Financial Crime World

Financial Institution Risk Management in Suriname: A Delicate Balance

Suriname, a country with a high-risk political and economic situation, poses significant challenges for corporate payment behavior, with a high probability of default. The business environment is difficult, with corporate financial information often unavailable or unreliable, making debt collection unpredictable. Furthermore, the institutional framework has numerous weaknesses, exacerbating the risks.

Challenges in Financial Management

  • High-risk political and economic situation
  • Unavailable or unreliable corporate financial information
  • Institutional framework weaknesses

Strengths of Suriname

Suriname boasts some strengths, including its rich mineral resources, agricultural potential, and support from international donors and foreign investors. Additionally, 95% of the territory is covered by rainforest, providing a unique opportunity for sustainable development.

Economic Risks

  • Poorly diversified economy dominated by gold, oil, and aluminum exports
  • Large informal economy comprising casinos, gold panning, and smuggling

Suriname’s current trends are marked by high inflation, which has taken a toll on the economy. The COVID-19 pandemic caused a sharp contraction in activity in 2020, and the country is still struggling to recover.

  • Inflation: High and affecting the economy
  • COVID-19 pandemic: Sharp contraction in activity in 2020

Response to the Crisis

To address the crisis, Suriname negotiated an Extended Fund Facility with the IMF worth USD 690 million over 36 months. The country is also expecting significant investments from the discovery of new hydrocarbon deposits and exploration of new blocks off the coast.

Investment Opportunities

  • New hydrocarbon discoveries and exploration
  • Gold production expected to increase in 2022

Debt Restructuring and Fiscal Consolidation

International assistance is essential for debt restructuring, as Suriname faces a debt explosion and default. The government has proposed a nominal debt haircut on certain Eurobonds and official lenders but has not yet reached an agreement with creditors.

  • Debt restructuring: Essential for the country’s financial health
  • Fiscal consolidation measures necessary to reduce public finance deficit

Current Account Balance

The country’s current account balance moved into positive territory in 2020 due to a pushback effect on imports, currency devaluation, and increased demand for gold. However, slightly softer gold prices and resumed imports could push the account back into deficit in 2022.

Political Landscape

Suriname continues to be based on ethnicity, with hopes for a return to normality following the May 2020 parliamentary elections and July 2020 presidential election. The Vooruitstrevende Hervormings Partij (VHP) won the largest number of seats in parliament and formed a government coalition.

Conclusion

Suriname’s financial health remains precarious, requiring unpopular reforms to restore its financial stability. Financial institutions must navigate this challenging environment carefully to mitigate risks and ensure sustainable growth.