On September 30, 2013 the Executive Board of the International Monetary Fund discussed the recent macroeconomic developments in Suriname, as well as the prospects and risks for our economy.
In a press statement, the Fund expressed that it was pleased about Suriname’s macroeconomic output; however it also pinpointed the bottlenecks which our country would need to overcome in order to achieve sustainable growth in a world economy where frequent large fluctuations in commodity prices, production and demand occur.
First of all the Fund indicated that in 2012 the Gross Domestic Product (GDP) grew by an estimated 4.75 percent; one of the strongest growth rates in the region. Inflation fell sharply during 2012 and 2013 but our fiscal position weakened. This partly due to falling world market prices for our main export products. This meant the government received less income, but could not apply the brakes right away because of obligations to a wages increase, subsidies and increased capital expenditures. The Fund notes that due to global developments as well as the growing domestic demand, Suriname’s balance of payments position has deteriorated. It believes, however, that Suriname’s import coverage of international reserves and foreign debt position still offer a strong foundation for growth.
The Central Bank of Suriname welcomes the assessment of the Fund and says it is continually evaluating and learning from the experiences. For this reason, they do not find it surprising that, over the two past years, Suriname has 5 times been rewarded with an upgrade from the major rating agencies for its consistent macroeconomic policy. Suriname has followed a course based on reaching greater macroeconomic stability, the elimination of external arrears and working towards establishing solid financial legislation and institutions. This is hugely appreciated and seen as an improvement in its economic resilience.
At the same time, the Central Bank bears in mind the IMF’s warning on high government spending in times of reduced income. This also falls under the umbrella of macro stability. The Bank intends to strongly recommend to the government that it allow the moderation and prioritization of current expenditure to continue. It is essential that better planning and fiscal-financial accountability are implemented. The government will have to carry out an in-depth analysis of the subsidy policy and take decisive steps to get the state-owned companies sufficiently healthy so that they can operate independently from State financing. Furthermore, the government will have to give priority to investment projects. Implementation will only have to take place if the capacity for realisation and financial space are present. Revenue-increasing measures are also necessary, but it is essential that the man in the street is not affected.
In the long-term, fiscal consolidation and institutional strengthening are also required, says the Central Bank.
The country’s strong dependence on the export of raw mining materials should be phased out by encouraging more diversification. However, it is necessary to skim off and save the extra income from the high mining revenue. This will be able to provide financial buffers in times of external vulnerabilities. Reserves must be built up over a sufficient period and the temptation to spend them must be resisted because only in this way will future generations benefit from the current prosperity. It is to be welcomed that the Ministry of Finance has already taken far-reaching steps by automating the financial management process (Free Balance as an automated Public Financial Management program is already running as a pilot at three ministries).
Realising its responsibility, the bank recently came out with a tightening of its monetary policy. This turned out to be necessary because loans by commercial banks had grown enormously. The Fund also makes mention of this in its statement. The annual 17.25 percent growth in bank credit to the private sector extends far beyond the growth of the economy, and is heavily concentrated: most of the credit went to the commercial and residential sectors.
The Bank says it will not hesitate to take additional measures if the fiscal situation and credit growth do not stabilize to levels that do not entail overheating, intolerable debt burdens or maintain credit dollarization. Its goal is to strengthen confidence in the Surinamese currency and keep the exchange rate stable.
The Central Bank remains committed to further institutional and judicial strengthening of the financial sector, including the preparation of monetary policy through open market operations, the supervision of money transmitters, the strengthening of the anti-money-laundering directives and the regulations for combating the financing of terrorism. Furthermore, it is also working on the establishment of a credit reference agency and deposit insurance regulations, and the supervisory framework of the financial institutions is being strengthened. The new foreign currency law that is to replace the 1947 Act will shortly be discussed with stakeholders. The Bank also wishes to indicate the following draft laws have already been proposed to the Ministry of Finance: Capital Market draft law, Supervision of Insurers draft law and Credit Registration Agencies draft law, so that they might find their way to Parliament via the Council of Ministers and the State Council. These draft laws were drawn up after intensive and very fruitful talks with all stakeholders. With this series of new laws and regulations, the Central Bank hopes to succeed in further strengthening the institutional framework of financial establishment.