Press Release No. 22/157

Suriname and the IMF Reach Staff-Level Agreement on the Second Review of the Extended Arrangement Under the Extended Fund Facility

May 17, 2022

• The IMF staff team and Surinamese authorities reached a staff-level agreement on the second review of the authorities’ economic recovery program supported by the Extended Fund Facility (EFF). The agreement is subject to approval by the IMF’s Executive Board.
• Suriname’s economic program remains on track albeit with delays in some policy reforms. The economy continues to recover from the deep recession in 2020-21 but faces a range of near-term challenges, including those newly created by the war in Ukraine.
• The government’s near-term policies focus is on how best to mitigate the impact of the global commodity price shock on the economy and, especially, on vulnerable households. The government remains committed to reducing vulnerabilities and improving the country’s fiscal and external balances.

Washington, DC: An International Monetary Fund (IMF) team led by Mr. Ding Ding visited Paramaribo on May 9-13 to conduct the second review of the 36-month Extended Fund Facility approved by the IMF Executive Board on December 22, 2021 .

At the conclusion of the discussions, Mr. Ding issued the following statement:

“The IMF team reached a staff-level agreement on policy measures for the completion of the second review under the authorities reform program. This agreement is subject to approval by the IMF’s Executive Board.

“Following the completion of the first program review on March 23, 2022, the Surinamese authorities continue to make good progress in implementing the ambitious set of reforms that underpin their economic recovery strategy, despite the challenging economic environment and capacity constraints. The end-March 2022 quantitative performance criterion for net international reserves was missed by a small margin due to a shortfall in the net inflows of project financing, and the assessment for the end-March primary fiscal balance (cash basis) against the target is being finalized. All other quantitative targets were met. Most structural benchmarks have also been implemented, albeit with some delays. Spending on cash-transfer programs continued to underspend the government’s goals and corrective measures are being designed to strengthen the safety net and support more of Suriname’s poor households. The government is also committed to accelerating progress in critical governance reforms.

“The economy continues to recover from the deep recession in 2020-21. Monthly economic activity has been rising steadily since mid-2021. Headline inflation remains high but does seem to be declining to around 2 percent month-over-month in the most recent data. Core inflation, excluding food and utilities, has fallen steadily indicating the central bank’s new monetary framework is starting to stabilize the system Usable international reserves have risen to US$566 million at end-March (making up around three months of imports).

“The war in Ukraine is expected to have a negative impact on Suriname’s near-term outlook. Rising international food and energy prices and continued global supply chain disruptions are likely to weigh on activity, worsen the external position, and push up inflation. However, higher oil and gold prices will help create some urgently needed fiscal space by boosting government mineral revenues. The government plans to prudently deploy these additional mineral revenues to increases support to the most vulnerable groups and increase recovery spending after the recent floods in the country .

“The authorities are committed to their medium-term fiscal plan and achieving a primary surplus of 1.7 percent of GDP for this year. The government is working to replace the sales tax with a broad-based VAT, scale back ineffective tax exemptions, increase taxation of the mineral sector, and improve the efficiency of the public workforce. The average electricity tariff will move up steadily toward cost recovery levels but subsidies have been put in place to ensure energy remains affordable for the poorest customers. Cost reduction measures and efficiency improvements are being identified through a comprehensive assessment of the operations of the state-owned electricity company.

“The authorities are actively negotiating with their official and private creditors to secure a timely restructuring of Suriname’s external debt. This should help strengthen the country’s fiscal position and restore debt sustainability.

“The Central Bank of Suriname has continued to implement the new reserve money targeting framework which is beginning to show results in tackling inflation. The central bank remains committed to a free-floating, market-determined exchange rate and has refrained from FX intervention since the start of the EFF program. The central bank is also taking important steps to improve its knowledge on the financial position of the commercial banks, strengthen oversight, and develop modern crisis management capabilities.

“The authorities remain committed to strengthening central bank governance and addressing shortcomings in the anti-corruption and AML/CFT framework. They intend to accelerate their efforts in implementing governance reforms in the areas of AML/CFT, anti-corruption, and public sector procurement.

“The authorities have been courageous in their reform efforts but, despite this, the country faces a range of downside risks. The global commodity price shock could have more disruptive effects, particularly as a headwind to the authorities’ efforts to reduce inflation. Delays in key fiscal reforms, including in parliament’s passage of key legislation, or in reaching agreements on debt restructuring could derail the government’s efforts to restore debt sustainability. Rising non-performing loans or a materialization of risks in the financial system could precipitate capital outflows or instability in the financial system. On the positive side, there are good prospects of new oil fields being developed which would boost growth, increase export and fiscal revenues, and strengthen both the balance of payments and debt dynamics.

“The mission would like to thank the authorities for a collaborative and fruitful dialogue. A wide-ranging set of meetings was held with the Minister of Finance and Planning, the Central Bank Governor, the Minister of Justice, the Minister of Social Affairs and Housing, other senior officials and development partners. The mission is particularly grateful to representatives from the private sector and civil society for their insights and engagement.