IMF Executive Board Concludes 2016 Article IV Consultation with Suriname
IMF News, January 24, 2017
Source details
- Canonical URL
- IMF Executive Board Concludes 2016 Article IV Consultation with Suriname
Other formats
Bibliographic details
- Published: January 24, 2017
Overview
- Press Release No. PR17/14; January 24, 2017; IMF Communications Department.
- On December 19, 2016 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Suriname.
- Core focus: strategies to improve fiscal sustainability, lower inflation, protect the poor during adjustment, and stimulate private investment and job creation to restore sustained growth.
Economic context and causes of the crisis
- Crisis triggered by a significant commodity terms of trade shock and exacerbated by insufficient buffers and policy responses.
- Key shocks: drop in international gold and oil prices and cessation of alumina production.
- Consequences: large fiscal and current account deficits and the onset of a deep recession in 2015.
- During the boom, no institutional arrangement to save resources for future price corrections; limited implementation of IMF advice on strengthening the policy framework.
- Result: sharper recession, steeper exchange rate depreciation, and larger rise in inflation and government debt than most commodity exporters.
Policy responses and IMF engagement
- Authorities launched an ambitious adjustment plan in late 2015:
- Cut the budget deficit by reining in spending.
- Began phasing out electricity subsidies.
- Curbed monetary financing.
- Floated the exchange rate in March 2016 to rebuild foreign reserves and reduce the current account deficit.
- International support:
- 24-month Stand-By Arrangement (SBA) with the IMF approved in May 2016.
- Financing commitments from other international financial institutions.
- By mid-2016, progress stalled on several items:
- Fiscal deficit kept below 6 percent of GDP (annualized); planned reforms, including preparing for VAT, advanced.
- Decisions to freeze fuel pump prices and partially reverse electricity price increases led to significant public sector losses.
- Limited action to raise interest rates led to a move out of local currency assets, bouts of exchange rate depreciation, and rapid inflation increases.
- Inflation reached 77 percent in September 2016.
- The first and second reviews of the SBA had not taken place.
Macroeconomic outcomes and outlook (findings and projections)
- GDP and prices:
- GDP contraction projected for 2016: 9 percent (following a 2.7 percent contraction in 2015).
- Recession expected to ease in 2017 with support from the Newmont Merian gold mine (opened October 2016).
- Inflation projected to be 60 percent at end-2016 and to decline in 2017.
- External sector:
- Import compression narrowed the external current account deficit, projected below 4 percent of GDP in 2016.
- Current account surplus of about 2 percent of GDP expected in 2017, on the back of exports from the new gold mine.
- Fiscal and debt:
- Budget deficit projected at about 6 percent of GDP in 2016.
- Debt-to-GDP ratio projected to reach 68 percent, including the recent issuance of an external government bond.
- Additional outcome highlighted:
- Rapid increase in inflation and exchange rate depreciation due to moves out of local currency assets and limited monetary tightening.
Executive Board assessment — key recommendations and priorities
- Macro stability and growth require decisive reforms.
- Fiscal policy:
- Fiscal consolidation should be central.
- Achieve a primary surplus by 2018 to put public debt on a downward path and avoid monetary financing.
- Eliminate energy subsidies in 2017, fully reinstate fuel taxes, and implement the VAT in 2018.
- Refrain from large wage increases; launch a broad-based reform of the civil service.
- Redirect resources to protect the most disadvantaged during adjustment.
- Institutional reforms: establish a clear fiscal anchor, a sovereign wealth fund for mineral revenue volatility, and a new public financial management law to improve budget preparation and expenditure control.
- Monetary and exchange rate policy:
- Central bank should adopt a more active approach to reducing inflation.
- Prompt initiation of open market operations and raising interest rates to positive levels in real terms.
- Preserve exchange rate flexibility to rebuild international reserves; phase out central bank role as distributor of foreign exchange to large importers.
- Financial sector stability:
- Urgent need to strengthen the framework for addressing banking sector strains.
- Develop a contingency planning framework with clear modalities for emergency liquidity assistance.
- Promptly establish a Financial Stability Committee to coordinate systemic stability and crisis management.
- Expedite adoption of a new bank resolution law to empower the central bank to take preventive and corrective measures.
- Further strengthen the AML/CFT framework.
- Structural reforms:
- Ambitious agenda to promote diversification away from commodity dependence and boost productivity.
- Reforms to improve the business environment, promote competition, and strengthen governance.
- Increase labor market flexibility and invest in education, supported by a well-targeted social safety net, to promote job-rich and inclusive growth.
Selected economic indicators (as presented)
- National income and prices (annual percent change)
- Real GDP growth: 2013: 2.9; 2014: 0.4; 2015: -2.7; 2016: -9.0; 2017: -0.7; 2018: 0.9
- Nominal GDP growth: 2013: 3.3; 2014: 1.8; 2015: -3.6; 2016: 43.9; 2017: 39.6; 2018: 22.0
- GDP deflator: 2013: 1.5; 2014: -0.9; 2015: 58.1; 2016: 40.6; 2017: 20.9
- Consumer prices (period average): 2013: 1.9; 2014: 3.4; 2015: 6.9; 2016: 60.3; 2017: 38.6; 2018: 23.3
- Consumer prices (end of period): 2013: 0.6; 2014: 3.9; 2015: 25.0; 2016: 61.0; 2017: 30.4; 2018: 16.1
- Money and credit (annual percent change, unless otherwise indicated)
- Broad money (constant exchange rate): 2013: 14.9; 2014: 7.8; 2015: 0.1; 2016: 4.3; 2017: 5.4; 2018: 9.9
- Broad money in local currency (percent of GDP): 2013: 26.1; 2014: 27.8; 2015: 28.8; 2016: 21.5; 2017: 17.2; 2018: 16.9
- Reserve money (constant exchange rates): 2013: -8.8; 2014: 18.0; 2015: 4.0; 2016: 5.2; 2017: 18.5
- Reserve money (percent of GDP): 2013: 14.1; 2014: 12.7; 2015: 15.6; 2016: 12.1; 2017: 9.2; 2018: 8.9
- Private sector credit (constant exchange rate): 2013: 17.5; 2014: 8.1; 2015: 5.7; 2016: -6.7; 2017: 3.8; 2018: 5.3
- Central government (percent of GDP)
- Revenue and grants: 2013: 25.8; 2014: 24.1; 2015: 22.1; 2016: 13.8; 2017: 16.3; 2018: 20.3
- Total expenditure 1/: 2013: 32.9; 2014: 32.0; 2015: 31.4; 2016: 20.0; 2017: 20.4; 2018: 22.5
- Primary expenditure: 2013: 31.6; 2014: 31.1; 2015: 29.9; 2016: 18.3; 2017: 20.1
- Overall balance (net lending/borrowing): 2013: -7.1; 2014: -7.9; 2015: -9.3; 2016: -6.1; 2017: -4.1; 2018: -2.1
- Primary balance: 2013: -5.8; 2014: -7.0; 2015: -7.8; 2016: -4.5; 2017: -1.7; 2018: 0.3
- Net incurrence of liabilities: 2013: 7.1; 2014: 7.9; 2015: 9.3; 2016: 16.8; 2017: 7.0; 2018: 2.1
- Central government debt (percent of GDP) 3/
- 2013: 29.0; 2014: 45.7; 2015: 67.8; 2016: 60.7; 2017: 54.4; 2018: (not shown)
- Domestic: 2013: 16.7; 2014: 13.1; 2015: 16.5; 2016: 10.6
- External: 2013: 16.0; 2014: 21.6; 2015: 51.2; 2016: 50.1; 2017: 46.5
- External sector (percent of GDP)
- Current account balance: 2013: -3.8; 2014: -16.6; 2015: 2.5; 2016: 1.1
- Capital and financial account: 2013: 8.3; 2014: 15.2; 2015: -13.7; 2016: -9.7; 2017: -3.4
- Memorandum items
- GDP at current prices (SRD billions): 2013: 17.0; 2014: 17.3; 2015: 24.0; 2016: 33.5; 2017: 40.8
- Terms of trade (percent change): 2013: -10.1; 2014: -4.0; 2015: 8.8; 2016: 2.7; 2017: -0.3
- Gross international reserves (US$ millions): 2013: 779; 2014: 625; 2015: 330; 2016: 447; 2017: 515; 2018: 417
- In months of imports: 2013: 2.8; 2014: 2.6; 2015: 2.3
- Adjusted international reserves (US$ millions) 3/: …; 36; 150; 256; 345; 0.2; 1.4
- Real effective exchange rate (percent change, + = appreciation): 2013: -14.4; 2014: 1.2; 2015: 8.5
Notes from the source:
- 1/ Includes statistical discrepancy.
- 2/ Includes acquisition of a stake in the gold mine and loans to state owned enterprises.
- 3/ The debt-to-GDP ratio is different when computed using the definition in the Government Debt Act of Suriname.
- 4/ Official reserve assets excluding foreign currency swaps and reserve requirements on banks' foreign currency deposits.
IMF Press Release No. PR17/14; January 24, 2017; IMF Communications Department.