## _cr14316 ## Source details **Canonical URL:** [_cr14316](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14316.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14316.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14316.pdf.json) --- ### External competitiveness and macroeconomic overview - Macroeconomic situation: - Continued deterioration in 2013 as the long boom in oil and gold prices appeared to come to an end. - Large fiscal and external sector exposures to the mineral sector and inadequate domestic policy adjustment led to further fiscal and external sector deterioration in 2013 and a significant decline in international reserves. - De jure exchange rate classification: “floating”; de facto regime: “stabilized arrangement” (SRD anchored to the US dollar in a narrow band). - Growth, exports, and inflation: - Staff estimates GDP growth of 4 percent in 2013. - Export volumes in 2013: - Gold export volume contracted by 1½ percent (gold close to two-thirds of total exports). - Aluminum exports contracted 5 percent. - Oil exports increased by 1¼ percent. - Inflation: - Averaged 2 percent in 2013. - Picked up to almost 3 percent in May 2014 largely because of higher food and fuel prices. - Monetary and banking sector: - Reserve requirements increased in September 2013 by 5 percentage points: - Domestic currency deposits: to 30 percent. - Foreign currency deposits: to 50 percent. - Private sector credit growth declined from a peak of 20 percent (y/y) in October 2013 to 15 percent in April 2014. - Banking indicators (2013): - Return on equity fell 3 percentage points to 21¾ percent. - Capital adequacy about 12½ percent of risk weighted assets (regulatory minimum 10 percent; regional average about 20 percent). - NPL ratio declined from 6.2 percent in 2012 to 5.9 percent in 2013. - Liquid assets ≈ almost half of total assets and about 87 percent of short-term liabilities. - Unsterilized foreign exchange intervention reduced reserve money and broad money growth, tightening the domestic financial stance. - External balance and competitiveness: - Current account balance fell 7¼ percentage points to a deficit of 4 percent of GDP in 2013. - International reserves declined to 3½ months of imports. - REER appreciation since the January 2011 devaluation (SRD appreciated about 10 percent in real effective terms) eroded gains; CGER-type estimates suggest moderate overvaluation: - Macroeconomic balance approach: 2.4 - External sustainability approach: 9.8 - Equilibrium real exchange rate approach: 7.5 - Commodity exposure: - Gold accounts for 62 percent of exports and 7 percent of fiscal revenues. - Oil accounts for 21 percent of fiscal revenues. ### Outlook (short and medium term) and scenarios - Baseline projections: - 2014: GDP growth declines to 3 percent. - Current account deficit expected to widen to about 4½ percent of GDP in 2014. - Inflation likely to remain contained assuming subdued international food and fuel prices and consistent policy settings. - Medium term: - WEO projections indicate slightly rising gold prices. - Two large international gold mining projects expected to start operations over 2017–18. - A new oil refinery expected to improve the oil trade balance by over 2 percent of GDP from 2015 onward. - GDP growth expected to rise to a peak of about 5 percent by 2018. - Current account balance improves to a surplus of about 1 percent of GDP over the medium term. - Severe shock scenario (staff assumptions and impacts): - Assumptions: gold prices immediately fall to $1000/ounce; large gold mining projects cancelled; no policy response beyond baseline. - Effects: GDP growth and fiscal and external balances fall; large decline in international reserves. - Policy tightening to mitigate reserve loss would imply a larger output loss than estimated for the shock scenario. - Currency adjustment could temporarily improve competitiveness and revalue foreign currency fiscal revenues, but benefits are short-lived without policy tightening. - Financial-sector stress scenario (FSAP): - Assumptions: (i) GDP growth declines one percentage point; (ii) fiscal deterioration causes sharp increase in arrears elevating NPLs of government suppliers; (iii) the exchange rate is adjusted. - Result: NPLs could increase by around 5 percentage points, requiring about 0.7 percent of GDP to bring regulatory capital to the minimum requirement of 10 percent. - Risks (tilted downwards overall): - Commodity price risk, fiscal implementation risk ahead of elections, financial sector stress risks, inward spillovers from slower growth elsewhere, and public debt rollover risks (Short term debt = 16 percent of total debt; Gross financing needs ≈ 10 percent of GDP in 2014; projected to rise to 13 percent of GDP by 2019). ### Fiscal sustainability gap and optimal fiscal path - Staff estimates: - Fiscal sustainability gap of about 12½ percent of GDP (conservative valuation approach). - Fiscal sustainability gap defined as total fiscal measures that, if immediately implemented, would assure a non-explosive path for government debt over the long run. - Closing the gap immediately is infeasible without creating an untenably large output gap; delaying adjustment increases required measures. - Optimal fiscal path: target a fiscal surplus of at least 1½ percent of GDP in 2019. - Achieving that target would require an overall medium term adjustment effort estimated at about 8½ percent of GDP, including offsetting the effect of declining commodity prices on revenues. - Recommendation: substantial frontloading of adjustment is advisable given still-favorable cyclical conditions and downside commodity price risks. - Both revenue and expenditure measures required given the scale of required adjustment. ### Consolidation actions, 2014 outcomes, and baseline projections - Measures implemented in 2014: - Stronger expenditure controls and tax collection efforts from January 2014. - Wage bill in H1 2014 declined relative to 2013; retroactive wage payments ended in mid-2013. - Reforms to contain public health expenditures spearheaded by the Vice President’s office. - Planned revenue measures: increase royalty rate on small scale gold miners; higher taxation of logging concessions; sales of government land to leaseholders. - Offsetting spending increases: a 10 percent increase in government pensions and a pending increase in hydro electricity costs. - Fiscal outcomes and projections: - Fiscal deficit on a cash basis fell by 2 percentage points to a deficit of 6¼ percent of GDP in 2013; staff rough estimates indicate buildup of arrears of about ½ percent of GDP; overall deficit for 2013 estimated at 6¾ percent of GDP. - Fiscal deficit expected to decline by 3 percentage points to 3¾ percent of GDP in 2014. - Staff projects a further decline in the deficit to 2½ percent of GDP by 2019, supported by continued spending restraint and a pickup in mineral revenues as new mines commence. - Public debt rises to over 40 percent of GDP by the medium term; about 6¾ percentage points of the increase reflects expected market borrowing to finance purchase of equity stakes in two gold ventures. - Baseline consolidation falls short of sustainability: the 2019 fiscal balance under the baseline is about 4 percent of GDP lower than the 1½ percent of GDP surplus desirable for sustainability. - Contribution to improvement in fiscal balance in 2014 (In percent of GDP; positive implies improvement): - Total improvement: Jan.-May 1.8; Jun.-Dec 1.3; Total 3.1 - Total revenue and grants: Jan.-May -0.1; Jun.-Dec 0.8; Total 0.6 - Tax revenue: Jan.-May 0.3; Jun.-Dec -0.9; Total -0.6 - Nontax revenues: Jan.-May -0.4; Jun.-Dec 1.7; Total 1.2 - Informal gold sector royalties: Jan.-May 0.0; Jun.-Dec 0.1; Total 0.1 - Land conversion: Jan.-May 0.0; Jun.-Dec 0.9; Total 0.9 - Wood concession fee: Jan.-May 0.0; Jun.-Dec 0.4; Total 0.4 - Total expenditures (incl. statistical discrepancy): Jan.-May 1.3; Jun.-Dec 0.5; Total 1.8 - Wages: Jan.-May 0.7; Jun.-Dec -0.2; Total 0.5 - Goods and services: Jan.-May 0.3; Jun.-Dec 0.4; Total 0.7 - Transfers: Jan.-May 0.4; Jun.-Dec 0.0; Total 0.4 - Health sector (of transfers): Jan.-May 0.3; Jun.-Dec 0.1; Total 0.3 - Interest payment: Jan.-May 0.1; Jun.-Dec 0.3; Total 0.4 - Capital expenditure and net lending: Jan.-May 1.0; Jun.-Dec -0.3; Total 0.7 - Statistical discrepancy: Jan.-May -1.2; Jun.-Dec 0.2; Total -1.0 - Paydown of arrears: Jan.-May 0.6; Jun.-Dec 0.0; Total 0.6 ### Revenue-side reforms and VAT plans - Authorities intend to implement the long-delayed VAT; revised draft VAT law under review for implementation around early 2016. - Plans to modernize and lower direct tax rates with IDB technical assistance. - Staff observation: low revenue-to-GDP ratio indicates scope to increase non-mineral revenue. - Recommendation: VAT should target increasing revenue by at least 2½ percent of GDP. - Customs reforms: - Introduce ASYCUDA World software (including risk management module) by end of 2014; increase physical inspection of containers. - Current issue: poor valuation of imports reportedly results in 30–40 percent losses in customs duty. - Enhancing tax collection in the informal gold mining sector identified as an opportunity. ### Expenditure measures and social protection - Spending restraint should focus on current expenditures other than the social safety net to protect the most vulnerable. - Recommendations: - Reduce the wage bill and other public spending to sustainable levels; public wage moderation to support consolidation and competitiveness. - Improve targeting of electricity and water subsidies (sizable at over 2 percent of GDP and largely benefit upper-income urban population). - Create a comprehensive database of recipients of social benefits across relevant Ministries to improve targeting. - Make all subsidies explicit in fiscal accounts. - Intensify efforts to contain Goods and Services (G&S) spending, which has increased faster than other categories. ### Fiscal framework, institutions, and social insurance reforms - Fiscal framework and institutional recommendations: - Establish a clear fiscal anchor based on a target for the non-mineral balance. - Adopt medium-term expenditure ceilings consistent with the fiscal anchor. - Complete installation of the Integrated Financial Management Information System. - Passage of a Public Financial Management (PFM) law incorporating a fiscal anchor and expenditure ceilings. - Passage of the sovereign wealth fund (SWF) law to improve revenue management and save future mineral surpluses. - Social insurance reforms: - National health care and pension system rollout commenced mid-2013 and was to be completed in 2014; overall fiscal impact uncertain. - Health: public social assistance via paying premiums for private sector provided health insurance. - Pensions: defined-benefit PAYG; authorities’ estimates indicate pension contribution rates would need to rise from 3 percent to 28 percent over the long run to remain sustainable; staff expressed doubts and suggested more flexibility in benefit parameters. ### Monetary policy, exchange rate regime, and reserves - Fixed exchange rate regime remains an appropriate anchor but substantially tighter fiscal policy is needed to support current currency level. - Staff view: burden of adjustment for sustaining the fixed exchange rate lies primarily with addressing fiscal imbalances. - Need to strengthen institutional capacity to manage a more flexible exchange rate regime in the future given commodity price exposure. - MCPs: staff encouraged phasing out multiple currency practices (MCPs) as soon as practicable; staff does not recommend approval of current MCPs. - Possible additional monetary tools if fiscal adjustment inadequate: - Further increases in reserve requirements (already high). - Sales of treasury bills to mop up bank liquidity. - Intensified bank supervision; intervention in the foreign exchange market. - Recommendation: commence regular Treasury bill auctions in Q4 2014, complemented by a liquidity monitoring/management framework and standing facilities. - International reserves in 2014: broadly stable and adequate under traditional benchmarks, but slightly below levels considered adequate under more stringent risk-weighted benchmarks. ### Financial sector resilience, supervision, and planned reforms - Key vulnerabilities: - NPLs could rise and capital positions deteriorate in an adverse scenario. - Potential rising risks in the real estate sector; banks, insurance companies, and pension funds have large mortgage exposures; significant portion of mortgages in foreign currency. - Loan-to-value ratios reportedly moderate at around 50 percent; collateral valuation uncertain. - Comprehensive data on government exposures not available; important potential source of nonperformance. - FSAP: points to currency mismatches and high sensitivity to credit and concentration risk. - Capital and liquidity: - Banking system capital adequacy ratios at 12½ percent of risk weighted assets (regulatory minimum 8 percent; regional average 20 percent). - FSAP stress tests suggest some banks could become undercapitalized in an adverse scenario. - On July 1, authorities implemented stronger capital, loan classification and provisioning standards and intend intensive monitoring. - Reforms in the pipeline: - Draft regulations on corporate governance, risk management, internal audit, and consolidated supervision well advanced. - Insurance Act before Parliament to give central bank legal powers in the sector. - Major efforts on credit reporting, payment system development, deposit insurance, accounting and auditing, and secured transactions. - Plans to restructure three small state-owned commercial banks and one small nonbank financial institution. - Establishment of a financial stability unit in the central bank. - Box 2 — 2014 FSSA main recommendations: - Implement new prudential standards and supervision measures; implement capital adequacy rules raising minimum to 10 percent as of July 1 2014 and strengthen provisioning. - Restructure small state-owned banks and improve banks’ compliance with loan classification rules. - Establish a liquidity management framework, accelerate T-bill auctions, and develop contingency plans for emergency foreign currency liquidity. - Develop a coherent financial sector development strategy, build human resources, and change legal framework to extend bank resolution powers. - Enhance supervision over non-bank financial institutions; enact Insurance Act. ### Structural competitiveness and labor market - Structural reforms: - Competitiveness Unit prepared draft legislation to overhaul regulatory framework: draft laws on competition policy, limited liability company formation, and electronic gazettes approved by the Council of Ministers and before Parliament; drafts on intellectual property, consumer protection, and electronic transactions in pipeline. - Staff urged early parliamentary passage. - Labor market: - Employment protection regulations among the most stringent in the world; 2012–2013 World Competitiveness Report ranked Suriname 137 out of 144 countries in hiring and firing practices. - Strong employment protection discourages job creation and may have encouraged informality. - Recommendation: complement reductions in employment protection with well designed unemployment insurance. - Data and statistics: - Progress: data broadly adequate for surveillance; monthly indicator of economic activity and expenditure-side GDP intended. - Remaining issues: quality and coverage gaps, delayed GDP and labor statistics, occasional lack of detailed fiscal outturn data, limited timely social indicators. - Recommendation: upgrade statistics law and strengthen statistical system, including reporting requirements. ### Selected macroeconomic and fiscal indicators (selected series and projections) - Real GDP Growth (selected years / projections): 5.3 (2011), 4.8 (2012), 4.1 (2013), 3.1 (2014), 3.7 (2015), 4.2 (2016), 4.6 (2017), 5.0 (2018), 4.4 (2019) - Consumer prices (end of period): 15.3 (2011), 4.3 (2012), 0.6 (2013), 3.7 (2014), 3.1 (2015), 3.0 (2016), 3.0 (2017), 2.9 (2018), 3.0 (2019) - Gold price (US$ per troy ounce): 1,569 (2011), 1,669 (2012), 1,411 (2013), 1,266 (2014), 1,249 (2015), 1,257 (2016), 1,281 (2017), 1,312 (2018), 1,356 (2019) - Gross international reserves (US$ millions): 817 (2011), 1,008 (2012), 775 (2013), 798 (2014), 906 (2015), 1,029 (2016), 1,101 (2017), 1,156 (2018), 1,219 (2019) - Central government operations (percent of GDP): - Revenue and grants: 27.0 (2011), 25.9 (2012), 23.8 (2013), 24.5 (2014), 24.8 (2015), 24.3 (2016), 23.6 (2017), 23.8 (2018), 23.9 (2019) - Total expenditure: 26.5 (2011), 29.9 (2012), 30.6 (2013), 28.2 (2014), 28.2 (2015), 27.5 (2016), 26.6 (2017), 26.4 (2018), 26.4 (2019) - Overall Balance (Net lending/borrowing): 0.5 (2011), -4.0 (2012), -6.8 (2013), -3.7 (2014), -3.4 (2015), -3.2 (2016), -3.0 (2017), -2.6 (2018), -2.5 (2019) - Non-mineral balance: -9.9 (2011), -13.3 (2012), -14.1 (2013), -10.5 (2014), -9.7 (2015), -9.2 (2016), -9.8 (2017), -9.6 (2018), -9.6 (2019) - Banking and financial soundness (2013): - Number of banks: 9; large banks: 3; small banks: 6. - Capital (net worth) to assets: 6.3 (2013). - NPLs to gross loans: 5.9 (2013). - ROA: 1.7 (2013). - ROE: 21.8 (2013). - Liquid assets to total assets: 43.4 (2013). - FX liabilities to total liabilities: 52.2 (2013). - Selected balance of payments figures (US$ millions): - Current account: 25 (2011), 116 (2012), 4 (2013), -198 (2014), -238 (2015), -221 (2016), -183 (2017), 153 (2018), 275 (2019) - Trade balance: 788 (2011), 701 (2012), 221 (2013), 479 (2014), 815 (2015), 642 (2016), 547 (2017), 254 (2018), 7 (2019) ### Debt sustainability and DSA highlights - Public debt: - Jumped 8 percentage points to 30 percent of GDP in 2013; expected to climb to 40 percent of GDP by 2019. - About 6¾ percentage points of the projected medium-term increase reflects borrowing for purchase of equity stakes in two large gold mining projects. - Nominal gross public debt (percent of GDP) table excerpts: - 2012: 22.8; 2013: 22.2; 2014: 29.8; 2015: 33.8; 2016: 37.0; 2017: 41.0; 2018: 41.1; 2019: 40.7 / 40.3 - Stress-test and scenario results: - Combined macro-fiscal shock could raise projected public debt to around 51 percent of GDP and gross financing needs to 18 percent of GDP in 2019. - Gross financing needs: 2003–2011 average: 1.6 percent of GDP; 2014 (DSA baseline): 10.1 percent of GDP; 2019 (baseline): 13 percent of GDP. - External debt and vulnerabilities highlighted: foreign-currency denominated debt now over half of total debt; external debt peaks reflecting external borrowing for equity purchases and ends at 43 percent of GDP in 2019. ### Authorities’ response, implementation status, and remaining gaps - Authorities’ actions and stance: - Implemented stronger expenditure controls and tax collection measures in 2014. - Receptive to fiscal framework recommendations but not yet ready to specify time-bound fiscal anchor; SWF law stalled. - Central bank raised reserve requirements to 30 percent (domestic) and 50 percent (foreign) on September 16, 2013. - T-bill auction implementation delayed to Q4 2014 / Q1 2015. - Passed new capital rules on July 1, 2014 to raise minimum CAR to 10 percent and require banks to raise provisions by an estimated SRD40 million. - Remaining implementation risks and data gaps: - Significant policy implementation risks ahead of mid-2015 elections. - Data gaps: delayed GDP and labor statistics, limited fiscal outturn detail, limited timely social indicators, limited coverage of public finance statistics beyond central government, and non-reporting of FSIs to STA. - Staff encouraged continued statistical improvements and coverage broadening. ### Policy recommendations (summary) - Fiscal: - Deliver strong fiscal consolidation, frontloaded where feasible. - Establish a fiscal anchor based on a non-mineral balance and medium-term expenditure ceilings. - Implement VAT to raise at least 2½ percent of GDP; modernize customs and tax administration. - Reduce wage bill, better target electricity and water subsidies, streamline G&S spending, and prioritize capital projects. - Ensure national pension and health reforms are fiscally sustainable. - Monetary and exchange rate: - Maintain fixed exchange rate as anchor while tightening fiscal policy to support it; be ready to deploy monetary tightening if fiscal measures prove insufficient. - Develop indirect monetary instruments (open market operations, regular T-bill auctions) and a liquidity management framework. - Phase out MCPs. - Financial sector: - Implement FSAP recommendations: strengthen prudential standards, supervision, AML/CFT regime, data collection, and crisis resolution powers. - Build capital buffers, establish liquidity monitoring, accelerate T-bill system, establish credit bureau and deposit insurance, restructure small state-owned banks. - Structural: - Passage of competitiveness-related legislation to improve business environment. - Ease employment protection coupled with well-designed unemployment insurance. - Improve statistical systems and reporting. ### Recommendation on Article IV timing - Staff recommends the next Article IV consultation with Suriname be conducted on the standard 12-month cycle. *Source: IMF staff report — "1. External Competitiveness" and related chapters (Suriname)._ ### 1. External Competitiveness ______________________________________________________________________ 7 ### 1. External Competitiveness ### Macroeconomic situation and overview - Suriname’s macroeconomic situation continued to deteriorate in 2013 as the long boom in oil and gold prices appeared to come to an end. - Large fiscal and external sector exposures to the mineral sector, together with inadequate adjustment of domestic (particularly fiscal) policies, led to further fiscal and external sector deterioration in 2013 and a significant decline in international reserves. - Main challenges: strengthen institutions and adjust policies to reverse the deterioration and avoid undermining the stability of the fixed exchange rate. - De jure exchange rate classification is “floating”; de facto regime is a “stabilized arrangement” because the Surinamese dollar is anchored to the US dollar in a narrow band. ### Growth, exports, and inflation - Staff estimates GDP growth of 4 percent in 2013. - Export volumes declined in 2013: - Gold export volume contracted by 1½ percent in 2013 (gold close to two-thirds of total exports). - Aluminum exports contracted 5 percent. - Oil exports increased by 1¼ percent. - Inflation: - Averaged 2 percent in 2013. - Picked up to almost 3 percent in May 2014 largely because of higher food and fuel prices. ### Monetary policy, credit, and banking sector - Central bank increased reserve requirements in September 2013 by 5 percentage points each: - Domestic currency deposits: to 30 percent. - Foreign currency deposits: to 50 percent. - Private sector credit growth declined from a peak of 20 percent (y/y) in October 2013 to 15 percent in April 2014. - Deposit and credit dollarization remained broadly stable. - Banking system indicators (2013): - Return on equity fell 3 percentage points to 21¾ percent. - Capital adequacy about 12½ percent of risk weighted assets (regulatory minimum 10 percent; regional average about 20 percent). - NPL ratio declined from 6.2 percent in 2012 to 5.9 percent in 2013. - Liquid assets ≈ almost half of total assets and about 87 percent of short-term liabilities. - Unsterilized foreign exchange intervention reduced reserve money and broad money growth, contributing to a tighter domestic financial stance. ### Fiscal deterioration and composition - Fiscal balance on a cash basis fell by 2 percentage points to a deficit of 6¼ percent of GDP in 2013. - Staff’s rough estimates indicate a buildup of arrears of about ½ percent of GDP; overall deficit for 2013 estimated at 6¾ percent of GDP. - Revenue and expenditure changes in 2013 (percent of GDP): - Revenues fell by 2 percent of GDP (taxes, royalties, dividends from minerals declined). - Government expenditure increased by ¾ percent of GDP. - Current spending jumped 3¼ percentage points of GDP (data classification issues noted). - Capital expenditure stayed broadly flat. - Wage bill increased one percentage point to 9½ percent of GDP (10 percent public sector wage hike). - Goods and services (G&S) expenditure rose one percent of GDP (possible misclassification). - Subsidies and transfers rose by ½ percent of GDP. - Interest payments increased by ½ percent of GDP. ### External balance and competitiveness (including Box 1) - Current account balance fell 7¼ percentage points to a deficit of 4 percent of GDP in 2013, primarily reflecting falling gold prices. - International reserves declined to 3½ months of imports. - REER appreciation eroded much of the gains from the January 2011 devaluation; CGER-type estimates and a large fiscal policy gap suggest the exchange rate may be quite strong. - External exposure to commodities (note from text): - Gold accounts for 62 percent of exports and 7 percent of fiscal revenues. - Oil accounts for 21 percent of fiscal revenues. - Box 1 summary: indicators suggesting the exchange rate may be strong - Since the 2011 devaluation the SRD appreciated about 10 percent in real effective terms. - Export shares fell in 2013 reflecting declining gold prices; gold currently about 62 percent of exports (compared to 7 percent ten years ago). - CGER-type methodologies suggest moderate overvaluation: - Macroeconomic balance approach: 2.4 (level relative to equilibrium in percent; minus indicates undervaluation) - External sustainability approach: 9.8 - Equilibrium real exchange rate approach: 7.5 - Memorandum items: - Current account balance 2013: -3.9 (percent of GDP) - 2019: 1.0 (percent of GDP) - CA Norm 1/2.1 ### Outlook (short and medium term) and scenarios - 2014 outlook: - Baseline staff projection: GDP growth declines to 3 percent in 2014. - Current account deficit expected to widen to about 4½ percent of GDP in 2014. - Inflation likely to remain contained assuming subdued international food and fuel prices and consistent policy settings. - Fiscal tightening underway: January–May fiscal deficit (cash basis) of 1¾ percent of annual GDP, about 1¼ percent of GDP lower than same period in 2013; substantial reduction in arrears and additional measures planned in second half of 2014. - Medium term: - WEO projections indicate slightly rising gold prices. - Two large international gold mining projects expected to start operations over 2017–18. - A new oil refinery expected to improve the oil trade balance by over 2 percent of GDP from 2015 onward. - GDP growth expected to rise to a peak of about 5 percent by 2018. - Current account balance improves to a surplus of about 1 percent of GDP over the medium term. - Risks (tilted downwards overall): - Commodity price risk: declines in gold and oil prices would pressure fiscal and external positions and could delay or cancel planned investments. - Severe shock scenario (staff assumptions and impacts): - Assumptions: gold prices immediately fall to $1000/ounce; large gold mining projects cancelled; no policy response beyond baseline. - Effects: GDP growth and fiscal and external balances fall; large decline in international reserves. - Incorporating policy tightening to mitigate reserve loss would imply a larger output loss than estimated for the shock scenario. - Possible effects of currency adjustment under severe scenario: temporary competitiveness improvement and valuation of foreign currency fiscal revenues, but benefits short-lived without policy tightening to minimize price and wage pressures. - Financial sector stress risks: - FSAP stress test scenario: (i) GDP growth declines one percentage point; (ii) fiscal deterioration causes sharp increase in arrears elevating NPLs of government suppliers; (iii) the exchange rate is adjusted. - Result: NPLs could increase by around 5 percentage points, requiring about 0.7 percent of GDP to bring regulatory capital to the minimum requirement of 10 percent. - Other risks: - Inward spillovers from protracted slower growth in advanced or emerging countries are limited unless they significantly affect commodity prices. - Fiscal policy implementation risks substantial ahead of next year’s elections. - Public debt rollover risks moderate in 2014: - Short term debt = 16 percent of total debt. - Gross financing needs ≈ 10 percent of GDP in 2014; projected to rise to 13 percent of GDP by 2019. ### Policy discussions and recommendations - Consensus: strengthening macroeconomic stability and growth requires substantial policy tightening and broad institutional reforms. - Fiscal policy: - Strong fiscal consolidation needed to achieve sustainability and contribute to external stability. - An appropriate fiscal framework should insulate policymaking from commodity price volatility and enable countercyclical policy. - Monetary policy: - Additional credit tightening may be needed if fiscal adjustment is insufficient to ensure external stability. - Implement plans to develop indirect tools of monetary policy to provide additional instruments for managing domestic demand. - Financial sector: - FSAP findings: strengthen financial sector stability by building capital buffers, building a liquidity management framework, and strengthening prudential standards and the intensity of supervision. - Structural reforms: - Legislation pending to overhaul the business environment and strengthen structural competitiveness. - Authorities’ position: - Authorities more optimistic about the outlook and balance of risks. - Expected medium-term growth to be somewhat higher than staff projections due to large projects. - Considered staff downside risks to gold prices to be overstated. - Expected new oil refinery would sufficiently insulate the external balance and fiscal revenues from declining oil prices. - Emphasized commitment to adopt necessary policy measures to maintain macro stability. *Source: IMF staff report — "1. External Competitiveness" (Suriname).* ### 11. Suriname has a large long run fiscal sustainability gap, which indicates the need for ### _cr14316 - 11. Suriname has a large long run fiscal sustainability gap, which indicates the need for ### Fiscal sustainability gap and optimal fiscal path - Staff estimates, based on a conservative valuation approach, indicate a fiscal sustainability gap of about 12½ percent of GDP. - The fiscal sustainability gap is defined as the total amount of fiscal measures that (if immediately implemented) would assure a non-explosive path for government debt over the long run. - Closing the gap immediately is infeasible without creating an untenably large output gap; delaying adjustment increases the total measures required. - Staff estimates of the optimal fiscal path suggest targeting a fiscal surplus of at least 1½ percent of GDP in 2019. - Achieving that target would require an overall medium term adjustment effort estimated at about 8½ percent of GDP, including offsetting the effect of declining commodity prices on revenues. - Recommendation: substantial frontloading of adjustment is advisable to help safeguard external stability, given still-favorable cyclical conditions and downside risks to the commodity price outlook. - Policy implication: both revenue and expenditure measures would be needed given the scale of required adjustment. ### Consolidation actions and 2014 outcomes - Authorities implemented stronger expenditure controls and tax collection efforts from January 2014. - Wage bill in the first half of 2014 declined relative to 2013; retroactive payments for wage increases granted in December 2012 ended in mid 2013. - Reforms to contain public health expenditures are being spearheaded by the Vice President’s office. - Planned 2014 revenue measures: increasing the royalty rate on small scale gold miners; higher taxation of logging concessions; sales of government land to leaseholders. - Offsetting 2014 spending increases: a 10 percent increase in government pensions, and a pending increase in hydro electricity costs. - Fiscal deficit expected to decline by 3 percentage points to 3¾ percent of GDP in 2014. - Authorities acknowledged potential implementation risks ahead of next year’s elections but reiterated commitment to restoring fiscal health. - Contribution to Improvement in Fiscal Balance in 2014 (In percent of GDP; a positive sign implies an improvement of fiscal balance): - Total improvement: Jan.-May 1.8; Jun.-Dec 1.3; Total 3.1 - Total revenue and grants: Jan.-May -0.1; Jun.-Dec 0.8; Total 0.6 - Tax revenue: Jan.-May 0.3; Jun.-Dec -0.9; Total -0.6 - Nontax revenues: Jan.-May -0.4; Jun.-Dec 1.7; Total 1.2 - Informal gold sector royalties: Jan.-May 0.0; Jun.-Dec 0.1; Total 0.1 - Land conversion: Jan.-May 0.0; Jun.-Dec 0.9; Total 0.9 - Wood concession fee: Jan.-May 0.0; Jun.-Dec 0.4; Total 0.4 - Total expenditures (incl. statistical discrepancy): Jan.-May 1.3; Jun.-Dec 0.5; Total 1.8 - Wages: Jan.-May 0.7; Jun.-Dec -0.2; Total 0.5 - Goods and services: Jan.-May 0.3; Jun.-Dec 0.4; Total 0.7 - Transfers: Jan.-May 0.4; Jun.-Dec 0.0; Total 0.4 - Health sector (of transfers): Jan.-May 0.3; Jun.-Dec 0.1; Total 0.3 - Interest payment: Jan.-May 0.1; Jun.-Dec 0.3; Total 0.4 - Capital expenditure and net lending: Jan.-May 1.0; Jun.-Dec -0.3; Total 0.7 - Statistical discrepancy: Jan.-May -1.2; Jun.-Dec 0.2; Total -1.0 - Paydown of arrears: Jan.-May 0.6; Jun.-Dec 0.0; Total 0.6 - Source: Suriname authorities; and IMF staff estimates and projections. ### Baseline projections and medium-term considerations - Staff projects a further decline in the deficit to 2½ percent of GDP by 2019, supported by continued spending restraint and a pickup in mineral revenues as new mines commence. - Public debt rises to over 40 percent of GDP by the medium term, partly reflecting external borrowing to fund the purchase of equity stakes in two international gold mining projects. - Note: 6¾ percentage points of the increase in debt represents expected market borrowing to finance the purchase of equity stakes in two large gold mining ventures. - Baseline consolidation falls short of levels desirable for sustainability: the 2019 fiscal balance under the baseline is about 4 percent of GDP lower than the 1½ percent of GDP surplus desirable for sustainability. - Land sales are one-off and will not improve the underlying structural fiscal position. - Risks: domestic financing constraints could bind in an adverse scenario, potentially leading to another buildup of arrears; central bank financing is near legal limits. - Legal limit for central bank financing of government deficits is 10 percent of budgeted revenues. ### Revenue-side reforms and VAT plans - Authorities intend to implement the long-delayed VAT, with a revised draft of the VAT law being reviewed for implementation around early 2016. - Plans include modernization and lowering of direct tax rates with technical assistance from the IDB. - Staff observation: low ratio of revenue to GDP indicates scope for significant increases in non-mineral revenue. - Recommendation: the VAT should target increasing revenue by at least 2½ percent of GDP. - VAT benefits cited: efficient new source of revenues, improvements in tax administration, and improved resilience of revenues to commodity price shocks. - Customs administration reforms: introduce ASYCUDA World software (including risk management module) by end of 2014; increase physical inspection of containers. - Current issue: poor valuation of imports reportedly results in 30–40 percent losses in customs duty. - Enhancing tax collection in the informal gold mining sector noted as a revenue opportunity. ### Expenditure-side measures and social protection - Spending restraint should focus on current expenditures other than social safety net to protect the most vulnerable. - Recommendation: reduce the wage bill and other public spending to more sustainable levels; public wage moderation would support consolidation and competitiveness. - Electricity and water subsidies are sizable at over 2 percent of GDP and largely benefit the upper-income urban population; targeting should be improved. - Recommendation: create a comprehensive database of recipients of social benefits across relevant Ministries to improve targeting of the social safety net. - All subsidies should be made explicit in the fiscal accounts to improve clarity about trade-offs. - Goods and services (G&S) spending has increased much faster than other expenditure categories; efforts to contain G&S should be intensified. ### Fiscal framework and institutions - Recommendation: establish a clear fiscal anchor based on a target for the non mineral balance to promote long run sustainability. - Recommendation: adopt medium-term expenditure ceilings consistent with the fiscal anchor to aid fiscal planning and strengthen top-down budgeting. - Urged actions: full installation of the Integrated Financial Management Information System; passage of a Public Financial Management (PFM) law that incorporates a fiscal anchor and expenditure ceilings; passage of the sovereign wealth fund (SWF) law to improve revenue management and provide institutional basis for saving future mineral surpluses. - Authorities receptive but not yet ready to specify a time-bound agenda for establishing a fiscal anchor. ### Social insurance reforms: health and pensions - Establishment of a national health care and pension system commenced in mid 2013 and was to be completed in 2014; overall fiscal impact remains uncertain. - Health: public social assistance will take the form of paying premiums for private sector provided health insurance rather than directly paying hospital bills. - Pensions: will be defined-benefit on a PAYG basis. - Authorities aim for budget-neutral introduction, but overruns could not be ruled out. - Early data indicates significant savings on health expenditure as premium payments for young, old, and unemployed have been below previous public spending. - Pension sustainability concern: authorities’ estimates indicate pension contribution rates would need to rise from 3 percent to 28 percent over the long run to keep the system sustainable. - Staff expressed doubts about sustainability of such a high contribution rate and suggested more flexibility in pension benefit parameters; authorities considered projected contribution rates feasible. ### Monetary policy and exchange rate regime - The fixed exchange rate regime remains an appropriate anchor, but substantially tighter fiscal policy is needed to support the current currency level. - Staff view: burden of macroeconomic adjustment to make fixed exchange rate sustainable lies primarily with addressing remaining fiscal imbalances. - Need to strengthen institutional capacity to manage a more flexible exchange rate regime in the future given exposure to commodity price swings. - Staff encouraged phasing out multiple currency practices (MCPs) as soon as practicable; MCPs arise from: - (i) existing spread of more than 2 percent between buying and selling rates in the official market for the government’s foreign exchange transactions; and - (ii) potential spread of more than 2 percent between official rates for government transactions and commercial markets. - If fiscal adjustment proves inadequate, further steps to moderate credit could include: - further increases in reserve requirements (already high), - sales of treasury bills to mop up bank liquidity, - intensified bank supervision to enhance compliance with existing rules and new capital rules, - intervention in the foreign exchange market. - Recommendation: commence regular Treasury bill auctions in Q4 2014, complemented by a liquidity monitoring/management framework and standing facilities to improve the monetary toolkit. - International reserves in 2014: broadly stable and adequate under traditional benchmarks, but slightly below levels considered adequate under more stringent risk-weighted benchmarks, indicating need for a more aggressive policy stance. - Risk-weighted measure referenced from IMF “Assessing Reserve Adequacy” (February 2011). ### Financial sector resilience and supervision - Authorities are strengthening supervision in view of increased macro risks. - Vulnerabilities and risks: - Nonperforming loans could rise further and capital positions deteriorate in an adverse scenario. - Potential rising risks in the real estate sector; banks, insurance companies, and pension funds have large exposures to mortgages; a significant portion of mortgages are in foreign currency. - Non-mortgage loans often collateralized by property, increasing financial sector exposure to real estate. - Loan-to-value (LTV) ratios reportedly moderate at around 50 percent, but collateral valuation is subject to substantial uncertainty. - Comprehensive data on government exposures is not available and could be an important source of nonperformance if fiscal issues are not resolved. - FSAP analysis points to currency mismatches and high sensitivity to credit and concentration risk. - Policy actions underway: - Strengthen macro-prudential framework, improve monitoring of risks, enhance data gathering and analysis. - Establishment of a financial stability unit in the central bank. - Capital buffers: - Banking system capital adequacy ratios at 12½ percent of risk weighted assets, exceeding regulatory minimum of 8 percent but below regional average of 20 percent. - FSAP stress tests suggest some banks could become undercapitalized in an adverse scenario. - On July 1, authorities implemented stronger capital, loan classification and provisioning standards (including more rigorous treatment of real estate collateral) and intend intensive monitoring of implementation, requiring capital planning by banks. *Source: Suriname authorities; and IMF staff estimates and projections.* ### 24. Several important reforms are in the pipeline. Draft regulations on corporate governance, ### _cr14316 - 24. Several important reforms are in the pipeline. Draft regulations on corporate governance, ### Financial sector reforms in the pipeline - Draft regulations on corporate governance, risk management, internal audit, and consolidated supervision are well advanced. - The Insurance Act, which will give the central bank legal powers in the sector and the ability to monitor and address real estate exposure and other risks in the sector, is now before Parliament. - Major efforts underway on credit reporting, development of the payment system, deposit insurance, accounting and auditing, and secured transactions. - Plans need to be completed to restructure three small state-owned commercial banks and one small nonbank financial institution. - The mission encouraged the authorities to prepare a comprehensive plan to coordinate and integrate the various reform initiatives to ensure timely implementation given limited resources. ### Central bank modernization and supervision - Consensus that the central bank should continue to modernize and develop credibility as a financial sector supervisor. - Required actions include developing a strong financial sector strategy and building key supervisory and crisis resolution skills. - Changes to the central bank’s legal framework, including extending its ability to resolve banks, would be made in line with FSAP recommendations. ### AML/CFT developments - Progress in improving the AML/CFT regime is ongoing. - CFATF reported on May 15, 2014 the positive efforts aimed at closing gaps in Suriname’s AML/CFT framework, including the enactment of the State Decree on Indicators of Unusual Transactions. - CFATF asked authorities to report back in November on outstanding recommendations, namely legislative actions to criminalize insider trading and market manipulation, and to give effect to international sanctions. - On May 20, 2014, the authorities passed the Capital Market Act and the Law on International Sanctions, which the CFATF will assess in the coming months. - Staff urged the authorities to address all remaining deficiencies in a timely fashion. ### Box 2 — 2014 FSSA main findings and recommendations (summary) - The financial sector is relatively underdeveloped and shows signs of vulnerability given elevated macro risks. - Credit intermediation levels are low relative to comparable countries. - Banks are generally profitable and liquid, but profitability has been declining over the last five years. - The capital adequacy ratio of the banking sector is above the required minimum (8 percent), although three small banks are undercapitalized. - Stress tests indicate vulnerabilities due to high loan concentration and inadequate accounting for nonperforming loans. - The central bank has limited tools to conduct monetary policy and monitor/manage system liquidity. - Weak data hampers effective risk analysis and supervision; improving data collection and analysis is a high priority for the CBvS. Recommendations and specific measures - Implement new prudential standards and supervision measures; many regulations and guidelines covering liquidity, consolidated supervision, corporate governance, and external audit have been drafted but not yet issued. - Implement capital buffers and prudential regulation improvements: - Implement the new capital adequacy rules in a timely fashion. - The capital adequacy rule adopted on July 1 2014 raises the minimum capital adequacy ratio to 10 percent and strengthens provisioning requirements. - Supervisor should work intensively with banks that need to build up capital to ensure there is no slippage. - Restructure small state-owned commercial banks. - Improve banks’ compliance with loan classification rules. - Establish a liquidity management framework: - Accelerate operation of T-bill auctions system. - Develop liquidity monitoring standards for banks. - Establish a systemic liquidity monitoring and forecasting framework with a contingency plan for emergency liquidity in foreign currency. - Continue developing central bank credibility and effectiveness: - Develop and communicate a coherent financial sector development strategy. - Build up human resources and skill sets to oversee reforms. - Change the legal framework to extend the ability to resolve banks. - Enhance supervision over non-bank financial institutions: - Enact the Insurance Act to enhance central bank supervisory authorities. - Develop a resolution strategy for pension plans unlikely to meet regulatory requirements. ### Enhancing structural competitiveness - Agreement that enhancing growth prospects requires strengthening the business environment. - With commodity prices cooling, a more supportive business environment is needed to boost productivity growth, particularly in the non-mineral sector. - World Bank Doing Business Indicators suggest room for improvement in starting a business, enforcing contracts, protecting investors, and registering property. - Competitiveness Unit has prepared draft legislation to overhaul an outdated regulatory framework: - Draft legislation on competition policy, limited liability company formation, and electronic gazettes was approved by the Council of Ministers and is before Parliament. - Drafts on intellectual property, consumer protection, and electronic transactions are in the pipeline. - Staff urged early parliamentary passage of the reforms. Labor market and social protection - Employment protection regulations are among the most stringent in the world; the 2012–2013 World Competitiveness Report ranked Suriname 137 out of 144 countries in hiring and firing practices. - Strong employment protection discourages job creation and may have encouraged growth of the informal sector. - There is no unemployment insurance; existing social programs focus on the poorest segments of society. - Recommendation: Complement reductions in employment protection with well designed unemployment insurance. ### Data and statistics - Progress in strengthening macroeconomic data quality; data are now broadly adequate for surveillance. - Progress toward introducing a monthly indicator of economic activity and producing expenditure side GDP estimates. - Remaining issues: quality and coverage gaps, delayed GDP and labor statistics, occasional lack of detailed fiscal outturn data, and limited timely and comprehensive social indicators. - Recommendation: Complete plans to upgrade the statistics law and further strengthen the statistical system, including strengthening reporting requirements for surveyed institutions. ### Staff appraisal — macroeconomic policy and risks - Suriname suffered significant external shocks as the commodity super-cycle ends, requiring a strong policy response to maintain macro stability. - Recent declines in gold and oil prices, together with insufficient fiscal policy response, led to fiscal and external sector deterioration in 2012–13 and a significant decline in international reserves. - Main challenges: strengthen institutions and adjust policies to reverse recent deterioration and avoid undermining the stability of the fixed exchange rate. Fiscal policy - Authorities’ resolve to implement strong fiscal consolidation is welcome given the large fiscal sustainability gap and recent deterioration. - Targeting a significant fiscal surplus over the medium term would be appropriate to entrench sustainability, bolster the external position, and build up fiscal buffers for countercyclical policy and intergenerational saving. - Authorities are implementing substantial tightening for 2014 and are committed to additional measures over the medium term. - Policy implementation risks are significant ahead of elections in mid-2015. - Successful consolidation requires revenue and expenditure measures beyond those envisaged for 2014, supported by an appropriate fiscal framework. - Revenue measures: establish a revenue enhancing VAT, modernize customs, and modernize the entire tax structure. - Expenditure measures: public wage moderation, improved targeting of electricity and water subsidies, streamlining spending on goods and services, and prioritization of capital projects. - National pension and health care system plans should be implemented in a fiscally sustainable fashion. - Establish a fiscal anchor consistent with sustainability, supported by medium term expenditure ceilings. Monetary policy and exchange rate - Monetary tightening should be deployed to safeguard the external position if fiscal measures prove inadequate to contain demand pressures. - Consider use of available instruments: reserve requirements, sales of treasury bills, and intervention in the foreign exchange market. - Staff encourages plans to establish open market operations to provide additional monetary policy tools. - The fixed exchange rate regime remains an appropriate anchor, but substantially tighter fiscal policy settings need to be delivered to support the currency. - A fully flexible exchange rate would likely be subject to considerable volatility given a thin foreign exchange market and substantial capital flows. - The burden of adjustment to support the fixed exchange rate lies primarily with addressing remaining fiscal imbalances. - Need to strengthen institutional capacity to manage a more flexible exchange rate regime in the future. Article VIII and MCPs - Suriname is an Article VIII member and maintains two MCPs. - Staff does not recommend approval of these MCPs as there is no clear timetable for their removal. Financial sector resilience and policy priorities - Progress in upgrading financial sector resilience is welcome; FSAP highlighted vulnerabilities from loan concentration and inadequate accounting for nonperforming loans. - Central bank has limited tools for monetary policy and liquidity management; weak data is pervasive. - Stronger capital regulations have been put in place, and a major overhaul of the banking sector legislative and regulatory framework is nearing completion. - Financial sector infrastructure enhancements planned: establishment of a credit bureau, a modern payment and settlement system, and a deposit insurance scheme. - Progress in strengthening the AML/CFT regime and contemplated insurance sector regulatory strengthening. - Priority actions: - Craft a coherent financial sector development strategy to develop central bank credibility and effectiveness. - Build central bank human resources and skill sets to oversee reforms. - Build a liquidity management framework. - Change legal framework to extend ability to resolve banks. ### Momentum on structural competitiveness - Draft legislation spearheaded by the competitiveness unit, if passed, will modernize the business environment and support stronger growth and economic diversification. - Labor market flexibility and job-rich inclusive growth could be improved by some relaxation of employment protection regulations together with well designed unemployment insurance. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 39. Staff recommends that the next Article IV consultation with Suriname be conducted ### _cr14316 - 39. Staff recommends that the next Article IV consultation with Suriname be conducted ### Recommendation on Article IV Consultation Timing - Staff recommends that the next Article IV consultation with Suriname be conducted on the standard 12-month cycle. ### Risk Assessment Matrix — Main Threats, Likelihood, Expected Impact, and Policy Response - Sustained drop in gold and oil prices - Likelihood of Realization: Medium - Expected Impact if Threat is Realized: High - Suriname’s economy is highly exposed to gold and oil prices. - Main channel: decline of government revenues and exports, which could prompt pro-cyclical adjustment measures. - In a severe shock scenario where gold prices fall to $1000/ounce the adverse impact on the external position could increase in a nonlinear fashion as prices fall below production costs, with substantial declines in international reserves. - Policy Response: - Fiscal consolidation, supported by monetary tightening if needed to safeguard external stability. - Structural reforms to enhance diversification away from the commodity sector. - Growth slowdown in China - Likelihood of Realization: Medium - Expected Impact if Threat is Realized: High - Continued buildup and eventual unwinding of excess capacity, resulting in sharp growth slowdown and large financial and fiscal losses (medium-term). - Downward pressures on commodity prices causing external and fiscal deterioration and slower growth. - Policy Response: - See above response in relation to a sustained decline in commodity prices. - Protracted period of slower growth in advanced and emerging countries - Likelihood of Realization: High (advanced economies), Medium (emerging markets) - Expected Impact if Threat is Realized: Medium - Advanced economies: Lower-than-anticipated potential growth and persistently low inflation due to a failure to fully address legacies of the financial crisis. - Emerging markets: Maturing of the cycle, misallocation of investment, and incomplete structural reforms leading to prolonged slower growth. - Suriname’s growth outlook could be reduced if slowdown leads to downward pressure on commodity prices and lower FDI. - Policy Response: - See above response in relation to a sustained decline in commodity prices. - Intensifying efforts to enhance competitiveness would help sustain FDI and encourage domestic private investment. - Inadequate implementation of fiscal consolidation - Likelihood of Realization: Medium - Expected Impact if Threat is Realized: High - Political considerations related to elections in 2015 could undermine prospects for implementing tough reforms. - The fiscal sustainability gap is large; weak commodity price outlook intensifies risks to external stability absent fiscal consolidation. - Policy Response: - Strong and frontloaded consolidation, supported by reforms to the fiscal framework. - Credit risk in the banking sector - Likelihood of Realization: Medium - Expected Impact if Threat is Realized: Medium/High - Continuation of rapid credit growth and substantial exposure to real estate sector and government could elevate financial stability risks. - Capital buffers exceed regulatory levels but are inadequate given concentration in lending and real estate valuation uncertainties; banks are under-provisioned. - Policy Response: - Implementation of draft regulations to enhance capital requirements and provisioning. - Monetary and prudential measures to dampen credit growth. - Institutional reforms to strengthen central bank supervisory and crisis resolution powers. ### Macroeconomic Developments — Key Observations and Indicators - GDP and inflation - Real GDP Growth (selected years / projections): 5.3 (2011), 4.8 (2012), 4.1 (2013), 3.1 (2014), 3.7 (2015), 4.2 (2016), 4.6 (2017), 5.0 (2018), 4.4 (2019) - Consumer prices (end of period): 15.3 (2011), 4.3 (2012), 0.6 (2013), 3.7 (2014), 3.1 (2015), 3.0 (2016), 3.0 (2017), 2.9 (2018), 3.0 (2019) - Consumer prices (period average): 17.7 (2011), 5.0 (2012), 1.9 (2013), 2.6 (2014), 3.4 (2015), 3.0 (2016), 3.0 (2017), 3.0 (2018), 3.0 (2019) - Commodity exposure and prices (memorandum items) - Gold price (US$ per troy ounce): 1,569 (2011), 1,669 (2012), 1,411 (2013), 1,266 (2014), 1,249 (2015), 1,257 (2016), 1,281 (2017), 1,312 (2018), 1,356 (2019) - Oil Price (US$ per barrel): 104 (2011), 105 (2012), 104 (2013), 104 (2014), 100 (2015), 95 (2016), 92 (2017), 89 (2018) - External sector - Gross international reserves (US$ millions): 817 (2011), 1,008 (2012), 775 (2013), 798 (2014), 906 (2015), 1,029 (2016), 1,101 (2017), 1,156 (2018), 1,219 (2019) - Change in reserves (US$ millions): -124 (2011), -180 (2012), 152 (2013), -23 (2014), -108 (2015), -123 (2016), -72 (2017), -55 (2018), -63 (2019) - Central Bank International Reserves (in millions of US$) series shown with composition: Foreign exchange; Reserve Position of the Fund; SDRs; Gold; NIR (in months of G&S, RHS) ### Fiscal Indicators and Sustainability - Central government operations (in percent of GDP) - Revenue and grants: 27.0 (2011), 25.9 (2012), 23.8 (2013), 24.5 (2014), 24.8 (2015), 24.3 (2016), 23.6 (2017), 23.8 (2018), 23.9 (2019) - Total expenditure: 26.5 (2011), 29.9 (2012), 30.6 (2013), 28.2 (2014), 28.2 (2015), 27.5 (2016), 26.6 (2017), 26.4 (2018), 26.4 (2019) - Overall Balance (Net lending/borrowing): 0.5 (2011), -4.0 (2012), -6.8 (2013), -3.7 (2014), -3.4 (2015), -3.2 (2016), -3.0 (2017), -2.6 (2018), -2.5 (2019) - Primary balance: 1.5 (2011), -3.0 (2012), -5.4 (2013), -2.8 (2014), -2.3 (2015), -2.2 (2016), -1.7 (2017), -1.3 (2018), -1.3 (2019) - Non-mineral balance: -9.9 (2011), -13.3 (2012), -14.1 (2013), -10.5 (2014), -9.7 (2015), -9.2 (2016), -9.8 (2017), -9.6 (2018), -9.6 (2019) - Mineral revenue (percent of GDP): 10.4 (2011), 9.3 (2012), 7.3 (2013), 6.8 (2014), 6.4 (2015), 5.9 (2016), 6.8 (2017), 7.0 (2018), 7.1 (2019) - Fiscal sustainability scenarios (2013–2060 charts described) - Scenarios presented: Immediate full adjustment; "Optimal" adjustment path; No measures; Baseline (incorporates staff medium term baseline projections up to 2019, and assumes no further fiscal adjustment thereafter). - Metrics shown: Structural Primary Balance Excluding Mineral Revenue; Overall Balance Excluding Mineral Revenue; Gross Central Government Debt (with note: Negative debt reflects the accumulation of assets). ### External Indicators and Trade Structure - Exports by major trading partners, 2013 (percent of total) - United States 25% - Belgium 17% - United Arab Emirates 13% - Canada 11% - Guyana 6% - France 5% - Barbados 4% - Jamaica 4% - Netherlands 3% - Rest of world 12% - Exports composition and trends - Exports dominated by gold; alumina, oil, and other exports shown in charts. - External balance has deteriorated, with current account balance and financing dynamics reflected in charts. - Balance of Payments (in millions of US$) — selected figures - Current account: 25 (2011), 116 (2012), 4 (2013), -198 (2014), -238 (2015), -221 (2016), -183 (2017), 153 (2018), 275 (2019) - Trade balance (US$ millions): 788 (2011), 701 (2012), 221 (2013), 479 (2014), 815 (2015), 642 (2016), 547 (2017), 254 (2018), 7 (2019) - Central government borrowing (US$ millions): 121 (2011), 104 (2012), 165 (2013), 215 (2014), 281 (2015), 244 (2016), 159 (2017), 75 (2018), 54 (2019) - Foreign direct investment (US$ millions): 73 (2011), 121 (2012), 139 (2013), 350 (2014), 330 (2015), 405 (2016), 175 (2017), 110 (2018), 80 (2019) ### Banking System and Financial Soundness Indicators - Banking sector overview (selected indicators) - Capital Adequacy Ratio, 2013 (percent): Suriname lower than regional average but above regulatory limits (chart). - Nonperforming Loans to Total Loans, 2013 (percent): NPLs are moderate and below the regional average. - Liquid Assets to Total Assets, 2013 (percent): Banking system is liquid. - Credit to the Private Sector, 2013 (percent of GDP): Relatively low financial intermediation (figure/chart). - Summary accounts of the banking system (selected levels and growth rates) - Broad money (SRD billions): 5,137 (2010), 6,255 (2011), 7,485 (2012), 8,537 (2013), 9,471 (2014), 10,174 (2015) - Credit to the private sector (SRD billions): 2,884 (2010), 3,460 (2011), 4,036 (2012), 4,775 (2013), 5,492 (2014), 6,316 (2015) - Deposit dollarization (percent): 50.4 (2010), 55.8 (2011), 52.2 (2012), 53.6 (2013), 53.3 (2014), 53.6 (2015) - Credit dollarization (percent): 36.8 (2010), 40.0 (2011), 41.6 (2012), 39.9 (2013) - Financial system structure and indicators (2013 data) - Number of banks: 9 (2013) - Large banks: 3 - Small banks: 6 - Pension funds: 29 (2013) - Insurance companies: 12 (2013) - Capital (net worth) to assets: 6.3 (2013) - NPLs to gross loans: 5.9 (2013) - ROA: 1.7 (2013) - ROE: 21.8 (2013) - Liquid assets to total assets: 43.4 (2013) - FX liabilities to total liabilities: 52.2 (2013) ### Structural Competitiveness Indicators - Strengths - Airport capacity: Suriname scores well relative to regional comparators (runway length metrics). - Import costs: Suriname performs favorably on import costs (US$ per 20 foot container). - Electricity tariffs: Comparative levels shown in US dollars per KWH (June 2011). - Weaknesses - Regulatory environment: Indicators from Doing Business show scope for improvement across areas such as Starting a Business; Dealing with Construction Permits; Getting Electricity; Registering Property; Getting Credit; Protecting Investors; Paying Taxes; Trading Across Borders; Enforcing Contracts; Resolving Insolvency. ### Key Socioeconomic and Memorandum Items - Population (in thousands, 2012): 542 - Unemployment rate (2012): 8.5 - GDP per capita (current US$, 2012): 8,910 - Rank in UNDP Human Development Index (out of 187, 2012): 105 - Adult illiteracy (percent of population ages 15 and above, 2008): 5.0 - Life expectancy at birth (years, 2010): 70.3 - Exchange rate (SRD per US$, eop): 3.30 (2011), 3.30 (2012), 3.30 (2013) *International Monetary Fund — Suriname: selected figures, charts, and risk assessment as presented in the source content.* ### Appendix I. Debt Sustainability Analysis ### Appendix I. Debt Sustainability Analysis ### Summary assessment - Public debt jumped 8 percentage points to 30 percent of GDP in 2013, and is expected to climb further to 40 percent of GDP by 2019. - About 6¾ percentage points of the projected increase in debt over the medium term reflects borrowing for the purchase of equity stakes in two large gold mining projects. - The deterioration largely reflects the rapid worsening of the primary deficit and the moderate consolidation efforts assumed in staff’s baseline. - Fiscal consolidation is identified as key to mitigating risks to the baseline—medium term projections using historical averages indicate a substantial decline in public debt and emphasize the need to return to the stronger fiscal stance prevailing in the recent past. - Projections using a constant primary balance indicate a further rise in projected debt to over 50 percent of GDP, with elevated financing needs. ### Debt dynamics and projections (selected data and paths) - Nominal gross public debt (percent of GDP) by year: - 2012: 22.8 - 2013: 22.2 - 2014: 29.8 - 2015: 33.8 - 2016: 37.0 - 2017: 41.0 - 2018: 41.1 - 2019: 40.7 / 40.3 (table shows 40.7 and 40.3 in adjacent columns) - Change in gross public sector debt (cumulative projection): 10.6 (cumulative shown in table). - Identified debt-creating flows (cumulative projection): 10.6. - Primary deficit contributions to debt (percent of GDP, annual entries in table): -1.1 (2003–2011 average), 3.0 (2012), 5.4 (2013), 2.8 (2014), 2.3 (2015), 2.2 (2016), 1.7 (2017), 1.3 (2018), 1.3 (2019); cumulative 11.6. - Primary (noninterest) revenue and grants (percent of GDP) cumulative: 144.9 (table total). - Primary (noninterest) expenditure (percent of GDP) cumulative: 156.5 (table total). - Automatic debt dynamics (cumulative contribution shown): -7.7. ### Risks and vulnerabilities - Combined macro-fiscal shock: could raise projected public debt to around 51 percent of GDP and gross financing needs to 18 percent of GDP in 2019. - Maturity risk: low—short-term debt constitutes a small fraction of total debt. A spike in short-term debt in 2013 due to central bank overdraft was eliminated in early 2014 by rationalizing government accounts and using government deposits to pay off liabilities. - Currency composition risk: foreign currency denominated debt is now over half of total debt; the share of foreign-currency denominated debt is highlighted as a rising risk. - External debt vulnerability: external debt rises to a peak in 2016 reflecting government external borrowing to finance equity purchases in two gold projects; external debt ends at 43 percent of GDP in 2019. - Sensitivities: external debt ratio is robust to interest and growth shocks but sensitive to large and permanent current account and exchange rate shocks; the primary source of a large current account shock would be falling gold prices. - Gold dependence: gold constitutes close to two-thirds of exports; medium-term balance of payments projections depend crucially on the outlook for gold prices. - Exchange rate and market borrowing: additional risk from planned market borrowing stemming from devaluation alone is limited because the funds will finance gold-related projects that generate U.S. dollar revenue streams. ### Gross financing needs and market indicators - Gross financing needs: - 2003–2011 average: 1.6 percent of GDP. - 2014 (DSA baseline): 10.1 percent of GDP. - 2019 (baseline): 13 percent of GDP (below the 15 percent benchmark). - Heat map: highlights rising risks in gross financing needs under real interest rate shocks. - Market perception indicators in the risk-assessment figure include bond-spread and external financing requirement benchmarks; specific benchmarks noted: - Bond spreads: 200 and 600 basis points. - External financing requirement benchmarks: 5 and 15 percent of GDP. - Change in share of short-term debt benchmarks: 0.5 and 1 percent. - Public debt held by non-residents benchmarks: 15 and 45 percent. - Share of foreign-currency denominated debt benchmarks: 20 and 60 percent. ### Forecast track record and fiscal space - Forecast bias: - Staff exhibited pessimism in forecasts of real GDP growth historically, suggesting some possibility actual debt outcomes could be somewhat lower than staff forecasts, though the effect is unlikely to be significant. - After the 2011 devaluation, staff inflation forecasts for 2012–13 were well above actual; staff has since lowered medium-term inflation forecasts to correct this error. - Average forecast error for the primary balance is close to zero. - Fiscal adjustment realism: - The projected fiscal adjustment looks realistic in comparison with other countries. - The low percentile rank (81 percent) in the 3-year average level of the cyclically-adjusted primary balance (CAPB), corresponding to -1.5 percent of GDP, confirms that the country has more room to implement stronger fiscal measures if necessary. ### Scenario and stress-test outcomes (selected scenarios) - Baseline assumptions (selected): - Real GDP growth (percent): 2014: 3.1; 2015: 3.7; 2016: 4.2; 2017: 4.6; 2018: 5.0; 2019: 4.4. - Inflation (GDP deflator, percent): 2014: 1.0; 2015: 3.0; 2016: 2.7; 2017: 2.7; 2018: 2.8; 2019: 2.9. - Primary Balance (percent of GDP): 2014: -2.8; 2015: -2.3; 2016: -2.2; 2017: -1.7; 2018: -1.3; 2019: -1.3. - Effective interest rate (percent): 2014: 3.3; 2015: 3.2; 2016: 3.1; 2017: 3.4; 2018: 3.3; 2019: 3.2. - Constant primary balance scenario: - Primary Balance fixed at -2.8 percent of GDP for 2014–2019; results show debt rises to over 50 percent of GDP. - Historical scenario (using historical averages for macro and fiscal variables) shows a substantial decline in public debt relative to baseline. - Stress tests shown include: - Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, and a Combined Macro-Fiscal Shock. - A one-time real depreciation of 30 percent is modeled in the Real Exchange Rate Shock in 2014. - Combined shock projections raise debt significantly (combined shock results referenced above). ### External sector dynamics (selected data) - Baseline external debt (percent of GDP) path (table excerpt): 2012: 11.9; 2013: 12.3; 2014: 30.3; 2015: 29.4; 2016: 33.7; 2017: 38.8; 2018: 42.1; 2019: 48.2 / 47.9 / 45.9 (table shows multiple adjacent values across rows and columns). - Change in external debt (selected years, percent of GDP): 2014: 17.9; 2015: -0.8; 2016: 4.3; 2017: 5.1; 2018: 3.2; 2019: 6.2; later years show declines in some projections. - Key drivers of external debt dynamics include current account deficits (excluding interest payments), net non-debt creating capital inflows, and automatic debt dynamics. - Exports, imports, and current account (selected levels and growth): - Exports (percent of GDP, selected): 2009: 43.6; 2010: 52.5; 2011: 61.1; later projections vary. - Current account balance, excluding interest payments (percent of GDP, selected): 2009: 3.5; 2010: 11.5; 2011: 6.5; 2012: 4.1; 2013: -2.4; baseline projections return toward surplus in 2017 as large gold-related FDI projects complete and Staatsolie’s oil refinery reduces oil imports. *Source: IMF staff (Appendix I. Debt Sustainability Analysis).* ### Appendix II. Authorities’ Response to Past IMF Policy ### Appendix II. Authorities’ Response to Past IMF Policy Recommendations ### Fiscal Policy - IMF 2013 Article IV recommendation: Substantial adjustment, requiring both revenue and expenditure measures, is needed to strengthen macroeconomic stability and ensure sustainability. Notably: - Tighten public spending. In particular, public wage should be moderated and subsidies should be better targeted. Diversify revenue base including implementation of VAT. - IMF 2013 Article IV recommendation: Establish a sound fiscal framework considering the sensitivity of revenues to mineral sector developments. This should comprise a fiscal anchor consistent with sustainability, medium-term expenditure ceilings, and a Sovereign Wealth Fund (SWF). - Authorities’ response: - Implemented strong consolidation in 2014, including both revenue and expenditure measures. - Deeper reforms such as VAT and improved targeting of subsidies are to be tackled after the 2015 elections. - Receptive to staff’s recommendation of establishing clear fiscal framework, but have not yet taken concrete action to establish a fiscal anchor. - The SWF law is currently stalled. ### Monetary and Exchange Rate Policy - IMF 2013 Article IV recommendation: - Monetary tightening should be deployed to safeguard the external position if fiscal measures prove inadequate to contain demand pressures. - The monetary authorities should press ahead with efforts to establish indirect instruments of monetary policy. - Authorities’ response: - The central bank tightened monetary policy on September 16. It raised reserve requirements on both domestic and foreign currency deposits by 5 percentage points to 30 percent and 50 percent, respectively, as part of efforts to constrain credit growth and help strengthen macroeconomic stability. - T-bill auction as a first step to establish indirect monetary policy framework is in progress although the implementation is delayed to Q4 2014 /Q1 2015. - Exchange rate arrangements (context from Fund relations section): - National currency: Surinamese dollar (SRD), replaced the guilder in January 2004 at a conversion rate of 1,000 guilders per SRD 1. - De jure arrangement: classified as floating; de facto arrangement: classified as a stabilized arrangement after a 20 percent devaluation to SRD 3.3 per U.S. dollar on January 20, 2011, with a band of SRD 3.25–3.35 per U.S. dollar. - Suriname is an Article VIII member and maintains two multiple currency practices (MCPs) arising from spreads of more than 2 percent in official market rates; staff does not recommend approval of these MCPs as there is no clear timetable for their removal. ### Structural Reforms - IMF 2013 Article IV recommendation: - Structural reforms to improve the business environment and increase the efficiency of public utilities will be needed to enhance competitiveness. - Labor market flexibility could be improved by some relaxation of employment protection regulations. - Authorities’ response: - Legislation is pending to overhaul the business environment. Draft laws on competition policy, limited liability company formation, and electronic publication of the registration of new firms have been approved by the Council of Ministers and are before Parliament. - Other legislation in the pipeline includes laws on intellectual property, consumer protection, and electronic transactions. ### Financial Sector - IMF 2013 Article IV recommendation: - Plans to substantially reduce state ownership in the banking sector should be carefully designed and managed to ensure a smooth transition. - Efforts to strengthen financial sector resilience and reduce dollarization should continue. - Authorities’ response: - Authorities are still discussing with the relevant banks on how to divest government shares to reduce potential negative impact on market. - Authorities passed new capital rules on July 1, 2014 to raise minimum CAR ratio to 10 percent for all banks and require banks to raise provisions by an estimated SRD40 million. ### Statistical and Data Issues (selected surveillance-relevant findings) - Data are broadly adequate for surveillance but have shortcomings reflecting capacity constraints and limited resources. - Improvements and actions noted: - Central Bank publishes an Advance Release Calendar (ARC) for monetary and external sector statistics and updates the National Summary Data Page (NSDP); timeliness remains an issue for some data such as GDP and labor statistics. - General Bureau of Statistics (ABS), with CARTAC support, improved production-based GDP coverage, reconciled national accounts with Balance of Payments, compiled household final consumption expenditure, and planned to publish expenditure-based GDP in 2014. - MoF compiles fiscal data in national definitions; Central Bank of Suriname (CBvS) converted fiscal statistics into 2001 GFSM format but differences with MoF estimates persist. Central government operations in 2001 GFSM format are available on the CBvS website, often with a few months lag. - Public finance statistics are limited to the central government; institutional coverage needs to be broadened to the nonfinancial public sector to better assess fiscal risks from total public sector debt. - CBvS uses standardized report forms (SRFs) for central bank and other depositary corporations on a monthly basis; does not report SRF for other financial corporations. - Suriname does not report financial soundness indicators (FSIs) to STA; authorities are encouraged to adopt FSI methodology for regular reporting. - CBvS made progress compiling quarterly balance of payments and International Investment Position (IIP) statistics; reported quarterly IIP pertaining to 2012 in 2013 and reported to the World Bank in June 2014 Quarterly External Debt Statistics (QEDS). - Recommended medium-term strategy priorities: improve compilation and coverage of foreign direct investment; services (freight, insurance and pension services, financial, and other business services) with emphasis on travel via a recurrent survey; remittances through non-formal channels using the annual household survey; improve estimates of financial account components (especially private external debt). ### Fund Relations (selected) - Membership Status: Joined: April 27, 1978; Article VIII. - Last Article IV consultation concluded by the Executive Board on September 7, 2013 (IMF Country Report No. 13/340). Suriname is on the standard 12-month consultation cycle. - Participation in the GDDS: In July 2004, Suriname formally participated in the General Data Dissemination System (GDDS). - Technical assistance since 2011: multiple CARTAC, FAD, LEG, MCM, and STA missions on topics including insurance supervision, PEFA and PFM, fiscal projection and budget preparation, Treasury Single Account, central bank modernization, T-bill auctions, national accounts, BOP, and financial stability needs. *Source: _cr14316 - Appendix II. Authorities’ Response to Past IMF Policy* ### 1. Recent available high frequency indicators are broadly in line with staff ### 1. Recent available high frequency indicators are broadly in line with staff projections ### Recent macro-financial indicators - Bank credit growth to the private sector: 13.4 percent (y/y) in July, down from 15 percent in April and from a peak of 20 percent (y/y) in October 2013. - Public spending in H1 2014: about 11.7 percent of annual GDP, compared with projected 28.2 percent of GDP for the full year. - International reserves: about US$800 million at end-August, close to 4 months of imports; gross international reserves projected 798 (US$ millions) for 2014 and 906 (US$ millions) for 2015. - Inflation: risen moderately to almost 4 percent in July; consumer prices (end of period) recorded as 3.7 percent for 2014 (period average 2.6 percent). - Foreign exchange market: conditions described as orderly; fixed exchange rate regime maintained at SRD 3.30 per US$ (end of period for 2012–2013; exchange rate field shows "..." for 2014–2015). ### Fiscal and external sector developments - Overall fiscal balance: deficit estimated at 6.8percent of GDP in 2013 (note formatting in source), fiscal deficit expected to decline to 3.7 percent of GDP in 2014 and projected -3.4 percent of GDP in 2015. - Public debt: about 30 percent of GDP in 2013; central government debt composition (percent of GDP) projected: domestic 16.0 (2014) and 15.3 (2015); external 17.8 (2014) and 21.8 (2015). - Current account balance: deficit of 4 percent of GDP in 2013; current account balance series in indicators table: -3.9 (2013), -4.5 (2014), -3.9 (2015). - Change in reserves (US$ millions, - increase): 152 (2013), -23 (2014), -108 (2015). - International reserves in months of imports: 3.4 (2013), 3.8 (2014), 4.2 (2015). - Terms of trade: -10.5 percent (2013), -7.9 (2014), 2.5 (2015). ### Real sector and projections (Selected indicators) - Real GDP growth at 2007 prices: 4.1 (2013), 3.1 (2014 est.), 3.7 (2015 proj). - GDP at current market prices: 4.4 (2013), 4.2 (2014), 6.8 (2015). - Broad money: 14.1 (2013), 10.9 (2014), 7.4 (2015). - Private sector credit (table): 18.3 (2013), 15.0 (2014), 15.0 (2015). - Banking system capital adequacy: 12.4 percent of risk weighted assets (2013); regulatory minimum 8 percent; regional average cited as 20 percent. - Non-performing loan (NPL) ratio: 5.9 percent in 2013. - Reserve requirements: increased by 5 percentage points in late-2013. ### Commodity and external shocks - Gold export volume growth: contracted by 1.3 percent in 2013, down from almost 6 percent in 2012. - Alumina exports: contracted 5 percent; oil exports: increased by 1.3 percent. - Impact on current account: current account balance fell 7.3 percentage points to a deficit of 4 percent of GDP in 2013 (text narrative). ### Financial sector liquidity and operations - Banks: described as profitable and liquid. - Central Bank actions: introduced open market operations planned; increased reserve requirement ratios; modernizing payment system; implemented new capital rules increasing capital adequacy ratio from 8 to 10 percent as of July 1, 2014. - Planned financial sector institutions: credit bureau and deposit insurance, modernization of payment and settlement system, strengthening insurance sector regulatory framework. ### Policy measures already taken - Electricity subsidies: phased withdrawal announced September 7. Tariff changes: - Large corporations and foreign embassies: from US$0.06/kWh to market rates (US$0.26/kWh). - Households: from US$0.06/kWh to US$0.08/kWh (households will still enjoy a sizable subsidy). - Minimum wage: introduced August 28, effective January 2015, starting around the bottom end of the public sector wage scale, but rising by 43 percent in the next two years. - Tri-partite labor council: established to make future recommendations on minimum wage and labor market policies. - Revenue measures: increasing royalty rate on small-scale gold miners; higher taxation on logging and mining concessions; sales of government land to lease holders. ### Risks, data gaps, and staff concerns - Minimum wage concerns: - Substantial planned increases over next two years raise concerns given external pressures and fiscal slippages. - Staff advise deferring further increases. - Potential adverse effects: hurt job creation among the low-skilled, drive low-wage activities underground. - Large data gaps on wage distribution hamper accurate assessment; staff advise gathering more data on wage distribution. - Fiscal stance and policy needed: - Directors encouraged targeting a fiscal surplus over the medium term. - Need for additional consolidation measures supported by a rules-based framework with a fiscal anchor. - Recommendations to phase out untargeted subsidies, contain the wage bill, prioritize spending on goods and services and capital projects while protecting the vulnerable. - Timely implementation of the VAT and further reform/modernization of customs and tax structure urged. - Monetary policy: - Considered appropriate but Directors advised readiness to tighten to safeguard external stability. - Encouraged to establish open market operations and phase out multiple currency practices; improve data on foreign currency lending. - Financial sector reforms: - Implement FSAP recommendations: prudential standards, supervision, AML/CFT regime, institutional capacity of central bank. - Establish credit bureau and deposit insurance; strengthen insurance regulation. ### Executive Board assessment (summary points) - Welcomed robust growth and consolidation efforts; commended financial sector reform progress. - Noted vulnerabilities from exposure to uncertain commodity prices and called for continued prudent policies and reforms to support diversification and inclusive growth. - Encouraged increased labor market flexibility supported by a well-targeted social safety net. - Advised a cautious approach on planned minimum wage increases; urged improved data quality for policymaking. ### Authorities’ perspectives and planned projects (highlights from statement) - Authorities forecast real GDP growth between 4 and 5 percent in the next few years (per their statement), citing robust domestic investments and large investments in oil and mining coming on-stream in 2015-17. - Major projects cited by authorities: - New large oil refinery: expected to virtually eliminate oil derivative imports, improving current account by an estimated 2 percent of GDP from 2015. - Merian Gold Project: investments of about 20 percent of GDP; expected to increase gold exports by around 8 percent of GDP starting in 2017; 25 percent public sector participation to be owned and operated by Staatsolie. - Authorities emphasize fiscal consolidation in 2014: deficit reduced to 2.9 percent of the GDP projected for the year in first eight months of 2014, compared to 4.7 percent of GDP in the same period of 2013. - Authorities highlight social policy reforms: adoption of legislation on a minimum wage, national pensions, and comprehensive health insurance reform; stress intent to reallocate budget to accommodate reforms while preserving fiscal sustainability. - Capacity building and financial education: Central Bank financial education programs; plan for financial literacy baseline study and strategic plan; knowledge transfer program with Central Bank of Trinidad and Tobago. *Source: IMF staff report and authorities’ statement (October 2014).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14316.pdf_