Country Report Suriname
The Surinam economy has grown relatively rapidly recently. The country has a current account surplus and government debt is low at 20% of GDP. Shortcomings are weak external relations, weak institutions and a narrow economic base.
Strengths and weaknesses
Public finances are relatively healthy
Public debt is relatively low at 20% of GDP and Suriname intends to broaden its tax base in upcoming years.
A surplus on the balance of payments
Suriname has been running a large surplus on both its trade balance and its current account in recent years. However, the official data may overstate both surpluses, as there are large errors and omissions (of USD 375m) on the balance of payments.
Narrow economic base
As exports of goods consists for 92% of gold, aluminum and oil, the Surinamese economy strongly depends on commodity prices. A fall in commodity prices or a (temporary) shutdown of the production can hamper economic growth considerably.
Although domestic and foreign entities are largely treated equally, Suriname’s legal framework for investment and doing business is qualified as one of the weakest in the region.
1. Good economic growth forecasts, as investment continues
Economic growth has been robust in recent years, averaging 4.1% in the last five years. As 92% of the export basket consists of bauxite, gold and oil, Suriname benefited strongly from the price increases of these products that have taken place in the last three years (figure 1). An further expansion of the mineral sector is underway. However, this will also increase Suriname’s dependence on commodity prices. Suriname’s state owned oil company, Staatsolie, currently exports around 60% of its oil production, due to a lack of refining capacity. As a result, refined oil products must be imported, which leads to a negative oil trade bill. For 2014, the completion of a new refinery is expected, which will double the refining capacity. Suriname should then be able to refine all the oil it produces. Furthermore, Suriname is planning an USD 500 million bond issue to finance its participation in a new gold mining project. Part of the money will also be invested in Staatsolie, which recently launched its bidding terms for oil and gas exploration contracts. All in all, the economy is expected to grow by 4% to 5% in the coming two years. We note however that, as economic performance is strongly linked to the production of minerals, a strong fall of commodity prices or a production shut-down would have a strong negative impact on economic growth. Meanwhile, inflation fell back to 5.5% in 2012, after reaching 17.7% in 2011. The peak in inflation was largely due to a devaluation of the Surinamese dollar by 20% in January 2011 and a simultaneous 70% increase in the domestic fuel tax.
2. Current account surplus is sizeable, but may be smaller than the official data suggest
In 2012 Suriname was running a trade surplus of USD 781 million (16.5% of GDP). The country benefitted from higher commodity prices (figure 1) and slightly higher production volumes. Despite a negative service and income balance, there was a current account surplus of USD 241 million (6.4% of GDP, figure 2). As Suriname was running a surplus of USD 321 million on its financial account, in theory international reserves should have increased by USD 555 million. However, there is a gap of USD 375 million between the sum of the current account and the financial account and the increase of foreign exchange reserves. In the coming years the current account balance is expected to deteriorate, as imports of goods and services will probably rise due to an increase of FDI in new mining projects. Furthermore, higher profits and dividend payments will lead to an outflow of money on the income account.
3. Introduction of a sovereign wealth fund and VAT
The government intends to establish a Sovereign Wealth and Stabilization Fund in 2013. This would be a positive development, as such a fund would help the government to smoothen its expenditure. Furthermore, it will help the country to better deal with external shocks. Next to a sovereign wealth fund, the government intends to introduce a value-added tax (VAT) by the end of 2013. According to the IMF, the government has to step up, as the government is currently behind schedule. The introduction of a VAT would be a positive trend, as it would extend the revenue base of the government. In 2011, more than 40% of tax revenues came from the three companies linked to the production of aluminum, gold and oil, respectively Suralco, Lamgold and Staatsolie.
Suriname is a former colony of the Netherlands and has been independent since 1975. Suriname’s political situation is currently relatively stable, after president Bouterse formed a broad coalition, referred to as the MEGA Combinatie (MC), after the elections in 2010. The coalition consists of Bouterse’s own NDP party, the A-Combinatie (a coalition of multiple parties) and the Volksalliantie. Suriname’s external relations – and especially the relationship with the Netherlands – can be qualified as weak. This might be a problem in case Suriname needs external support. The relationship with the Netherlands deteriorated in 2010, when the Netherlands did not recognize Bouterse as Suriname’s new president, as he has been convicted for drugs trafficking in the Netherlands. In 2012 external relationships got a second blow due to the adoption of an amendment to the 1989 Amnesty Act. The Amnesty Act was created in the aftermath of the 1980’s military rule and civil war and expelled 20 offences committed between 1985 and 1992. Due to the extension of the amnesty period, from 1985 back to 1980, Bouterse can no longer be prosecuted for the killing of 15 political opponents in 1982.
Suriname’s economy is strongly dominated by the mining industry, which produces alumina, gold, and oil. The three commodities account for around 92% of Suriname’s exports, while 40% of government revenues can be linked to the mining industry. Suriname’s dependence on the commodity sector makes its economy highly vulnerable to commodity price fluctuations. However, in recent years Suriname has benefitted from the increase of commodity prices. Economic growth averaged 4.1% in the last five years.