Standard & Poor’s downgrades Suriname to B

On April 26, 2017, S&P Global Ratings lowered its longterm sovereign credit rating on the Republic of Suriname to ‘B’ from ‘B+. The outlook is negative. At the same time, S&P Global Ratings revised its transfer and convertibility assessment on Suriname to ‘B+’ from ‘BB-’. S&P Global Ratings also assigned its ‘B’ senior unsecured debt rating to Suriname’s 10-year US$550 million bond and affirmed its ‘B’ short-term issuer credit rating on the country. The downgrade reflects a worsening of its assessment of Suriname’s financial profile and economic strength following a significant economic contraction in 2016 that resulted in higher government debt, a substantial currency devaluation, and high inflation. Suriname’s per capita GDP fell 7.5% in 2016 (after falling 2.0% in the previous year) to about US$7,400. Despite a projected stabilization in GDP in 2017, we are lowering our economic assessment because economic growth rates are below the range we expect for countries at a similar level of per capita GDP. Real GDP will get a boost in 2017 by a full-year of production at Suriname Gold Co. LLC’s recently opened Merian gold mine. However, weak domestic demand because of continued fiscal adjustments and recent declines in real wages will offset this. Neither gold nor oil represents more than 20% of GDP. Nevertheless, the concentration in natural resources makes the economy’s sensitive to commodity price fluctuations. Poor economic management has undermined the sustainability of Suriname’s public finances. The IMF approved a US$480 million stand-by agreement with the government in May 2016, but the program has stalled. The government has not met targets for raising fuel taxes and eliminating electricity subsidies. S&P’s ratings on Suriname reflect the country’s lack of monetary flexibility. Small local capital markets and high dollarization of both bank assets and liabilities constrain the effectiveness of monetary policy. The central bank has limited monetary policy tools. Its primary tool is reserve requirements on local and foreign currency deposits, which it uses to manage credit growth in the local banking system. S&P believes that Suriname’s new foreign exchange auction, which replaced its former long-standing fixed rate regime, could gradually increase monetary flexibility. The negative outlook reflects expectation that there is an at least one-in-three chance of a downgrade over the next 12 months if the government fails to stabilize the recent deterioration in external liquidity, reduce fiscal deficits, stabilize its debt burden, and restore investor confidence. S&P expects that the government will contain spending pressures and move toward strengthening its revenue base. Steps to boost investor confidence and GDP growth would increase government revenues, reducing the burden of interest expense on the government’s budget and improving fiscal sustainability. These improvements, combined with declining general government deficits and the return to current account surpluses and a stronger external position, could lead to an outlook revision to stable.