lowdown in activity due to a drop in commodity prices
Activity will slow 2015 as a result of the drop in the prices of commodities on which the country’s exports are extremely dependent. The fall since mid-2014 in the price of gold, which accounts for more than 60% of the country’s exports, together with that for aluminium (bauxite), is slowing economic growth. The public investment plan to expand the “Tout Lui Faut” refinery should however limit the country’s dependence on refined oil product imports this year. The foreign trade sector should be sustained by foreign investments into the export oriented extractive industries. US (Alcoa, Newmont) and Canadian (Iamgold) mining companies are planning on investing to develop gold mines. The agricultural sector, heavily concentrated on the banana crop, is the sector employing the largest number of workers and the privatisation of plantations should stimulate investment and employment in the sector. The effects of public and private sector investments and a slowing of inflation (associated with lower food prices) should help maintain consumption.
Worsening public deficit and downward pressure on exchange rates
The budget deficit is likely to start rising again in 2015. Tax revenues from the extractive sector (more than 40% of all revenues, with 30% alone through the dividends paid by the national oil and gas company, Staatsolie) are suffering from the drop in the prices of gold and aluminium. As a means of dealing with the price volatility of basic products and to counteract the impact of these fluctuations on tax revenues, the government is considering the creation of a sovereign wealth fund to save the surpluses during times of high prices. In the meantime, the delay in forming a new government following the July 2015 elections is likely to push the VAT reform plan into 2016 despite the pressure from the IMF. In terms of spending, the relaunch of the public infrastructure investment plan, interrupted in 2014, is also likely to further increase the national debt. National debt should exceed 38% of GDP in 2015, with the State’s involvement in the project to develop a new gold mine, and the extension of the health insurance system.
Monetary policy should remain cautious through 2015. The Suriname central bank is focussed on ensuring the Suriname dollar (Sr$) remains in the band of USD 3.3 to 3.5 by using its currency reserves (approximately 3.7 months of imports, not including significant gold holdings). The impact of the decline in export earnings (the main source of foreign currency) on the country’s currency reserves is however feeding rumours around the possibility of a devaluation of the currency. In February 2015, its local currency was effectively devalued: the exchange rate against the dollar on the parallel market was thus trading at Sr$3.9 compared with Sr$3.34 on the official market. The currency swap contract with China (for around 158 million dollars), made available to importers of Chinese products, has however helped ease the downwards pressures on the Suriname dollar.
Worsening current account balance as imports increase
The current account balance is likely to continue to deteriorate in 2015 because of the growth in imports, at the same as time as export earnings slow with the fall in commodity prices (gold, aluminium and oil). These imports are mainly capital goods associated with the public and private investment programs for infrastructure projects and productive industries. The financing need should be partly provided by foreign investment flows and by public debt.
No surprise as Désire Bouterse is re-elected president
The President Désiré Bouterse (70), leader of the National Democratische Partij (NDP), was re-elected President of Suriname in the National Assembly on 16 July 2015 by acclamation in the absence of any opposition candidates and despite the scandals engulfing him and his family (arms and drugs trafficking, murders). In the parliamentary elections of May 2015, Désire Bouterse’s party won a majority of the parliamentary seats (26 out of 51 seats), but not the absolute majority (34 votes) required to elect the President. The opposition, V7 (a coalition of 6 other parties) won only 17 seats. Although they had a certain advantage, the former dictator and his Vice-President, Ashwin Adhin (34) benefited in particular from an absence of opposition candidates in the elections. The Parliamentarians were thus content to sign the attendance register. The formation of a coalition within the new government should nevertheless make it possible for Désire Bouterse to implement the unpopular reforms aimed at cutting back State spending.
On the international stage, the country’s relations with the European Union and the United States will remain tense in 2015. The President’s son, Dino Bouterse, who used to be Suriname’s Director of Antiterrorist, was sentenced by the United State to 16 years in prison for arms and drug trafficking.
Bron: Coface
– http://www.coface.com/Economic-Studies-and-Country-Risks/Suriname