IMF reaches agreement with Suriname on US$478 million stand-by facility
PARAMARIBO - A staff team from the International Monetary Fund (IMF) led by Daniel Leigh visited Paramaribo March 30-April 12 2016 for discussions with the Suriname government. At the end of the visit, Leigh issued the following statement:
“The IMF team has reached a staff-level agreement with the Surinamese authorities on the key elements of an economic program that could be supported by a two-year stand-by arrangement (SBA) in the amount of approximately US$478 million (SDR 342 million or 265 percent of quota). Subject to the timely completion of prior actions by the Surinamese government and obtaining necessary financing assurances, the IMF’s Executive Board could consider the proposed financing arrangement in early May.
“Suriname is facing challenging conditions in the near term, caused largely by the sharp decline in the international prices of its commodity exports. The sustained drop in the prices of gold and oil has caused substantial external and fiscal deficits, and international reserves have declined significantly. These negative external developments, combined with the closure of Suralco’s alumina refinery in late 2015, have pushed the economy into a recession.
“The medium-term growth outlook remains favorable, however, in view of the ongoing expansion in the gold mining and oil refinery sector.
“The Surinamese authorities have put forward an ambitious reform program to stabilize Suriname’s economy and set the stage for its recovery. Fiscal consolidation is a clear and critical ingredient of the program, to restore fiscal and external current account stability.
“The authorities’ program also includes reforms to the exchange rate and monetary policy framework, to enhance Suriname’s resilience to the current and to possible future shocks, and allow a steady rebuilding of foreign reserves. The authorities have also laid out a comprehensive set of structural reforms to support private-sector led growth.
“Crucially, the program includes support measures to protect the most vulnerable during this period of economic adjustment.
“The program builds on important steps that the authorities have taken in the past few months. Since last August, they have curbed public spending, resulting in a cut in the budget deficit from an annualized 12.5 percent of GDP during January-July 2015 to 3.5 percent of GDP during August-December 2015.
“At same time, the authorities have begun a concerted effort to phase out electricity tariff subsidies. The program’s fiscal adjustment for 2016 will be reflected in the supplementary budget now under preparation. To create an efficient source of non-mineral revenue, the program also supports the authorities’ plans to introduce a value added tax (VAT) on January 1, 2018.
“To support the fiscal adjustment, the program will introduce reforms to strengthen the fiscal policy framework, including a Sovereign Wealth Fund law to improve mineral revenue management; setting up a procurement department to ensure cost-effectiveness of public sector purchases; and the building of a modern Treasury Department. Technical assistance from both the IMF, and the Inter-American Development Bank (IDB) and bilateral providers will develop necessary capacity in these areas.
“The foreign exchange auctions introduced in March have been an important step towards a flexible and market-determined exchange rate, which will facilitate Suriname’s adjustment to the present and possible future external shocks.
“The program also includes substantial structural reforms to improve the business environment, and promote medium-term growth. It will seek to promote the economy’s diversification and to attract foreign direct investment, supported by technical assistance from the IMF, the Caribbean Development Bank, the IDB, and World Bank, who are also discussing the possibility of providing financial support to Suriname.
“Enhancing the productivity and competitiveness of Suriname’s agricultural sector is of particular importance. The program also includes legal reforms to accelerate the process of starting a company, enforcing contracts, promoting competition, protecting investors, registering property, and expanding access to finance.
“Critically, to help soften any negative impact of the macroeconomic adjustment on the poor, the program includes important measures to strengthen the social safety net. The Surinamese authorities are committed to increase targeted social support programs to protect the most vulnerable members of the society. The prospective increases in electricity prices will be structured so that those who are the biggest consumers will bear more of the adjustment than the small consumers.
“This is a challenging program that will require great efforts from the Surinamese society as a whole. However, we believe that it can provide a durable and fully financed solution to the underlying problems facing the country and a path toward sustainable growth. The fiscal and financial policies of the program seek to protect the most vulnerable groups among the various segments of the population. The IMF for its part will continue to support these efforts.”