Press Release No. 23/159

Suriname and the IMF Reach Staff-Level Agreement on the Second Review of the Extended Arrangement Under the Extended Fund Facility

May 18, 2023

• The IMF staff team and Surinamese authorities reached a staff-level agreement on the second review of the authorities’ economic recovery program supported by the Extended Fund Facility (EFF). The review is subject to approval by the IMF’s Executive Board.
• Suriname’s economy continues its slow post-pandemic recovery, but the shock of higher commodity and food prices in the second half of 2022 on the Suriname’s import-dependent economy compounded significant pre-existing policy challenges and eroded performance under the program. The economic environment remains fragile, with rapid exchange rate depreciation and high inflation imposing a heavy burden on the society.
• The Surinamese authorities have made concerted efforts to bring the program back on track. The government’s near-term priority is to implement a prudent fiscal policy that is consistent with stabilizing the economy while protecting vulnerable households and supporting growth-enhancing investment.

Washington, DC: An International Monetary Fund (IMF) team led by Ms. Anastasia Guscina conducted virtual and in-person mission with the Surinamese authorities during May 8-16 to discuss policies to complete the second review of Suriname’s economic recovery program supported by the IMF’s Extended Fund Facility .

At the conclusion of the mission, Ms. Guscina issued the following statement:

“The IMF team and the Surinamese authorities have reached a staff-level agreement on the second review of Suriname’s economic reform program supported by the 36-month EFF arrangement. This agreement is subject to approval by the IMF’s Executive Board, contingent on the implementation by the authorities of prior actions and fulfillment of all relevant Fund policies. Upon completion of this review, Suriname will have access to SDR 39.4 million (about USD 53 million), bringing total program disbursements to date to SDR 118.2 million (about USD 159 million).

“Assuming concerted implementation of Suriname’s reform program, recovery will continue amid moderating inflation. Growth is projected to recover to 2.3 percent in 2023 and converge to the 3 percent potential next year, with real GDP remaining below its pre-pandemic level until 2028. Fiscal consolidation and monetary tightening will facilitate a gradual decline in inflation to 36 percent by end-2023. The authorities face important near-term risks including policy implementation challenges, both due to capacity constraints and a more challenging socio-political climate, and external risks from a renewed worsening in the terms of trade. Over the longer horizon, there are significant upside risks to growth due to the development of large new oil fields.

“In an effort to re-establish macroeconomic stability, the government has passed a conservative 2023 budget, which incorporates critical spending measures, including removing fuel subsidies, phasing out electricity subsidies, containing the public wage bill, while expanding social assistance spending and growth-enhancing infrastructure investment.

“Recalibrating the fiscal policy is key to protect the recovery and to support the most vulnerable. For 2023, the program targets achieving a primary surplus of 1.7 percent of GDP, about half of what was envisaged in the first review, allowing the authorities to increase spending on social programs and critical infrastructure. In 2024, the program targets a primary surplus of 3.5 percent of GDP, which is the medium-term anchor consistent with debt sustainability.

“Completing the ongoing debt restructuring negotiations with Suriname’s official and private creditors is a critical step in restoring the country’s debt sustainability. An agreement was reached with Paris Club (PC) creditors for a two-step debt treatment in June 2022, and bilateral agreements with most of the PC creditors have been completed. An agreement-in-principle with bondholders was reached on May 4, 2023. The authorities are actively negotiating in good faith with China and India on a debt restructuring agreement. On domestic debt, the government has completed the audit of supplier arrears and committed to clearing them, while strengthening public financial management to prevent accumulation of future arrears. In addition, the government has prepared a concrete action plan to complete ongoing domestic debt restructuring in 2023. There has been a good progress in negotiation on the restructuring of the legacy debt owed to the Central Bank of Suriname (CBvS), balancing the government’s financial constraints and CBvS’s financial health.

“The central bank has continued to implement the new reserve money targeting framework. However, the large increase in government spending and structural features of Suriname’s financial system, including uneven distribution of system’s liquidity, has made meeting the central bank’s monetary targets challenging, and interest rate transmission remains weak. To better absorb liquidity and help improve monetary transmission, the CBvS has increased reserve requirements on local currency deposits and provided guidance to contain the credit growth in the near term. The authorities remain committed to a free-floating, market-determined exchange rate. The central bank is taking important steps to improve its knowledge on the financial position and asset quality of the commercial banks and address any shortcomings, strengthen oversight, and develop modern crisis management capabilities.

“The authorities are making effort to strengthen central bank governance and address shortcomings in the anti-corruption and AML/CFT framework. The central bank is working to clear the backlog of audits of financial statements and to normalize the auditing cycle. A recapitalization plan for the central bank is being finalized and will have a clear target of the level of capital and a timeline for completion. The government intends to accelerate implementation of governance reforms in AML/CFT, anti-corruption, and public sector procurement.

“The authorities are working on critical structural measures including submitting to the National Assembly an amended VAT act to broaden the tax base, publicly announcing the planned reforms to electricity tariffs, and finalizing the roadmap for financial sector recapitalization and restructuring.

“The mission would like to thank the authorities for a collaborative and fruitful dialogue. A wide-ranging set of meetings was held with the President of the Republic of Suriname, the Chairman of the National Assembly, the Minister of Finance and Planning, the Central Bank Governor, the Minister of Justice, the Minister of Social Affairs and Housing, the Minister of Home Affairs, the Minister of Natural Resources, other senior officials, representatives of the private sector, civil society organizations, and development partners.