Press Release: IMF Executive Board Approves US$478 Million Stand-By Arrangement for Suriname
IMF News, May 27, 2016
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- Published: May 27, 2016
Overview and approval
- Date: May 27, 2016
- The Executive Board approved a 24-month Stand-By Arrangement (SBA) for Suriname in an amount equivalent to SDR 342 million (about US$478 million or 265 percent of quota).
- The Board’s approval enables immediate disbursement of an amount equivalent to SDR 58 million (about US$81 million).
- Purpose: to support the government’s economic reform program aimed at adjusting to the fall in prices of major commodity exports, restoring confidence, and paving the way to economic recovery.
Key program objectives and instruments
- Primary objectives:
- Restore macroeconomic stability and confidence.
- Pave the way to economic recovery while protecting the most vulnerable during adjustment.
- Rebuild international reserves and improve external current account stability.
- Critical program ingredients:
- Fiscal consolidation to restore fiscal and external current account stability.
- Reforms to the exchange rate and monetary policy framework to enhance resilience and allow steady rebuilding of foreign reserves.
- Comprehensive structural reforms to support private-sector led growth.
- Support measures to protect the most vulnerable (strengthening social safety nets).
- Catalyze support from other multilateral institutions and bilateral creditors.
Executive Board statement — summary of assessment
- Causes of crisis:
- Drop in international prices of main exports and closure of the country’s alumina production.
- Delayed policy response in context of an election cycle.
- Resulting effects: substantial fiscal and external current account deficits, run-down of international reserves, economic downturn.
- Policy priorities emphasized:
- Fiscal consolidation including elimination of electricity price subsidies and introduction of a value added tax (VAT).
- Strengthening social safety nets to soften impact on the poor.
- Move to a market-determined exchange rate to strengthen resilience; expected expansion in gold exports and catalytic effect on external financing to improve current account and reserves.
- Tightening liquidity conditions (start of T-bill auctions, planned roll out of open market operations) to reduce inflation and stabilize expectations; Central Bank to address rising banking sector risks.
- Structural reforms to improve the business environment, promote diversification, and attract foreign direct investment, supported by IMF and development partners.
Recent economic developments (ANNEX)
- Export and revenue shock:
- In 2011, revenues from gold, oil, and alumina accounted for 88 percent of exports and 40 percent of government revenue.
- Subsequent price declines and closure of alumina refinery Suralco in late-2015 significantly reduced these revenues.
- Fiscal and external outcomes:
- Fiscal deficit reached 8.8 percent of GDP in 2015 (compared with a small surplus in 2011).
- Current account moved from a surplus of 5.7 percent of GDP in 2011 to a deficit of 15.6 percent of GDP in 2015.
- Reserves, growth, and inflation:
- Official foreign reserves declined to perilously low levels.
- Recession: growth of -2 percent expected in 2016.
- Consumer price inflation reached 37 percent in March 2016, up from an average of 4 percent during 2013–15, driven by exchange rate depreciation and utility tariff hikes.
Program summary — specific policy measures
- Fiscal policy:
- Target: reduce fiscal deficit from 8.8 percent of GDP in 2015 to less than 1.5 percent of GDP by 2018.
- Measures: phase out electricity subsidies, wage restraint, increase fuel taxes, introduce a VAT to create efficient non-mineral revenue.
- Institutional reforms: Sovereign Wealth Fund Law for mineral revenue management; procurement department; modern Treasury Department.
- Technical assistance from IMF and IDB to build capacity.
- Social protection:
- Strengthen social safety net, including increased spending on social cash transfer programs.
- Electricity price increases to be structured so large consumers bear more of the adjustment; tax breaks to protect taxpayers’ purchasing power.
- Monetary and foreign exchange policy:
- Rebuild international reserves and calibrate monetary policy to return inflation to single digits.
- Transition toward a floating market-determined exchange rate (via foreign currency auctions and authorization for banks and bureaux to determine rates).
- Structural reforms:
- Improve business environment to support recovery and medium-term growth, promote diversification, and attract FDI.
- Particular emphasis on enhancing productivity and competitiveness of the agricultural sector.
- Legal reforms to accelerate starting a company, enforcing contracts, promoting competition, protecting investors, registering property, and expanding access to finance.
- Technical assistance from IMF, Caribbean Development Bank, IDB, Islamic Development Bank, and World Bank.
Selected economic indicators (as presented)
- Real sector
- GDP at current prices (SRD billions): 16.4; 16.9; 17.2; 17.6; 22.8; 25.8 (columns correspond to 2012, 2013, 2014, 2015, 2016 Prel., 2017 Proj.)
- Real GDP growth (annual percentage change): 3.1; 2.8; 1.8; 0.1; -2.0; 2.5
- GDP deflator: 10.3; 0.2; -0.3; 2.2; 32.3; 10.4
- Consumer prices (end of period): 4.4; 0.6; 3.9; 25.0; 24.1; 8.9
- Consumer prices (period average): 5.0; 1.9; 3.4; 6.9; 36.8; 12.5
- Money and credit
- Banking system net foreign assets: 17.5; -11.3; -16.3; -22.0; 48.3; 21.6
- Broad money: 19.6; 14.1; 8.0; 10.2; 19.9; 5.7
- Private sector credit (devaluation adjusted): 16.7; 18.4; 9.0; 7.3; 5.3; 7.7
- Public sector credit (increase in percent of M2): 0.4; 8.4; 10.1; 12.6; 1.0; -0.5
- Savings and investment (in percent of GDP)
- Private sector balance (saving-investment): 0.5; -1.0; -8.5
- Public sector balance: -4.5; -4.4; -7.0; -7.7; -3.4
- Saving: 0.0; -1.8; -4.6; -4.9; 0.3; (no value shown)
- Investment: 4.5; 5.2; 3.7
- Foreign saving: -3.3; 3.8; 15.6; 8.7
- Central government (in percent of GDP)
- Revenue and grants: 25.7; 25.9; 24.2; 21.0; 20.6; 23.6
- Total expenditure1/: 29.6; 33.6; 32.1; 29.7; 27.0; (note: 1/ Includes statistical discrepancy.)
- Primary expenditure: 28.6; 32.2; 31.3; 28.3; 25.3
- Overall balance (net lending/borrowing): -3.9; -7.9; -8.8; -6.4
- Primary balance: -2.9; -7.4; -1.7
- Net acquisition of financial assets: -1.3
- Net incurrence of liabilities: 7.9; 8.8
- Net domestic financing: 6.4; 7.2
- Net external financing: 2.1; 3.3; 1.5; 8.1; 3.0
- Central government debt: 21.7; 31.7; 29.4; 43.5; 46.2; 44.0
- Domestic: 16.8; 13.1; 17.3; 15.4
- External: 11.6; 14.9; 16.2; 28.9
- External sector
- Current account balance: -3.8; -8.0; -15.6; -8.7
- Capital and financial account: 9.6; 13.2; 13.4
- Gross international reserves (US$ millions): 1,008; 779; 625; 355; 538; 837
- In months of imports: 4.2
International Monetary Fund press release, May 27, 2016.