📈 Suriname receives positive economic growth projections

Happy Monday!

This week we cover the positive growth projections received by the IMF after years of stagnation in the country. The parliament voted to pass a transformative tourism law; while the government has reached a deal with its creditors around debt renegotiation. And lastly, we look at the continued fallout of the CBvS's open market operations.

Suriname has received positive growth projections after years of economic crises

• While many countries worldwide are dealing with various degrees of economic crisis due to tight monetary policy, higher interest rates, and inflation, Suriname is projected to grow into the future.

• Suriname's economic growth is slowly increasing, with an estimated growth of 1.3% for 2022 and a predicted growth of 2.3% for 2023.

• The mining sector remains the main source of financing for foreign transactions and the buildup of international reserves.

• The International Monetary Fund predicts an economic growth of 2.3% for Suriname in its latest World Economic Outlook, which could increase to 3% in 2024.

• The high government spending on subsidies has caused an over-liquidity in the economy, leading to a significant increase in the exchange rates of SRD against the Euro and US$ in the second half of 2022.

• Import inflation, exchange rate depreciation, and increased energy tariffs have contributed to high year-end inflation in 2022, with the state debt increasing by 51% in SRD due to rising drawdowns, backlogs, and exchange rate depreciation.

The country passes tourism laws to promote tourism

• The National Assembly of Suriname has approved two tourism laws after years of discussion.

• The laws aim to diversify the economy and develop sustainable tourism and include a Multi-Year Tourism Development Plan and provisions for decentralization and revenue sharing with local districts.

• The initiative was led by members of multiple political parties and supported by the Minister of Transport, Communication, and Tourism.

• The laws received a unanimous vote of approval from the National Assembly and aim to increase the country's earning capacity from tourism and focus on the importance of environmental and cultural sustainability.

Suriname is on the verge of reaching a deal with its creditors and preventing further defaults

• In more economic news, the Surinamese government is reaching a deal with its creditors to restructure $675 million in bonds.

• While the agreement could lead to losses that may amount to 25 or 30 percent for the investors involved in the deal, for Suriname, it would end years of multiple defaults. It could also lead to a resumption of an IMF programme in the country.

• The deal, however, may involve an instrument linked to oil royalties that could help compensate bondholders for losses. This was a sticking point in earlier negotiations between the parties.

• The final terms are yet to be agreed upon, but the deal represents a significant step for Suriname.

• As a deal with a bondholder is close, Suriname is also accelerating its negotiations with China.

• Suriname is trying to secure debt agreements and resume an IMF program that would provide necessary funding of around US$690 million dollars. The funding was unable to proceed in the prior instance due to the inability of the IMF to complete its reviews.

The open market operations from the Central Bank of Suriname (CBvS) continue to cause concern in the country.

• A main component of its determination is government spending. As a result, there is necessary coordination between the Ministry of Finance and the CBvS.

• Furthermore, the sale of foreign currency by the government to the CBvS was the biggest cause of the liquidity increase in the banking sector. This led to increasing OMO volumes and interest rates for commercial banks.

• As banknotes have increased in circulation, due to the sale of foreign currency to the CBvS, and its own deposits, oil companies have been unable to buy foreign currency for oil imports, and have bought currency via the foreign exchange market and now strongly influence the SRD liquidity sphere through commercial banks.

• The Open Market Operations are not the only cause of increasing liquidity, as government deficits are also to blame.

• The CBvS claims that without the OMOs, money creation because of state spending would be much higher, resulting in even higher exchange rates and inflationary pressure.

• The IMF has also rejected the attempts from the CBvS to incorporate a maximum interest rate, to maintain a free market.

• The bank has also claimed that the market-conforming interest rate transmission at banks has hardly started, although the issuance of Central Bank Certificates has brought some movement in the deposit rates of banks easing exchange rate pressures.

• Lastly, the bank has stated that inflation in the country may still be a concern due to cost-increasing measures and inflationary pressure from imports. But the bank has stated that stability between fiscal and monetary policy can ease these pressures.

President Santokhi’s take

• President Santokhi has stated the Open Market Operations (OMOs) were not executed properly by the CBvS

• He stated that the OMOs were carried out in the banking system with high-interest rates, while the money should have been withdrawn from society from day one.

• The International Monetary Fund (IMF) has recommended a flexible exchange rate, but other provisions have not been specified.

• The National Assembly will discuss measures to restrain the exchange rate, while government officials are holding discussions in Washington with the IMF.

• The subsidies for utilities will be phased out, and the burden will be borne by those who are most well-off.