During the recent Annual Meetings of the Inter-American Development Bank, I shared points relating to our continuing broad efforts in policy and institutional reforms related to the recovery from the challenges of 2016 as well as the policy responses aimed at restoring sustained macroeconomic stability and growth in Suriname.
The sharp downturn in oil and gold prices in recent years, combined with the unfortunate closure of the century-old bauxite and alumina complex, rendered macroeconomic management challenging in 2016. By any international standards, Suriname faced a severe shock that was compounded on the balance of payments side by the sharp increase in imports related to the major investment projects in oil and gold mining. We estimate that the economy contracted severely in 2016, requiring significant fiscal and monetary policy adjustments and some balance of payments support.
Our macroeconomic response to the external and fiscal pressures started in earnest in August 2015 with a sharp contraction in government expenditure and increases in taxation. These included expenditure cuts to line ministries and increased controls by the Ministry of Finance, an increase in fuel taxation and the closing of fuel taxation loopholes, a phased elimination of utility subsidies, and passage of a tight budget that restricts the deficit in 2016. To recap the extent of our effort: we reduced expenditure form 31% of GDP to 21 % of GDP in just one year.
The outlook for growth, exports, and government commodity-related income in 2017 and beyond is positive due to the major mining investments that were brought online in 2016 and as a result of the strong and successful effort to adjust macroeconomic policies to the short-term crisis we faced.
The state-owned oil company completed its $1 billion USD refinery that is now largely eliminating exports of crude oil and imports of oil derivatives. This will help insulate the country from the volatility of the international oil market price fluctuations and add a net of about 2 % of GDP to the current account balance annually.
These investments are also boosting government finances in 2017 and beyond. Mining revenue is projected to increase by 1.8% of GDP in 2017, while tax reforms in the non-mining sector will also increase their share in GDP-terms. With continued fiscal restraint, mainly in the areas of goods and services expenditure, we project a fiscal deficit of 4 % of GDP in 2017.
We need to continue our efforts to solidify these gains through fundamental structural reforms to help minimize the impact of future commodity price shocks on the economy and on fiscal revenue, and to accelerate the speed with which the government can react to shocks. With the support of the IDB, the Ministry of Finance has embarked on a wide-ranging reform effort to eliminate the government’s dependence on oil and mining revenue, smooth revenue volatility, streamline procurement, and improve fiscal management. Some of the reforms include:
– Presenting to the Parliament a law for a Sovereign Wealth Fund to stabilize commodity-based revenue over the commodity price cycles and begin saving commodity-based windfall revenue for future generations. In May 2017, Suriname’s parliament approved the Law on the Savings and Stabilization Fund, the country’s first and so far only sovereign wealth fund, which will come into operation in 2018.
– Introducing a real-time expenditure management system that would allow swifter budget adjustments and a full shift to an international fiscal accounting standard.
– Creating a Treasury Department that will centralize asset and liability management, provide liquidity and financing forecasts, and manage the Treasury-bill auction system.
– Presenting to the Parliament a new Public Finance Management law that would put in place a fiscal rule, and reform the budget preparation and approval process.
– Centralizing government procurement through the use of an integrated software package used at all levels of government.
– Completing a shift from an income-based taxation regime to a less volatile and more growth-enhancing consumption-based taxation regime by reducing and simplifying income taxation in 2018-19.
While the Suriname IDB portfolio is one of the best performing country portfolios at the IDB, our work is not done. I am committed to our continued reform implementation efforts in the coming years.