Size can be deceiving. Suriname is an upper middle-income country with GDP-per-capita lower than only Chile, Uruguay, Brazil and Argentina in South America in 2016.
Unemployment has been lower than many Caribbean peers such as Barbados, Guyana and Jamaica for most of the past decade, although 2016’s economic crisis pushed the figure up to 11.9% — still better than Jamaica, but higher than Barbados for the first time since 2008.
Natural resources
Moreover, the country boasts an enviable range and scale of natural resources that have made it an attractive destination for foreign direct investment.
Long before its independence, Suriname became one of the world’s leading producers of bauxite — the ore that is the source of most aluminium.
US company Alcoa began operations in the country in 1916, while it was still a Dutch colony, and ceased operations there only in November 2015 as aluminium prices slumped. As recently as 2007, aluminium accounted for about half the country’s exports.
Alcoa said in January 2017 that it would permanently close its mines in Suriname, but by then gold had long overtaken aluminium as the most important export — thanks largely to the Rosebel Gold Mine.
As part of the mineral-rich Guiana Shield — the craton of the South American Plate that also lies below French Guinea, Guyana and most of Venezuela — Suriname has further mining potential.
October 1, 2016 was a landmark as US gold producer Newmont began production at the Merian gold mine, which has 5.1m ounces of reserves. Another gold mine could be on the way as Iamgold has begun exploration at the Saramacca site.
In July 2017, Suriname signed production-sharing contracts with Exxon Mobil and Hess for one offshore oil block and with Statoil for another. These blocks are in the Guyana Basin, where — in Guyanese territory — Exxon has already found oil.
Joint ventures
These investments by foreign firms in the extractive sector show the confidence that international companies have in Suriname’s operating environment. Key to these joint ventures is government-owned Staatsolie Maatschappij Suriname, the national oil company founded in 1980 as a limited liability company.
Staatsolie has a 25% equity stake in the Merian mine, for instance, and will take up to a 10% stake in the oil blocks during the development and production phases.
Adjusting to the triple shock
These growth drivers therefore mean Suriname has an exceedingly open economy — one which is very dependent on commodity exports and vulnerable to international price shocks. Beginning in 2014, Suriname suffered a triple shock that any country would have struggled to deal with: both oil and gold prices plummeted, while bauxite mining neared its end.
In 2016, the economic shock hit a nadir as GDP shrank by 10.4%. But the government took decisive action, embarking on an austerity programme to cut expenditure. Indeed, despite the economy shrinking alarmingly, the fiscal deficit slightly narrowed — from 10.7% in 2015 to 8% last year.
The free float of the currency, the Surinamese dollar, was a tricky but necessary measure. It helped to ease imbalances in the external accounts, with the current account deficit narrowing from 16.2% in 2015 to 4.3% in 2016.
Inevitably in such an open economy, the floating of the currency accelerated inflation, which began to rise in November 2015 and peaked at 79.2% in October the following year. But it has decreased sharply ever since, and fell to 16.2% in August.
External accounts are likely to show continued improvement in 2017, thanks Merian becoming operational, which should lead to higher gold exports.
Responsible priorities
Suriname is now partly focused on broadening its revenue base; a new value-added tax remains a priority and should lift revenue as the economy recovers. The government is also taking steps to ensure it is in a position to make the most of a potential medium-term increase in exports, thanks to more gold mines or oil production.
In May, parliament approved the country’s first sovereign wealth fund, known as the Savings and Stabilisation Fund, aimed at harbouring windfalls from the extractive industries.
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DCM debut: Suriname beats expectations
International bond investors gave their backing to Suriname’s economic recovery efforts when the sovereign raised $550m of October 2026 notes at a yield of 9.25% in October 2016.
From GlobalCapital’s coverage of the bond:
“Suriname’s claims to be turning around its public finances found traction with bond investors after the sovereign’s debut international bond was priced tighter than many market participants expected.
“According to some investors, Suriname is trying to take steps in the right direction. ‘The policy making team is strong and has embarked on a reasonable fiscal reform,’ said one EM sovereign bond portfolio manager.”
Credit ratings
Moody’s: B1 (stable)
Standard & Poor’s: B (negative outlook)
Fitch: B- (negative outlook)