Possibly Bumpy days Ahead
Reform without unrest
GC: What are the key reforms that this government has undertaken and how will they affect creditworthiness?
Minister Achaibersing: We are not just fixing the roof. Given what we inherited, we are called upon to build new foundations. Under President Santokhi, our government has taken immediate steps to put Suriname’s house back in order. We are implementing a broad range of economic reforms and have already delivered on key commitments. Our 2021 budget contains key fiscal measures, including increasing sales tax, implementing VAT implementation, raising the royalty rate on small gold miners, limiting nominal wage increases, and instituting a timeline to phase out electricity subsidy. We have unified the official and parallel exchange rates, and designed and executed a new monetary policy framework — putting an end to central bank financing of the government.
We are not just fixing the roof. Given what we inherited, we are called upon to build new foundations
Our approach is based on the implementation of structural reforms and the comprehensive treatment of the debt issue. Confronted with debt problems, some governments prefer to kick the can down the road, with a selective approach to creditor participation, insufficient relief, minimal reforms or no IMF programme. We feel that implementing our structural reform agenda will ensure a more prosperous future for Suriname. The IMF programme will have a catalytic effect on the mobilisation of financial and technical support of international development partners, and will improve the attractiveness of Suriname as an investment destination in the future.
GC: How is progress going with these reforms?
Minister Achaibersing: They are being implemented according to our plan, and the fiscal data shows the government’s continued commitment to fiscal responsibility. VAT will replace the sales tax as of July 1, 2022. Suriname’s electricity tariffs now average $0.04 per KWH (around 30% of cost-recovery), after being increased by 100% in July, and the government has committed to an additional 25% average tariff increase by May 2022. Average tariffs will continue to be periodically increased to achieve full cost recovery by the end of 2024.
GC: Several EM governments have faced severe social unrest after trying to implement fiscal consolidation measures. Given the IMF programme contemplates a very significant fiscal adjustment, how will you manage this risk?
Minister Achaibersing: The IMF programme entails ambitious fiscal consolidation, with the central primary balance expected to increase by 14% of GDP between 2020-2024. We devalued the currency by 200% in an economy that relies heavily on imported consumer products. We increased the electricity tariff by 100%. I realise those are not popular measures, particularly during a pandemic, and yes, subsidy reductions in other countries have been met with important protests.
This has not been the case in Suriname, firstly because our population understands that this government is asking for sacrifices from the population with the aim of putting the country on a prosperous path. Furthermore, the social safety net will be expanded to better protect the vulnerable from the burden of this policy adjustment. We’ve also come to a historic agreement with trade unions and the private sector which helps to generate support.
But it would be intolerable to only ask for sacrifices from our population — and we are sure that this is not what creditors are asking for, because they would prefer to invest in a healthy country with the ability to honour its debt in the long run. We are systemically transforming Suriname’s economy, and the National Assembly was consulted on the IMF programme. Political courage is about addressing problems and doing it in the best interest of our people.
Unique ESG opportunity
GC: Suriname is one of just three carbon-negative countries in the world. Do you feel there is much scope to incorporate ESG factors into your debt issuance or financing plans?
Minister Ramdin: You are right. Suriname emits less carbon dioxide than it retrieves from the atmosphere thanks to forests that cover over 93% of the country. I wish that bonds issued by the previous government had been green or, better yet, that their interest rate had been linked to biodiversity or climate targets, as countries like Uruguay have suggested they want to do.
Here we are, a carbon-negative country that paid 12.875% for four-year bonds — the highest rates in the world. Suriname’s forests are of global importance, both as a biodiversity hotspot and a carbon sink. Significant international support is needed for the conservation of this valuable resource in perpetuity. So debt relief initiatives that promote marine conservation or Suriname’s sustainable economy would also be welcomed.
GC: Could your new debt not be linked to sustainability performance — like a sustainability-linked bond for a sovereign?
Minister Ramdin: We could consider including a sustainability-linked element in the new bonds, such as a coupon that could change depending on whether certain biodiversity, social, or health KPIs are achieved. However, we will have to see whether bondholders value such a structure and whether it can be implemented in a manner that is not too complex or uncertain. I realise that ESG intentions are not a substitute of prudent economic management nor willingness to pay, and the bonds that will emerge from the debt restructuring are with an existing investor base. But we understand that several of the larger bondholders have claimed to be leaders in ESG efforts.
I’d say that Suriname’s debt restructuring provides private and official creditors with a unique opportunity to show leadership by supporting ESG goals as part of the restructuring process outcome. We also hope that creditors like China, India, France or others consider this topic. Engaging in nature or biodiversity protection by linking debt relief to environmental outcome would boost China, India or France’s credentials as a global climate champions. This would complement their domestic actions to achieve carbon neutrality.
Suriname’s debt restructuring provides private and official creditors with a unique opportunity to show leadership by supporting ESG goals as part of the restructuring process outcome
GC: State-owned oil company Staatsolie has an ability to step into these new big oil projects as a joint venture partner, but would require financing to do so. How do you plan for the company to raise this money while the country is still in default?
Minister Achaibersing: Staatsolie is a limited liability company, and is not included within or constrained by the IMF programme. It would have no problem financing itself if it turns out that large oil and gas projects are indeed promising.