July 15, 2012 3:23 PM
PARAMARIBO - Global rating agency Fitch Ratings on Tuesday upgraded Suriname’s long-term sovereign foreign currency credit rating by one notch to BB-minus, citing government action to minimize fiscal imbalances while maintaining price and exchange rate stability.
“We have taken the following actions on the issuer: Long-term local currency IDR has been upgraded to ‘BB-’ from ‘B+’; Country ceiling upgraded to ‘BB-’ from ‘B+’,” the London based bureau stated in a release. “The outlook on the credit is stable.”
Fitch previously rated Suriname, the former Dutch colony on the northeast coast of South America, at B-plus. Standard & Poor’s rates Suriname at BB-minus with a stable outlook. Moody’s Investors Service has a B1 rating, one notch lower, but also with a stable outlook.
After a currency devaluation in 2011, Suriname has reduced political uncertainty and instituted tighter fiscal and monetary policies that have led to a disappearance of the gap between official and parallel currency rates. Inflation dropped to 3.6 percent in May 2012 from a peak of 22.6 percent in April 2011, Fitch said.
“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,” Fitch said.
Suriname’s economy is supported by mining and agricultural exports such as rice, bananas and shrimp. “Rising gold production and favorable prices combined with reduced dependence on fuel imports could support current account surpluses and the accumulation of international reserves over the medium term,” Fitch said.
It said that Suriname’s Government, through the implementation of revenue measures, as well as benefitting from favorable international commodity prices, 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,” it said.
However, the country’s domestic capital markets remain shallow and illiquid, thereby limiting the scope for any expansion in fiscal imbalances or the capacity to sustain higher debt burdens.
Fitch advised that reforms be implemented to strengthen the fiscal and monetary policy frameworks , as these measures would be positive for creditworthiness. Higher growth with broad macroeconomic stability could also have a favourable impact on Suriname’s ratings, the ratings bureau said. Fitch: “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.”