At the conclusion of its regular 2016 Article IV consultation, the international lending agency said that for 2016, a GDP contraction of 9 per cent is projected, following a 2.7 per cent contraction in 2015.
The IMF has attributed the deep recession to several factors, including spillovers from the closure of the Suralco alumina plant and the contractionary impact of the fiscal adjustment.
At a press conference on Friday, IMF’s mission chief for Suriname, Daniel Leigh, noted that the government brought the fiscal deficit below six per cent of GDP and implemented a number of planned reforms, including preparations for the introduction of Value Added Tax (VAT).
But the IMF says the decisions to freeze fuel pump prices in nominal terms and partially reverse the increase in electricity prices, is reducing available public sector resources by an estimated 0.8 percent of annual GDP per month.
According to Leigh, without a significant policy adjustment, Suriname risks deepening instability, with sharp exchange rate depreciation and accelerating inflation.
He added that there is limited financing to cover essential government spending—including public wages, pensions, and social support to the most disadvantaged—and the risk of resorting to central bank financing of the budget exists.
The IMF representative also argued that there are few policies in place to address rising inflation, international reserves are critically low and, owing to the recession and currency depreciation, banks face risks of a further deterioration in credit quality.
While president Desi Bouterse recently said that the government is holding off phasing out of electricity subsidies due to raising concerns within the populace, the IMF said such was not a good move.
The institution warned that due to the dire economic situation restructuring measures such as raising fuel taxes, containing the wage bill for public servants and raising electricity tariffs should be implemented as soon as possible.
“Our assessment is that it’s urgent to take action because people’s purchasing power is going down”, Leigh said regarding the current economic situation in Suriname.”
But on a positive note, Leigh said that income from the Merian gold mine, which officially opened Thursday, will support economic activity, and it is expected that the recession will ease in 2017.
- Countries: Suriname