News Column

Fitch Affirms Suriname's Ratings at 'BB-'; Outlook Stable

May 12, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Suriname's long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB-'. Fitch has also affirmed the issue ratings on Suriname's senior unsecured foreign and local currency bonds are at 'BB-'. The Rating Outlooks on the long-term IDRs are Stable. In addition, Fitch has affirmed Suriname's Country Ceiling at 'BB-' and short-term foreign currency IDR at 'B'.

KEY RATING DRIVERS

Suriname's rating affirmation and Stable Outlook reflect the following rating drivers:

Suriname has experienced fiscal and external deterioration in 2013. However, its strong starting point with adequate external buffers and a moderate debt burden provide flexibility to cope with the downturn in commodity prices. Moreover, Fitch expects that the Surinamese authorities will contain the fiscal deficit and preserve macroeconomic stability through the general elections in May 2015. A new large-scale mining investment project is likely to boost gold production, support economic growth and reduce fiscal and external imbalances over the medium term.

The government deficit doubled to 5.8% of GDP in 2013 due to lower commodity-derived taxes and generous wage adjustments to public employees. Recent spending rationalization and revenue measures are helping to contain the fiscal expansion. Preliminary results point to a halving of the fiscal deficit to 1.4% of GDP in 1Q14 from the unprecedented 3% in 1Q13. The limited availability of local and external sources to continue financing large fiscal imbalances could rein in the room for fiscal slippage during the electoral season. Notwithstanding these factors, Fitch expects fiscal deficits to remain at 4.4% of GDP in 2014-2015, which is higher than the average 2.3% in 2009-2012.

Suriname's build-up of external buffers in recent years provided the authorities with flexibility to manage depreciation and inflation pressures in 2013. The central bank's currency interventions and tighter reserve requirements narrowed the parallel exchange market premium to 2% from 6% in 3Q13 and stabilized foreign reserves at nearly USD800 million (14% of GDP) in 1Q'14. Annual inflation could average 3.4% in 2014-2015, helped by lower imported prices, utility subsidies and improving weather conditions.

Suriname's current account swung to a deficit of 3.8% of GDP in 2013 from a surplus of 3.3% in 2012. Current account deficits could widen in 2014-2015, reflecting the limited gold price upside and import-intensive investment cycle, but are expected to be fully financed by foreign investment in mining and oil. Fuel import substitutions could start having a net positive impact on the trade balance in 2015. External borrowing by the government and the state-owned Staatsolie will provide additional support to the balance of payments and the stabilization of international reserves.

The banking system maintains adequate capitalization, asset quality, liquidity and profitability. However, high financial dollarization, the rapid growth of local currency consumer and mortgage lending and a recent pickup in non-performing loans are sources of financial vulnerability. The commercial banks' strong net foreign asset position of 14% of GDP allays risk of currency mismatches and deposit runs.

Government indebtedness doubled to 29% of GDP in 2013 from 16% in 2009, fueled by five years of fiscal deficits. Fitch's sustainability analysis suggests that the debt burden will continue to climb although will likely stay below the 'BB' median of 36% of GDP even if the government funds its equity participation in two new mining joint ventures through international commercial loans in 2014-2015. Low servicing costs and long repayment periods, mostly on concessional lending, mitigate refinancing risks.

Fitch expects Suriname's real GDP growth to decelerate to 3.9% of GDP in 2014-2015, in line with the 'BB' median. Economic activity is vulnerable to mining supply shocks and a sustained decline in commodity prices. A new mining project requiring USD1 billion (18% of GDP) in investment is expected to start in 3Q14. The project could double industrial gold production in three years and have positive spinoff effects on exports, employment, construction and trade.

Suriname's ratings are constrained by the vulnerability of growth, fiscal revenue and exports to commodity downturns, relatively weak monetary and fiscal policy frameworks, a poor business environment and deficient, albeit improving, official data quality. Weak regulatory quality, institutional capacity constraints and corruption weigh on government effectiveness.

RATING SENSITIVITIES

The main risk factors that, individually or collectively, could trigger a rating action are:

Negative:

--Continued fiscal slippage or a sustained loss of international reserves that compromise the central bank's capacity to maintain currency and price stability;

--Electoral or institutional uncertainty that leads to loss of confidence in policy making;

--Mining production shocks or a severe fall in commodity prices that lead to a material deterioration of the sovereign's fiscal and external solvency metrics.

Positive:

--Progress towards the implementation of investment projects that spur faster economic growth in the context of macroeconomic stability;

--Improvement in fiscal and external accounts in relation to rating peers;

--Reforms to strengthen budget management controls, monetary and fiscal policy predictability and institutional capacity at public sector entities.

KEY ASSUMPTIONS

The ratings and Outlooks are sensitive to a number of assumptions.

--The growth, fiscal and external forecasts assume that Suriname's will sustain annual gold production above one million ounces and international prices do not fall below an average of USD1200 per ounce in 2014-2015. The projections also assume an average oil production of 16500bpd and international prices of USD100-105 in 2014-2015.

--Fitch's government debt forecast incorporate USD200 million (3.6% of GDP) in commercial loans to finance its equity stake in a new gold mining venture with Newmont. The projections factor in an expected investment stream of USD1 billion (18% of GDP) over the next three years.

Additional information is available on www.fitchratings.com

Applicable Criteria and Related Research:

--'Sovereign Rating Criteria' (Aug. 13, 2012);

--'Country Ceilings' (Aug. 9 2013).

Applicable Criteria and Related Research:

Sovereign Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685737

Country Ceilings

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715618

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=829694

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Cesar Arias

Associate Director

+1 212-908-0358

Fitch Ratings, Inc.

33 Whitehall St.

New York, NY 1004

or

Secondary Analyst

Erich Arispe

Director

+1 202-908-9165

or

Committee Chairperson

Tony Stringer

Managing Director

+44 20 3530 1219

or

Media Relations, New York

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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