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Statement of the Islamic Development Bank (IDB) Governor for the Republic of Suriname: 43rd Annual Meeting of the IDB Board of Governors

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By IM Insights
4 years ago
Statement of the Islamic Development Bank (IDB) Governor for the Republic of Suriname: 43rd Annual Meeting of the IDB Board of Governors

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  1. Statement of the IDB Governor for the Republic of Suriname The 43rd Annual Meeting of the IDB Board of Governors Tunis – Republic of Tunisia 17th – 19th Rajab1439H (3rd – 5th April 2018) Original Text (English)
  2. Distinguished Chairman of the Islamic Development Bank Board of Governors , Distinguished Governors and Executive Directors of the Islamic Development Bank, Your Excellency, Dr. Bandar Hajjar, President of the Islamic Development Bank, Ladies and Gentlemen, It is an honor and privilege for me to address the 43rd annual meeting of the Board of Governors of the Islamic Development Bank in this historical city of Tunis. With the unique cosmopolitan location in mind, I would like to thank the Tunisian government and the Tunisian people for their warm welcome and friendly hospitality. As Governor for the Republic of Suriname, I would like to present to you some of our recent economic developments, challenges, and successes that are supported by our development partners, including the Islamic Development Bank. By any international standards, Suriname faced in 2014-16 an unusually severe balance of payments and fiscal shock related to the sharp drop in commodity export revenue. • In terms of government finances, oil and mining-related income fell from around 8½ % of GDP in 2012 to just 0.1 % of GDP in 2016 - the government lost almost a third of its income in 3 years. This was compounded by the loss in revenue from a sharp recession that ensued in 2016. • In terms of the balance of payments, Suriname began recording external current account deficits in 2013 after nearly a decade of surpluses. These deficits were primarily related to the begin of the large-scale investments, which together account for about 35% of GDP during 2013-16; while the sharp fall in gold and then oil prices, and the end of a century of alumina exports exacerbated the pressure on the balance of payments. Our macroeconomic response to this massive external and fiscal shock started in earnest in August 2015 with a sharp contraction in government expenditure and increases in taxation. These included expenditure cuts to line ministries and increased expenditure controls by the Ministry of Finance, increases in fuel taxation and the closing of fuel taxation loopholes, and a phased elimination of utility subsidies. As mentioned before, government revenue fell from 24.5% of GDP in 2012 to just 16.7% of GDP in 2016. Revenue stabilized in 2017, reaching 16.6% of GDP. Despite the low revenue, the government managed to reduce the deficit from around 10.7% of GDP in 2016 to around 6.6% of GDP in 2017 on account of a sharp curtailment of expenditure. Overall, expenditure has been compressed from 30.4% of GDP in 2015 to 23.0% of GDP in 2017, a drop of more than 7% of GDP in just 2 years. The quantitative fiscal adjustment has largely been accomplished on account of the massive expenditure contraction. But more importantly, we are progressing on our goal to secure these gains by putting in place fundamental structural reforms to increase non-mining fiscal revenue, preclude future commodity price shocks from damaging the economy and fiscal solvency, and to accelerate the speed with which the government can respond to shocks. The reforms are 1
  3. widespread and will fundamentally improve the way the government does business : • Parliament passed a law establishing a Sovereign Wealth Fund to stabilize commodity-based fiscal revenue and begin saving commodity-based revenue for future generations. • A real-time expenditure management system is being implemented. This will allow fast budget adjustments, greater transparency, and a full shift to an international fiscal accounting standards. • We have in place a macroeconomic forecasting system for budget preparation and medium-term fiscal planning, which is critical to reform the public finance management framework in the future. Linked to this is the passage in the near future of a new Public Finance Management law that will put in place a fiscal rule, and reform the budget preparation and approval process. • We are on track to put in place a value-added tax in 2018 to broaden the consumption tax base, add in the long-term stabilization of government revenue, and increase revenue of 2.5% of GDP. On the monetary and exchange rate policy side, the government announced in February 2016 a shift to a flexible exchange rate regime. After a volatile transition period, the exchange rate stabilized and the parallel market disappeared in September 2016. Linked to the newfound stability of the exchange rate, inflation has declined sharply to single digits in 2017 after reaching 52% in 2016. The results of our efforts are becoming evident and the outlook for growth, exports, and government commodity-related income is now positive. The two main extractive industries in Suriname can look forward to increased output and revenue in the coming decades as a result of significant new investment that was put in place since 2015 and is expected in the near future. The state-owned oil company is now operating its new US$1 billion refinery that has largely eliminated crude oil exports and imports of gasoline and diesel. This is helping to insulate the country from the international oil market price fluctuations. The company is also expanding into mining and energy generation. At the same time, significant oil exploration is ongoing in the promising offshore area of the Guyana basin, which is being carried out by large international oil companies. In the mining sector, the American mining company Newmont began operating a US$1.1 billion gold mine in October 2016. At current prices, the new gold mine will be exporting about 8% of GDP annually for at least 15 years. The Canadian gold company Iamgold recently announced major findings in a new concession, which will significantly increase output and profitability beginning in 2019. The Islamic Development Bank has been an important partner in the recovery and renewed growth outlook of Suriname. The April 2016 agreement with the Islamic Development Bank Group outlines the path for future support of our adjustment efforts through increased concessional financial and technical support. The IDB Group and the government of Suriname formulated a work program beginning in 2017 that covers projects and grants for about US$1.78 billion. These projects are focusing on areas such as infrastructure, agriculture and rural development, human development, Islamic banking and finance, and trade and competitiveness. 2
  4. Examples of projects include a transport sector master plan , a health system strengthening project, a social housing project, capacity building for the Ministry of Finance, a regulatory overhaul to facilitate Islamic banking, forex optimization and import rationalization, projects in energy efficiency and power generation, transmission and distribution; and roadway, port, water, and sanitation projects. The government and private enterprises in Suriname are also engaging with ICD and the ITFC. In December of last year, in the presence of the management of ICD and the Government of Suriname, the launch took place of the First Islamic Bank in Suriname named ‘Trustbank Amanah’. There is great interest from the people of Suriname for the products and with the support from the ICD in the near future more financial products will be presented to the public. At this special launch the establishment of the Regional Office in Paramaribo, Suriname was also confirmed. With support of the Bank we were introduced to the Arab Coordination Group and we are currently discussing co-financing possibilities in first instance with a US$100 million Energy project. The support of the Islamic Development Bank and its affiliated institutions is critical to vercome the macroeconomic challenges we are facing and advance institutional reforms to minimize the impact of future commodity price shocks. I call on the Islamic Development Bank to support the member countries’ efforts, in particular in cases like Suriname where a country has begun implementing a comprehensive and fundamental adjustment package to deal with the consequences of commodity price shocks, and fundamental reforms to minimize the country’s vulnerability to exogenous shocks. These efforts require substantive financial support and technical advice, and we welcome the willingness and ability of the staff of the Islamic Development Bank Group in support of our efforts. In closing, I would like to take this opportunity to commend the Islamic Development Bank and its dedicated staff for their excellent work and would encourage you to continue on this path. 3