Suriname economy in deep recession, says IMF

IMF mission chief for Suriname, Daniel Leigh. Photo: Ivan Cairo

PARAMARIBO, Suriname.- The economic outlook for Suriname remains challenging, the International Monetary Fund (IMF) said at the conclusion of its regular 2016 Article IV consultation. For 2016, a GDP contraction of 9 percent is projected, following a 2.7 percent contraction in 2015. The deep recession reflects a number of factors, including spillovers from the closure of the Suralco alumina plant and the contractionary impact of the fiscal adjustment.

The IMF’s mission chief for Suriname, Daniel Leigh, said at a press conference on Friday, that income from the Merian gold mine, which officially opened on Thursday, will support economic activity, and it is expected that the recession will ease in 2017. Inflation is projected to be 60 percent at end-2016 and to decline in 2017. 

Import compression has narrowed the external current account deficit, which is projected at below 4 percent of GDP in 2016. A current account surplus of about 2 percent of GDP is expected in 2017, on the back of exports from the new gold mine. 

The budget deficit is projected at about 6 percent of GDP in 2016, with the debt-to-GDP ratio projected to reach near 70 percent of 2016 GDP.

The government has brought the fiscal deficit below 6 percent of GDP and implemented a number of planned reforms, including preparations for VAT introduction. However, the decisions to freeze fuel pump prices in nominal terms and partially reverse the increase in electricity prices, according to the IMF, is reducing available public sector resources by an estimated 0.8 percent of annual GDP per month. 

Priority spending, including on social transfers, undershot envisaged levels. With limited action by the authorities to raise interest rates from their deeply negative levels, there has been a move out of local currency assets, with bouts of exchange rate depreciation and rapid increases in consumer prices. Inflation reached 77 percent in September 2016.

Leigh said that without a significant policy adjustment, Suriname risks deepening instability, with sharp exchange rate depreciation and accelerating inflation. There is limited financing to cover essential government spending -- including public wages, pensions, and social support to the most disadvantaged -- and the risk of resorting to central bank financing of the budget exists. 

The IMF representative argued that there are few policies in place to address rising inflation, international reserves are critically low and, owing to the recession and currency depreciation, banks face risks of a further deterioration in credit quality.

While President Desi Bouterse recently said that the government is holding off phasing out electricity subsidies due to raising concerns within the populace, the IMF said this was not a good move. The institution warned that, due to the dire economic situation, restructuring measures such as raising fuel taxes, containing the wage bill for public servants and raising electricity tariffs should be implemented as soon as possible. 

“Our assessment is that it’s urgent to take actions because people’s purchasing power is going down,” Leigh said regarding the current economic situation in Suriname.