PARAMARIBO, Suriname, Jun. 1, CMC – International ratings agency Fitch says the loan of US$478 million secured from the International Monetary Fund (IMF) will help improve external liquidity and stabilize exchange rates.
“The IMF’s two-year stand-by arrangement with Suriname will help …,,in the short run by providing a liquidity credit line (including a US$81 million immediate disbursement) to the central bank. Strengthening fiscal policy and reducing external vulnerabilities are key to improving Suriname’s resilience to commodity price shocks and stabilize its ratings,” Fitch said in a press release on Wednesday.
The agency said however that the fiscal challenges will remain – “Implementation of public-financial management measures is key to restoring Suriname’s macroeconomic stability and reducing inflation,” it recommended. Suriname’s credit profile will likely stabilize only if the country builds a track record of compliance with the IMF economic stability program.
Fitch recommended that the introduction of value-added tax could diversify the government’s revenues away from volatile oil and gold prices. In addition it said “the reduction of electricity subsidies, begun in October 2015, is the most important part of the fiscal consolidation in the short run. While electricity tariff increases are politically unpopular they could save the government and taxpayers between 1.5% and 5% of GDP annually.”
The electricity price hike sparked street demonstrations in May. Opposition parties, workers unions and private citizens voiced their opposition against Government’s plans to cut electricity subsidies, even as Government explained that economic stability measures that it was introducing were crucial.
Suriname is facing with a near-200 per cent inflation, a skyrocketing exchange rate and rising costs of living.
The crisis is attributed to plummeting world prices for main commodities oil and gold and the departure last year of bauxite miner Suralco, but many, including the opposition also blame the Cabinet’s exorbitant spending.
IMF approved the US$478 million loan last Friday “… to support the government’s economic reform program.” The loan is for a term of two years to help the country bridge the current economic crisis; Government has said it expects that the economy will have bounced back by then.