Transcript Slide 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
Content
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o
o
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Performance and external assessments.
Macroeconomic risks and challenges.
Mining sector highlights.
Investment opportunities in Suriname.
2
Solid and stable income growth
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.
Per capita GDP (in US$)
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
8,326
7,490
8,860
7,923
6,921
Upper middleincome
($3,976-$12,275)
5,832
5,278
4,513
Lower middleincome
($1,006-$3,976)
2005
2006
2007
2008
2009
2010
2011
2012
3
Buoyant export receipts
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.
4
Export composition and diversification
o Alumina exports increased only marginally, but gold exports have
increased fiftyfold since 2000.
o Diversification has reduced vulnerabilities to exogenous shocks.
5
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.
Monthly inflation rates 2010-12
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Employment growth
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.
100
Private and public sector employment (in thousands) and
unemployment rate (in percent of workforce) 2005-2012
Private sector employment
75
15.0
12.5
Unemployment rate (right axis)
50
10.0
Public sector employment
25
0
7.5
5.0
2005
2006
2007
2008
2009
2010
2011
2012
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Fiscal performance
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.
Government expenditure and outcome 2005-2012 (% of GDP)
10.0
7.5
Wages and salaries
7.5
5.0
Goods and services
5.0
2.5
Capital expenditure
2.5
0.0
Overall balance (right axis)
0.0
-2.5
2005
2006
2007
2008
2009
2010
2011
8
2012
Central Government Debt
o Debt levels have fallen due to:
o
o
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High economic growth.
30
Restructuring and repayment of
arrears.
25
Fiscal surpluses or deficits smaller
20
than GDP growth.
o Debt increase in 2010-2011:
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o
o
Fiscal deficits.
Exchange rate adjustment.
Government increase in deposits
at CBvS instead of liability
reductions.
Debt ratios 2005-2012 (% of GDP)
15
External debt
10
5
Domestic debt
0
2005 2006 2007 2008 2009 2010 2011 2012
o All arrears have been eliminated.
9
CBvS gross international reserves
Strong export growth and tight fiscal and monetary policies have led to a
significant increase in reserves and reserve coverage.
Central Bank gross international reserves 2005-12
10
1,200
Gross international reserves in US$ millions
(right axis)
8
6
1,000
800
Gross reserves in months of imports
(left axis)
600
4
400
2
200
0
0
2005
2006
2007
2008
2009
2010
2011
2012
10
Outside assessments: IMF
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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.
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Outside assessments: credit ratings
o Credit rating upgrades due to:
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Stable macroeconomic
environment.
Elimination of arrears.
Relative low debt levels.
Structural improvement
of BOP.
Robust medium term
growth prospects.
Ongoing investments.
Conditions for further rating upgrades:
o
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Fiscal strengthening through economic reforms.
Large investments that boost GDP growth and government revenue.
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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.
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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.
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Reforms are key to limit risks
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Central Bank shift towards use of indirect market-based instruments.
Development of the local money and capital markets.
Gradual de-dollarization of the economy.
Establishment of the Sovereign Wealth Fund to reduce the impact of
oil and gold price volatility and stabilize and diversify income streams.
Modern and transparent budget preparation and execution
procedures.
New legal framework and modernization of the tax regime.
Deregulation, privatization, and modernization of administrative
processes to allow more private sector investment and competition.
Increased reliance on public-private partnerships in lieu of public
investment.
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Mining sector highlights
Oil
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).
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Exploration and production agreements continue with several international oil companies.
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Refinery expansion and an ethanol pilot project expected to go online in 2015.
Gold
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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.
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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
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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.
o
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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.
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.
o Easily accessible.
o Existing basic
infrastructure
would need to be
rehabilitated.
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Private sector investment – transport and
infrastructure
o Comparative advantages
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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.
Private sector investment – agriculture
o Comparative advantages
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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.
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.
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.