IMF: “Suriname faces numerous challenges”

On December 19, 2016 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Suriname. The Executive Directors noted that “Suriname faces numerous challenges given a severe recession, rising government debt, and high inflation.” Directors agreed that ensuring a return to macroeconomic stability and growth will require decisive reforms. In this regard, they called for redoubled efforts to put the fiscal position on a sustainable track, reduce inflation, strengthen the financial sector, and stimulate private investment to foster sustainable and inclusive growth. Directors emphasized that fiscal consolidation should be at the center of the policy efforts. Achieving a primary surplus by 2018 is needed to put public debt on a downward path and avoid monetary financing. Directors welcomed the authorities’ intentions to eliminate energy subsidies in 2017, fully reinstate fuel taxes, and implement the VAT in 2018. They emphasized the need to refrain from large wage increases, and to launch a broad-based reform of the civil service. Directors called for mitigating the impact of macroeconomic adjustment on the most vulnerable by redirecting resources to the most disadvantaged.

To strengthen public sector resilience over the medium term, Directors emphasized the importance of institutional reforms to bolster fiscal discipline. They considered that a clear fiscal anchor together with a sovereign wealth fund would provide an important buffer against volatility in mineral revenue, and that a new public financial management law is needed to improve budget preparation and expenditure control. Directors considered that the central bank should adopt a more active approach to reducing inflation. They called for prompt initiation of open market operations and raising interest rates to positive levels in real terms to slow the pace of currency depreciation and restore confidence in local currency assets. Directors welcomed the authorities’ commitment to preserving exchange rate flexibility, which they saw as vital for rebuilding international reserves to adequate levels, and called for phasing out the central bank’s role as a distributor of foreign exchange to large importers.

Directors emphasized the urgent need to strengthen the framework for addressing banking sector strains. They underscored the importance of developing a contingency planning framework with clear modalities for providing emergency liquidity assistance, and promptly establishing a Financial Stability Committee to coordinate all aspects related to systemic stability and crisis prevention and management. Directors welcomed the development of a new bank resolution law and called for its expedited adoption, which would empower the central bank to promptly take preventive and corrective measures.

Further strengthening the Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) framework was also encouraged. Directors also called for an ambitious agenda of structural reforms to promote diversification of Suriname’s commodity-dependent economy and boost productivity growth. They encouraged reforms to improve the business environment, promote competition, and strengthen governance. Decisive steps to increase labor market flexibility, including investments in education, supported by a well targeted social safety net, would also help to promote job-rich and inclusive growth.