Fitch Ratings has taken the following actions on the Issuer Default Ratings (IDR) and country ceiling of Suriname:
--Long-term foreign currency IDR upgraded to 'BB-' from 'B+';
--Long-term local currency IDR upgraded to 'BB-' from 'B+';
--Country ceiling upgraded to 'BB-' from 'B+'.
The Rating Outlook is Stable.
Fitch has also assigned a short-term foreign currency IDR of 'B' to Suriname.
Suriname's upgrade reflects the Surinamese authorities' demonstrated commitment to rein in fiscal imbalances and maintain price and exchange stability as well as the country's positive investment cycle and growth prospects. Suriname's ratings are also underpinned by the strength of the sovereign's fiscal and external balance sheets relative to peers.
Suriname's credit strengths are presently balanced by the country's institutional capacity constraints, relatively weak macroeconomic policy framework and recent episodes of high inflation and exchange rate volatility.
Through the implementation of revenue measures, as well as benefitting from favorable international commodity prices, the Bouterse' administration has closed the 2.9% of GDP fiscal deficit and maintained government debt below 20% of GDP during its first full year in office. In addition, the authorities are taking steps to create a sovereign wealth fund, rationalize the budgeting process and overhaul the tax system. The implementation of these reforms could contribute to reducing policy unpredictability and to strengthen public finances flexibility.
Reduced political uncertainty and tighter fiscal and monetary policies have supported exchange rate stability after the 20% devaluation in early 2011. The gap between the official and parallel rates disappeared and year-on-year inflation declined to 3.6% in May 2012 from a peak of 22.6% in April 2011. However, maintaining the gains of price and exchange rate stability permanently will require containing salary adjustments, exerting fiscal restraint and strengthening the credibility of the macroeconomic policy framework.
Rising gold production and favourable prices combined with reduced dependence on fuel imports could support current account surpluses and the accumulation of international reserves over the medium term. Most importantly, the country's rising international reserves and the sovereign's net external creditor position reduce vulnerabilities related to high commodity dependence, financial dollarization and limited exchange rate flexibility.
Suriname's growth continues to demonstrate resilience to domestic and external shocks by averaging 4.4% in 2011 and 2012. Output could expand 4.9% in 2013, bringing its five-year average well above the 3.5% median of the 'BB' category. Upside risks to economic performance will depend on the pace of public capital spending, new investments in the commodity sector and domestic consumption.
Suriname's domestic capital markets remain shallow and illiquid, limiting the scope for fiscal slippage and the sovereign's capacity to sustain higher debt burdens. The government relies on costly central bank advances and privately placed short-term instruments to cover budget gaps. The government successfully restructured USD32mn in bilateral arrears with the United States in July 2011 and paid all outstanding debt obligations ahead of schedule in May 2012.
While traditionally economic policy has relied heavily on the credibility of individual public officials, strengthening the institutional capacity of the monetary and fiscal authorities is key to enhancing macroeconomic performance and reducing the risk of policy reversals. In spite of continued improvements in recent years, quality of official economic statistics is weak in relation to 'BB'-rated sovereigns.
Implementation of reforms to strengthen the fiscal and monetary policy frameworks would be positive for creditworthiness. Higher growth with broad macroeconomic stability could also have a favourable impact on Suriname's ratings. Conversely, significant deterioration in the fiscal and external accounts, increased macroeconomic instability and shocks that impair the hydrocarbon and mining sectors could put downward pressure on the ratings.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Sovereign Rating Methodology', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Sovereign Rating Methodology
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
Cesar Arias, +1-212-908-0358
One State Street Plaza
New York, NY 10004
Erich Arispe, +1-212-908-9165
Paul Rawkins, +44-20-3530-1046