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Country Report Suriname

Country Report

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The Surinam economy is growing robustly, and growth is estimated at around 4% in 2014 and 2015. President Bouterse remains the favourite for the 2015 presidential elections, despite tensions within his coalition.

Strengths (+) and weaknesses (-)

(+) Public finances are relatively healthy

The public debt level 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) stated on the balance of payments.  

 (-) Narrow economic base

The Surinamese economy strongly depends on commodity exports. A fall in commodity prices or a (temporary) shutdown of the production would hamper economic growth considerably.

 (-) Weak institutions

Although domestic and foreign entities are largely treated equally, Suriname’s legal framework for investment and doing business is classified as one of the weakest in the region. 

Key developments

1. Robust economic growth

The Surinamese economy is expected to grow robustly and steadily at around 4% in 2014 and 2015 (economic growth averaged 4.1% in the last five years). The main growth driver will continue to be the country's mining sector, also due to the opening of a new gold mine in 2013 and continued investments in the alumina and bauxite industries. A downside risk to this forecast is that companies in the mining sector, as well as other industries, face frequent strikes, which could deter further investment. The risk of a new correction in commodity prices would also limit further investments in the industry. The exports of only three commodities, crude oil, alumina and gold, represent more than 80% of total export receipts, meaning the structure of the current account is vulnerable. Volatility in the commodity markets thus remains a major risk to the Surinamese economy, even though the IMF has recently concluded that the impact of gold price volatility on economic growth is lower than expected, see the next paragraph. 

Figure 1: Economic growth
Figure 1: Economic growthSource: EIU
Figure 2: Gold prices
Figure 2: Gold pricesSource: Reuters Ecowin

2. Gold price stress test by IMF

A recent IMF Article IV consultation modelled the impact of lower gold prices on Suriname's broader economy. Interestingly, the IMF tested a price crash to a low of USD 1,000, per ounce and concluded that sustained lower prices would have only a mild impact on the economy. It also assumed that mines remain viable and investment projects are not derailed. Gold is Suriname’s largest export product, as it accounted for 36% of total exports and 67% of Suriname's merchandise exports in 2012, and related income provides an important boost to domestic demand. The fiscal impact is less than this would suggest, given that small-scale miners produce roughly 60% of total gold output and remain largely outside the tax net. The Iamgold's Gross Rosebel mine accounts for the remaining 40% of output and contributed 10% of total government revenue in 2012. The IMF's current baseline scenario was based on projections of an average gold price of USD 1,251 per ounce in 2014, rising to USD 1,336 by 2018. The IMF modelled two alternative stress scenarios over a period from  2013 to 2018: one with an average of USD 1,200 per ounce and a second with an average of USD 1,000 per ounce. At the higher price, the IMF concluded that real GDP growth would be depressed by a mere 0.1% annually. However, the resulting fiscal deficit would be wider by 0.2% of GDP in 2014 and by 0.5% in 2018, owing to a lowering of the positive fiscal impact expected from planned increases in gold mine capacity. The lower USD 1,000 per ounce scenario, on the other hand, would generate greater stresses and cut GDP growth by an annual 0.4%, with the fiscal deficit wider by 1.5% of GDP in 2018. The negative impact on Suriname's balance of payments would harm accumulation of foreign currency reserves, with net reserves would fall to USD 180m, equal to less than one month of import cover, by 2018.

3. Javanese Party ousted from the coalition

President Dési Bouterse, leader of the Nationale Democratische Partij (NDP), expelled the main ethnic Javanese party, Pertjajah Luhur (PL), from the governing Mega-Combinatie coalition this year as he lost confidence in any further co-operation with the PL. The government now holds the slimmest of majorities, with just 26 out of the 51 seats in the National Assembly. Tensions with the PL were broad-based within the coalition. Long-running frictions with the PL party leader, Paul Somohardjo, came to a head on April 14. The PL stated that the reason for its ouster was its resistance to efforts by the president to take control of the Ministry of Internal Affairs, which administers Suriname's electoral machinery. PL members held three cabinet posts, including internal affairs. The opposition criticised the move, claiming that the government intends to manipulate the electoral process in its favour. The PL holds six National Assembly seats and will now side with the opposition. One year before the presidential and legislative elections are scheduled, in May 2015, these developments do not necessarily mean that Bouterse will face a more difficult path to re-election. A two-thirds majority of legislators is needed in the National Assembly to elect the president. In case such a majority is not reached after the May 2015 election, a People's Assembly made up of members of local councils must be convened to choose the president by simple majority. However, the councils are elected at the same time by a winner-takes-all system, under which the most popular party takes all the seats in each council. This  system favours Bouterse's NDP, which won the largest share of the vote previously. 

Factsheet of Suriname
Factsheet of SurinameSource: EIU, CIA World Factbook, UN, World Economic Forum, Transparency International, Reporters Without Borders, World Bank.

Background information

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, which was created in the aftermath of the 1980’s military rule and civil war. Due to the extension of the amnesty period, from 1985 back to 1980, Bouterse can no longer be prosecuted for the murder 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 indicators of Suriname
Economic indicators of SurinameSource: EIU
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