donderdag 27 april 2017

Ratingbureau Standard & Poor's degradeert weer Suriname, van B+ naar B

Amerikaans ratingbureau negatief over verslechterende economie en schuldenlast


Standard & Poor's heeft Suriname weer gedegradeerd, van B+ naar B. Vorig jaar was Suriname al gedaald van BB- naar B+. De degradatie heeft alles te maken met de verslechterende economie van het land en zijn schuldenlast, zegt de kredietbeoordelaar in zijn gisteren vrijgegeven rapport (zie hieronder). Dit bericht Starnieuws vandaag, donderdag 27 april 2017.

De vooruitzichten blijven negatief. De obligatie-lening van 550 miljoen Amerikaanse dollar die voor tien jaar is uitgezet, beschrijft Standard & Poors als ‘onbeveiligde schuld’.

De negatieve vooruitzichten weerspiegelen volgens de kredietbeoordelaar, dat er een kans van één op drie is, dat in de komende twaalf maanden de kredietwaardigheid van het land verder omlaag gaat. De overheid is er niet in geslaagd de inkomsten te versterken en haar uitgaven te verminderen. Standard & Poor's wijst erop dat die factoren kunnen leiden tot een terugkeer naar aanhoudende hoge fiscale tekorten en verdere stijgingen van de overheidsschuld en de rentekosten.

De kredietbeoordelaar voorspelt verder bij het uitblijven van inkomstenverhogende en uitgaven beperkende maatregelen, dat de zwakke externe liquiditeitspositie meer druk op de wisselkoers kan leggen, de inflatie kan verhogen, het vertrouwen van de bevolking kan ondermijnen en het binnenlands financieel systeem verder kan belasten.





OVERVIEW
  • We are lowering our long-term sovereign credit rating on the Republic of Suriname to 'B' from 'B+'.
  • We are also revising our transfer and convertibility assessment on Suriname to 'B+' from 'BB-'.
  • The downgrade reflects the worsening of our assessment of the country's economic strength and its debt burden.
  • We are assigning our 'B' senior unsecured debt rating to Suriname's US$550 million bond due in 2026.
  • The negative outlook reflects our view that there is an at least one-in-three chance of a downgrade over the next 12 months that delays in strengthening revenues or a failure to contain spending could result in a return to persistently high fiscal deficits and further increases in general government debt and interest expense; or that a weaker external liquidity position could put greater pressure on the exchange rate, boost inflation expectations, undermine domestic confidence, and place greater strain on the domestic financial system.
RATING ACTION
On April 26, 2017, S&P Global Ratings lowered its long-term sovereign credit 
rating on the Republic of Suriname to 'B' from 'B+. The outlook is negative. 
At the same time, S&P Global Ratings revised its transfer and convertibility 
assessment on Suriname to 'B+' from 'BB-'. S&P Global Ratings also assigned 
its 'B' senior unsecured debt rating to Suriname's 10-year US$550 million bond 
and affirmed its 'B' short-term issuer credit rating on the country.

RATIONALE
The downgrade reflects a worsening of our assessment of Suriname's financial 
profile and economic strength following a significant economic contraction in 
2016 that resulted in higher government debt, a substantial currency 
devaluation, and high inflation. Suriname's per capita GDP fell 7.5% in 2016 
(after falling 2.0% in the previous year) to about US$7,400. Despite a 
projected stabilization in GDP in 2017, we are lowering our economic 
assessment because economic growth rates are below the range we expect for 
countries at a similar level of per capita GDP. 

Real GDP will get a boost in 2017 by a full-year of production at Suriname 
Gold Co. LLC's recently opened Merian gold mine. However, weak domestic demand 
because of continued fiscal adjustments and recent declines in real wages will 
offset this. 

We expect real GDP growth will be close to zero in 2017. We expect growth to 
be positive-but-low in 2018 and 2019, with per capita growth to be about 1%. 
The country's economy is narrow, owing to its concentration in natural 
resources. Mining and manufacturing (mostly related to gold and oil production 
and refining) represented about 23% of real GDP and 17% of nominal GDP in 
2016. Neither gold nor oil represents more than 20% of GDP. Nevertheless, the 
concentration in natural resources makes the economy's sensitive to commodity 
price fluctuations.

The combination of currency depreciation, new external debt, and large fiscal 
deficits increased net general government debt to 55% of GDP in 2016 from 39% 
in 2015. We expect net general government debt to decrease to 52% of projected 
GDP in 2017 and stabilize after that, provided that the exchange rate stays 
relatively stable. Depreciation helped to raise interest costs in 2017 to 
16.6% of government revenues from 9.6% the previous year. We expect that the 
interest burden will remain high in the next three years, well above 10%. 

We expect that the change in general government debt will average about 3% of 
GDP during 2017-2020, but our forecast is sensitive to the trajectory of 
commodity prices (see "S&P Global Ratings Raises Its Oil And Natural Gas 
Prices Assumptions For 2017," published Dec. 14, 2016, on RatingsDirect). We 
expect that the government will continue to reduce its general government 
deficits in the next three years. Revenues will increase in 2017 and beyond 
with full-year production at the Merian mine, an increase in fuel taxes and 
electricity tariffs, higher dividends from Staatsolie Maatschappij Suriname 
N.V., and the potential implementation of a value-added tax. Our base-case 
forecast calls for fiscal deficits of 4% of GDP in 2017 and 3% in 2018. The 
general government balance improved in 2016 as the deficit decreased to 5% of 
GDP from 11% in 2015, due exclusively to lower spending (which fell from 31% 
of GDP in 2015 to 19% last year). Some of the drop in spending could reflect 
arrears rather than explicit spending cuts, and our base-case forecast 
includes moderate increases in spending during 2017-2020.

Suriname's current account deficit narrowed considerably in 2016 to 4% of GDP 
from 17% the previous year, thanks to significant import compression (goods 
imports fell almost 40%) resulting from the devaluation of the Surinamese 
dollar (SRD) and the beginning of Merian production. We expect the country 
will return to near current account balance in 2017 and surplus by 2018. For 
the last quarter of 2016, Suriname recorded a small current account surplus. 
We expect goods imports to increase somewhat in 2017 but remain at or close to 
historically low levels. Exports, on the other hand, should increase with full 
production at Merian. 

We expect improvement in official reserves to about four months of import 
cover in 2017. Reserves fell to SR$400 million as of Dec. 31, 2016, from a 
peak in 2012 of about US$1 billion. We expect that Suriname's external metrics 
will remain weak but slowly improve in 2017 and 2018. The country's gross 
external financing requirements as a share of current account receipts (CAR) 
and usable reserves will improve to about 105% in 2017 and 100% in 2018 (from 
about 116% in 2016 and 122% in 2015). Narrow net external debt CAR should be 
close to 42% of CAR in 2017, rising to 47% in 2018. 

The gap between Suriname's net external liabilities and net external debt as a 
share of CAR was over 100% in 2016, highlighting the country's vulnerability 
to a marked deterioration in access to external financing. Suriname's external 
accounts have material data inconsistencies and statistical discrepancies in 
fiscal results. Our credit assessment of the country reflects these 
shortcomings.

Suriname has a stable democratic government led by the Mr. Desi Bouterse's 
Nationale Democratische Partij (NDP), which has a slim majority (26 of 51 
seats) in the National Assembly. We believe that the checks and balances that 
are the hallmark of stronger institutional frameworks are weak in the country. 
Poor economic management has undermined the sustainability of Suriname's 
public finances. The IMF approved a US$480 million stand-by agreement with the 
government in May 2016, but the program has stalled. The government has not 
met targets for raising fuel taxes and eliminating electricity subsidies. 

We believe that the exchange rate could weaken somewhat in 2017. 

Our ratings on Suriname reflect the country's lack of monetary flexibility. 
Small local capital markets and high dollarization of both bank assets and 
liabilities constrain the effectiveness of monetary policy. The central bank 
has limited monetary policy tools. Its primary tool is reserve requirements on 
local and foreign currency deposits, which it uses to manage credit growth in 
the local banking system. It has taken steps to set up an interbank market and 
holds regular treasury bill auctions with the goal of eventually conducting 
open market operations. We expect inflation will decline in 2017 after spiking 
in 2016. Inflation spiked in 2016 to 52% on average for the year (7% in 2015), 
due to the impact of currency depreciation and increases in administered 
prices.

We believe that Suriname's new foreign exchange auction, which replaced its 
former long-standing fixed rate regime, could gradually increase monetary 
flexibility. A credible track record in using a flexible exchange rate could 
help the country to better manage external shocks.

Financial dollarization increased significantly in 2016 with the SRD's 
depreciation, further limiting the potential effectiveness of monetary policy. 
About 70% of deposits and just more than 50% of claims by resident commercial 
banks and credit unions (excluding the government and the central bank) were 
denominated in foreign currency at the end of 2016. These levels of 
dollarization are up significantly from 2015's 58% and 39%, respectively. The 
ratios had been quite stable until the SRD's depreciation.
 
We believe that the financial system poses a limited contingent liability to 
the country. The banking system in Suriname is not large, and the three 
biggest banks hold more than 80% of all deposits. The total assets of all 
depository companies were almost 62% of GDP at the end of 2016. The financial 
system's nondepository segment is also small, with total assets below 20% of 
GDP. In 2016, the government merged one small, under-capitalized state-owned 
bank with a larger, better-capitalized one. We believe the government could 
provide additional capital in 2017 to some financial institutions. We expect 
the main nonfinancial public enterprise, the energy company Staatsolie, will 
increase its profitability in 2017 from the low level recorded in 2016. We 
also expect nonfinancial public sector enterprises as a whole to pose a 
limited contingent liability to the government.

OUTLOOK
The negative outlook reflects our expectation that there is an at least 
one-in-three chance of a downgrade over the next 12 months if the government 
fails to stabilize the recent deterioration in external liquidity, reduce 
fiscal deficits, stabilize its debt burden, and restore investor confidence. 
We expect that the government will contain spending pressures and move toward 
strengthening its revenue base.

Upside scenario
Steps to boost investor confidence and GDP growth would increase government 
revenues, reducing the burden of interest expense on the government's budget 
and improving fiscal sustainability. These improvements, combined with 
declining general government deficits and the return to current account 
surpluses and a stronger external position, could lead to an outlook revision 
to stable. 

Downside scenario
Delays in strengthening the government's revenue base or failure to contain 
spending could result in a return to persistently high fiscal deficits and 
further increases in general government debt and interest expense. 
Alternatively, a weaker external liquidity position could put greater pressure 
on the exchange rate, boost inflation expectations, undermine domestic 
confidence, and place greater strain on the domestic financial system. We 
could downgrade Suriname as a result. 


KEY STATISTICS

Table 1

The Republic of Suriname -- Selected Indicators
20102011201220132014201520162017f2018f2019f2020f
ECONOMIC INDICATORS (%)
Nominal GDP (bil. LC)11.9914.4516.4316.9817.2916.6724.2327.8632.1835.7239.65
Nominal GDP (bil. $)4.374.424.985.155.244.884.213.714.224.615.12
GDP per capita (000s $)8.28.29.29.49.48.67.46.67.58.19.0
Real GDP growth5.25.33.12.81.8(2.1)(7.5)0.00.51.01.0
Real GDP per capita growth3.83.62.71.20.3(3.4)(7.5)0.00.51.01.0
Exports/GDP53.264.457.750.445.038.138.752.848.646.042.8
Unemployment rate7.67.47.47.88.09.09.09.09.09.09.0
EXTERNAL INDICATORS (%)
Current account balance/GDP14.99.83.3(3.8)(7.9)(16.6)(3.7)(0.7)1.11.00.9
Current account balance/CARs26.114.35.3(7.1)(16.4)(40.2)(8.6)(1.2)2.02.02.0
CARs/GDP57.168.461.253.948.341.243.157.853.050.246.6
Trade balance/GDP15.721.914.24.72.5(7.7)4.89.49.58.77.8
Net FDI/GDP(5.7)1.63.53.63.15.75.30.50.50.40.4
Net portfolio equity inflow/GDP(0.3)0.1(0.1)(0.0)0.0(0.2)9.90.00.00.00.0
Gross external financing needs/CARs plus usable reserves61.974.879.883.699.2122.1116.3104.799.196.691.0
Narrow net external debt/CARs(32.8)(18.0)(23.0)(11.8)13.450.342.342.246.748.251.2
Net external liabilities/CARs(5.9)(9.8)(1.7)16.945.6126.9144.2131.1136.8140.6145.5
Short-term external debt by remaining maturity/CARs4.15.66.16.311.918.326.921.317.617.613.4
Usable reserves/CAPs (months)4.23.13.34.03.02.61.82.02.02.42.7
Usable reserves (mil. $)668798989741601300364374454534615
FISCAL INDICATORS (%, General government)
Balance/GDP(2.5)(2.0)(2.7)(6.0)(9.3)(11.0)(5.2)(4.2)(3.3)(2.6)(1.8)
Change in debt/GDP4.74.73.98.8(2.7)15.330.64.23.32.61.8
Primary balance/GDP(1.7)(1.0)(1.7)(4.7)(8.4)(9.4)(3.9)(1.1)(0.7)0.00.6
Revenue/GDP21.724.524.523.321.720.413.918.318.017.717.4
Expenditures/GDP24.326.427.229.431.031.419.222.421.320.219.2
Interest /revenues3.94.13.95.74.17.79.616.614.814.513.9
Debt/GDP18.520.021.429.626.342.760.056.352.149.546.4
Debt/Revenue85.081.687.6126.8121.5209.2430.7308.2290.1279.9266.2
Net debt/GDP13.512.316.423.023.938.954.851.848.246.040.7
Liquid assets/GDP5.07.75.06.52.43.75.24.53.93.55.7
MONETARY INDICATORS (%)
CPI growth6.917.75.01.93.46.952.415.015.010.010.0
GDP deflator growth7.214.510.30.50.0(1.5)57.215.014.99.99.9
Exchange rate, year-end (LC/$)2.753.303.303.303.304.007.507.507.757.757.75
Banks' claims on resident non-gov't sector growth12.820.015.718.08.516.354.316.917.412.912.9
Banks' claims on resident non-gov't sector/GDP25.425.325.729.431.337.840.140.841.442.142.9
Foreign currency share of claims by banks on residents39.341.140.639.433.637.236.235.735.234.634.1
Foreign currency share of residents' bank deposits50.055.852.352.852.957.757.757.757.757.757.7
Note: Savings is defined as investment plus the current account surplus (deficit). Investment is defined as expenditure on capital goods, including plant, equipment, and housing, plus the change in inventories. Banks are other depository corporations other than the central bank, whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private- sector borrowings from nonresidents minus official reserves minus public-sector liquid assets held by nonresidents minus financial-sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. LC--Local currency. CARs--Current account receipts. FDI--Foreign direct investment. CAPs--Current account payments. The data and ratios above result from S&P Global Ratings' own calculations, drawing on national as well as international sources, reflecting S&P Global Ratings' independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.
f--forecast
RATINGS SCORE SNAPSHOT

Table 2

The Republic of Suriname -- Ratings Score Snapshot
Key rating factorsAssessment
Institutional assessmentWeakness
Economic assessmentWeakness
External assessmentNeutral
Fiscal assessment: flexibility and performanceNeutral
Fiscal assessment: debt burdenWeakness
Monetary assessmentWeakness
Note: S&P Global Ratings' analysis of sovereign creditworthiness rests on its assessment and scoring of five key rating factors: (i) institutional assessment; (ii) economic assessment; (iii) external assessment; (iv) the average of fiscal flexibility and performance, and debt burden; and (v) monetary assessment. Each of the factors is assessed on a continuum spanning from 1 (strongest) to 6 (weakest). Section V.B of S&P Global Ratings' "Sovereign Rating Methodology," published on Dec. 23, 2014 , summarizes how the various factors are combined to derive the sovereign foreign currency rating, while section V.C details how the scores are derived. The ratings score snapshot summarizes whether we consider that the individual rating factors listed in our methodology constitute a strength or a weakness to the sovereign credit profile, or whether we consider them to be neutral. The concepts of "strength", "neutral", or "weakness" are absolute, rather than in relation to sovereigns in a given rating category. Therefore, highly rated sovereigns will typically display more strengths, and lower rated sovereigns more weaknesses. In accordance with S&P Global Ratings' sovereign ratings methodology, a change in assessment of the aforementioned factors does not in all cases lead to a change in the rating, nor is a change in the rating necessarily predicated on changes in one or more of the assessments.
RELATED CRITERIA


RELATED RESEARCH


In accordance with our relevant policies and procedures, the Rating Committee 
was composed of analysts that are qualified to vote in the committee, with 
sufficient experience to convey the appropriate level of knowledge and 
understanding of the methodology applicable (see 'Related Criteria And 
Research'). At the onset of the committee, the chair confirmed that the 
information provided to the Rating Committee by the primary analyst had been 
distributed in a timely manner and was sufficient for Committee members to 
make an informed decision.  

After the primary analyst gave opening remarks and explained the 
recommendation, the Committee discussed key rating factors and critical issues 
in accordance with the relevant criteria. Qualitative and quantitative risk 
factors were considered and discussed, looking at track-record and forecasts.  

The committee agreed that "key rating factor" had improved/deteriorated and 
that the "key rating factor" had improved/deteriorated. All other key rating 
factors were unchanged. 

The chair ensured every voting member was given the opportunity to articulate 
his/her opinion. The chair or designee reviewed the draft report to ensure 
consistency with the Committee decision. The views and the decision of the 
rating committee are summarized in the above rationale and outlook. The 
weighting of all rating factors is described in the methodology used in this 
rating action (see 'Related Criteria And Research').  


RATINGS LIST
Downgraded; Short-Term Rating Affirmed
                                        To                 From
Suriname (The Republic of)
 Sovereign credit rating                B/Negative/B       B+/Negative/B

Revised
                                        To                 From
Suriname (The Republic of)
 Transfer and convertibility assessment
  Local currency                        B+                 BB-

New Rating

Suriname (The Republic of)
 Senior unsecured                       B                  


Certain terms used in this report, particularly certain adjectives used to 
express our view on rating relevant factors, have specific meanings ascribed 
to them in our criteria, and should therefore be read in conjunction with such 
criteria. Please see Ratings Criteria at www.standardandpoors.com for further 
information. Complete ratings information is available to subscribers of 
RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. All 
ratings affected by this rating action can be found on the S&P Global Ratings' 
public website at www.standardandpoors.com. Use the Ratings search box located 
in the left column.

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