CMC – The government of Suriname has reached an agreement with the International Monetary Fund (IMF) about resuming the monetary institution’s US$ 690 million financial aid programme.
In a release on Thursday, the international lending institution said the government ran into difficulties in mid-2022 just after the start of the programme that was financed under an Extended Fund Facility (EFF).
As part of its economic recovery plan, the government introduced several cost-increasing measures that put a heavy burden on citizens’ purchasing power.
The IMF noted that the situation was aggravated because, in addition to high inflation, the exchange rate of foreign currencies, which had been stable for some time, started to rise again, exacerbating the price increase of goods and services. Partly because the IMF had discontinued the financial support, the Surinamese government’s money shortage increased, as a result of which its social policy in particular did not come into its own. The intended social safety net for groups affected by the cost-increasing measures failed to materialise, resulting in increasing dissatisfaction and social unrest.
In a press release, the IMF mission stated that Suriname’s economy continues its slow post-pandemic recovery, but the shock of higher commodity and food prices in the second half of 2022 on Suriname’s import-dependent economy compounded significant pre-existing policy challenges and eroded performance under the programme.
The IMF also stated that the economic environment remains fragile, with rapid exchange rate depreciation and high inflation imposing a heavy burden on the society.
The release added that Surinamese authorities made concerted efforts to bring the programme back on track and the government’s near-term priority is to implement a prudent fiscal policy that is consistent with stabilizing the economy while protecting vulnerable households and supporting growth-enhancing investment.
An International Monetary Fund team led by Anastasia Guscina conducted virtual and in-person mission with the Surinamese authorities during May 8-16 to discuss policies to complete the second review of Suriname’s economic recovery programme supported by the IMF’s Extended Fund Facility.
“The IMF team and the Surinamese authorities have reached a staff-level agreement on the second review of Suriname’s economic reform program supported by the 36-month EFF arrangement. This agreement is subject to approval by the IMF’s Executive Board, contingent on the implementation by the authorities of prior actions and fulfilment of all relevant Fund policies”, said Guscina.
She noted that upon completion of this review, Suriname will have access to SDR 39.4 million (US$ 53 million), bringing total program disbursements to date to SDR 118.2 million (US$ 159 million).
“Assuming concerted implementation of Suriname’s reform program, recovery will continue amid moderating inflation. Growth is projected to recover to 2.3 per cent in 2023 and converge to the 3 per cent potential next year, with real GDP remaining below its pre-pandemic level until 2028″, Guscina added.
She further noted that fiscal consolidation and monetary tightening will facilitate a gradual decline in inflation to 36 per cent by end-2023. According to the IMF official the authorities face important near-term risks including policy implementation challenges, both due to capacity constraints and a more challenging socio-political climate, and external risks from a renewed worsening in the terms of trade.
“Over the longer horizon, there are significant upside risks to growth due to the development of large new oil fields”, she said.
In an effort to re-establish macroeconomic stability, the government has passed a conservative 2023 budget, which incorporates critical spending measures, including removing fuel subsidies, phasing out electricity subsidies, containing the public wage bill, while expanding social assistance spending and growth-enhancing infrastructure investment.
“Completing the ongoing debt restructuring negotiations with Suriname’s official and private creditors is a critical step in restoring the country’s debt sustainability”, said the IMF official.
An agreement was reached with Paris Club (PC) creditors for a two-step debt treatment in June 2022, and bilateral agreements with most of the PC creditors have been completed. An agreement in principle with bondholders was reached on May 4, 2023.
The authorities are actively negotiating in good faith with China and India on a debt restructuring agreement. On domestic debt, the government has completed the audit of supplier arrears and committed to clearing them, while strengthening public financial management to prevent the accumulation of future arrears. In addition, the government has prepared a concrete action plan to complete ongoing domestic debt restructuring in 2023. According to Guscina, there has been good progress in negotiation on the restructuring of the legacy debt owed to the Central Bank of Suriname (CBvS), balancing the government’s financial constraints and CBvS’s financial health.
She noted that the authorities are also making an effort to strengthen central bank governance and address shortcomings in the anti-corruption and AML/CFT framework and the central bank is working to clear the backlog of audits of financial statements and to normalize the auditing cycle. A recapitalization plan for the central bank is being finalized and will have a clear target of the level of capital and a timeline for completion. The government intends to accelerate the implementation of governance reforms in AML/CFT, anti-corruption, and public sector procurement.
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