NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Suriname's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB-' with a Stable Outlook. Fitch has also affirmed Suriname's Short-term IDR at 'B' and the Country Ceiling at 'BB-'.
Suriname's ratings are underpinned by its sustained economic growth and positive investment prospects, low government indebtedness, robust external balance sheet and improved capacity of the monetary authorities to safeguard macroeconomic stability.
These credit strengths are balanced by high commodity dependence, relatively weak monetary, exchange rate and fiscal policy frameworks, a poor business environment and deficient, albeit improving, official data quality.
KEY RATING DRIVERS
Suriname's sovereign ratings and Stable Outlook balance the following factors:
--The economy has demonstrated resilience and relative dynamism through adverse external and domestic cycles. Suriname's five-year average growth rate of 4% in 2012 is above the 'BB' median of 3.4%. Economic activity could accelerate depending on the pace of execution of new investments in the gold and oil sectors.
--Suriname's low indebtedness and a favorable amortization schedule reduce refinancing risks. Central government debt of 22% of GDP in 2012 is just over half the 'BB' median. Given current low indebtedness levels, the sovereign could accommodate the planned USD600 million (11% of GDP) debut bond issue without jeopardizing fiscal sustainability.
--However, a narrow economic base, high fiscal revenue vulnerability to commodity shocks, shallow domestic capital markets and a short external repayment record limits Suriname's ability to sustain high levels of public spending and government debt.
--The country's strong external solvency and liquidity buffers support the fixed exchange rate regime and mitigate risks derived from high commodity dependence and persistent financial dollarization. International reserves reached 21% of GDP in 2012, covering 4.5 months of current external payments and 90% of foreign currency deposits in the banking system.
--Monetary authorities remain committed to preserve price and currency stability. Annual inflation fell to 1.4% in March 2013 and is expected to end the year at 4.5%. Increased fiscal spending and temporary disruptions in the EUR/USD market put pressure on the Surinamese dollar in the first part of 2013 but decisive central bank interventions underpinned the domestic currency to support the fixed exchange rate regime.
--The fiscal deficit climbed to 2.8% of GDP in 2012 from 1.9% in 2011. While the government is exercising greater current expenditure restraint, weak budget controls increase the risks of fiscal slippage in the run up to the general elections in May 2015. Delays in the implementation of revenue-enhancing reforms such as the introduction of the value-added tax, the creation of the sovereign wealth fund and the taxation of the informal mining sector could compound fiscal vulnerability to a downturn in commodity prices.
--Weak regulatory quality and institutional capacity constraints weigh on government effectiveness. The absence of mining and investment laws has hindered foreign investment and the development of new gold reserves. Monetary and fiscal policymaking rests on the credibility of individual public officials rather than on institutional and market instruments.
RATING SENSITIVITIES
The current Outlook on the long-term ratings is Stable, which reflects Fitch's assessment that upside and downside risks to the rating are currently evenly balanced.
The main factors that individually, or collectively, could trigger positive rating action:
--Strengthened budget management and reduced institutional capacity constraints;
--Progress towards implementation of investment projects leading to higher growth in the context of macroeconomic stability.
The main factors that individually, or collectively, could trigger negative rating action:
--A sustained erosion of the country's strong international reserves position;
--Material deterioration in the fiscal trajectory or confidence shocks resulting in macroeconomic instability.
KEY ASSUMPTIONS
The ratings and Outlooks are sensitive to a number of assumptions:
--The fiscal and external forecasts assume that gold prices and production will remain at relatively high levels.
--Fitch's growth outlook for 2013-2014 does not factor in the development of the new potential mining projects with Iamgold and the Alcoa/Newmont consortium. Fitch assumes that the two joint ventures will not be operational before 2014 and that the projects will involve a time to production of at least two years.
--The potential effect of an inaugural sovereign international bond issue of USD600 million on debt sustainability is considered but not incorporated in the government debt forecasts. This transaction is contingent upon the legislative approval of the two new mining contracts.
Additional information is available on www.fitchratings.com
Applicable Criteria and Related Research:
--'Sovereign Rating Criteria', Aug. 13, 2012;
--'Country Ceilings' Aug. 13, 2012.
Applicable Criteria and Related Research:
Sovereign Rating Methodology
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=685029
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792067
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