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SURINAME defaults on Afobaka dam loan

PARAMARIBO -July 13, 2020 -  Fitch Ratings on Monday,  further reduced Suriname's creditworthiness from 'C' to 'RD' (restrictive default). The creditworthiness with regard to the Oppenheimer bond loan that expires in 2023 has been moved from 'C' to 'D', by default. This is the lowest credit score Suriname has ever received.

With the aforementioned loan, the government paid arrears of current accounts with Alcoa in order to take over the Afobaka dam. The write-down follows the agreement reached with bondholders to agree on a new repayment schedule, as Suriname is currently unable to meet its payment obligations.

Fitch believes that a material change to the terms of the original payment arrangements has been agreed to avoid a traditional default situation upon the expiration of the grace period on July 10. This is tantamount to debt restructuring and defaults on the criteria used by Fitch.

With the adjustment to the agreement, the repayment of US $ 15 million of the principal of the bonds maturing in 2023 has shifted to December 30 this year, followed by six half-year installments of US $ 18.3 million. Originally, as of June 30, the bonds had to be amortized via a principal repayment of US $ 15.6 million.

Fitch confirms the 'CC' rating on the US $ 550 million bond loan due to expire in 2026. The next coupon payment on this loan is on October 26 this year. In recent months and until last week, the three main rating agencies Fitch Ratings, Standard & Poor's and Moody's have continued to downgrade Suriname's credit rating as the country's financial and economic situation deteriorated.

Fitch expects the central bank to implement an exchange-rate adjustment in the near term, similar to recent post-election periods. The parallel exchange market continues to show a material premium over the official stabilized SRD-USD exchange rate. By Fitch's calculation, Suriname's unencumbered international reserves fell 40% to USD187 million at the end of May since December 2019, extending a 45% cumulative decline during calendar year 2019. Fitch's calculation excludes USD411 million cash reserves of commercial banks and using Fitch's gold price assumption.

Suriname's new government in transition, a coalition of four parties that include the Progressive Reform Party (VHP) with the largest share of seats, General Liberation and Development Party (ABOP), National Party of Suriname (NPS), and Pertjajah Luhur Party (PL), inherits formidable economic and fiscal challenges. President Bouterse conceded the loss of his National Democratic Party's (NDP) majority following the May 25 parliamentary election, paving the way for the new parliament to sit June 29.

The leading VHP party has delineated broad macroeconomic objectives including strengthened public finances and debt sustainability. However, meaningful fiscal adjustment reforms faced counter-pressure during the preceding administration, which point to risks to the potential fiscal adjustment, in Fitch's view.

Peaceful public protests against electricity tariff increases immediately following a large exchange-rate adjustment resulting in double-digit inflation contributed to the derailment of Suriname's first IMF program in 2016. The planned introduction of a value-added tax to broaden the tax base was postponed indefinitely in 2018.

ESG - Governance: Suriname has an ESG Relevance Score (RS) of 5 for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption, as is the case for all sovereigns. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model.

Suriname has a medium WBGI ranking at the 43rd percentile, reflecting a recent track record of peaceful political transitions, a moderate level of rights for participation in the political process, moderate institutional capacity, established rule of law and a moderate level of corruption.

The downgrade of Suriname's Country Ceiling to 'CCC' reflects the deterioration of Suriname's external liquidity and inconsistent macroeconomic policies, which Fitch views undermines the conditions for timely private external debt service payment.

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Last modified onTuesday, 14 July 2020 00:44
  • Countries: Suriname