Suriname experienced a triple commodity shock in 2015. The price of gold declined by 30 percent relative to 2012, oil prices declined by 56 percent relative to 2012 and alumina production came to a halt (Figure 1). With these three commodities being the mainstay of Suriname’s economy, it was like a “perfect storm”. The result was a sharp drop in economic growth and rapid deterioration of the country’s fiscal and external accounts. Gold, alumina and oil together accounted for 40 percent of government revenues in 2011. Because of the commodity shock, the contribution of exports of these three commodities to GDP significantly declined from 53.3 percent in 2011 to 25.1 percent in 2015 (Figure 2).
How things changed for Suriname post-commodity shock?
Suriname moved from being one of the fastest growing economies in Latin America and the Caribbean over the period 2001-2014 to experiencing the second largest economic decline in 2015-2016. The country’s average growth rate for the period 2001-2014 was 4.4 percent, the second highest in the Caribbean and fifth highest in Latin America and the Caribbean. This growth momentum was mainly driven by the commodity super cycle and came after decades of low and volatile growth. This is no longer true. Suriname recorded the second largest economic decline in real GDP growth in Latin America and the Caribbean for 2015-2016, only better than Venezuela (Figures 3 and 4).
Suriname’s fiscal performance improved during the commodity super cycle, compared to the previous eight years, but has weakened significantly since the commodity shock. A small primary fiscal deficit averaging 0.7 percent of GDP was recorded during the period 2001-2014, compared to an average deficit of 2.8 percent of GDP for the period 1990-2000. On the revenue side, a substantial increase in commodity related revenues contributed to a 464 percent increase in general government revenues from 2002 to 2015. Indeed, commodity related revenues increased from 24 percent of general government revenues in 2002 to peak at 40 percent in 2011, before declining to 15 percent in 2015. Strong revenue flows were accompanied by a sharp rise in government spending (581 percent) from 2002 to 2015, increasing annually by an average of 16.7 percent.
The sharp decline in mineral related revenues significantly contributed to rapid deterioration of the fiscal accounts. Suriname’s primary fiscal balance moved from a small deficit over the period 2001-2014 to the third largest deficit (6.3 percent of GDP) in Latin America and the Caribbean in 2015-2016.
Suriname’s current account balance moved from a small surplus to recording the third largest current account deficit in Latin America and the Caribbean. Suriname’s current account balance worsened sharply after the commodity shock from an average surplus of 0.4 percent of GDP in 2001-2014 to an average deficit of 10.5 percent of GDP in 2015-2016.
Suriname has moved over to the dark side of the debt-growth threshold (see Ruprah, Melgarejo, and Sierra, 2014). Suriname’s debt to GDP ratio is now the fifth largest in Latin America and the Caribbean. The country moved from having one of the lowest debt to GDP ratio (29 percent of GDP) in 2014 to the seventh largest (65 percent of GDP) in LAC in 2016. Weak economic growth, large fiscal deficits, and currency devaluation have been the main drivers of debt.
Never let a crisis go to waste: policy response and reform impact
The authorities outlined an ambitious adjustment program to restore macroeconomic stability and put the economy on a sustainable growth path, initially supported by an IMF SBA. Key measures of the program include cuts to government expenditure, flotation of the exchange rate, curbed monetary financing, initiated the phasing out of electricity subsidies, and began preparing for the introduction of a broad-based Value Added Tax (VAT) in 2018. In addition to these measures, the government has committed to undertaking broad-based structural reforms to improve productivity growth and diversification of the economy, and to develop a well targeted social safety net to protect the vulnerable from adverse effects of adjustments (see IMF 2016 for more details).
Some improvements to the fiscal and external accounts have been realized. The fiscal and external imbalances have declined and the IMF is projecting further improvements to the macroeconomic framework over the medium term-assuming the reform agenda continues. The authorities are also expecting mining revenue to improve in 2018 (Ministry of Finance of Suriname).
This crisis presents a great opportunity for policy makers to undertake much needed reforms. To the extent that this is achieved, Suriname can come out of this crisis stronger and more resilient to external shocks.
See forthcoming paper by Khadan, Jeetendra. “The Perfect Storm: Debt, Fiscal Adjustment and Growth in Suriname” for further analysis.