Reforms for stability
Finance minister Gillmore Hoefdraad had a front row seat as Suriname’s open economy was battered on three fronts — lower gold and oil prices, and the end of bauxite mining — leading to a recession in 2016. However, as Hoefdraad points out, the recovery is well underway and explains how, through several measures that the government is taking, it is becoming better prepared for external shocks.
Gillmore Hoefdraad, Minister of Finance, Suriname: The stabilisation effort was extensive and swift, but necessary. The government reduced expenditure by 10% of GDP in 2016 and increased taxes, with palpable results. Economic growth is returning, inflation will reach single digits by end-2017, the deficit is continuously shrinking, the exchange rate has stabilised and we now have a current account surplus.
Mining and oil sectors, which are growing rapidly post-crisis, remain a visible strength. But Suriname’s true strength lies in the government’s ability to act courageously to address macroeconomic imbalances and restore confidence.
GlobalMarkets: With the end of the IMF programme (see macroeconomic overview), how will Suriname fulfil its financing needs?
Hoefdraad: The country maintains a constant dialogue with multilateral institutions that will provide the bulk of financing for projects in the country. Moderate access to domestic financing through the issuance of Treasury bills will complete the financing needs. There is no financing shortfall for 2017-18.
GlobalMarkets: After debuting in international markets in 2016, would you consider another bond issuance?
Hoefdraad: There is no need to issue another bond. The bond was not for budgetary support, but entirely to refinance existing debt, including debt of the state-owned oil company.
GlobalMarkets: What are your fiscal targets and how will you achieve them?
Hoefdraad: The fiscal adjustment is not complete. We aim to reduce the fiscal deficit to around 5% in 2017 and 3% in 2018. The return of economic growth is supporting fiscal adjustment thanks to a buoyant tax system, but the main support to achieve the fiscal targets is continued expenditure restraint and the introduction of a revenue-positive VAT in 2018.
GlobalMarkets: At what stage is the implementation of VAT?
Hoefdraad: A draft law and regulations have been prepared and the underlying computer system has been contracted out. VAT should be in place in 2018, replacing the sales tax and a few other minor indirect taxes. VAT brings multiple benefits as it tends to be a buoyant tax. Furthermore, VAT will help us to rely more on indirect taxes, which will stabilise fiscal revenue further and reduce the impact of future commodity price shocks. Finally, VAT systems tend to be more easily audited and are useful instruments to integrate the tax system and better target measures to improve tax fairness or combat tax evasion.
GlobalMarkets: What other measures are you taking to ensure the economy becomes more resistant to external shocks?
Hoefdraad: Besides the shift toward consumption-based taxes as opposed to income-based taxes and the creation of a sovereign wealth fund, the government is putting in place several administrative reforms to increase the administration’s agility and ability to quickly adjust revenue or expenditure. One prominent reform is the automation of the budget and expenditure control systems into an integrated financial management and information system (IFMIS) using software from Canadian company FreeBalance.
GlobalMarkets: What is your strategy to ensure the gold industry not only prospers but also benefits the Surinamese people?
Hoefdraad: Suriname has a 100 year history of cordial and constructive dialogue with international investors. The same applies with the gold industry, which is investing heavily in Suriname and will be present in the country for many decades to come. Direct benefits — such as employment and technical know-how — are accruing, and the government will receive substantive fiscal revenue from gold companies via royalties, income taxes and dividends. Additionally, the government has set up a sovereign wealth fund first and foremost to stabilise fiscal revenue, moderating future commodity-related revenue fluctuations and saving windfalls to benefit future generations and create a diversified income portfolio.
GlobalMarkets: Economists consider the sovereign wealth fund of particular importance; how advanced is its implementation?
Hoefdraad: It will begin operations on January 1, 2019 as instructed by the law. The team is being put together to plan and prepare the operations, including preparing the fund’s investment and communications strategies.
GlobalMarkets: There is excitement about potential further windfalls in the oil sector. How important could the exploration agreements with the likes of Exxon, Hess and Statoil be?
Hoefdraad: Offshore oil exploration could be a game-changer for Suriname, although we do not include any projections in our balance of payments or fiscal revenue forecasts. It carries the potential of substantive revenue, but we will only begin considering the financial implications if we see a viable exploitation plan. Our role at present is to rely on state-owned oil company Staastolie to manage the process responsibly. The sovereign wealth fund would also absorb any windfall earnings from the offshore oil sector.
GlobalMarkets: Finally, what message would you send to foreign companies considering investing in Suriname?
Hoefdraad: Suriname has a long history of treating foreign investors fairly. The country and its legal system protect foreign property and investments, and its friendly, very diverse, well-integrated population is well-educated and eager to receive foreigners. Suriname is open for business.