## _cr05143

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---

### Executive summary
- Macroeconomic policies tightened in late 2002, stabilizing the economy, reducing inflation, and supporting growth.
- Central government overall deficit reduced from 6½ percent of GDP in 2002 to near balance in 2003; widened to about 1¾ percent of GDP in 2004.
- Inflation: 23 percent in 2002 (report also cites 28.4 percent for 2002 in tables), 13 percent in 2003 (estimated 13.1), 9 percent in 2004 (estimated 9.1).
- Real GDP growth: around 5 percent in 2003 and 2004 (tables: 2003: 5.3; 2004: 4.6).
- Policy stance eased in 2004: CBvS reduced reserve requirements on domestic deposits and allowed banks to invest part of required reserves in low-interest housing loans; broad money growth accelerated to 29 percent in 2004 and private sector credit expanded by 32½ percent in 2004.
- Medium-term outlook manageable under current policies but significant vulnerabilities exist: history of sudden policy shifts, election-related slippages risk, high dependence on mining exports, and elevated dollarization.

### Background and recent developments
- Structure and vulnerabilities:
  - Economy heavily dependent on bauxite and gold exports and private remittances.
  - Large public sector with about 120 public enterprises accounting for about 60 percent of formal employment.
  - Historical episodes of hyperinflation and repeated external payment difficulties.
- Social and labor indicators (comparative):
  - UNDP HDI rank (2004): 67 (Suriname) vs 78 (Latin America & Caribbean).
  - GDP per capita in PPP (2002): 6,590 (Suriname) vs 7,223 (Latin America & Caribbean).
  - Life expectancy (2002): 71 (Suriname) vs 71 (Latin America & Caribbean).
  - Infant mortality (2002, per 1,000): 40 (Suriname) vs 27 (Latin America & Caribbean).
  - Access to safe water (2000, percent): 82 (Suriname) vs 86 (Latin America & Caribbean).
  - Adult illiteracy (2002, percent): 6 (Suriname) vs 11 (Latin America & Caribbean).
  - Secondary net enrollment (2002, percent): 63 (Suriname) vs 64 (Latin America & Caribbean).
- Currency reform and exchange rates:
  - January 2004: Suriname guilder replaced by Suriname dollar (SRD) at Sf1,000 per SRD.
  - CBvS devalued official exchange rate by 4 percent soon after; June 2004 elimination of ceilings/floors on parallel trading; parallel rate converged toward official rate of SRD 2.75 per U.S. dollar.
- Fiscal developments:
  - Central government overall deficit: 6½ percent of GDP in 2002; 0.1 percent of GDP in 2003; estimated 1.8 percent of GDP in 2004.
  - 2004 widening driven by increased capital expenditure and drop in petroleum taxes; offset by higher bauxite tax payments and lagged corporate surcharge revenues.
  - Despite high tax-to-GDP ratio, income tax relies heavily on mining; tax administration weaknesses hamper nonmining taxation.
- External sector and reserves:
  - Current account deficit: 6 percent of GDP in 2002 to 14 percent in 2003; narrowed only marginally in 2004 despite a cumulative 66 percent increase in export proceeds in 2003–04.
  - Informal gold exports rose from US$70 million in 2002 to US$140 million in 2003 and US$195 million in 2004.
  - Foreign direct investment financed current account deficits and helped reserves rise by almost 3 percent of GDP in 2004.
  - S&P downgraded long-term foreign-currency rating from B- to SD in August 2004 citing weak debt management; Suriname Debt Management Office (SDMO) became operational in late 2004.
- Dollarization:
  - Foreign currency deposits rose from 47 percent to 56 percent of total deposits during 2002–04.
  - Private sector credit denominated in foreign currency rose from 42 percent to 54 percent during 2002–04.
  - CBvS raised minimum reserve requirement on foreign currency deposits to 22 percent in October 2004 and subsequently to 33⅓ percent (authorities later increased to 33 percent in February 2005).
- Financial sector reforms and supervision:
  - Banking Supervision Law enacted January 2003 tightened norms; implementation hampered by lack of staff and delays in reporting and onsite inspection.

### Short-term outlook and 2005 projections
- Growth and inflation:
  - Economic growth projected at almost 5 percent in 2005 (tables: Real GDP growth 2005: 4.8).
  - Inflation expected about 9 percent in 2005 (tables: Inflation end of period 2005: 9.0; period average 2005: 8.6).
- Fiscal and budget projections (2005):
  - Central government deficit: projected to increase to 2¾ percent of GDP in 2005.
  - Capital expenditure: expected to increase from 5½ percent of GDP in 2004 to around 6¾ percent of GDP in 2005.
  - Current expenditure: projected to remain about unchanged in real terms.
  - Total revenue and grants: projected to increase from 35½ percent of GDP in 2004 to 36½ percent of GDP in 2005.
  - Direct tax revenue: projected to fall with expiration of corporate income surcharge, partly offset by anticipated higher tax revenue from new gold mine.
  - Note: 2005 budget envisages substantial increase of capital expenditure, which is unlikely to be fully executed.
- Monetary stance and dollarization (2005):
  - Authorities expected to maintain a disciplined monetary stance; reserve requirement tightening on foreign currency deposits introduced late 2004.
  - Private credit expansion projected to decelerate in 2005; money supply growth projected to slow to around 16 percent.
  - Dollarization projected to slow considerably due to increased reserve requirements on foreign currency deposits.
- External sector (2005):
  - External current account deficit: projected to remain substantial, narrowing marginally to around 12 percent of GDP.
  - Exports projected to increase by 16 percent in U.S. dollar terms due to continued growth in alumina and gold output.
  - Imports projected to rise on account of new mining investments.
  - Reserves projected to increase by about 3 percent of GDP with continued FDI inflows.

### Medium-term baseline scenario (2006–09) — macro framework and key indicators
- Fiscal policy assumption: primary fiscal surplus of around 1.3 percent of GDP maintained during 2006–09.
- Public sector debt projected to fall from around 52 percent of GDP at end-2003 to around 41 percent at end-2009.
- Financing: continued FDI expected to finance a small balance of payments surplus.
- Key macroeconomic indicators (selected time series as presented):
  - Real GDP growth (in percent): 2003: 5.3; 2004: 4.6; 2005: 4.8; 2006: 3.3; 2007: 3.7; 2008: 3.7; 2009: 3.7
  - Inflation (end of period in percent): 2003: 13.1; 2004: 9.1; 2005: 9.0; 2006: 4.6; 2007: 5.3; 2008: 4.7; 2009: 5.2
  - Fiscal balance (in percent of GDP): 2003: -0.1; 2004: -1.8; 2005: -2.8; 2006: -1.4; 2007: -1.0; 2008: -1.0; 2009: -0.9
  - Primary fiscal balance (in percent of GDP): 2003: 2.3; 2004: 0.3; 2005: -0.5; 2006: 1.2; 2007: 1.3; 2008: 1.3; 2009: 1.3
  - External current account (in percent of GDP): 2003: -13.8; 2004: -13.2; 2005: -12.3; 2006: -8.7; 2007: -10.7; 2008: -10.4; 2009: -10.9
  - Net foreign assets of the CBvS (million of US$): 2003: 100.6; 2004: 131.5; 2005: 165.3; 2006: 193.4; 2007: 201.5; 2008: 212.1; 2009: 215.7
  - Gross international reserves in months of imports: 2003: 1.4; 2004: 1.6; 2005: 1.7; 2006: 2.1; 2007: 2.1; 2008: 2.1; 2009: 2.1
  - Public sector debt (in percent of GDP): 2003: 52.3; 2004: 48.7; 2005: 48.1; 2006: 46.1; 2007: 44.8; 2008: 43.2; 2009: 41.6
  - External public debt (in percent of GDP): 2003: 39.5; 2004: 34.5; 2005: 34.3; 2006: 32.2; 2007: 31.0; 2008: 29.3; 2009: 27.7

### Key risks and stress-test scenarios
- Key risks:
  - Policy slippages from pre-election spending or post-election reversals.
  - Capital flight triggered by political uncertainty, erratic policies, or banking-system confidence loss.
  - External shocks from volatility in bauxite, alumina, and gold prices.
  - Upside opportunity: possible large-scale FDI (feasibility studies for a new bauxite-aluminum complex could lead to about US$3 billion in 2007–11).
- Stress-test outcomes (selected):
  - Fiscal shock scenario: deterioration of primary fiscal balance to historical average minus two standard deviations in 2005–06 would raise debt-to-GDP ratio to 76 percent by 2006 (30 percentage points above baseline).
  - Output shock scenario: GDP shock in 2005–06 to historical growth minus two standard deviations would raise debt-to-GDP ratio gradually to 66½ percent by 2009.
  - Commodity price shock: aluminum and gold prices falling by two standard deviations versus WEO baseline in 2005–06—no corrective policy—would produce a fiscal deficit of 5 percent of GDP in 2006 and increase public debt to 56 percent of GDP by 2006.

### Financial system structure, indicators, and vulnerabilities
- Structure and concentration:
  - Financial system: CBvS, commercial banks, and nonbank financial institutions (mainly pension funds and insurance companies) representing less than a third of financial sector assets.
  - Banking concentration: largest three banks account for about 85 percent of total claims, assets, and deposits.
  - Three small state-owned banks provide social-credit lending for agriculture and housing.
- Soundness indicators and risks:
  - Nonperforming loan ratio increased from 13.3 percent at end-2002 to 15.3 percent in 2004.
  - Bank capitalization described as relatively low; capital adequacy (Regulatory capital to risk-weighted assets, percent) reported: 1999 10.1; 2000 9.0; 2001 17.6; 2002 14.8; 2003 9.2; 2004 9.3.
  - FX loans to total loans (percent): 2004 52.9.
  - Deposit dollarization ratio (percent): 2001 47.8; 2002 47.4; 2003 55.5; 2004 56.5; 2005 56.7.
  - Credit dollarization ratio (percent): 2001 40.0; 2002 41.5; 2003 49.4; 2004 54.4; 2005 54.6.
- Supervision and regulatory gaps:
  - Inadequate staff for supervision, delays in data collection, deficiencies in onsite inspections.
  - No specific limits on foreign currency positions or regulations for foreign currency lending (recommendation to address).
- Reserve requirement and dollarization policy:
  - Staff recommended removing gap between foreign and domestic currency reserve requirements; authorities raised reserve requirement on foreign currency deposits to 33⅓ percent (subsequently reported as 33 percent in Feb 2005).
- Financial sector recommendations:
  - Tighten prudential regulations and banking supervision; increase resources and staff training; limit currency mismatch risks; consider participation in a Financial Sector Assessment Program.

### Public finances, debt, and debt management
- Central government indicators (selected, percent of GDP):
  - Revenue and grants: 2001 38.7; 2002 29.3; 2003 34.7; 2004 35.5; 2005 36.2.
  - Total expenditure: 2001 35.0; 2002 35.9; 2003 34.8; 2004 37.3; 2005 39.0.
  - Overall balance: 2001 3.7; 2002 -6.6; 2003 -0.1; 2004 -1.8; 2005 -2.8.
  - Primary balance: 2001 6.1; 2002 -4.0; 2003 2.3; 2004 0.3; 2005 -0.5.
  - Capital expenditure: 2001 2.4; 2002 3.0; 2003 3.7; 2004 5.6; 2005 6.8.
- Public debt and arrears:
  - Total public debt (percent of GDP): 2001 54.3; 2002 58.1; 2003 52.3; 2004 48.7; 2005 48.1.
  - External public debt (percent of GDP): 2001 46.8; 2002 43.3; 2003 39.5; 2004 34.5; 2005 34.3.
  - External arrears to bilateral creditors: US$145 million at end-2004 (staff note).
  - SDMO became operational in late 2004, improving debt reporting; proposals to regularize relations with external creditors and eliminate arrears.
- Public debt sustainability diagnostics (selected):
  - Debt-stabilizing primary balance: -0.4 (percent of GDP).
  - Gross financing need (percent of GDP): 2005 16.9; 2006 15.0; 2007 10.0; 2008 9.0; 2009 8.4.
  - Selected stress-test (real interest rate shock) shows very large public-debt-to-GDP outcomes in the event of adverse shocks (table entries: B1 2006 138.1; 2007 393.0; 2008 390.9; 2009 386.2; 2010 381.3).

### Policy recommendations and reform priorities (staff and Directors)
- Short-term:
  - Maintain disciplined fiscal and monetary stance through the May 2005 elections to preserve price and exchange rate stability.
  - Resist pre-election spending and limit pre-election infrastructure investment to bilaterally or multilaterally financed and supervised projects; avoid commercial external borrowing for pre-election capital expenditure.
  - Contain wage demands and limit growth of broad money (which accelerated to 29 percent in 2004).
- Fiscal framework and revenue:
  - Broaden fiscal revenue base and reduce reliance on mining exports.
  - Reform domestic fuel taxation and adopt flexible pricing mechanism for petroleum products; consider targeted subsidies instead of multiple exchange-rate/prefatory import rates.
  - Explore amendments to fiscal framework to limit exposure to mining sector volatility, including revenue stabilization mechanisms (e.g., Non Renewable Resource Fund) subject to administrative and political constraints.
  - Strengthen tax administration and improve nonmining revenue collection.
- Monetary and exchange rate policy:
  - Strengthen monetary-policy framework: consider a pre-announced monetary target contingent on credible fiscal discipline and central bank independence.
  - Expand monetary instruments and move toward a unified exchange rate by adopting the bank/cambios daily rate as official.
  - Central bank to be ready to tighten monetary conditions if inflation pressures reemerge.
- Financial sector and supervision:
  - Tighten prudential regulation, improve banking supervision, increase staff training and resources, address NPL increase, and limit currency mismatch risks.
  - Consider participation in a Financial Sector Assessment Program.
- Structural reforms and private sector:
  - Pursue civil service reform and improve efficiency of state-owned enterprises; accelerate IDB-supported projects.
  - Encourage privatization of banana, rice, and forestry companies (authorities committed to privatization in 2005).
  - Simplify licensing, strengthen property-right protection and dispute settlement, reduce reliance on fiscal/tariff incentives.
- Debt management and external creditors:
  - Regularize relations with external creditors and eliminate payment arrears; SDMO to focus on external debt management and improve marketability of government securities.
  - Regularization of liabilities to German Euler Hermes credit insurance group in February 2005 cited as encouraging step.

### Data, statistics, and institutional notes
- Data shortcomings:
  - Serious shortcomings in the quality, coverage, and timeliness of economic statistics, particularly national accounts, trade data, and informal sector coverage.
  - Latest national accounts data are 2002; preliminary 2003 estimates available late-2004 without informal sector detail.
  - CPI publication disrupted June 2003–March 2004 due to ABS fire.
  - No national accounts by expenditure approach, no labor statistics, and reconciliations with balance of payments lacking.
  - Suriname joined the GDDS (official participation announced July 2004); metadata posted on IMF DSBB.
- Legal and institutional framework:
  - February 2002 fiscal responsibility law: ceiling on public sector debt of 60 percent of GDP; subceiling on domestic public debt of 15 percent of GDP; limits can be exceeded only with parliamentary approval under exceptional circumstances.
  - Subceiling since 1986 on government’s access to central bank financing: 10 percent of budgeted annual current fiscal revenue, frequently violated.
  - New Central Bank Act awaiting parliamentary approval to strengthen central bank authority and penalties for excess financing.
  - Amendments to CBvS Act proposed to make statutory reporting of statistical information compulsory.

### IMF relations, TA, and multilateral partners
- IMF:
  - Membership: Joined 4/27/78.
  - Quota (GRA): 92.10 (SDR Million of Quota) — 100.00 (percent).
  - Last Article IV concluded October 17, 2003; staff proposes next Article IV on standard 12-month cycle.
  - Exchange rate arrangements: SRD replaced guilder in January 2004 at conversion rate of 1,000 guilders per SRD; official CBvS rates include SRD 2.75 per U.S. dollar (government/mining) and SRD 1.4 per U.S. dollar (baby milk powder imports); commercial bank/cambio rate traded between SRD 2.8 and 2.71 per U.S. dollar after June 2004.
  - Technical assistance: multiple STA, MFD, MAB, WHD missions between 1998–2005; GDDS mission March 2004.
- IDB and World Bank:
  - IDB: 15 loans (13 projects) amounting to US$101.6 million since 1980; outstanding debt to IDB as of December 2004: US$44 million; IDB approved a $5 million loan in June 2004 for public sector management.
  - World Bank/IFC: FIAS reports on Investment Law; follow-up report delivered October 2004.

*Source: _cr05143 - IMF staff report excerpt (2005).*

### 1. Selected Economic Indicators.........................................................................................

### 1. Selected Economic Indicators.............................................................................................

### Executive Summary
- Macroeconomic policies were tightened in late 2002, stabilizing the economy, reducing inflation, and supporting growth.
- Fiscal deficit reduced from 6½ percent of GDP in 2002 to near balance in 2003.
- Inflation fell from 23 percent in 2002 to 9 percent in 2004.
- Real GDP growth rose to around 5 percent in 2003 and 2004, helped by strong mining exports.
- Policy stance eased in 2004: central government deficit widened to about 1¾ percent of GDP; Central Bank of Suriname reduced reserve requirements on domestic deposits to stimulate the housing sector.
- Medium-term outlook on current policies is manageable but significant vulnerabilities exist:
  - History of sudden, destabilizing policy shifts and risk of policy slippages before and after May 2005 elections.
  - Key challenges: maintain and entrench stable macroeconomic policies; resist pre-election spending; protect credibility of fiscal responsibility legislation.
  - Monetary policy needs to remain consistent with low inflation, stem dollarization pressures, and move toward a unified exchange rate.
  - Structural priorities: far-reaching civil service reform; address about 120 public enterprises.

- Medium-term vulnerability reduction priorities:
  - Broaden fiscal revenue base; reduce dependency on mining exports.
  - Reform domestic fuel taxation.
  - Explore amendments to fiscal framework to limit exposure to mining sector volatility.
  - Consider establishing a firmer anchor for monetary policy, possibly based on targets for a monetary aggregate.
  - Strengthen prudential regulations and banking supervision to mitigate balance sheet risks from dollarization.

### I. Background — A Brief Perspective
- Structural and historical context:
  - Economy heavily dependent on bauxite and gold exports, and private remittances.
  - Large and inefficient public sector (~120 public enterprises) accounts for about 60 percent of formal employment.
  - Since the 1970s: two episodes of hyperinflation; volatile output growth; repeated external payment difficulties.

- Social indicators (comparative figures):
  - Rank in UNDP Human Development Index, out of 177 countries (2004): 67 (Suriname) vs 78 (Latin America & Caribbean average).
  - GDP per capita in PPP, US dollars (2002): 6,590 (Suriname) vs 7,223 (Latin America & Caribbean).
  - Life expectancy at birth (years) (2002): 71 (Suriname) vs 71 (Latin America & Caribbean).
  - Infant mortality (1,000 live births) (2002): 40 (Suriname) vs 27 (Latin America & Caribbean).
  - Access to safe water (2000) (percent of population): 82 (Suriname) vs 86 (Latin America & Caribbean).
  - Adult illiteracy (2002) (percent of population): 6 (Suriname) vs 11 (Latin America & Caribbean).
  - Secondary school net enrollment (2002) (percent of population): 63 (Suriname) vs 64 (Latin America & Caribbean).

- Labor and poverty:
  - Limited employment sources outside mining and public sector.
  - Poor and rural households were particularly affected by erratic macroeconomic policies and their impact on inflation and real incomes.

- Political context:
  - General parliamentary and indirect presidential elections scheduled for May 2005.
  - Political landscape: shifting coalitions among many small, mostly ethnically-based parties.
  - Current administration led by President Ronald Venetiaan favors stable macroeconomic policies; some opposition groups favor more expansionary stance.

### I. Background — Recent Developments
- Monetary and fiscal stabilization in 2003:
  - Reserve requirements increased in late 2002.
  - Broad money growth halved from 32 percent in 2002 to 16 percent in 2003.
  - Banking system’s net domestic assets contributed 4 percentage points to money growth in 2003.
  - Inflation eased to an estimated 13 percent in 2003 and an estimated 9 percent in 2004. (CPI data gap: no data between July 2003 and March 2004 due to a fire; ABS resumed in March 2004.)
- Growth and investment:
  - Growth estimated around 5 percent in both 2003 and 2004.
  - Drivers: large-scale mining investment; new gold mine in Rosebel operational in April 2004; expansion of Suralco alumina refinery.
  - Public housing: about 4,000 new units constructed since 2003.

- Currency reform:
  - January 2004: CBvS replaced Suriname guilder with Suriname dollar (SRD) at Sf1,000 per SRD.
  - Shortly after, CBvS devalued official exchange rate by 4 percent, reducing spread against parallel market to less than 2½ percent.
  - June 2004: CBvS eliminated ceilings and floors on trading at the parallel exchange rate; parallel rate converged toward official rate of SDR 2.75 per U.S. dollar.

- Fiscal developments:
  - Central government overall deficit: 6½ percent of GDP in 2002; 0.1 percent of GDP in 2003; estimated 1.8 percent of GDP in 2004.
  - 2004 deficit widening due to increased capital expenditure on infrastructure and a drop in petroleum taxes; offsetting factors included higher bauxite tax payments and lagged revenues from a temporary corporate income tax surcharge for 2003.
  - Despite high tax-to-GDP ratio, income tax relies heavily on mining and tax administration weaknesses hamper nonmining taxation.

- Monetary policy easing in 2004:
  - CBvS lowered reserve requirements on domestic currency deposits from 35 percent to 30 percent.
  - Commercial banks allowed to invest up to 7 percentage points of required reserves on domestic currency deposits in low-interest housing loans for low-income groups.
  - Effective reserve ratio on domestic deposits reduced to about 26½ percent at end-December 2004.
  - Broad money growth accelerated to 29 percent in 2004.
  - Private sector credit expanded by 32½ percent in 2004.

Box — Taxation of Petroleum Products
- Government petroleum revenue components: import duty; turnover tax; road levy; variable petroleum consumption tax (collected as residual difference between pump price and landed cost plus margins).
- Pump prices and domestic distribution margins are fixed by government.
- Last price adjustment: March 2003 — diesel raised from SRD1.00 per liter to SRD1.40; gasoline from SRD1.08 to SRD1.55.
- Increase in international oil prices in 2004 caused government revenue from petroleum products to fall from 4.1 percent of GDP in 2003 to 2.2 percent of GDP in 2004.

- Dollarization:
  - Financial dollarization increased during 2002–04:
    - Share of foreign currency deposits rose from 47 percent to 56 percent of total deposits.
    - Share of private sector credit denominated in foreign currency rose from 42 percent to 54 percent.
  - Contributing factors: lingering confidence effects from near-hyperinflation episodes; liberalization of foreign exchange controls and bank lending regulations during 2002–03; reserve requirements favoring foreign currency intermediation.
  - CBvS raised minimum reserve requirement on foreign currency deposits to 22 percent in October 2004.

- Banking supervision:
  - New Banking Supervision Law enacted January 2003 tightened capital adequacy and risk management norms.
  - Implementation hampered by lack of staff, leading to delays in reporting and deficiencies in onsite inspections.

- External position and debt management:
  - Current account deficit widened: 6 percent of GDP in 2002 to 14 percent in 2003; narrowed only marginally in 2004 despite a cumulative 66 percent increase in export proceeds in 2003-04.
  - 2004: favorable alumina and gold prices; regulatory changes increased gold exports from informal sector (informal gold exports rose from US$70 million in 2002 to US$140 million in 2003 and to US$195 million in 2004).
  - Surge in imports due to mining investment and higher consumer goods imports; foreign direct investment financed the current account deficit and helped reserves rise by almost 3 percent of GDP in 2004.
  - Weak debt management left Suriname with external arrears since 1999 and poor credit rating:
    - S&P temporarily downgraded long-term foreign currency rating from B- to SD in August 2004 citing inadequate debt management and weak debt payment discipline.
    - Suriname Debt Management Office (SDMO) became operational in late 2004, improving debt reporting.
    - Consideration of a US$100-200 million bond in early 2004 was shelved in October 2004.

- External competitiveness:
  - High and volatile real effective exchange rate; cumulative real appreciation of 19 percent between August 2002 and December 2004 due to relatively high inflation.
  - Real appreciation undermined competitiveness of nonmineral exports, which remained stagnant since 2002.

- Structural reform progress:
  - Limited progress overall.
  - Civil service reform supported by IDB and UNDP to reduce staffing, overlapping responsibilities, and absenteeism; improve recruitment and remuneration.
  - IDB advised on restructuring four state-owned banks.
  - Efforts to tackle customs governance and improve revenue collection.
  - Authorities worked with World Bank FIAS to facilitate private investment by removing impediments, eliminating public monopolies, and streamlining regulations.

### II. Short-Term Outlook
- Growth and inflation projection for 2005:
  - Economic growth projected to be almost 5 percent in 2005, driven by continued large mining investments and further loosening of fiscal stance.
  - Inflation expected to be about 9 percent in 2005 due to these factors and election-related uncertainties.

*Source: _cr05143 - 1. Selected Economic Indicators (IMF PDF).*

### 16.      Based on the authorities’ 2005 budget, the staff projects that the central

### 16.      Based on the authorities’ 2005 budget, the staff projects that the central government deficit will increase to 2¾ percent of GDP in 2005.

### Short-term fiscal and budget projections (2005)
- Central government deficit: projected to increase to 2¾ percent of GDP in 2005.
- Capital expenditure: expected to increase from 5½ percent of GDP in 2004 to around 6¾ percent of GDP in 2005, mainly on account of a large road expansion project.
- Current expenditure: projected to remain about unchanged in real terms.
- Total revenue and grants: projected to increase from 35½ percent of GDP in 2004 to 36½ percent of GDP in 2005 as a result of higher indirect tax revenue.
- Direct tax revenue: projected to fall with the expiration of the corporate income surcharge, offsetting the effect of anticipated higher tax revenue from the new gold mine.
- Note: As in previous years, the 2005 budget envisages a substantial increase of capital expenditure, which is unlikely to be fully executed.

### Monetary stance and dollarization (2005)
- Monetary stance: authorities expected to maintain a disciplined monetary stance.
- Reserve requirements: recent tightening on foreign currency deposits introduced in late 2004.
- Private credit expansion: projected to decelerate during 2005 in view of reserve requirement tightening and election-related uncertainties.
- Money supply growth: projected to slow to around 16 percent.
- Dollarization: projected to slow considerably as a result of the increase in reserve requirements on foreign currency deposits.

### External sector and reserves (2005)
- External current account deficit: projected to remain substantial; will only narrow marginally to around 12 percent of GDP.
- Exports: projected to increase by 16 percent in U.S. dollar terms due to continued growth in the alumina and gold output.
- Imports: projected to rise on account of new investments in the mining industry.
- Reserves: with continued inflows of foreign direct investment, reserves projected to increase by about 3 percent of GDP.

### Policy issues and overarching objectives
- Short-term challenge: maintain policy discipline in the run-up to the May 2005 elections to preserve price and exchange rate stability.
- Medium-term challenge: place policies within a consistent and forward-looking macroeconomic framework to entrench stable policies, minimize impact of export revenue volatility, ensure stable and continued growth in real income and employment, reduce rural poverty, and maintain a sustainable debt position.
- Authorities’ view: mindful of destabilizing effects of a looser policy stance; committed to preserving achieved stability.

### Medium-term baseline scenario and macro framework (2006–09)
- Fiscal policy assumption: primary fiscal surplus of around 1.3 percent of GDP maintained during 2006–09.
- Current account: would remain significant due to limited outlook for alumina, gold, and nontraditional exports.
- Financing: continued foreign direct investment expected to finance a small balance of payments surplus.
- Public sector debt: projected to fall from around 52 percent of GDP at end-2003 to around 41 percent at end-2009.
- Scenario caveats: assumes a fall in commodity prices as projected by WEO, absence of terms of trade shocks, and does not incorporate the impact of possible new large-scale FDI projects.

Key macroeconomic indicators (as presented in the medium-term framework)
- Real GDP growth (in percent): 2003: 5.3; 2004: 4.6; 2005: 4.8; 2006: 3.3; 2007: 3.7; 2008: 3.7; 2009: 3.7
- Inflation (end of period in percent): 2003: 13.1; 2004: 9.1; 2005: 9.0; 2006: 4.6; 2007: 5.3; 2008: 4.7; 2009: 5.2
- Fiscal balance (in percent of GDP): 2003: -0.1; 2004: -1.8; 2005: -2.8; 2006: -1.4; 2007: -1.0; 2008: -1.0; 2009: -0.9
- Primary fiscal balance (in percent of GDP): 2003: 2.3; 2004: 0.3; 2005: -0.5; 2006: 1.2; 2007: 1.3; 2008: 1.3; 2009: 1.3
- External current account (in percent of GDP): 2003: -13.8; 2004: -13.2; 2005: -12.3; 2006: -8.7; 2007: -10.7; 2008: -10.4; 2009: -10.9
- Net foreign assets of the CBvS (million of US$): 2003: 100.6; 2004: 131.5; 2005: 165.3; 2006: 193.4; 2007: 201.5; 2008: 212.1; 2009: 215.7
- Gross international reserves in months of imports: 2003: 1.4; 2004: 1.6; 2005: 1.7; 2006: 2.1; 2007: 2.1; 2008: 2.1; 2009: 2.1
- Public sector debt (in percent of GDP): 2003: 52.3; 2004: 48.7; 2005: 48.1; 2006: 46.1; 2007: 44.8; 2008: 43.2; 2009: 41.6
- Of which: external debt (in percent of GDP): 2003: 39.5; 2004: 34.5; 2005: 34.3; 2006: 32.2; 2007: 31.0; 2008: 29.3; 2009: 27.7

### Key risks to the medium-term outlook
- Policy slippages: pre-election pressures to increase labor-intensive capital spending; risk of post-election reversal of disciplined policies given history of destabilizing economic policies and bouts of near-hyperinflation.
- Capital flight: political uncertainties, erratic macroeconomic policies, or loss of confidence in the domestic banking system could trigger large-scale deposit outflows despite increased dollarization.
- External shocks: reliance on mining exports (bauxite, alumina, gold) leaves economy very vulnerable to global commodity price shocks even though export base is somewhat more diversified.
- Upside opportunities: possible large-scale FDI projects could substantially improve medium-term growth and employment outlook — feasibility studies for a new bauxite-aluminum complex could lead to new investment of about US$3 billion in 2007–11; ongoing offshore petroleum exploration.

### Debt sustainability and shock scenarios
- Fiscal shock scenario: a deterioration of the primary fiscal balance to its historical average minus two standard deviations in 2005 and 2006 would increase the debt-to-GDP ratio to 76 percent by 2006 (30 percentage points above the baseline).
- Output shock scenario: a shock to real GDP in 2005 and 2006 that took the rate to its historical growth rate minus two standard deviations would lead to a gradual increase in the debt-to-GDP ratio to 66½ percent by 2009.
- Commodity price shock scenario: a deterioration of aluminum and gold prices by two standard deviations relative to the WEO baseline in 2005–06—assuming no corrective policy response—would lead to a fiscal deficit of 5 percent of GDP in 2006 and would increase public debt to 56 percent of GDP by 2006.

### Policy recommendations and reform priorities
- Maintain disciplined policy stance through the election period to preserve price and exchange rate stability.
- Use windfall revenues from high international prices for alumina and gold to lower debt levels and increase resilience to shocks.
- Explore amendments to the fiscal framework to reduce the risk that global commodity price shocks undermine fiscal discipline and debt sustainability.
- Unify the exchange rate and develop a more explicit medium-term anchor for monetary policy.
- Pursue structural reforms to reduce reliance on the mining and government sectors for employment, while recognizing the need for a cautious and deliberate approach given under-developed financial markets and the necessity of maintaining social consensus.
- Fiscal policy specific recommendations:
  - Resist pressures to loosen fiscal policies in the run-up to elections; broadly endorse 2005 budget targets which assume tight control over current and capital spending.
  - Contain wage demands to limit pressures on prices and the exchange rate.
  - Limit pre-election infrastructure investment to bilaterally and multilaterally financed and supervised projects; avoid commercial external borrowing for pre-election capital expenditure.
  - Strengthen revenue diversification: expand the tax base to improve nonmining revenue collection and study ways to amend the fuel tax system to eliminate revenue volatility; request technical assistance for design and implementation.
  - Consider mechanisms to cope with natural resource revenue volatility (e.g., revenue stabilization fund or similar fiscal rules) to help ensure inter-generational equity; authorities expressed interest but noted administrative and political constraints.
  - Improve efficiency of state-owned companies and encourage non-mining private sector activity; authorities committed to privatization of the banana, rice, and forestry companies in the course of 2005.
- Monetary and exchange rate policy recommendations:
  - Stem incipient inflation pressures; monitor broad money growth (which accelerated to 29 percent in 2004).
  - Strengthen monetary policy framework by moving toward adoption of a more explicit policy anchor (e.g., a pre-announced monetary target), contingent on credible fiscal discipline, central bank independence, and availability of indirect monetary instruments.
  - Expand the range of monetary instruments; recognize current constraints due to underdeveloped financial markets and limited marketability of government or CBvS securities.
  - Move to a unified exchange rate regime by adopting the bank/cambios daily rate as the official rate to eliminate multiple currency practices; eliminate special exchange rates for infant formula and milk powder imports in favor of direct budgetary subsidies — authorities reluctant to adopt these measures pre-election due to market uncertainties and risk of exchange rate volatility.
- Debt management and external creditors:
  - Regularize relations with external creditors and eliminate payment arrears; external arrears to bilateral creditors amounted to US$145 million at end-2004.
  - Establishment of the Suriname Debt Management Office (SDMO) welcomed; SDMO to focus on regularization and management of public sector external debt and could improve marketability of government securities.
  - Regularization of outstanding liabilities to the German Euler Hermes credit insurance group in February 2005 cited as a first encouraging step.

### Institutional and legal framework notes
- February 2002 fiscal responsibility law: established a ceiling on public sector debt of 60 percent of GDP and a subceiling on domestic public sector debt of 15 percent of GDP; limits can be exceeded only with parliamentary approval and under exceptional circumstances.
- There is also a subceiling since 1986 on government’s access to central bank financing of 10 percent of budgeted annual current fiscal revenue, but this limit has been frequently violated.
- A new Central Bank Act awaiting parliamentary approval would strengthen the central bank president’s authority to limit financing in excess of the lending limit and establish penalties for central bank officials if the limit was exceeded.
- Team observation: the debt ceiling appears high given the country’s low credit rating and market access, vulnerability to exogenous shocks, and high revenue volatility; importance of respecting ceilings except in national emergency emphasized.

*Source: IMF staff report excerpt (2005) contained in the provided content unit.*

### 36.      The financial system is underdeveloped and highly concentrated.

### _cr05143 - 36.      The financial system is underdeveloped and highly concentrated.

### Financial system structure and concentration
- The system consists of the CBvS, commercial banks, and a number of nonbank financial institutions—mainly pension funds and insurance companies—that represent less than a third of financial sector assets.
- The banking system is highly concentrated, with the largest three banks accounting for about 85 percent of total claims, assets, and deposits.
- There are three small state-owned banks that provide credit to low-income households for agriculture and housing under mostly social criteria.

### Banking-sector indicators and vulnerabilities
- Core indicators appear healthy, but vulnerabilities remain:
  - Nonperforming loan ratio increased from 13.3 percent at end-2002 to 15.3 percent in 2004.
  - Bank capitalization described as relatively low.
- Supervision weaknesses:
  - Inadequate staff resources for supervision.
  - Delays in data collection to control compliance.
  - Concerns about the system’s capacity to prevent money laundering, particularly at the casinos and unregulated foreign exchange houses.
- Regulatory gaps:
  - No specific limits on the foreign currency position of banks.
  - No regulations for foreign currency lending.

### Dollarization, reserve requirements, and balance-sheet risks
- The staff cautioned that dollarization exposed the banking system to balance sheet risks.
- Recommendation and action:
  - Mission recommended removing the remaining gap between foreign and domestic currency reserve requirements, which favored financial intermediation in foreign currencies.
  - Subsequent to discussions, the authorities raised the reserve requirement on foreign currency deposits to 33⅓ percent.

### Structural policies and other issues
- Trade policy:
  - Unweighted average tariff rate is 11 percent.
  - No protectionist nontariff barriers.
  - Suriname enacted the CARICOM Single Market and Economy Treaty and implemented the fourth phase of the common external tariff (20 percent).
- Private-sector development:
  - Economy likely to remain dominated by bauxite and gold mining in the medium term.
  - Need to promote nonmining private sector to avoid excessive fluctuations in employment and real incomes.
  - Mission recommended reducing reliance on fiscal and tariff incentives; simplify licensing procedures; promote a more stable and rule-based investment climate; strengthen protection of property rights and dispute settlement procedures.
  - A World Bank study found the Investment Act of 2002 provided incentives for the nonmining private sector at high fiscal costs and that private sector investment continues to be hampered by governance issues, uncertain and complex licensing procedures, weak administrative capacity, and excessive scope for administrative discretion.
- Data and statistics:
  - Serious shortcomings in the quality, coverage, and provision of economic statistics, particularly national accounts and trade data.
  - Recent accession to the GDDS noted, with some improvements in coverage and timeliness of monetary data, but overall data provision remains severely impaired.

### Staff appraisal: findings, risks, and recommendations
- Macroeconomic assessment:
  - Authorities achieved considerable macroeconomic success since 2003: expenditure moderation, higher tax revenue, improved public finances, stabilized exchange rate, lower inflation, improved investor confidence, and solid growth performance.
- Near-term priorities:
  - Resist pressures to relax the fiscal stance ahead of elections, including limiting pre-election capital expenditure and civil service wage increases.
  - Rein in the growth of broad money.
- Medium-term institutional needs:
  - Institutional changes to avoid procyclical monetary and fiscal responses and destabilizing bouts of near hyperinflation.
- Fiscal policy recommendations:
  - Tax reforms to broaden and diversify the domestic revenue base and reduce reliance on the mining sector.
  - Amend fuel pricing and taxation.
  - Civil service reform to improve efficiency of the large public sector; accelerate the IDB-supported project and maintain moderate wage and employment policies prior to its completion.
  - Consideration of more stringent public debt targets given vulnerability to external shocks; respect legal debt ceilings except in national emergencies.
- Monetary policy recommendations:
  - Central bank should stand ready to tighten monetary conditions and slow broad money growth if inflation pressures reemerge.
  - Strengthen the monetary policy framework: consider anchoring policy on a pre-announced monetary target and expand the range of monetary policy instruments.
  - Amendments to the Central Bank Act are envisaged to define more clearly the central bank’s responsibility to provide credit to the government.
- Exchange rate regime:
  - Move quickly to a managed unified floating exchange rate regime by adopting the daily commercial rate as the official exchange rate.
  - Eliminate multiple currency practices, including the preferential rate for milk powder and infant formula imports; absence of a removal schedule means staff does not recommend Fund approval for retention of these measures.
- Financial sector regulation and supervision:
  - Tighten prudential regulations and improve banking supervision.
  - Key priorities: limit potential currency mismatch risks, increase staff training and resources for supervision, address recent increase in nonperforming loans, and tackle continuing problems at small state-owned banks.
  - Authorities are encouraged to consider participating in a Financial Sector Assessment Program.
- External creditors and arrears:
  - Clarify relations with external creditors and eliminate payment arrears; erratic payment record and long-standing bilateral arrears have undermined creditworthiness and increased borrowing costs.
  - Staff welcomed recent regularization of old bilateral debt arrears with Germany, which took place after the mission’s departure.
- Nonmining private sector development:
  - Simplify licensing procedures, strengthen property-right protection and dispute settlement procedures, and design a comprehensive plan to improve efficiency of state-owned companies.
  - Encourage privatization of the banana, rice, and forestry companies to stimulate nonmining private sector activity.
- Data provision:
  - Staff welcomes accession to the GDDS but stresses that data provision is severely impaired due to substantial shortcomings in quality and timeliness of economic statistics.

*Source: _cr05143 - 36.      The financial system is underdeveloped and highly concentrated.*

### 53.      The staff proposes that the next Article IV consultation take place on the

### The staff proposes that the next Article IV consultation take place on the standard 12-month cycle.

### Recommendation
- The staff proposes that the next Article IV consultation take place on the standard 12-month cycle.

### Selected Economic Indicators (Table 1 — key series)
- Real economy:
  - GDP at 1990 prices: 2001 4.5; 2002 3.0; 2003 5.3; 2004 4.6; 2005 4.8
  - GDP current market prices: 2001 41.4; 2002 34.3; 2003 18.8; 2004 14.1; 2005 13.8
  - Consumer prices (end of period): 2001 4.9; 2002 28.4; 2003 13.1; 2004 9.1; 2005 9.0
  - Consumer prices (period average): 2001 39.8; 2002 15.5; 2003 23.1; 2004 9.0; 2005 8.6
- National accounts:
  - Gross domestic investment: 2001 28.9; 2002 25.0; 2003 28.5; 2004 27.9; 2005 30.8
  - Gross national savings: 2001 13.7; 2002 18.7; 2003 14.6; 2004 14.8; 2005 18.4
- Central government (percent of GDP):
  - Revenue and grants: 2001 38.7; 2002 29.3; 2003 34.7; 2004 35.5; 2005 36.2
  - Total expenditure: 2001 35.0; 2002 35.9; 2003 34.8; 2004 37.3; 2005 39.0
  - Overall balance: 2001 3.7; 2002 -6.6; 2003 -0.1; 2004 -1.8; 2005 -2.8
- Money and credit:
  - Banking system net foreign assets: 2001 36.2; 2002 7.4; 2003 12.7; 2004 17.7; 2005 10.8
  - Broad money (annual % change): 2001 32.8; 2002 32.3; 2003 15.9; 2004 28.8; 2005 16.2
  - Foreign currency deposits as share of broad money: 2001 38.4; 2002 39.4; 2003 47.2; 2004 48.7; 2005 49.0
- External sector:
  - Current account (percent of GDP): 2001 -15.2; 2002 -6.3; 2003 -13.8; 2004 -13.2; 2005 -12.3
  - Merchandise exports, f.o.b. (percent of GDP): 2001 58.8; 2002 55.6; 2003 62.6; 2004 79.6; 2005 86.8
  - Merchandise imports, f.o.b. (percent of GDP): 2001 -56.8; 2002 -50.1; 2003 -65.6; 2004 -73.5; 2005 -78.4
  - Gross official reserves (in months of imports): 2001 3.49; 2002 1.90; 2003 1.41; 2004 1.58; 2005 1.74
- Public debt (percent of GDP):
  - Total public debt: 2001 54.3; 2002 58.1; 2003 52.3; 2004 48.7; 2005 48.1
  - Domestic: 2001 7.6; 2002 14.9; 2003 12.8; 2004 14.3; 2005 13.7
  - External: 2001 46.8; 2002 43.3; 2003 39.5; 2004 34.5; 2005 34.3
  - Of which: external debt arrears: 2001 11.4; 2002 11.8; 2003 12.8; 2004 13.2

### Central Government Operations (Table 2 — summary)
- Revenue and grants (percent of GDP): 2001 38.7; 2002 29.3; 2003 34.7; 2004 35.5; 2005 36.2
- Revenue (percent of GDP): 2001 37.0; 2002 27.9; 2003 32.3; 2004 33.2; 2005 34.0
  - Direct taxes: 2001 17.4; 2002 10.4; 2003 11.6; 2004 13.3; 2005 12.8
  - Indirect taxes: 2001 16.1; 2002 14.1; 2003 16.2; 2004 15.6; 2005 16.9
  - Nontax revenue: 2001 3.6; 2002 3.5; 2003 4.5; 2004 4.4; 2005 4.3
- Expenditure and net lending (percent of GDP): 2001 35.0; 2002 35.9; 2003 34.8; 2004 37.3; 2005 39.0
  - Current expenditure: 2001 31.9; 2002 26.3; 2003 30.7; 2004 31.7; 2005 32.2
  - Wages and salaries: 2001 12.0; 2002 15.2; 2003 15.3; 2004 15.2; 2005 15.3
  - Capital expenditure: 2001 2.4; 2002 3.0; 2003 3.7; 2004 5.6; 2005 6.8
- Financing and balances:
  - Primary balance: 2001 6.1; 2002 -4.0; 2003 2.3; 2004 0.3; 2005 -0.5
  - Overall balance: 2001 3.7; 2002 -6.6; 2003 -0.1; 2004 -1.8; 2005 -2.8
  - Net domestic financing: 2001 -11.1; 2002 9.3; 2003 0.3; 2004 3.1; 2005 1.2
  - Net external financing: 2001 10.6; 2002 -3.1; 2003 -1.8; 2004 -0.5; 2005 1.6
- Memorandum: Total revenue from bauxite and gold mining operations: 2002 4.7; 2003 6.0; 2004 7.5; 2005 7.6

### Banking System Summary (Table 3 — selected levels and growth)
- Levels (millions of Surinamese dollars):
  - Net foreign assets: 2001 481.3; 2002 598.5; 2003 751.7; 2004 999.4; 2005 1,193.1
  - Net domestic assets: 2001 511.7; 2002 680.2; 2003 726.1; 2004 937.7; 2005 1,034.4
  - Credit to the private sector: 2001 257.0; 2002 409.2; 2003 575.5; 2004 762.4; 2005 891.9
  - Broad money: 2001 931.0; 2002 1,203.8; 2003 1,395.7; 2004 1,797.2; 2005 2,087.6
  - Foreign currency deposits: 2001 357.9; 2002 474.0; 2003 658.7; 2004 875.8; 2005 1,022.8
- Percent changes (selected):
  - Liabilities to the private sector: 2001 37.9; 2002 30.5; 2003 15.6; 2004 31.1; 2005 15.0
  - Broad money: 2001 32.8; 2002 32.3; 2003 15.9; 2004 28.8; 2005 16.2
  - Credit to the private sector: 2001 73.9; 2002 59.3; 2003 40.7; 2004 32.5; 2005 17.3
- Memorandum items:
  - Deposit dollarization ratio (percent): 2001 47.8; 2002 47.4; 2003 55.5; 2004 56.5; 2005 56.7
  - Credit dollarization ratio (percent): 2001 40.0; 2002 41.5; 2003 49.4; 2004 54.4; 2005 54.6

### Financial System Structure and Soundness Indicators (Table 4 — highlights)
- Number of banks (large/small): consistently 3 large and 5 small in the reported years.
- Concentration (number of institutions with 75 percent of total assets): 2
- Capital adequacy (Regulatory capital to risk-weighted assets, percent): 1999 10.1; 2000 9.0; 2001 17.6; 2002 14.8; 2003 9.2; 2004 9.3
- Asset quality:
  - FX loans to total loans (percent): 1999 24.6; 2000 10.7; 2001 47.5; 2002 44.5; 2003 50.0; 2004 52.9
  - NPLs to gross loans (percent): 2000 10.9; 2001 6.7; 2002 8.7; 2003 10.4; 2004 10.1
- Liquidity:
  - Liquid assets to total assets (percent): 1999 53.0; 2000 40.9; 2001 34.4; 2002 30.2; 2003 38.9; 2004 34.9

### Balance of Payments (Table 5 — US$ millions and key balances)
- Current account (US$ millions): 2001 -116.3; 2002 -60.1; 2003 -140.9; 2004 -145.7; 2005 -145.6
- Trade balance (US$ millions): 2001 15.6; 2002 52.5; 2003 -30.2; 2004 67.8; 2005 99.5
  - Exports, f.o.b. (US$ millions): 2001 449.3; 2002 529.3; 2003 638.5; 2004 880.6; 2005 1,024.7
    - Of which alumina and gold: 2001 365.4; 2002 360.0; 2003 476.1; 2004 708.7; 2005 847.3
  - Imports, f.o.b. (US$ millions): 2001 -433.7; 2002 -476.8; 2003 -668.7; 2004 -812.8; 2005 -925.1
- Income, net (US$ millions): 2001 -80.0; 2002 -43.6; 2003 -49.1; 2004 -138.9; 2005 -166.9
- Capital and financial account (US$ millions): 2001 185.5; 2002 68.5; 2003 129.9; 2004 169.0; 2005 180.6
- Overall balance (US$ millions): 2001 86.9; 2002 1.7; 2003 -0.6; 2004 30.9; 2005 34.9
- Memorandum:
  - GDP in current US dollars: 2001 764.0; 2002 952.1; 2003 1,020.0; 2004 1,106.5; 2005 1,179.9
  - Stock of gross international reserves (US$ millions): 2001 177.1; 2002 101.6; 2003 101.1; 2004 134.4; 2005 166.0
  - Reserves in months of imports: 2001 3.5; 2002 1.9; 2003 1.4; 2004 1.6; 2005 1.7

### Indicators of External Position and Financial Vulnerability (Table 6)
- 12-month percent change in broad money: 2001 32.8; 2002 32.3; 2003 15.9; 2004 28.8; 2005 16.2
- 12-month percent change in credit to the private sector: 2001 73.9; 2002 59.3; 2003 40.7; 2004 32.5; 2005 17.0
- Current account balance (percent of GDP): 2001 -15.2; 2002 -6.3; 2003 -13.8; 2004 -13.2; 2005 -12.3
- External public sector debt (percent of GDP): 2001 46.8; 2002 43.3; 2003 39.5; 2004 34.5; 2005 34.3
- Net foreign assets (US$ millions, end-of-period): 2001 99.5; 2002 101.2; 2003 100.6; 2004 131.5; 2005 165.3
- Exchange rate (per US$, official market): 2001 2.18; 2002 2.35; 2003 2.60; 2004 2.74
- 12-month REER percent change (depreciation (-)): 2001 9.8; 2002 -11.3; 2003 8.3; 2004 2.9

### Medium-Term Outlook (Table 7 — 2005–2009 projections)
- Real economy (annual percentage change):
  - GDP at 1990 prices: 2005 4.8; 2006 3.3; 2007 3.7; 2008 3.7; 2009 3.7
  - GDP current market prices: 2005 13.8; 2006 10.1; 2007 8.9; 2008 8.9; 2009 8.9
  - Consumer prices (period average): 2005 8.6; 2006 6.6; 2007 5.0; 2008 5.0; 2009 5.0
- National accounts (percent of GDP):
  - Gross domestic investment: 2005 30.8; 2006 24.3; 2007 24.1; 2008 26.0; 2009 28.3
  - Gross national savings: 2005 18.4; 2006 15.6; 2007 13.5; 2008 15.7; 2009 17.4
- Central government (percent of GDP):
  - Revenue and grants: 2005 36.2; 2006 35.0; 2007 33.9; 2008 33.4; 2009 32.9
  - Total expenditure: 2005 39.0; 2006 36.4; 2007 34.9; 2008 34.4; 2009 33.8
  - Overall balance: 2005 -2.8; 2006 -1.4; 2007 -1.0; 2008 -1.0; 2009 -0.9
  - Net domestic financing: 2005 1.2; 2006 1.4; 2007 1.1; 2008 1.1; 2009 1.1
  - Net external financing: 2005 1.6; 2006 0.0; 2007 -0.1; 2008 -0.1; 2009 -0.2
- External sector (percent of GDP):
  - Current account: 2005 -12.3; 2006 -8.7; 2007 -10.7; 2008 -10.4; 2009 -10.9
  - Merchandise exports, f.o.b.: 2005 86.8; 2006 81.1; 2007 77.1; 2008 74.1; 2009 71.2
  - Merchandise imports, f.o.b.: 2005 -78.4; 2006 -70.7; 2007 -69.6; 2008 -67.8; 2009 -66.1
- Reserves and debt:
  - Change in reserves (-=increase): 2005 -3.0; 2006 -2.3; 2007 -0.6; 2008 -0.8; 2009 -0.2
  - Gross official reserves (in months of imports): 2005 1.7; 2006 2.1; 2007 2.1; 2008 2.1; 2009 2.1
  - Total public debt (percent of GDP): 2005 48.1; 2006 46.1; 2007 44.8; 2008 43.2; 2009 41.6
    - External public debt: 2005 34.3; 2006 32.2; 2007 31.0; 2008 29.3; 2009 27.7

### Public Sector Debt Sustainability (Table 8 — baseline and stress tests)
- Baseline public sector debt (percent of GDP): 1999 51.7; 2000 79.7; 2001 54.3; 2002 58.1; 2003 52.3; 2004 48.7; 2005 48.1; 2006 46.1; 2007 44.8; 2008 43.2; 2009 41.6
- Debt-stabilizing primary balance (percent of GDP): -0.4
- Identified debt-creating flows (percent of GDP): 1999 15.7; 2000 22.7; 2001 -27.1; 2002 -1.7; 2003 -7.4; 2004 -4.6; 2005 -3.1; 2006 -3.0; 2007 -2.8; 2008 -2.6; 2009 -2.6
- Primary deficit (percent of GDP): 1999 9.2; 2000 11.7; 2001 -6.1; 2002 4.0; 2003 -2.3; 2004 -0.3; 2005 0.5; 2006 -1.2; 2007 -1.3; 2008 -1.3; 2009 -1.3
- Automatic debt dynamics (percent of GDP): 1999 6.5; 2000 11.0; 2001 -21.0; 2002 -5.7; 2003 -5.1; 2004 -4.3; 2005 -3.5; 2006 -1.8; 2007 -1.4; 2008 -1.3; 2009 -1.3
- Public sector debt-to-revenue ratio (percent): 1999 195.5; 2000 290.6; 2001 140.4; 2002 198.7; 2003 150.9; 2004 137.4; 2005 132.8; 2006 131.9; 2007 132.1; 2008 129.2; 2009 126.5
- Gross financing need (percent of GDP): 1999 20.5; 2000 39.0; 2001 23.0; 2002 14.9; 2003 15.0; 2004 13.8; 2005 16.9; 2006 15.0; 2007 10.0; 2008 9.0; 2009 8.4
- Selected stress-test outcomes (public-debt-to-GDP, percent):
  - A1 (historical averages 2005-09): 2005 48.7; 2006 50.7; 2007 52.4; 2008 55.1; 2009 57.3; 2010 59.7 (table shows multi-year path)
  - A2 (no policy change): 2005 48.7; 2006 47.4; 2007 46.3; 2008 46.1; 2009 45.4; 2010 44.9
  - B1 (real interest rate shock): 2005 48.7; 2006 138.1; 2007 393.0; 2008 390.9; 2009 386.2; 2010 381.3

### External Debt Sustainability (Table 9 — baseline and stress tests)
- External debt (percent of GDP): 1999 30.4; 2000 30.0; 2001 46.8; 2002 40.4; 2003 39.2; 2004 34.5; 2005 34.2; 2006 32.7; 2007 31.4; 2008 29.8; 2009 28.1
- Change in external debt (percent of GDP): 1999 9.3; 2000 -0.4; 2001 16.8; 2002 -6.4; 2003 -1.2; 2004 -4.7; 2005 -0.3; 2006 -1.5; 2007 -1.4; 2008 -1.6; 2009 -1.7
- Identified external debt-creating flows (percent of GDP): 1999 21.6; 2000 2.1; 2001 18.7; 2002 -4.4; 2003 -0.4; 2004 -1.1; 2005 1.5; 2006 0.6; 2007 2.1; 2008 1.9; 2009 2.4
- Current account deficit excluding interest payments (percent of GDP): 1999 18.3; 2000 3.0; 2001 13.6; 2002 5.2; 2003 12.7; 2004 12.3; 2005 11.3; 2006 7.5; 2007 9.6; 2008 9.3; 2009 10.0
- External debt-to-exports ratio (percent): 1999 48.0; 2000 44.1; 2001 70.2; 2002 67.7; 2003 57.3; 2004 40.4; 2005 36.9; 2006 37.7; 2007 37.8; 2008 37.2; 2009 36.4
- Gross external financing need (US$ billions): 1999 235.4; 2000 208.5; 2001 187.2; 2002 94.0; 2003 175.4; 2004 169.8; 2005 177.8; 2006 144.3; 2007 183.5; 2008 181.8; 2009 199.5

*Source: Central Bank of Suriname; Ministry of Finance; General Bureau of Statistics; Surinamese authorities; and Fund staff estimates and projections.*

### 1. PovertyHalve poverty

### 1. PovertyHalve poverty

### Millennium Development Goals — Suriname (selected indicators)
- Poverty: 59.7 – 69.5 (1993)
- Halve population below minimum dietary energy consumption:
  - Baseline: 13.0
  - Target: 6.5
  - Most recent: 11.0  (2001)
  - Assessment: Unlikely
- Education — Achieve full enrollment in primary education:
  - Baseline: 78.0
  - Target: 100.0
  - Most recent: 97.3 (2001)
  - Assessment: On track
- Gender equality — Raise girls/boys ratio in primary and secondary education to 100 percent:
  - Baseline: 104.6
  - Target: 100.0
  - Most recent: 112.9 (2001)
- Child mortality — Reduce child mortality under 5 years of age by two-thirds:
  - Baseline: 44.0
  - Target: 14.7
  - Most recent: 40.0  (2002)
  - Assessment: On track
- Maternal health — Reduce maternal mortality rate (for each 100,000 live births) by three-fourths:
  - Most recent: 110.0 (2001)
- Raise births attended by skilled health staff:
  - Baseline: 95.0 (1995)
  - Most recent: 84.5 (2001)
  - Assessment: Off track
- Environment — Halve the proportion of individuals without access to improved water source:
  - Most recent: 18.0 (2001)
- Environment — Halt forest degradation (percent of total land):
  - Baseline: 90.5
  - Target: 90.5
  - Most recent: 90.5 (2001)
  - Assessment: On track
- Global partnership for development — Youth unemployment rate (ages 15/24):
  - Baseline: 36.6
  - Target: n/a
  - Most recent: ...
- Global partnership for development — Access to personal computers (per 1,000 people):
  - Baseline: ...
  - Target: n/a
  - Most recent: 45.5 (2001)

Sources reported in table: IADB, World Bank, UNDP, and Vos, DeJong Dijkstra, in: van Dijck (Ed.), "Suriname. The Economy", 2001. Data refers to 1990 unless otherwise noted. The objective on global partnership has various qualitative targets.

### Assessment highlights from the MDG table
- Progress is mixed: primary education and child mortality are "On track"; births attended by skilled staff is "Off track"; dietary energy consumption halving is assessed as "Unlikely".
- Several indicators report recent-year datapoints clustered in 2001–2002.

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### IMF — Fund Relations (selected financial data and arrangements)
- Membership: Joined 4/27/78.
- Quota (GRA): 92.10 (SDR Million of Quota) — 100.00 (percent)
- Fund holdings of currency: 85.98 (SDR Million) — 93.35 (percent)
- Reserve position in the Fund: 6.12 (SDR Million) — 6.65 (percent)
- SDR Department:
  - Net cumulative allocation: 7.75 — 100.00 (percent)
  - Holdings: 1.21 — 15.67 (percent)
- Outstanding Purchases and Loans: None
- Financial Arrangements: None
- Projected Payments to the Fund (SDR million; based on existing use of resources and present holdings of SDRs):
  - Principal: 0.00 (2005) 0.00 (2006) 0.00 (2007) 0.00 (2008) 0.00 (2009)
  - Charges/Interest: 0.15 (each year 2005–2009)
  - Total: 0.15 (each year 2005–2009)
- Exchange rate arrangements:
  - National currency: Surinamese dollar (SRD), replaced the Surinamese guilder in January 2004 at a conversion rate of 1,000 guilders per SRD.
  - Official exchange rates used by central bank: SRD 2.75 per U.S. dollar (government and mining transactions); SRD 1.4 per U.S. dollar (baby milk powder imports).
  - Commercial bank/cambio rate traded between SRD 2.8 and 2.71 per U.S. dollar after removal of ceiling/floor in June 2004.
- Last Article IV consultation concluded by Executive Board on October 17, 2003 (IMF Country Report No. 03/356). Suriname is on the standard 12-month consultation cycle.
- Participation in the GDDS: formal participation announced July 2004.

### IMF — Technical assistance (selected missions)
- STA (GDDS): GDDS mission visited March 2004 to assist metadata preparation.
- STA (BOP): mission in October 2002 on Balance of Payments Statistics.
- STA (MAB): follow-up mission Aug 28–Sep 10, 2001 and mission Jan 8, 2001 on Banking Statistics; follow-up mission visited Paramaribo in February 2005.
- MFD: expert visit Nov 14–21, 2000 on exchange rate system and foreign exchange operation efficiency; bank supervision expert visited central bank May 1998 to Feb 2003.
- WHD: mission visited January 2003 to assess macroeconomic situation and suggest deficit reduction measures.
- Resident Representative: None.

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### World Bank and Inter-American Development Bank relations (selected points)
- World Bank Group:
  - FIAS of IFC completed a report in April 2003 with recommendations for the 2001 Investment Law and InvestSur; follow-up report delivered October 2004 and presented at a workshop.
- Inter-American Development Bank (IDB):
  - Suriname joined IDB in 1980.
  - Since then IDB approved 15 loans (13 projects) amounting to US$101.6 million and 82 technical cooperation operations totaling US$26.8 million.
  - Outstanding debt to IDB as of December 2004: US$44 million, mostly on Intermediate Fund Financing (IFF) terms.
  - IDB approved a $5 million loan in June 2004 to support strengthening public sector management; executing agency working to fulfill conditions prior to first disbursement; road map preparation expected to begin April 2005.
  - IDB approved May 2003 a technical cooperation project (Financial Sector Strengthening and Rationalization—US$500,000).
- Financial relations (as of December 2004):
  - 7 loan projects in execution amounting to US$51 million (IDB contribution).
  - 18 technical cooperation projects in execution with total IDB contributions of US$11 million.
- Pipeline and portfolio summary (selected figures):
  - Loans in Execution: 75 1.012 (table formatting in source)
  - TCs in Execution: 18 11.275
  - Projects in Pipeline: 163 13.0
  - TCs in Pipeline: 10 3.2
- Net cash flow (1999–2004; in millions of US dollars):
  - Loan Disbursements: 18.6 (1999), 0.6 (2000), 0.2 (2001), 0.8 (2002), 15.7 (2003), 4.4 (2004)
  - Repayments: 0.4 (1999), 0.7 (2000), 0.8 (2001), 0.7 (2002), 1.8 (2003), 2.4 (2004)
  - Net Loan Flow: 18.2 (1999), -0.1 (2000), -0.6 (2001), 0.1 (2002), 13.9 (2003), 2.0 (2004)
  - Interest and charges: 0.8 (1999), 0.8 (2000), 1.9 (2001), 0.9 (2002), 2.0 (2003), 2.8 (2004)
  - Net Cash Flow: 17.4 (1999), -0.9 (2000), -2.5 (2001), -0.8 (2002), 11.9 (2003), -0.8 (2004)
- Total projected loan repayments (2005–2009; in millions of US dollars equivalent):
  - Principal: 3.1 (2005), 3.5 (2006), 4.0 (2007), 4.3 (2008), 5.0 (2009)
  - Income: 2.7 (2005), 3.4 (2006), 3.6 (2007), 3.6 (2008), 3.5 (2009)
  - Total: 5.8 (2005), 6.9 (2006), 7.6 (2007), 7.9 (2008), 8.5 (2009)

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### Statistical issues — assessment and data adequacy
- Overview:
  - Quality and timeliness of economic statistics improved over the past two years.
  - Participation in GDDS began June 2004; metadata posted on IMF DSBB.
  - Suriname Debt Management Office started operations in 2004, improving public debt data.
  - Continued effort required to make statistics adequate for policy analysis.
- Real sector:
  - Latest national income accounts data are 2002; preliminary 2003 estimates available late-2004 but without informal sector details.
  - Constant price series rebased to 1990; sector estimates based on indicator variables, but indicator response rates are poor.
  - No national accounts by expenditure approach and no labor statistics.
  - No reconciliation between national accounts and balance of payments data.
  - CPI production/dissemination disrupted by temporary cessation of ABS due to fire (June 2003 - March 2004); monthly data and annual figures for 2003 and 2004 could not be published.
- Public finances:
  - Only central government financial data readily available; additional information needed for accurate fiscal accounts.
  - Revenue collected on a cash basis by Inland Revenue Department and Nontax Revenue Division; Central Paymaster provides cash-basis revenue/expenditure data used by CBvS.
  - Some capital expenditure recorded only at ministerial level; no centralized records for external grants.
  - Divergent estimates among MoF, Treasury, CBvS, and Central Paymaster; authorities are streamlining fiscal reporting and reconciliation.
  - No central government operations data published in IFS since 1991; no data reported for publication in GFSY.
  - Number of public enterprises estimated at 120 (some dormant or social associations); many do not produce timely accounts.
  - Start-up of Suriname Debt Management Office in 2004 has helped centralize external debt and arrears reporting.
- Monetary accounts:
  - STA mission Jan 2001 advised on monetary reporting formats and CBvS accounting template; central bank activity data reported with lags of less than a month since mid-2001 and are suitable for IFS publication.
  - STA missions Sept 2001 and Feb 2005 helped design new report forms for commercial banks; periodicity improved and time-lag reduced to two months, though irregularities remain.
- Balance of payments:
  - Prepared on a cash basis; trade data relatively reliable but services and capital inflows data suffer from poor compilation, misclassification, and poor reconciliation.
  - ABS does not provide sufficiently detailed breakdown of merchandise exports by product and destination.
  - Oct 2002 STA mission assessed progress toward BPM5 classifications; March 2004 GDDS mission found little progress implementing recommendations.
  - Proposed revision to CBvS Act before parliament would make statutory reporting of statistical information to CBvS compulsory.
- Adequacy of data provision to the Fund for surveillance:
  - Data provision generally adequate for surveillance, but serious shortcomings in expenditure breakdown of national accounts, exports, and informal sector activity.
  - Specific issues impacting surveillance:
    - Real sector performance estimation hindered by poor collection/presentation and lack of informal sector data.
    - Saving-investment balance estimates problematic due to no expenditure breakdown of national accounts; reliance on balance of payments data.
    - Exports analysis hindered by lack of detailed data by goods and destination.

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### Public Information Notice (PIN) No. 05/54 — Executive Board conclusion summary (April 20, 2005)
- Macroeconomic developments and policy:
  - Tighter fiscal and monetary policies helped stabilize exchange rate and moderate inflation pressures in 2003 and 2004.
  - Fiscal deficit narrowed from 6.5 percent of GDP in 2002 to near balance in 2003.
  - Inflation reduced from 28 percent in 2002 to 13 percent in 2003 and 9 percent in 2004.
  - Real GDP growth accelerated to about 5 percent in both 2003 and 2004.
  - Successful launch of the Suriname dollar (SRD) in January 2004.
- Policy stance in 2004:
  - Central government overall deficit widened to about 1.75 percent of GDP in 2004 due to a substantial increase in capital expenditure and a drop in domestic fuel taxes.
  - Monetary policy became somewhat more accommodative: CBvS lowered reserve requirements on domestic currency deposits and allowed commercial banks to invest part of required reserves in low-interest housing loans.
- Financial system and dollarization:
  - Financial system increasingly dollarized during 2002–04.
  - Share of foreign currency deposits rose from 47 percent to 56 percent of total deposit base during 2002–04.
  - Share of private sector credit denominated in foreign currency increased from 42 percent to 54 percent.
- External sector:
  - External current account deficit remained wide as imports surged in response to large investments in the mining sector during 2003–04 and increased consumer demand.
  - Mineral exports increased rapidly; exports from non-mining sectors stagnant, affected in part by relatively high real effective exchange rate.
  - Large current account deficit largely financed by continued large inflows of foreign direct investment.
  - International reserves rose by almost 3 percent of GDP in the period covered.

*IMF staff report and related material as provided in the source document.*

### 2004. Weak, albeit improving, debt management and significant arrears on bilateral loans since

### 2004. Weak, albeit improving, debt management and significant arrears on bilateral loans since

### Executive Board Assessment — macroeconomic stance and risks
- Directors commended authorities for successful macroeconomic management in recent years, noting that prudent fiscal policies and a cautious monetary policy stance had helped stabilize the exchange rate, lower inflation, and foster a solid growth performance in 2004.
- Directors stressed macroeconomic stability should remain a policy priority to strengthen growth and tackle poverty, supported by reforms to diversify the economy and improve the business climate.
- Directors encouraged authorities to resist pressures to relax the fiscal stance in light of the upcoming general elections.
- Over the medium term, Directors underscored the importance of establishing an institutional framework to avoid procyclical monetary and fiscal responses to terms-of-trade shocks that had led to destabilizing cycles of inflation and currency depreciation.
- Directors emphasized the need to reduce expenditure inefficiencies and welcomed the recent strengthening of the fiscal framework.
- Directors suggested development and adoption of a medium-term fiscal framework to cope with volatility of revenue from mining operations and to broaden the domestic revenue base to reduce reliance on mining.
- Directors recommended amendments to the fuel pricing mechanism to reduce vulnerability of tax revenues to world energy prices.
- Directors noted civil service reform and downsizing would be critical for improving public sector efficiency and urged acceleration of the Inter American Development Bank-supported project.
- Directors welcomed statutory limits established for public debt but cautioned these limits appeared high given sensitivity of Suriname’s fiscal position to exogenous shocks.
- On monetary policy, Directors stressed maintaining firm control over credit growth, noting strong growth of broad money in 2004 could threaten gains in lowering inflation.
- Directors encouraged amendments to the Central Bank Act to define more clearly the central bank’s scope and responsibility in provision of credit to the government.
- Directors observed policy implementation would benefit from being anchored more firmly, possibly on a pre-announced monetary target, and by expanding the range of monetary policy instruments.
- Pointing to recent increase in dollarization, Directors urged further steps to protect the banking system from balance sheet risks.
- Directors welcomed central bank’s move to reduce difference between reserve requirements on foreign and domestic currency deposits and encouraged tightening prudential regulations and improving banking supervision to limit currency mismatch risks.
- Directors recommended increasing resources for banking supervision and staff training in light of recent increase in nonperforming loans and continuing problems at small state-owned banks.
- Directors welcomed authorities’ interest in participating in a Financial Sector Assessment Program.
- Directors commended the successful launch of the Suriname dollar in 2004 and central bank steps that led to convergence of exchange rates, urging movement to a unified and floating exchange rate regime.
- Directors stressed clarifying relations with external creditors and eliminating payment arrears without delay; they welcomed recent regularization of bilateral arrears with Germany.
- Directors underscored Suriname’s continued vulnerability to external shocks and encouraged policies to reduce reliance on the mining sector, simplify licensing procedures, and promote a more stable, rule-based climate for investment.
- Directors suggested designing a comprehensive plan to improve efficiency of state-owned companies and foster nonmining private sector activity, including privatization of the banana, rice, and forestry companies.
- Directors welcomed accession to the General Data Dissemination System (GDDS) and urged addressing remaining serious data reporting problems, particularly in real sector and trade statistics.

### Selected Economic Indicators — key figures (as reported)
- Real Economy
  - GDP at 1990 prices 1/: 2001 4.5 2002 3.0 2003 5.3 2004 4.6 2005 4.8
  - GDP current market prices: 2001 41.4 2002 34.3 2003 18.8 2004 14.1 2005 13.8
  - Consumer prices (End of period): 2001 4.9 2002 28.4 2003 13.1 2004 9.1 2005 9.0
- National accounts (In percent of GDP, including informal sector)
  - Gross domestic investment: 2001 28.9 2002 25.0 2003 28.5 2004 27.9 2005 30.8
  - Gross national saving: 2001 13.7 2002 18.7 2003 14.6 2004 14.8 2005 18.4
  - Foreign saving: 2001 15.2 2002 6.3 2003 13.8 2004 13.2 2005 12.3
- Central government (In percent of GDP, including informal sector)
  - Revenue and grants: 2001 38.7 2002 29.3 2003 34.7 2004 35.5 2005 36.2
  - Expenditure and net lending: 2001 35.0 2002 35.9 2003 34.8 2004 37.3 2005 39.0
  - Overall balance: 2001 3.7 2002 -6.6 2003 -0.1 2004 -1.8 2005 -2.8
- Money and credit 2/ (Annual percentage change, unless otherwise indicated)
  - Domestic assets (net): 2001 3.9 2002 45.7 2003 6.7 2004 29.1 2005 10.3
  - Of which Public sector: 2001 -63.8 2002 186.6 2003 -20.7 2004 14.0 2005 6.2
  - Of which Private sector: 2001 73.9 2002 59.3 2003 40.7 2004 32.5 2005 17.0
  - Money and quasi-money (M2) 3/: 2001 32.8 2002 32.3 2003 15.9 2004 28.8 2005 16.2
- External Sector 4/ (In percent of GDP, including informal sector)
  - Current account: 2001 -15.2 2002 -6.3 2003 -13.8 2004 -13.2 2005 -12.3
  - Merchandise exports, f.o.b.: 2001 58.8 2002 55.6 2003 62.6 2004 79.6 2005 86.8
  - Merchandise imports, f.o.b.: 2001 -56.8 2002 -50.1 2003 -65.6 2004 -73.5 2005 -78.4
  - Capital and financial account: 2001 24.3 2002 7.2 2003 12.7 2004 15.3 2005 15.3
    - Of which: external borrowing: central government: 2001 10.6 2002 -3.1 2003 -1.8 2004 -0.5 2005 1.6
  - Errors and omissions (Net): 2001 2.3 2002 -0.7 2003 1.0 2004 0.7 2005 0.0
  - Change in reserves (-)=increase: 2001 -11.4 2002 -0.2 2003 0.1 2004 -2.8 2005 -3.0
  - Gross official reserves (In months of imports): 2001 3.5 2002 1.9 2003 1.4 2004 1.6 2005 1.7
  - Stock of external public debt 5/: 2001 46.8 2002 43.3 2003 39.5 2004 34.5 2005 34.3

Notes quoted in source:
- 1/ Includes estimate of the informal sector.
- 2/ Pre-2002 data are not comparable. Percentage changes in 2002 are calculated on basis of estimates for end-2002 data based on the old data classification.
- 3/ Includes foreign-currency deposits held by residents.
- 4/ Based on amounts expressed in U.S. dollars.
- 5/ Includes public external payments arrears.

### Statement by Murilo Portugal, Executive Director for Suriname (March 25, 2005) — authorities’ view and policy intentions
- Authorities report substantial macroeconomic progress over past two years, attributing stabilization to careful macro management and increases in international mineral prices.
- Fiscal discipline and tight monetary policy enabled successful introduction of the Surinamese dollar, quasi unification of parallel and official exchange rates, and significant reduction of inflation to single digits; monthly inflation rate estimated to be null in February 2005.
- Authorities acknowledge continued vulnerability to external shocks due to narrow production and export bases and commit to further reforms to raise public sector efficiency, ensure fiscal sustainability, encourage private sector investment, and strengthen banking supervision.
- Authorities request consensus before major structural reforms and, given pre-election uncertainty, chose cautious advancement of structural reforms while prioritizing macroeconomic stability.
- Public finance priorities: public service reform, overhauling inefficient management systems of certain public enterprises and state-owned banks, and reducing negative impact on fiscal revenue of the domestic fuel tax system.
- Pre-implementation measures under way with technical support from IDB and UNDP, including redefinition of the Personnel Act, introduction of a Procurement Act, and strengthening of the registrar of civil servants.
- Technical assistance on restructuring state-owned banks provided by IDB; reform options include shutdown of one state-owned bank and mergers.
- Public enterprises required to adopt more transparent financial management; substantial progress toward privatization of banana, rice, and forestry companies. EU assisting banana company; IDB-financed consultant provided options for rice company.
- Fund staff warned of three major downside risks: (i) policy slippages resulting from pre-election pressures, (ii) capital flight, and (iii) high vulnerability to external shocks.
- Authorities report these risks did not materialize ahead of the elections; satisfactory fiscal performance maintained and budget execution and financing needs jointly monitored weekly by Ministry of Finance and Central Bank.
- Authorities committed to respecting newly established debt ceilings: 60 percent of GDP for all public sector debt with a sub ceiling of 15 percent of GDP on domestic debt.
- To counter dollarization and associated balance sheet risk, reserve requirement on deposits in foreign currency raised to 22 percent in October 2004 and further increased to 33 percent in February 2005.
- Central Bank independence being strengthened; amendments to the Central Bank Act under debate include personal penalties for officials who do not respect statutory limits on financing government deficit and contracting external debt; additional stringent prudential norms under Parliamentary consideration.
- Authorities created late in 2004 the Suriname Debt Management Office and have gradually eliminated all arrears to multilateral creditors; committed to honoring engagements and working with bilateral creditors to solve pending debt issues, citing recent agreement with German Ministry of Economic and Labor Affairs recognizing some old contingent liabilities arising from Hermes-financed damage cases in the 1980s.
- Amendments to the Bank Act and law governing transfer houses introduced to Parliament to give Central Bank more authority to demand information necessary for quality and timely statistics; anti money laundering legislation in place.
- Staff recommends immediate adoption of a flexible pricing mechanism for petroleum products; authorities favor more direct and targeted subsidization but defer general price increases during current period of uncertainty.
- Authorities do not see scope in short run for removing February 2004 measure allowing commercial banks to use up to 7 percentage points of the reserve requirement to expand mortgage loan portfolio; activating open market operations to reduce reliance on reserve requirement remains a priority.
- Authorities receptive to setting up a Non Renewable Resource Fund (NRF) and are investigating ways to stimulate nonmining production and diversify export base with World Bank (FIAS/IFC) technical assistance, including reviewing the Investment law and setting up an Investment Promotion Agency.
- Authorities look forward to participation in the Financial Sector Assessment Program and commend IMF staff collaboration.

*Source: IMF staff report and statements contained in the provided document.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05143.pdf_