Economic analysis
Suriname

Suriname

Population 0.6 million
GDP per capita 6,191 US$
D
Country risk assessment
C
Business Climate
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Synthesis

major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 2.6 0.3 -13.1 1.5
Inflation (yearly average, %) 6.9 4.4 49.8 51.0
Budget balance (% GDP) -7.7 -11.0 -12.9 -8.0
Current account balance (% GDP) -3.0 -11.1 -8.0 -6.6
Public debt (% GDP) 75.6 82.3 145.3 107.7

(e): Estimate (f): Forecast

STRENGTHS

  • Mineral resources and agricultural potential (rice, wood)
  • Support from international donors and foreign investors

WEAKNESSES

  • Undiversified economy: dependent on oil, gold and aluminium
  • Large informal economy (30% of GDP) with casinos, gold panning and smuggling
  • Difficulties in the management of state-owned enterprises
  • Inadequate transport infrastructure (roads, ports)
  • Difficult business climate, ineffective justice system
  • Vulnerable banking sector: high share of non-performing loans and low profitability

Risk Assessment

High inflation will hold the recovery back

The COVID-19 crisis caused the already fragile economy to contract sharply in 2020. In March 2020, borders were closed and the government imposed a partial lockdown, a night curfew and stopped public transportation. A second wave of the pandemic began in September 2020. Despite this, health measures were eased in October 2020 and remained more flexible than in the first wave, with many places staying open under health protocols and international flights to and from the Netherlands continuing. In 2021, investments will remain limited due to political instability. Investments in the extractive industry are not expected to extend beyond those already planned, unless there are new discoveries of significant resources. However, the extractive industry will be the driving force behind the recovery, with Newmont's Merian gold mine set to increase production from 400,000 to 500,000 ounces of gold per year over the period 2021-2025. At the end of September 2020, the Central Bank of Suriname sharply devalued the Surinamese dollar against the U.S. dollar from SRd 7.46 to SRd 14.15 for USD 1, thus closing the gap between the official exchange rate and the parallel market rate. This should have consequences for inflation, which is soaring, and thus hamper private consumption (30% of GDP) but also private investment as the cost of imports rises.

 

Debt restructuring under negotiation

An amendment to the National Debt Act in November 2019 removed the 60% GDP ceiling on public debt, following persistently high deficits. External debt, which is increasing significantly, is at risk of default. Debt service payments correspond to 40% of total public spending. In July, the government reached an agreement with private creditors to defer payment of USD 15 million (on the USD 125 million due in 2023). After a grace period of 30 days from October 26, 2020 after defaulting on interest payments of USD 25 million for its 2026 bonds, the government reached an agreement with creditors to defer at least until March 31, 2021 the payment of USD 48.5 million in debt service (2023 and 2026 bonds) in December 2020. . It hopes to reach an agreement with the IMF on restructuring its external debt. However, the government's fiscal consolidation measures will increase the cost of living while bringing down incomes, as they consist in reducing electricity and water subsidies, curbing wage growth in the public sector, and limiting hiring in the public sector (which employs 60% of the labour force). Revenues are expected to increase thanks to revenues from gold production and a new solidarity tax on the two highest income brackets.

The current account deficit is expected to remain high in 2020. Total exports of raw gold (61%) are increasing in line with production, while imports are declining due to lower demand for capital goods and oil as domestic production increases. The balance of services (15% of GDP in 2019) and the balance of investment income (10% of GDP in 2019) are structurally in deficit, but should remain stable. Expatriate remittances, which fuel the transfer surplus, are expected to decline in line with the difficult global economic situation. The current account deficit, which is usually financed by FDI, is expected to suffer from the downturn in hydrocarbon investment. The devaluation of the Surinamese dollar is expected to make up for the balance of payments deficit. Foreign exchange reserves will remain low, at less than three months of imports.

 

Hopes for a return to normality in political life

Following the parliamentary elections of May 2020, the Vooruitstrevende Hervormings Partij (VHP) won 20 of the 50 seats and became the largest party in the country. After a decade in power, the National Democratische Partij (NDP) refused to participate in the presidential election of July 2020, so Chandrikapersad "Chan" Santokhi of the VHP was elected president. The VHP's victory was the result of voter fatigue with the NDP, whose terms were marked by economic mismanagement and corruption. Former dictator Désiré Bouterse, leader of the NDP, was sentenced in November 2019 to 20 years in prison for the 1982 killings of 15 political opponents. Internationally, Santokhi is expected to strengthen ties with the United States and the Netherlands, whose relations with the former president were strained. Meanwhile, the border with French Guyana remains unclearly defined and is a continuous source of rivalry between the two countries. For this reason, since the beginning of 2019, the governments of both countries have been working to meticulously identify and determine the national ownership of islands. On 4 September 2020, the Prefect of French Guyana met with five ministers from the new government regarding border management, with the aim to implement measures to regulate traffic while building a formal relationship of trust with France. Limited access to credit, underdeveloped infrastructure and a lack of skilled labour will continue to be a drag on the business environment.

 

Last updated: February 2021

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