate interest rates and the charter of the committee. - Composition and meetings: comprised of staff from CBvS departments: financial markets, open market operations, banking supervision, statistics, and domestic departments; meets quarterly. *Source: Annex VI. Strengthening the Monetary Policy Framework.* ### 4. The CBvS is finalizing drafts of various important legislation related to monetary and ### 4. The CBvS is finalizing drafts of various important legislation related to monetary and financial policies. ### Draft legislation being finalized - Bank Act - Removal of the provision for government to withdraw advances from the central bank (monetary financing) and recapitalization of the central bank. - Addition of central bank objectives to include fostering stability of the financial system through enhanced supervisory powers, taking recovery and resolution measures on troubled banks, supervision of electronic transactions and developing and expanding domestic money and capital markets. - Use of other forms of instruments for monetary policy. - Setting the threshold for foreign exchange reserve coverage to at least three months of imports. - New requirements for the appointment of governor and deputy governors. - Credit Institutions Resolution Act (new) - Grants central bank power to institute preventive, early intervention and resolution measures on troubled banks to maintain financial stability. - Preventive measures: establishment of a financial stability commission; enhanced coordination between the central bank and the ministry of finance; conduct of on-site inspections with full access to information; development of recovery plans and implementation of corrective measures. - Early intervention: central bank instructions to implement changes in structure, procedures and activities; power to limit or suspend shareholders' rights; other corrective measures. - Resolution measures: power to transfer assets and liabilities; institute mergers and capital increases; set up a bridge bank; appoint external administrators; liquidation. - Banking and Credit Supervision Act (amendments) - Align rules with the Credit Institutions Resolution Act. - Expand informational obligations of external auditors to the central bank. - Changes to the fining policy. - Envision actions by the central bank on illegal acquisition and distribution of funds of third parties, aligning them with non-disclosure obligations in the Bank Resolution Act. - Insurance Supervision Act (new) - Licensing and supervision of insurance companies under the supervision of the central bank. - Enhances protection of the insured and third parties entitled to insurance payments; promotes public confidence in the insurance sector. - Highlights powers and supervisory actions and measures available to the central bank. - Deposit Insurance Act (new) - Establishes a deposit protection scheme to limit systemic risk and prevent problems from spreading across credit institutions. - Provides protection to account holders of credit institutions that collapse. - Outlines procedures for capitalization, contributions, operations and compensations of depositors from the scheme. - Pension Funds and Provident Funds Act (new) - Lays out structures and rules for managing pension and provident schemes; roles and responsibilities of employers. - Licensing and supervision of pension funds by the central bank. - Rules for pension contributions, entitlements of pension benefits, assets and liability structures, rules for investments and financial reporting. - Aims to regulate (individual) defined contribution funds and broaden CBvS supervisory tools. - General Pensions Act (new) - Rules for introduction of a mandatory pension system based on the pay as you go (PAYG) method as part of a national social security system. - Rules for contributions, accrual of pension entitlements, nature of benefits, indexation of pension benefits, requirements for payment, employer and employee obligations. - Establishment of the pension council and the general pension fund; administrative sanctions; appeal procedures. - All provisions related to occupational pension schemes that are based on the full funded method and supervised by the Bank have been deleted. - Money Transactions Offices Supervision Act (amendment) - Enhances supervision of money transaction companies (money transfer offices and cambios) to prevent money laundering and combat terrorist financing and to implement FATF recommendations. - Sets guidelines for improved financial reporting, external audit functions, provisions for unusual transactions and identification obligations, and power of the central bank to take measures for misconduct. - Electronic Payment Transactions Act (new) - Licensing, regulations, operational guidelines and supervision of electronic service providers by the CBvS. - Rules for deposits, liquidity and solvency requirements, reporting procedures, information exchange, risk management, customer due diligence, domestic and cross border transactions by electronic service providers, and measures the central bank can take. - Credit Bureaus Act (new) - Protects individuals and legal entities against over-indebtedness and aims for balanced socio-economic and financial development. - Provides for systematic registration of credit agreements to facilitate credit decisions; reduce information asymmetry between borrowers and credit providers. - Sets guidelines for licensing and supervision of credit bureaus by the CBvS, confidentiality and information sharing, operational guidelines and appeal procedures. ### Expected impacts on financial stability and supervision - Strengthening central bank powers: - Empower CBvS with preventive, early intervention and resolution tools to maintain financial stability. - Enhance supervisory reach to include electronic transactions, pension funds, insurance, money transaction offices, and credit bureaus. - Crisis management and depositor protection: - Deposit Insurance Act and Credit Institutions Resolution Act introduce structured resolution and depositor protection mechanisms to limit systemic risk. - Market conduct and AML/CFT: - Money Transactions Offices Supervision Act and related amendments aim to implement FATF recommendations and reduce AML/CFT vulnerabilities, addressing risks to correspondent banking relationships. - Monetary policy and reserve management: - Bank Act revisions permit use of other monetary instruments and set foreign exchange reserve coverage threshold to at least three months of imports. ### Institutional and governance changes - Enhanced coordination and oversight: - Central bank and Ministry of Finance coordination strengthened (e.g., through legal provisions and supervisory cooperation). - Establishment of a financial stability commission under the Credit Institutions Resolution Act. - Governance of CBvS: - New appointment requirements for governor and deputy governors in the Bank Act. - Removal of monetary financing provisions and explicit central bank objectives to foster financial stability. - Supervision scope expansion: - Licensing and supervisory authority over insurance companies, pension funds, electronic service providers, credit bureaus, and money transaction offices granted to CBvS. ### Operational measures and supervisory tools highlighted - On-site inspections with full access to information. - Development and implementation of recovery plans and corrective measures for troubled institutions. - Powers to limit or suspend shareholders' rights. - Resolution tools: asset and liability transfers, mergers, capital increases, bridge bank establishment, appointment of external administrators, and liquidation. - Expanded informational obligations of external auditors to the central bank. - Licensing, reporting, liquidity and solvency requirements for electronic service providers. - Procedures for capitalization, contributions and compensations under the deposit protection scheme. *Prepared by IMF staff based on the informational annex content on draft legislation finalized by the Centrale Bank van Suriname (CBvS).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1surea2019001.pdf_