By Ivan Cairo
PARAMARIBO, Suriname – The downgrading of Suriname’s creditworthiness by Moody’s Investors Service (Moody’s) last week, did not go down well with the country’s Minister of Finance, Gillmore Hoefdraad.
In a scathing rebuke on national radio, Hoefdraad criticized the rating agency for deviating from the procedures followed so far when issuing ratings.
Moody’s has downgraded the long-term issuer and senior unsecured rating of the Government of Suriname to B2 from B1.
The outlook was changed to ‘negative’ from ‘rating under review’, which concluded the review for downgrade that commenced on 22 November 2017, the agency announced Tuesday.
The drivers of the downgrade, according to Moody’s, relate to the erosion of fiscal metrics, as reflected in an increase in debt ratios and deterioration in debt affordability metrics, despite fiscal reforms adopted by the authorities. The negative outlook reflects Moody’s view that without additional measures to strengthen the fiscal position, the pace of fiscal consolidation may not be sufficient to prevent increased liquidity pressures.
Just hours after Moody’s another agency, Fitch Ratings, issued its evaluation of Suriname, which was more or less the same as that from Moody’s. However, Fitch Ratings has revised the Outlook on Suriname’s Long-Term Foreign Currency (LT FC) Issuer Default Rating (IDR) to ‘Stable’ from ‘Negative’ and affirmed the IDR at ‘B-‘.
Hoefdraad noticed that while the conclusions of both rating agencies are the same, Moody’s choose to downgrade Suriname, while Fitch reaffirmed its ‘B-’ rating.
The Finance Minister also questioned Moody’s deviation from the regular procedure. “Usually we get the assessment of Moody’s in advance, where we have the opportunity to respond to it. You don’t have to agree with the rating, but you can make comments. Since they are autonomous, they can give the rating as they see it. This time, we received nothing in advance to comment and had to hear the news about the rating through the media and the internet,” he said.
The minister noticed that the government was already surprised that Moody’s had announced in November that Suriname would be downgraded, while the discussions with the Surinamese authorities was scheduled for last January. In November Moody’s was already made aware “that this was not the usual method. So we were a little surprised when this message came from out of the blue”. “But of course, rating agencies can not be influenced. If they have already made up their minds that they will come up with a certain result, they will”, the minister continued.
Moody’s in its assessment said that Suriname’s B2 rating balances the deterioration in fiscal metrics against an improvement in the external accounts and favorable investment prospects driven by the mining sector. “Despite the authorities’ commitment to carrying out additional structural fiscal reforms, Suriname faces challenges in the form of institutional constraints, which may limit the government’s ability to carry out a comprehensive reform agenda”, said the rating’s agency.
According to Fitch, the stabilization of Suriname’s Outlook reflects the improving macroeconomic trend and more positive outlook for public finances since their last review in February 2017.
Suriname’s economy recovered to positive growth in 2017 with inflation falling to single digits at year-end. The financial system is deleveraging and strengthening its capital ratios. Public finances are on a firmer path towards consolidation and debt reduction, partly reflecting Fitch’s assumption that the government will pass legislation on the introduction of a new Value Added Tax (VAT) in 2018. Disbursements by multilateral and bilateral lenders eased financing constraints to a degree in 2017, and the government has been able to increase its domestic financing via placement of short-term securities. Fitch expects the current account to remain in surplus, supported by higher commodity prices and production volumes, and international reserves to accumulate slowly.
The ‘B-‘ rating reflect Suriname’s large public and external debt burdens, low external liquidity, high commodity dependence, large government deficits, financial system vulnerability, and monetary policy framework weaknesses.
“The government is not to be discouraged. Externally, we received mainly encouraging responses about our policies and the path that Suriname has taken to become a strong diversified economy. The interest of investors is unremitting, as is the support of other development partners. The positive assessment of Fitch will support this”, said Hoefdraad.
Meanwhile, politicians from the opposition and economists are strongly criticizing the government’s allegedly failing economic policies, which according to them has led to “embarrassing credit ratings”. – CMC