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Fitch Revises Suriname's Outlook

to Negative; Ratings Affirmed at
'B-'
AUG : PM ET

Fitch Ratings - New York - August :

Fitch Ratings has affirmed Suriname's Long-Term Foreign Currency

Issuer Default Rating (IDR) at 'B-'. The Rating Outlook has been
revised to Negative from Stable.

KEY RATING DRIVERS

The Negative Outlook reflects Fitch's expectation that large

government deficits and financing needs, in part reflecting
spending pressures related to elections in May , will continue
to lead to a rapid increase in government debt/GDP. Preliminary
fiscal data for H indicate the government deficit (cash basis) is
on course for approximately % of GDP for . Uncertain
financing options, highlighted by on-going monetary financing
from the central bank, add to downside risks. Financial system
vulnerability remains a contingent liability.

The government deficit rose to . % of GDP (cash basis) in ,

above expectations due to payment of supplier arrears, wage
increases, subsidies and transfers, and interest costs. The headline
deficit on a commitment basis was much smaller at . % of GDP,
but is less relevant for financing. Government oil and gold-related
revenues, supported by additional tax administration efforts, have
nearly recovered to pre-price-shock - levels. However,
primary spending has been difficult to adjust relative to the
government's volatile revenues, and interest has risen as a share of
revenue to . % expected for from . % in (based on
Fitch's fiscal forecasts, gross interest data from the Debt
Management Office and government revenues from the Ministry of
Finance).

Fitch expects the government deficit (cash basis) to remain wide

near % of GDP in both and on the expectation that
higher infrastructure spending ahead of the elections will offset the
easing of arrears payments related to prior periods. Preliminary
H data show an annualized % of GDP government deficit on a
cash basis, which the national authorities expect to lessen in H .
This corresponds to government gross financing needs of . % of
GDP (including medium- and long-term maturities totalling . % of
GDP) for . Structural reforms (reduction of electricity and
water subsidies in ; a planned value-added tax in ) have
been deferred, lowering Fitch's expectation that the budget gap
will be reduced until .

Financing flexibility has become constrained. During - , the

government has shifted its external financing strategy to higher-
cost loans from China ( % estimated average cost) and other
bilateral and commercial sources while multilateral institutions have
not extended net new lending since Suriname's IMF program went
off track in (net multilateral disbursements were close to zero
during -May ). Constraints in the domestic market led the
government to secure new financing from non-traditional sources
in and the central bank ( . % of GDP net new financing) in
as well as increased the stock of foreign currency domestic
government debt/GDP to . % in May from . % in .

The announcement of a potential large new oil discovery may help

Suriname to secure new international financing, although this has
not been tested. Staatsolie announced in August that the firm is
drilling a third near-shore well. The company's early geological
calculations indicate the potential for million barrels of
recoverable oil. This would be a large discovery for Suriname if
further technical study yields proven oil reserves. The first
production would be in an estimated three-to-five years, according
to the company.

Fitch expects Suriname's government debt/GDP to rise to % at

end- from % in , well above the current 'B' median of
%. The government's large financing needs amid shallow local
capital markets and rising financing costs have steepened the
upward trajectory in the debt ratio, raising risks to debt
sustainability. The interest burden is nearly double the current 'B'
median. The denomination of three-quarters of government debt in
foreign currency exposes it to currency shocks. Balancing this, the
absence of external amortization pressures reduces the
government's external refinancing risk; the sole global bond
matures in .

The financial system is recovering from the deterioration of

household and business balance sheets amid the large exchange
rate depreciation in and write-offs stemming from
government arrears. The system's regulatory capital-to-risk-
weighted-assets ratio rose to . % as of March from a low
of . % in December . Profitability, though recovering, is still
below pre-shock levels during - and non-performing
loans remained high at % in the second quarter of . The
performance and related write-offs of one large bank during
led to its partial consolidation with another financial institution in
. High financial dollarization ( % of credit and % of
deposits in May ) is also a concern in the context of low
capital buffers.

Inflation averaged . % yoy in , further moderating from

. % in , with public expectations anchored by exchange
rate stability since the external adjustment. The central bank has
gradually rebuilt international reserves to USD million in July
, equivalent to cover . months of current external payments,
albeit less than . months for the current 'B' median. However,
following the appointment of a new central bank governor and
monetary financing during H , a parallel Suriname dollar-US
dollar exchange rate emerged. The domestic forex market has
been tight since Netherlands authorities seized a cash shipment in
April . The central bank has taken steps to increase the share
of banks' required reserves on foreign currency deposits held at
the central bank to bolster FX reserves and introduced new tools
to manage excess bank liquidity. It has also provided foreign
exchange for certain importers at the bank rate in response to
tightness in the domestic forex market.

The economy expanded . % in (preliminary data),

supported by mining investment. Fitch expects domestic demand
to support . % average GDP growth during - . Rising
government infrastructure investment and consumption driven by
household income gains are expected to offset a decline in mining
investment.

The current account deficit/GDP widened to . % in (up

from . % in ), due to weaker gold export performance amid
stable import demand relative to GDP. Fitch expects higher import
demand to widen the deficit to . % of GDP in . Mining FDI,
which fully financed the current account deficit during - , is
expected to moderate during - . Suriname's net external
debt ( % of GDP expected in ) exceeds the current 'B'
median of %.

Early polls indicate the parliamentary and local elections in May

to be competitive, increasing the odds of a coalition
government led by either the governing Suriname National
Democratic Party (NDP) or the largest opposition Suriname
Progressive Reform Party (VHP) . Current President Bouterse, who
leads the governing NDP party, could be selected by the
parliament for a third consecutive term if his party maintains
sufficient seats or can build a coalition with small parties.

Among Suriname's structural features its governance, social

indicators and per capita GDP exceed the current 'B' medians.
However, business environment and supply-side constraints hinder
faster economic growth. It is also highly dependent on commodity
receipts.

SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY

(QO)

Fitch's proprietary SRM assigns Suriname a score equivalent to a

rating of 'B' on the Long-Term Foreign Currency (LT FC) IDR scale.

Fitch's sovereign rating committee adjusted the output from the

SRM to arrive at the final LT FC IDR by applying its QO, relative to
rated peers, as follows:

--Public finances: - notch, To reflect Suriname's large fiscal

financing needs and limited financing flexibility, its large budget
government deficits, its rapidly rising government debt/GDP and
financial system contingent liability risks.

Fitch's SRM is the agency's proprietary multiple regression rating

model that employs variables based on three-year centered
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the
SRM output to assign the final rating, reflecting factors within our
criteria that are not fully quantifiable and/or not fully reflected in the
SRM.

RATING SENSITIVITIES

The main factors that could lead to a negative rating action,

individually or collectively include:

--Failure to consolidate the government deficit and reduce risks to

government debt sustainability.

--Signs of fiscal financing stress that heighten risks to the

sovereign's capacity to meet its debt payments

--External stress such as capital outflows or weakened external

financing conditions that leads to a reduction in international
reserves or downward pressure on the exchange rate that poses a
risk to macroeconomic or financial stability.

The main factors that could stabilize the outlook, individually or

collectively include:

--Reduction of the government deficit that reduces risks to

government debt sustainability.

--Easing of government financing constraints that supports the

sovereign's ability to meet its financing needs.

KEY ASSUMPTIONS

Fitch assumes global economic growth and international oil prices

evolve according to our quarterly Global Economic Outlook
forecasts and that international gold prices remain near current
levels during - .

SUMMARY OF DATA ADJUSTMENTS

--Fitch analyses government operations on a cash basis (which

includes payments of supplier arrears) using published Ministry of
Finance statistics because this treatment better explains the scale
of the government's financing needs and change in government
debt/GDP during - , in our view, than the government
commitment balance also published by the Ministry of Finance.
--Fitch values government debt at reference period-end market
exchange rates; this differs from valuation according to Suriname's
National Debt Law.

--The stock of government arrears to suppliers is not publicly

disclosed. However, the flows of arrears incurred and payments
thereof are publicly disclosed.

--Financial soundness indicators of the banking system are

released periodically for the IMF Article IV reports but not
published on a regular basis.

ESG CONSIDERATIONS

Suriname has an ESG Relevance Score of for Human Rights and

Political Freedoms as World Bank Governance Indicators have the
highest weight in the Sovereign Rating Model and are relevant to
the rating and are a rating driver.

Suriname has an ESG Relevance Score of for Political Stability

and Rights as World Bank Governance Indicators have the highest
weight in Fitch's Sovereign Rating Model and is therefore highly
relevant to the rating and a key rating driver with a high weight.

Suriname has an ESG Relevance Score of for Rule of Law,

Institutional and Regulatory Quality and Control of Corruption as
World Bank Governance Indicators have the highest weight in the
Sovereign Rating Model and are therefore highly relevant to the
rating and a key rating driver with a high weight.

Suriname has an ESG Relevance Score of for Creditor rights as

willingness to service and repay debt is relevant to the rating and is
a rating driver for Suriname, as for all sovereigns.

RATING ACTIONS

ENTITY/DEBT RATING PRIOR

HIDE RATING ACTIONS

Suriname LT IDR B-
B-
Affirmed

ST IDR B
B
 Affirmed

LC LT IDR B-
B-
Affirmed

LC ST IDR B
B
Affirmed

Country Ceiling B-
B-
Affirmed

senior unsecured LT B-
B-
Affirmed

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

APPLICABLE CRITERIA

Sovereign Rating Criteria (pub. May )

Country Ceilings Criteria (pub. Jul )
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FITCH RATINGS ANALYSTS

Primary Rating Analyst

Kelli Bissett-Tom
Director
+
Fitch Ratings, Inc.
Whitehall Street
New York

Secondary Rating Analyst

Christopher Dychala
Analyst
+

Committee Chairperson
Ed Parker
Managing Director
+

MEDIA CONTACTS

Elizabeth Fogerty
New York
+
elizabeth.fogerty@thefitchgroup.com

RATINGS KEY OUTLOOK WATCH

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