Further damages to the export sector

Happy Monday! 

In this week's newsletter, we cover the embargo placed on Suriname by the KLM (Royal Dutch Airlines) restricting its cargo transport from Paramaribo to the Netherlands. The bloated civil sector and further issues with the VAT's implementation. 

KLM's embargo on Surinamese exports has massive ramifications

• KLM has imposed an embargo on cargo transport from Paramaribo to the Netherlands due to a significant reduction in allocated capacity. KLM operates four flights per week, exporting 50-150 kg of gold and at least 30 tons of agricultural products, worth around US$8 million, per week. 

• As a consequence, tons of cargo will be unable to be transported, leaving the economy and businesses to deal with the ramifications. The embargo will decrease the exports of gold, fruit, vegetables, and parcels, thus hampering the development of the export sector and the economy as a whole due to the limited capacity of the SLM.

• The MP Radjendre Debie asked the government to explain the decision and if possible answer in the National Assembly. However, society is in the dark about the reasons for the embargo, with speculation being that it is due to damage to the runway.

• The devaluation of the SRD exacerbated the financial-economic crisis in Suriname and the KLM embargo will only worsen the situation. The government's efforts to stabilize prices have so far failed, and the KLM embargo will negatively impact the 'ease of doing business' in Suriname. This further development will lead to more problems for the government as it will lead to decreasing tax payments, employment, a decrease in US dollars in the country, and a reduction in economic dynamism in the country.

What to do with a bloated civil service? 

• The member of Parliament, Soewarto Moestadja, former Minister of Labor has found that over 53,000 civil servants have been paid and 62,382 are on the government's pay list as of December 2022 - as a result of the country wide survey conducted by the government. Moestadja categorizes the government-paid personnel into 8 groups: permanent contract employees, connected service employees, subsidized institution employees, policy officers, clergy, legal construction payments, ghost civil servants, and long-term sick leave employees. 

• Moestadja believes the government's bloated personnel administration is due to the lack of compliance with the Personnel Act. The Personnel Act has led to debate in the National Assembly with opposition members calling it "gangster legislation". 

• The law aims to require civil servants to register or face a potential loss of salary, but initiators deny the intention to withhold salary. The opposition argues that the law is a result of IMF's requirement to reduce the number of civil servants. 

• 90% of civil servants have already registered, but 10% remain and are facing threats without legal basis. Some Assembly Members raise concerns over the approach to registration, questioning the method and cost to the country. They suggest that the government should come up with solutions on its own, rather than following IMF's lead. 

• Members in favor of the act argue that the opposition, of which Moestadja is a part, is responsible for the bloat in civil servants plaguing the country and are aiming to derail progress. The government and initiators will continue the debate on the issue.

Implementation of VAT in Suriname continues

• The Suriname Tax Authority explained to international representatives about the value-added tax (VAT) and sales tax. Particularly focused on tax rebates of the various parties. The information session by the Tax Authority was intended for the diplomatic corps, consulates, and international organizations. 

• The director of the Tax Authority clarified that these institutions or individuals are exempt from taxes and gave an explanation of how VAT is collected in Suriname. After discussing practical solutions for their exemption, it was concluded that the most practical solution would be to pay the VAT and claim it back from the Tax Authority, as not all stores are electronically equipped to show the exemption. Importation of goods by the target group is already exempt from taxes. 

• At the same time, the value-added tax (VAT) continues to have unintended consequences on the country. Entrepreneurs producing locally-produced products have argued that the VAT adds another hurdle to doing business in Suriname, on top of the recent economic crisis and the covid-19 pandemic. 

• They argue that on top of these crisises, it is particularly difficult to get Surinamese consumers to embrace new products and foresee continuing struggle in the future.