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Suriname Macroeconomic outlook and investment opportunities March 2013 Presentation by Bernhard Fritz-Krockow, standing in for the Governor of the Central.

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Presentation on theme: "Suriname Macroeconomic outlook and investment opportunities March 2013 Presentation by Bernhard Fritz-Krockow, standing in for the Governor of the Central."— Presentation transcript:

1 Suriname Macroeconomic outlook and investment opportunities March 2013 Presentation by Bernhard Fritz-Krockow, standing in for the Governor of the Central Bank of Suriname, Mr. Gillmore Hoefdraad

2 Content o Performance and external assessments. o Macroeconomic risks and challenges. o Mining sector highlights. o Investment opportunities in Suriname. 2

3 Solid and stable income growth 3 o Stable macroeconomic policies and buoyant export receipts have led to solid and continued growth. o Solid growth despite global financial turmoil and limited global demand. o Could reach the “high income” category in 5 years.

4 Buoyant export receipts 4 o Gold exports continue to perform well with high prices and increasing export volumes. o Staatsolie’s exports and payments to the government grew only marginally in 2012. o Alumina continues to perform poorly, reflecting poor conditions in the world aluminum markets.

5 Export composition and diversification 5 o Alumina exports increased only marginally, but gold exports have increased fiftyfold since 2000. o Diversification has reduced vulnerabilities to exogenous shocks.

6 Low inflation for almost 2 years o Inflation has fallen to annualized levels of less than 5% since May 2011. o Food prices create inflation volatility due to changing domestic supply. 6 Monthly inflation rates 2010-12

7 Employment growth 7 o Growth in recent years has been driven by private sector growth. o Public sector employment has grown only moderately. o Unemployment rate below industrialized country levels.

8 Fiscal performance 8 o Overall balance deteriorated prior to elections in 2010. o Expenditure on goods and services in 2011 increased on account of arrears repayments. o Fiscal balance 2012 estimated at -1% of GDP.

9 Central Government Debt o Debt levels have fallen due to: o High economic growth. o Restructuring and repayment of arrears. o Fiscal surpluses or deficits smaller than GDP growth. o Debt increase in 2010-2011: o Fiscal deficits. o Exchange rate adjustment. o Government increase in deposits at CBvS instead of liability reductions. o All arrears have been eliminated. 9

10 CBvS gross international reserves 10 Strong export growth and tight fiscal and monetary policies have led to a significant increase in reserves and reserve coverage.

11 Outside assessments: IMF 11  Economy growing at a steady pace, buoyed by strong activity in gold and oil sectors.  Impressive stabilization of the economy in 2011 due to authorities’ policies.  Key achievements: a unified foreign exchange market, price stability, and significant fiscal gains.  A positive example for the Caribbean as a meaningful and comprehensive adjustment, well designed, properly sequenced, and implemented with commitment and resolve.  Sound policies are expected to continue.  Crucial structural reforms will allow Suriname to grow in a sustainable way.

12 Outside assessments: credit ratings 12 o Credit rating upgrades due to: o Stable macroeconomic environment. o Elimination of arrears. o Relative low debt levels. o Structural improvement of BOP. o Robust medium term growth prospects. o Ongoing investments. o Conditions for further rating upgrades: o Fiscal strengthening through economic reforms. o Large investments that boost GDP growth and government revenue.

13 Macroeconomic risks and challenges o External risks Significant exposure to gold and oil price volatility. Limited exposure to changes in global output and demand. Limited exposure to rising interest rates. o Domestic risks and challenges Inflation and exchange rate pressure through wage-price spirals or import demand. Outdated laws and regulations. Inflexible and outdated public sector. Limited debt-tolerance due to vulnerability to exogenous shocks. 13

14 Managing risks o The vulnerability to volatile commodity prices will be mitigated by: Establishment of a Sovereign Wealth Fund (SSFS), Tax and administrative reforms that will increase reliance on domestic sources of taxation. Continued moderate fiscal and monetary policies. o The risk of domestic demand shocks will be mitigated by: Placing new financial flows into the SSFS, Active and forward-looking fiscal and monetary policies. o The limited debt tolerance will be mitigated by: Conservative public investment and debt strategy going forward. Active risk management of liabilities. 14

15 Reforms are key to limit risks o Central Bank shift towards use of indirect market-based instruments. o Development of the local money and capital markets. o Gradual de-dollarization of the economy. o Establishment of the Sovereign Wealth Fund to reduce the impact of oil and gold price volatility and stabilize and diversify income streams. o Modern and transparent budget preparation and execution procedures. o New legal framework and modernization of the tax regime. o Deregulation, privatization, and modernization of administrative processes to allow more private sector investment and competition. o Increased reliance on public-private partnerships in lieu of public investment. 15

16 16 Mining sector highlights Oil o Fiscal revenue increased from US$70 million in 2005 to around US$250 million in 2012. o Investment program includes expansion of the refinery, exploration of recoverable reserves, and development of alternative energy (hydro and bio-ethanol). o Exploration and production agreements continue with several international oil companies. o Refinery expansion and an ethanol pilot project expected to go online in 2015. Gold o Fiscal revenue from Rosebel increased from US$5 million in 2005 to around US$150 million in 2012. o New large-scale mines by Iamgold and Newmont are expected to come online in the next 3-5 years. o Small-scale informal gold operations contribute about 60% of gold exports or around US$1 billion in 2012. o The Government is putting in place laws and on-site measures to modernize and formalize the large informal gold sector, limit its ecological impact, improve health and safety, and increase fiscal revenue. Bauxite o The slump in international aluminum prices has created problems for Suralco’s parent company Alcoa. o Maintaining low production levels using bauxite from old mines, while a new mine is being developed.

17 Private sector investment – mining o Mining Gold mining: Existing mine expects to double production by 2016, while a new gold mine is expected to begin operations in 2015. Bauxite mining: New mines in the East are being developed by Alcoa to feed the underutilized alumina refinery. A large deposit in the West at Bakhuis can be tapped, including additional hydropower at Kabalebo. o Ancillary services Infrastructure: Significant road and bridge construction needed. Transportation: Mining companies will subcontract ancillary services. Mining inputs: Potential to substitute imports in the mining industry with local production, e.g., iron pellets, chemicals, etc.

18 Bakhuis mountains o Potential for extensive bauxite mining, a new alumina refinery, and possibly an aluminum smelter. o Potential for hydropower generation of around 450-650 MW with 2 dams and generation stations. 18 o Easily accessible. o Existing basic infrastructure would need to be rehabilitated.

19 Private sector investment – transport and infrastructure o Comparative advantages Most efficient harbor in the region. Low wage and high productivity workforce. Available know-how and equipment in the local construction industry. Supportive government. o Transshipment services in Guyana and French Guiana Port and airport facilities in neighboring countries are inadequate. o Rapidly expanding domestic demand Mining, industry, agriculture, trade, and tourism industries require better infrastructure and communications to rural areas and neighboring countries.

20 Private sector investment – agriculture o Comparative advantages Ample land and water. Largest deep-sea harbor in the region. Low wage and high productivity workforce. Supportive government. o Experience in large-scale export agriculture Bananas and rice have been exploited in large-scale operations for the European market (ACP access). o Available markets French Guyana is a high-cost producer that imports most foodstuffs. Tropical foodstuffs can be easily shipped by sea or air to Europe.

21 Private sector investment – tourism o Eco and jungle tourism Pristine Amazonian jungle, large rivers. Will require investments to access the jungle at higher volume and lower costs. o Health tourism Health services for Dutch-speaking Europeans. Could include specialized surgeries and reconvalescent care.

22 Public-private partnerships o Oil sector Oil companies are actively engaged in exploration, the refinery capacity. Ancillary service provision and strategic partnerships are needed. o Privatization Government is aiming to sell public enterprises. Utilities need significant investment. Strategic partnerships are possible (oil industry, national airline, etc.). o Infrastructure Road, bridge, and waterway needs are significant. Energy needs are growing rapidly. Government would welcome private sector participation in infrastructure investments.

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