Suriname — swimming swiftly in lots of oil, straight towards Venezuela

While the Dutch no longer suffer from the disease they made famous, it seems they may have left behind an especially persistent strain in Suriname. Or perhaps Venezuela is contagious. Because the policy choices that gave rise to Suriname’s current and chronic conditions are similar to those of Venezuela, as debt mounts, the money supply expands, the currency overvalues, the black market for FX intensifies, and FX reserves dwindle. Much like Venezuela, the rapid growth of the monetary base in Suriname, alongside rising public deficits, signals the Central Bank’s financing of the government. The pace of expansion of the money supply in Suriname jumped from 37% y/y in March 2019 to 96% y/y in November. Given the upcoming general election, fiscal prudence is unlikely to be a priority, so printing is likely to persist.

Recent history shows that when the black market rate for USD reaches 20% above the official exchange rate, but only after the election, there will be a devaluation, followed by massive inflation. That spread is now around 30%. Furthermore, the ratio between the money supply and FX reserves exceeded SRD17:USD1 in November 2019 versus an official exchange rate of SRD7.52:USD1.00. Both of these metrics demonstrate the significant and mounting pressure on the exchange rate.

Recent history shows that when the black market rate reaches 20% above the official exchange rate, there will be a devaluation. That spread is now around 30%.

Gross External Debt grew by USD160.3 million y/y in September 2019, as debt owed to China jumped by 10% in H1 2019. Not surprising, given that China is the top bilateral lender to Suriname, accounting for 86% of Suriname’s total bilateral debt — again, just like Venezuela. Parliament approved a measure in November 2019 to raise the debt ceiling to 95% of GDP, and Fitch Ratings estimates the Gross Central Government debt already reached 78% of GDP in September 2019.

And finally, there’s the Central Bank. Apart from doubling the money supply in about one year to finance Government spending, recent reports highlight shocking events at the Central Bank (with largely complicit and therefore negligent, mostly state-owned commercial banks), including the departure of the Governor within a year of his tenure. All of this suggests that as an institution, the Central Bank requires urgent strengthening. But the necessary degree of reform / intervention is increasingly unlikely, given the upcoming election and the possibility that a balance of payments crisis has been delayed by a recent massive oil find of undisclosed quantity (which in itself is suspicious). All of these developments unfortunately suggest that Suriname is on a Venezuela-like path of non-transparency and broad-based macroeconomic mismanagement and deterioration, supported by an erosion of institutions. No amount of oil can fix that.

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