20211222-IMF-Suriname_Request_for_an_Extended_Arrangement_under_the_Extended_Fund_Facility-Press_Release_Staff_Report_Staff_Statement_and_Statement_by_the_Executive_Director_for_Suriname_111页_1mb

IMF Country Report No. 21/280 Summary: Suriname

Core Content

The International Monetary Fund (IMF) approved a 36-month Extended Fund Facility (EFF) arrangement for Suriname in December 2021, with an amount equivalent to SDR472.8 million (about US $688 million or 366.8 percent of quota). This financial support aims to address Suriname's systemic fiscal and external imbalances, restore macroeconomic stability, and lay the groundwork for economic recovery.

The program is designed to support Suriname's homegrown economic plan, which includes:

• Restoring fiscal sustainability through a 10 percent discretionary fiscal consolidation of GDP.
• Protecting the vulnerable by expanding social safety net programs.
• Reducing public debt to sustainable levels.
• Upgrading the monetary and exchange rate policy framework.
• Adopting a flexible exchange rate to enhance resilience against external shocks.
• Stabilizing the financial system and improving its governance.
• Tackling corruption and strengthening the Anti-Money Laundering/CFT (AML/CFT) framework.

Main Objectives of the Authorities' Economic Plan

The authorities' economic plan has several key objectives, as outlined in the report:

A. Restoring Fiscal Sustainability

• The government aims to reduce the primary fiscal deficit to a surplus of 4.5 percent of GDP by 2024.
• A 10.5 percent of GDP reduction in the fiscal deficit is expected through discretionary fiscal consolidation and expected economic recovery.
• The fiscal consolidation is supported by structural reforms, including the implementation of a value-added tax (VAT) and an increase in royalty rates for gold production.

B. Protecting the Vulnerable

• The government has committed to expanding social safety net programs to cushion the impact of fiscal adjustment on vulnerable populations.
• A universal lump-sum subsidy is provided to households and businesses to offset the effects of electricity tariff increases.
• The subsidy targets the most economically vulnerable, with an average 50 percent reduction in their electricity costs.

C. Bringing Debt Down to Sustainable Levels

• The program supports Suriname's efforts to restructure its external debt, including negotiations with private and official creditors.
• The goal is to achieve debt sustainability by improving the external balance and restoring reserves.

D. Upgrading the Framework for Monetary Policy

• The Central Bank of Suriname (CBvS) has adopted a reserve money targeting framework as its nominal anchor.
• The CBvS has increased domestic interest rates to support its monetary policy goals.

E. Adopting a Flexible Exchange Rate

• The CBvS floated the currency in June 2021, following several devaluations in 2020 and 2021.
• The exchange rate is expected to stabilize and contribute to rebuilding international reserves.

F. Stabilizing the Financial System

• The financial system faces significant challenges, including high levels of non-performing loans (NPLs) and undercapitalization.
• The program supports efforts to improve capital adequacy and liquidity, as well as to address regulatory and supervisory deficiencies.

G. Contingency Planning

• The program includes contingency measures to address potential external shocks and maintain financial stability.

H. Improving Central Bank Governance

• The CBvS is undergoing reforms to enhance its governance and operational effectiveness.

I. Tackling Corruption, Improving Governance, and Strengthening the AML/CFT Framework

• The authorities aim to address systemic corruption and governance issues.
• Strengthening the AML/CFT framework is a key component of the reform agenda.

Key Information

• Fiscal Deficit: The overall fiscal deficit was 13.4 percent of GDP in 2020, with a primary deficit of 9.7 percent of GDP.
• Public Debt: Public debt stood at 148 percent of GDP at the end of 2020, with 28 percent owed to private external creditors.
• Inflation: Inflation reached 61 percent year-on-year at the end of 2020 and peaked at 74 percent in August 2021.
• Exchange Rate: The USD/SRD rate has depreciated by a cumulative 180 percent since January 2020.
• International Reserves: Usable international reserves are expected to be rebuilt to 175 percent of the ARA reserve adequacy metric.
• Banking Sector: The banking sector is severely undercapitalized, with a reported capital adequacy ratio of 12.4 percent in September 2021.
• Social Safety Nets: The government has expanded social safety net programs and introduced a solidarity tax to support fiscal consolidation.

Economic and Social Indicators

Program Strategy

• The program includes a 36-month arrangement under the Extended Fund Facility (EFF).
• The goal is to achieve a 14 percent increase in the central government primary balance over 2021–2024.
• The program will be supported by technical assistance from the IMF, the Inter-American Development Bank, and the World Bank Group.
• The program includes a clear timeline for reviews and disbursements, with an immediate disbursement of SDR 39.4 million (about US $55.1 million).

Program Risks

• The program faces risks related to the implementation of fiscal and structural reforms.
• The effectiveness of the VAT implementation and royalty rate increases is contingent on legislative and administrative support.
• The success of the program depends on the ability of the government to maintain macroeconomic stability and address the underlying causes of the economic crisis.

Staff Appraisal

• The IMF staff report highlights the need for structural reforms and fiscal discipline to restore macroeconomic stability.
• The program is expected to help Suriname rebuild its foreign reserves and reduce inflation.
• The staff emphasizes the importance of addressing corruption and improving governance as part of the broader reform agenda.

Conclusion

The IMF's approval of the Extended Fund Facility arrangement for Suriname is a critical step in addressing the country's systemic fiscal and external imbalances. The program supports the government's efforts to restore macroeconomic stability, reduce public debt, and improve the institutional capacity of the financial system. The success of the program will depend on the implementation of structural reforms, fiscal discipline, and the ability to maintain macroeconomic stability.