Moody s B1 / S&P B / Fitch B- 1 Economy: Agriculture 12%, Industry 31%, Services 57%

Transcription

1 Suriname Summary Moody s B1 / S&P B / Fitch B- 1 Economy: Agriculture 12%, Industry 31%, Services 57% Suriname is a commodity-dependent middle-income country undergoing a major economic adjustment, given the deterioration of terms of trades and the temporary halt of the country s alumina production. The economy is expected to expand by 1.2% in 2018, a significant improvement from its -10.5% contraction in The current account balance is projected to improve to an estimated surplus of 6.1% of GDP in 2018, up from a deficit of -16.4% in The government reached an agreement with the International Monetary Fund (IMF) in May 2016 to address both external and fiscal imbalances, however, canceled it a year later due to the burdens it imposed on citizens. The absence of the IMF as an anchor for fiscal reform increases the risk of policy slippage and macro imbalances. On the political front, President Désire Bouterse controls more than half of the seats in congress, allowing the government to move forward with economic measures to address current imbalances. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 9,408 9,495 8,775 6,427 6,419 6,922 Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: Lazard, Central Bank, Haver Analytics, IMF 433

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency BB+ BB B+ B B- Local Currency BB- BB+ BB BB- B+ B B- CCC CCC Moody s S&P Fitch Moody s S&P Fitch As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Bloomberg, Fitch, Moody s, Standard and Poor s Bond Spreads Suriname 2012 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 434

3 Suriname Strengths Economic Potential Suriname benefits from abundant natural resources and has a strong potential for growth. It is currently a producer of gold, oil, and alumina, which play a key role in Suriname s economy. Suriname also has two large oil and gas projects, which are expected to have significant economic benefits. The government completed a new oil refinery in 2016, costing close to US$1.0 billion, aimed at reducing dependence on oil imports and potentially saving US$100 million yearly, 2 roughly 2.5% of GDP. The country also recently completed a US$1.0 billion investment in a gold mine, which became operational in October The project is expected to increase gold production by one-third, producing 450,000 ounces per year and resulting in US$600 million in export revenues (9% of GDP). The government owns 25% of the project, 3 which within the first year of operation has generated US$34 million in royalties. 4 Stable Political Conditions The latest presidential election took place in 2015, with the next elections scheduled to be held in The current president and his party control more than half of the seats in Congress, allowing the government to pass measures needed to deal with economic imbalances. The ruling party won 30 out of 51 seats at the National Assembly, giving the president the support needed to implement difficult economic reforms, such as hikes in electricity prices. President Désire Bouterse's health issues are the main foreseeable concern, due to which he may be forced to step down. He is currently 72 years old and will be close to 75 years old at the end of his term. Remittances About 350,000 Surinamese are currently living in the Netherlands, a very large proportion compared to the domestic population of less than 600,000. The number of Surinamese living abroad reflects the lack of employment and economic opportunities in the country. At the same time, Surinamese living abroad send large sums of remittances, which are a major source of foreign currency inflows and income for the country. Weaknesses Diversification and Economic Crisis Still recovering from a major economic crisis that started in 2015, Suriname s economic growth contracted to -10.5% in 2016 and inflation rose to more than 50%. The economic crisis is the result of both tighter fiscal and monetary policy in 2016, and the economy s high vulnerability to commodity price shocks. Gold, oil, and alumina amounted to 88% of exports and 40% of revenues. The temporary shutdown of Suriname s alumina plant, as well as lower gold and oil prices, have had a significant negative impact on the country s income levels. In 2018, the economy is expected to rebound to +1.2% of growth, supplemented by the completion of critical oil and mining projects, while inflation is also projected to stabilize in the low single digits. 435

4 Lazard Emerging Markets Debt Lack of Commitment to the IMF In May 2016, the IMF approved a 24-month Stand by Arrangement (SBA) for Suriname to tackle the economic imbalances by reducing the fiscal and high current account deficits. The sizable package totaled US$478 million, slightly more than 10% of GDP, and would have helped unlock financing from other multilateral agencies, including the Caribbean Development Bank (CDB), the Inter-American Development Bank, the Islamic Development Bank, the World Bank, and other bilateral creditors. However, a year later in May 2017 the Government of Suriname canceled its SBA with the IMF due to the burden the program imposed on its citizens. 5 The absence of the IMF as an anchor of fiscal reforms increases the risk of policy slippage and heightens the risk of continued macro imbalances. High Fiscal Deficit The fiscal deficit and debt levels remain high, although the government has been attempting to make some progress. Suriname s fiscal deficit for 2017 is expected to be -6% of GDP, higher than the targeted -4%, while 2018 targets are reflected at -5.5% of GDP. The government aims to reduce the fiscal deficit to 3.3% of GDP via various measures, including the elimination of electricity price subsidies and the introduction of a value-added tax. The government has already started adopting these measures by increasing electricity prices by two-thirds of the original target, with subsidies expected to amount to 2% of GDP in 2016, down from 5.4% in At the same time, the government has cleared arrears accumulated prior to August 2015, 6 and has prohibited the central bank from lending to the government. Fiscal adjustment is still necessary to combat the increasing debt levels, totaling 66% of GDP in 2018 compared to 21.4% in The government also expects to launch a sovereign wealth fund in to better manage its fiscal account, with a goal of increasing the fund by US$100 million per year. State-Owned Enterprises The size of Suriname s public sector is relatively large and inefficiently managed. One of the most important public companies is state-owned, Staatsolie, an oil company with estimated onshore oil production of 16,319 barrels per day (bpd) in the first half of , and refining capacity of 15,000 bpd. Staatsolie has paid an estimated 50% of its net income in dividends to the government, although payments have declined sharply over the last couple of years. The government also owns 100% of EBS, a national electricity company, which is also Suriname s sole distributor of electricity. The government also owns two small banks, Surinaamse Postpaarbank and Surinaamse Volkscredietbank, as well as 51% of Habrinkank. 9 External Position Suriname s balance-of-payments is going through a major turnaround, partly due to the current account adjustment and new financing resources. In 2015 the current account deficit was as high as -16.4% of GDP, but has since been recovering, expected to reach a surplus of 6.1% of GDP in In an effort to deal with these imbalances, the central bank responded by allowing the exchange rate to float in the first quarter of 2016, resulting in an exchange-rate depreciation from 4.0 SRD/USD, to 7.8 SRD/USD in September The exchange-rate depreciation and the completion of gold and refinery projects are expected to result in a significant current account surplus, roughly 9% of GDP. Rebuilding foreign reserves remains the main challenge in Suriname as foreign-exchange reserves totaled US$411.4 million in October 2017, 10 compared to over US$850 million in

5 Suriname President s Track Record President Bouterse, who has been in power since 2010, led a coup in He has been accused and brought to trial in connection with the killing of 15 civilian dissidents, and blocked the resumption of the trial. The International Police Organization ( Interpol ) had a temporary arrest order issued against the president. 11 In the 1990s, the Netherlands issued an international arrest claim, accusing Bouterse of smuggling more than two million tons of cocaine into the Netherlands. 12 Since then, Suriname s relations with the Netherlands have been volatile, although the government claims the conflict has improved. 437

6 Lazard Emerging Markets Debt Country Background Size Capital Population 163,820 KM 2 (93rd) Paramaribo 0.6 Million Religion Protestant 23.6%, Hindu 22.3%, Roman Catholic 21.6%, Muslim 13.8%, Winti 1.8%, Other 16.9% Median Age 29.8 Years Literacy Rate 95.6% Independence 25 November 1975 Political System Government Leadership Next Election 2020 Legislative Branch Presidential Republic President Desiré Delano Bouterse Unicameral National Assembly Economy Agriculture 11.8%, Industry 30.7%, Services 57.5% Labor Force Agriculture 11.2%, Industry 19.5%, Services 69.3% Merchandise Exports Alumina, Gold, Crude Oil, Lumber, Shrimp and Fish, Rice, Bananas Export Partners Switzerland 28.3%, UAE 27.1%, Belgium 9.1%, Guyana 9%, United States 4.7%, Trinidad and Tobago 4.5% Currency Surinamese Dollar (SRD) As of November 2017 Source: CIA 438

7 Suriname Country Timeline 1975 Suriname becomes independent with Johan Ferrier as president and Henk Arron, of the Suriname National Party (NPS), as prime minister; more than a third of the population emigrate to the Netherlands Arron s government ousted in military coup, but President Ferrier refuses to recognise the military regime and appoints Henk Chin A Sen of the Nationalist Republican Party (PNR) to lead a civilian administration; army replaces Ferrier with Chin A Sen Armed forces seize power in a coup led by Lieutenant-Colonel Désire (Desi) Bouterse and set up a Revolutionary People's Front; 15 opposition leaders charged with plotting a coup and executed; Netherlands and US respond by cutting off economic aid President Ramsewak Shankar ousted in military coup masterminded by Bouterse Johan Kraag (NPS) becomes interim president; alliance of opposition parties - the New Front for Democracy and Development wins majority of seats in parliamentary elections; Ronald Venetiaan elected president State-owned banana company closes, its financial woes compounded by low market prices. A smaller, restructured company opens in March Suriname dollar replaces guilder. Government says move aims to restore confidence in economy President Venetiaan is re-elected after months of deadlock. His New Front coalition won a narrow majority in parliamentary elections in May Flooding, caused by torrential rain, leaves more than 20,000 people homeless. President Venetiaan says lowland areas are in total chaos The Mega Combination coalition, led by former military ruler Dési Bouterse, wins 23 out of 51 seats in parliamentary elections to emerge as the largest group. Dési Bouterse becomes president Parliament passes amnesty law for President Bouterse and 24 other defendants on trial for the alleged execution of political opponent during Mr Bouterse's military rule in Former colonial power the Netherlands recalls ambassador and suspends some of its aid payments in protest Dési Bouterse's National Democratic Party wins absolute majority in parliamentary election, setting the scene for the country's first non-coalition government President Dési Bouterse prevents authorities from putting him back on trial over the 1982 killings of 15 political opponents by invoking Article 148 of the constitution which allows the president to halt proceedings in the interests of state security. Source: BBC 439

8 Lazard Emerging Markets Debt Notes 1 As of December accessed 2 December Republic of Suriname Prospectus, 5 October Oppenheimer and Scotiabank. 4 accessed 2 December accessed 3 December PR_ accessed 3 December accessed 3 December accessed 3 December Republic of Suriname Prospectus, 5 October Oppenheimer and Scotiabank accessed 3 December Republic of Suriname Prospectus, 5 October Oppenheimer and Scotiabank. 12 BBC Timeline: Suriname; 440

9 Important Information Published on 26 February Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of 24 February 2017 and are subject to change. Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Specific to the political, religious and military unrest in Iraq, and as described in this paper, there exists a heightened risk of ongoing armed conflict and subsequent economic, political and social repercussions to all parties involved. Specific to the political and military unrest in Ukraine and Russia, and as described in this paper, there exists a heightened risk of ongoing armed conflict and subsequent economic, political and social repercussions to all parties involved. An investment in bonds carries risk. If interest rates rise, bond prices usually decline. The longer a bond s maturity, the greater the impact a change in interest rates can have on its price. If you do not hold a bond until maturity, you may experience a gain or loss when you sell. Bonds also carry the risk of default, which is the risk that the issuer is unable to make further income and principal payments. Other risks, including inflation risk, call risk, and prepayment risk, also apply. High yield securities (also referred to as junk bonds ) inherently have a higher degree of market risk, default risk, and credit risk. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one s home market. The values of these securities may be affected by changes in currency rates, application of a country s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries. This document is provided by Lazard Asset Management LLC or its affiliates ( Lazard ) for informational purposes only. Nothing herein constitutes investment advice or a recommendation relating to any security, commodity, derivative, investment management service or investment product. Investments in securities, derivatives and commodities involve risk, will fluctuate in price, and may result in losses. Certain assets held in Lazard s investment portfolios, in particular alternative investment portfolios, can involve high degrees of risk and volatility when compared to other assets. Similarly, certain assets held in Lazard s investment portfolios may trade in less liquid or efficient markets, which can affect investment performance. Past performance does not guarantee future results. This document is intended only for persons residing in jurisdictions where its distribution or availability is consistent with local laws and Lazard s local regulatory authorizations. The Lazard entities that have issued this document are listed below, along with important limitations on their authorized activities. Australia: Issued by Lazard Asset Management Pacific Co., ABN , AFS License , Level 39 Gateway, 1 Macquarie Place, Sydney NSW 2000, which is licensed by the Australian Securities and Investments Commission to carry on a financial services business. This document is intended for wholesale investors only. Canada: Issued by Lazard Asset Management (Canada) Inc., 30 Rockefeller Plaza, New York, NY and 130 King Street West, Suite 1800, Toronto, Ontario M5X 1E3, a registered portfolio manager providing services to non-individual permitted clients. Dubai: Issued and approved by Lazard Gulf Limited, Gate Village 1, Level 2, Dubai International Financial Centre, PO Box , Dubai, United Arab Emirates. Registered in Dubai. International Financial Centre Authorised and regulated by the Dubai Financial Services Authority to deal with Professional Clients only. EU Member States: Issued by Lazard Asset Management (Deutschland) GmbH, Neue Mainzer Strasse 75, D Frankfurt am Main. Hong Kong: Issued by Lazard Asset Management (Hong Kong) Limited (AQZ743), One Harbour View Street, Central, Hong Kong. Lazard Asset Management (Hong Kong) Limited is a corporation licensed by the Hong Kong Securities and Futures Commission to conduct Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities only on behalf of professional investors as defined under the Hong Kong Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and its subsidiary legislation. Korea: Issued by Lazard Korea Asset Management Co. Ltd., 10F Seoul Finance Center, 136 Sejong-daero, Jung-gu, Seoul, People s Republic of China: Issued by Lazard Asset Management. Lazard Asset Management does not carry out business in the P.R.C and is not a licensed investment adviser with the China Securities Regulatory Commission or the China Banking Regulatory Commission. This document is for reference only and for intended recipients only. The information in this document does not constitute any specific investment advice on China capital markets or an offer of securities or investment, tax, legal or other advice or recommendation or, an offer to sell or an invitation to apply for any product or service of Lazard Asset Management. Singapore: Issued by Lazard Asset Management (Singapore) Pte. Ltd., 1 Raffles Place, #15-02 One Raffles Place Tower 1, Singapore Company Registration Number W, which provides services only to institutional investors or accredited investors as defined under the Securities and Futures Act, Chapter 289 of Singapore. United Kingdom: Issued or approved by Lazard Asset Management Ltd., 50 Stratton Street, London W1J 8LL. Registered in England Number Authorised and regulated by the Financial Conduct Authority (FCA), providing services only to persons classified as eligible counterparties or professional clients under the rules of the FCA. United States: Issued by Lazard Asset Management LLC, 30 Rockefeller Plaza, New York, NY