High inflation takes its toll

With the economy already reeling, the COVID-19 pandemic caused a sharp contraction in activity in 2020. The country is still struggling to recover, and 2022 is expected to see very modest growth.

In late 2020, Suriname defaulted on its public debt. To help cope with the crisis, the country negotiated an Extended Fund Facility with the IMF worth USD 690 million (about 15% of GDP) over 36 months. Although the agreement in principle was obtained in April 2021, the IMF gave its final approval in December 2021 after Suriname adopted a floating exchange rate regime in June 2021. This caused the national currency to depreciate sharply, and inflation soared, leading to the impoverishment of households, whose consumption (60% of GDP in 2019) was affected. As tax and monetary reforms are implemented, inflation should decline, but consumption will remain constrained in 2022 while the climate of uncertainty persists. Given the vaccination rate (40% in December 2021), the population remains highly exposed to health risks, and the government is maintaining drastic distancing measures.

Foreign investment should be buoyant. The discovery of new hydrocarbon deposits, along with the exploration of new blocks off the coast, will generate, probably as early as 2022, substantial investments by major companies in this sector, which will constitute a source of growth. DP World (Dubai) is already expected to invest USD 100 million in 2022 to construct an offshore development base. However, for now, gold remains the leading export resource (more than 75% of the total, over a third of GDP), and the Merian mine operated by Newmont is expected to boost production from 320,000 to 350,000 ounces in 2022.

International assistance essential for debt restructuring

An amendment to the National Debt Act in November 2019 removed the 60% GDP ceiling on public debt, which had been breached because of successive high deficits against a backdrop of low growth. Following the devaluation of its currency and the downturn in activity, the country faced a debt explosion and defaulted at the end of 2020. Suriname then began negotiations to restructure its debt with the support of the IMF. The government proposed a nominal debt haircut of 70% on the 2023 and 2026 Eurobonds (one-third of the total debt) and a 30% haircut for the official lenders (two-thirds of the obligation) but had not yet reached an agreement by the end of 2021. The government is working with IMF support on fiscal consolidation measures to reduce the sizeable public finance deficit. Planned actions include:

• Introducing VAT.
• Eliminating electricity and water subsidies.
• Reducing the public sector wage bill (one-fifth of the employed population) has ballooned in recent years.

All of these measures will directly impact the population. To address the crisis, in addition to the IMF Fund Facility, the country will receive financial support of USD 450 million from the Inter-American Development Bank between 2021 and 2025.

Its pushback effect on imports, the currency devaluation, and increased demand for gold, the country’s main export, saw the current account balance move into positive territory in 2020. The exact causes, strengthened by the shift to a floating exchange rate regime, kept the account in surplus in 2021. In 2022, slightly softer gold prices, coupled with the resumption of imports, both of consumer goods, which slowed during the crisis, and of capital goods, in response to investments, could push the current account back into deficit. The effect of the deterioration of the trade balance on the current version will be partially offset by increased remittances from expatriates in the Netherlands. The current account deficit is expected to be fully financed by FDI. Foreign exchange reserves represent about eight months of imports.

Hopes for a return to normality in political life, which continues to be based on ethnicity

In the May 2020 parliamentary elections, the Vooruitstrevende Hervormings Partij (VHP), which has historically represented the Indo-Surinamese population, managed to reach across ethnic lines to win 20 of the 51 seats in parliament and became the largest party in the country, leading a four-party coalition that gave the government an absolute majority. After a decade in power, the Nationale Democratische Partij (NDP) refused to participate in the July 2020 presidential election, so Chandrikapersad "Chan” Santokhi of the VHP was elected president. The VHP’s victory reflected voter fatigue with the NDP, whose terms in office were marked by economic mismanagement and corruption. Former president Désiré Bouterse, leader of the NDP, was sentenced in November 2019 to 20 years in prison for the extrajudicial killings of 15 political opponents in 1982 during the military dictatorship, a sentence upheld by a court martial in August 2021. Internationally, Santokhi has strengthened ties with the United States and the Netherlands after strained relations under the former president. The government will have the difficult task of carrying out the necessary but unpopular reforms that must be implemented to restore Suriname’s financial health.