IMF concludes 2018 consultation with Suriname
WASHINGTON - On November 16, 2018, the executive board of the International Monetary Fund (IMF) concluded the 2018 Article IV consultation with Suriname.
Suriname’s economy has stabilized and is expected to further improve. Real GDP grew by 1.7 percent in 2017 after two consecutive years of contraction, supported by higher gold production and a pickup in commodity prices. The unemployment rate has also declined. Inflation has subsided to single digits as the exchange rate has stabilized, and the current account deficit fell to almost zero in 2017 from its 2015 peak.
Financial soundness indicators point to an improvement in the banking system, although important vulnerabilities remain. Recent indicators point to further improvements in economic activity this year. Real GDP growth is projected at 2 percent in 2018, followed by a gradual acceleration to 3 percent over the medium term.
This year’s Article IV consultation focused on the challenges ahead. Fiscal deficits are large, and public debt is expected to rise in coming years unless strong fiscal consolidation is implemented. The slow pace of reforms and a recent step-up in current public expenditures have the potential to worsen the fiscal situation in 2019-2020. The public financial management framework remains weak, although the authorities are taking steps to strengthen it. The monetary framework lacks standard instruments.
Despite improvements since 2016, pockets of vulnerability remain in the banking sector. Suriname’s economy remains heavily dependent on the mineral sector. This year’s Article IV consultation focused on policies to assure fiscal sustainability, strengthen the monetary framework, improve the resilience of the banking system, and boost potential growth through structural reforms.
Executive Board Assessment
Executive directors agreed with the thrust of the staff appraisal. They welcomed Suriname’s ongoing economic recovery, following the deep recession, which is underpinned by increased commodity exports. However, directors noted that the economy faces challenges arising from a weak fiscal position, rising public debt, an underdeveloped monetary policy framework, a vulnerable banking sector, and heavy dependence on the mineral sector. They encouraged the authorities to use the current economic environment to build policy buffers, enhance resilience, and promote diversified and sustainable growth.
Directors emphasized that priority should be given to strengthening the fiscal position and reducing public debt. They recommended that adjustment efforts should focus on reducing energy subsidies, containing the public wage bill, implementing a broad‑based value‑added tax, and continuing to improve tax and customs administration. These measures would put debt on a downward path and create space for public investment.
Directors called for a strengthening of the social safety net to protect vulnerable groups.
Directors welcomed the strengthening of the fiscal framework. They emphasized that further efforts are needed to strengthen revenue administration, improve public financial management, and strengthen the public investment system to improve public finances. Directors agreed that a fiscal framework focusing on the non‑resource primary balance could help safeguard long‑term fiscal sustainability.
While directors considered the current monetary policy stance to be broadly appropriate, they called for quick absorption of the excess liquidity in the banking system. Directors emphasized the need to strengthen the monetary framework by adopting reserve money targeting and developing open market operations and standing facilities to allow the central bank to effectively conduct monetary policy operations.
Directors underscored the need to strengthen both institutional and financial settings of the Central Bank. They agreed that maintaining a flexible exchange rate would support the economy’s adjustment to external shocks.
Directors recognized the recent improvements in the financial sector indicators but noted that vulnerabilities remain. They underscored that developing a robust contingency plan and bank resolution framework will help strengthen financial stability.
Directors noted the progress so far in the AML/CFT framework and encouraged the authorities to further strengthen this framework in line with the 2012 FATF standards, as it will help mitigate risks regarding the withdrawal of correspondent banking relationships.
Directors emphasized that structural reforms should focus on boosting productivity and diversifying the economy to foster sustained strong growth. They called for reforms to enhance the business climate and improve the environment for private investment. Priority also needs to be given to investing in education and increasing labor market flexibility while providing a meaningful safety net for the unemployed. Strengthening governance will also support investor confidence and promote growth.