Suriname: Risk Assessment
Country Risk Rating
Business Climate Rating
- Mineral resources and agricultural potential
- Financial support from international donors and foreign investors
- Dependence on oil, gold, and aluminum
- Poorly diversified economy
- Scale of the informal economy (30 % of GDP) with casinos, alluvial digging, and contraband
- Problems with the management of public companies
- Lack of transport infrastructure (roads, ports)
- Difficult business climate, ineffective justice system
En Route to Recovery in 2018
In 2018, Suriname is expected to exit from three years of recession, which started with falling commodity prices and was then fuelled by the devaluation of the currency, hyperinflation, fiscal austerity, and high interest rates. Economic recovery will likely be supported by buoyant mining output and exports, in part due to the completion of significant investments in 2017. Output is set to be boosted by the opening of the Merian gold mine, the expansion of the Staatsolie oil refinery, as well as by the resumption of bauxite production. The moderate rise in commodity prices (gold, aluminium, oil) will also boost state revenues and FDI's in the energy and mining sectors. The construction sector will benefit from these new investments, especially after the discovery of new gold reserves close to the Gross Rosebel mine. In addition, exports (excluding commodities) will continue to benefit from the depreciation of the local currency, which increases their competitiveness.
Public investment is likely to remain modest, due to financing constraints and a fiscal consolidation policy. Austerity measures (higher taxes on fuel, gradual removal of subsidies on water and electricity) will contribute to the weakness of private consumption. In addition, inflation, although markedly declining, will remain high and put pressure on household purchasing power. A tighter monetary policy will help lower inflation as will the fading impact of the devaluation of the Suriname dollar on the price of imported goods.
Ongoing Fiscal Consolidation and Current Account Surplus
Higher mining revenues, together with fiscal consolidation, will help to gradually reduce the fiscal deficit, mostly financed by international donors. Fiscal austerity, in place since 2016, comprises a freeze on civil service wages, the introduction of VAT at 10% in 2018, cuts in subsidies on water and electricity, and cuts in operating expenditure. This was written into a stand-by arrangement with the IMF, which has allowed the disbursement of USD 478 million over two years. In May 2017, the government canceled this agreement, judging that it no longer needed IMF aid, while pursuing its reform programme. As a result, the deficit will be funded through international loans (specifically from the Inter-American Development Bank, the Caribbean Development Bank, and the World Bank), as well as by issuing debt on international markets. However, the country’s fiscal position remains worrying – especially in the event of another depreciation of the local currency, which would put pressure on the substantial level of public debt, mostly denominated in foreign exchange. Moreover, the parliament has approved the creation, from 2018, of a sovereign wealth fund managed by the central bank for savings of mining revenues, in order to mitigate the future disappearance of this income source and the volatility of prices.
The current account surplus is expected to fall in 2018, but should still remain relatively high. It will mainly be supported by rising exports of gold and oil associated with increased production capacity. In addition, exports of non-oil products (rice, wood) will be more competitive due to the earlier depreciation of the local currency. Nevertheless, the trade surplus will likely fall as a result of more expensive imports. Monetary policy is expected to remain cautious, while the central bank’s room for maneuver will continue to be limited by the weakness of the foreign exchange reserves (less than two months of imports). However, these are expected to increase thanks to the current account surplus and the removal in May 2016 of the United States currency peg.
A Government Which is Losing Popularity
President Désiré Bouterse, leader of the National Democratische Partij (NDP), is expected to pursue his reform programme so as to maintain the support of international donors, despite the large-scale protests in 2017 against austerity (especially the hike in electricity and water prices). Despite his growing unpopularity and his legal problems (resumption of proceedings for murder during the coup d’état in 1982), President Bouterse is expected to remain in post until his term of office ends in 2020. Internationally, President Bouterse’s relations with the Netherlands and the United States will remain tense. Over the past fifteen years, the former dictator is alleged to have secretly supported drug trafficking and money laundering.
Restricted access to credit, underdeveloped infrastructure, and a lack of skilled labor will continue to impact the business climate.