Suriname M acroeconomic outlook and investment opportunities

1. SurinameMacroeconomic outlook and investment opportunities March 2013 Presentation by Bernhard Fritz-Krockow, standing in for the Governor of the Central Bank of Suriname, Mr. Gillmore Hoefdraad

2. Content Performance and external assessments. Macroeconomic risks and challenges. Mining sector highlights. Investment opportunities in Suriname.

3. Solid and stable income growth • Stable macroeconomic policies and buoyant export receipts have led to solid and continued growth. • Solid growth despite global financial turmoil and limited global demand. • Could reach the “high income” category in 5 years.

4. Buoyant export receipts • Gold exports continue to perform well with high prices and increasing export volumes. • Staatsolie’s exports and payments to the government grew only marginally in 2012. • Alumina continues to perform poorly, reflecting poor conditions in the world aluminum markets.

5. Export composition and diversification Alumina exports increased only marginally, but gold exports have increased fiftyfold since 2000. Diversification has reduced vulnerabilities to exogenous shocks.

6. Monthly inflation rates 2010-12 Low inflation for almost 2 years • Inflation has fallen to annualized levels of less than 5% since May 2011. • Food prices create inflation volatility due to changing domestic supply.

7. Employment growth • Growth in recent years has been driven by private sector growth. • Public sector employment has grown only moderately. • Unemployment rate below industrialized country levels.

8. Fiscal performance • Overall balance deteriorated prior to elections in 2010. • Expenditure on goods and services in 2011 increased on account of arrears repayments. • Fiscal balance 2012 estimated at -1% of GDP.

9. Central Government Debt • Debt levels have fallen due to: • High economic growth. • Restructuring and repayment of arrears. • Fiscal surpluses or deficits smaller than GDP growth. • Debt increase in 2010-2011: • Fiscal deficits. • Exchange rate adjustment. • Government increase in deposits at CBvS instead of liability reductions. • All arrears have been eliminated.

10. CBvS gross international reserves Strong export growth and tight fiscal and monetary policies have led to a significant increase in reserves and reserve coverage.

11. Outside assessments:IMF • Economy growing at a steady pace, buoyed by strong activity in gold and oil sectors. • Impressive stabilization of the economy in 2011 due to authorities’ policies. • Key achievements: a unified foreign exchange market, price stability, and significant fiscal gains. • A positive example for the Caribbean as a meaningful and comprehensive adjustment, well designed, properly sequenced, and implemented with commitment and resolve. • Sound policies are expected to continue. • Crucial structural reforms will allow Suriname to grow in a sustainable way.

12. Outside assessments: credit ratings • Credit rating upgrades due to: • Stable macroeconomic • environment. • Elimination of arrears. • Relative low debt levels. • Structural improvement • of BOP. • Robust medium term • growth prospects. • Ongoing investments. • Conditions for further rating upgrades: • Fiscal strengthening through economic reforms. • Large investments that boost GDP growth and government revenue.

13. Macroeconomic risks and challenges • External risks • Significant exposure to gold and oil price volatility. • Limited exposure to changes in global output and demand. • Limited exposure to rising interest rates. • Domestic risks and challenges • Inflation and exchange rate pressure through wage-price spirals or import demand. • Outdated laws and regulations. • Inflexible and outdated public sector. • Limited debt-tolerance due to vulnerability to exogenous shocks.

14. Managing risks • The vulnerability to volatile commodity prices will be mitigated by: • Establishment of a Sovereign Wealth Fund (SSFS), • Tax and administrative reforms that will increase reliance on domestic sources of taxation. • Continued moderate fiscal and monetary policies. • The risk of domestic demand shocks will be mitigated by: • Placing new financial flows into the SSFS, • Active and forward-looking fiscal and monetary policies. • The limited debt tolerance will be mitigated by: • Conservative public investment and debt strategy going forward. • Active risk management of liabilities.

15. Reforms are key to limit risks Central Bank shift towards use of indirect market-based instruments. Development of the local money and capital markets. Gradual de-dollarization of the economy. Establishment of the Sovereign Wealth Fund to reduce the impact of oil and gold price volatility and stabilize and diversify income streams. Modern and transparent budget preparation and execution procedures. New legal framework and modernization of the tax regime. Deregulation, privatization, and modernization of administrative processes to allow more private sector investment and competition. Increased reliance on public-private partnerships in lieu of public investment.

16. Mining sector highlights • Oil • Fiscal revenue increased from US$70 million in 2005 to around US$250 million in 2012. • Investment program includes expansion of the refinery, exploration of recoverable reserves, and development of alternative energy (hydro and bio-ethanol). • Exploration and production agreements continue with several international oil companies. • Refinery expansion and an ethanol pilot project expected to go online in 2015. • Gold • Fiscal revenue from Rosebel increased from US$5 million in 2005 to around US$150 million in 2012. • New large-scale mines by Iamgold and Newmont are expected to come online in the next 3-5 years. • Small-scale informal gold operations contribute about 60% of gold exports or around US$1 billion in 2012. • The Government is putting in place laws and on-site measures to modernize and formalize the large informal gold sector, limit its ecological impact, improve health and safety, and increase fiscal revenue. • Bauxite • The slump in international aluminum prices has created problems for Suralco’s parent company Alcoa. • Maintaining low production levels using bauxite from old mines, while a new mine is being developed. 16

17. Private sector investment – mining • Mining • Gold mining: Existing mine expects to double production by 2016, while a new gold mine is expected to begin operations in 2015. • Bauxite mining: New mines in the East are being developed by Alcoa to feed the underutilized alumina refinery. A large deposit in the West at Bakhuis can be tapped, including additional hydropower at Kabalebo. • Ancillary services • Infrastructure: Significant road and bridge construction needed. • Transportation: Mining companies will subcontract ancillary services. • Mining inputs: Potential to substitute imports in the mining industry with local production, e.g., iron pellets, chemicals, etc.

18. Bakhuis mountains • Easily accessible. • Existing basic infrastructure would need to be rehabilitated. Potential for extensive bauxite mining, a new alumina refinery, and possibly an aluminum smelter. Potential for hydropower generation of around 450-650 MW with 2 dams and generation stations.

19. Private sector investment – transport and infrastructure • Comparative advantages • Most efficient harbor in the region. • Low wage and high productivity workforce. • Available know-how and equipment in the local construction industry. • Supportive government. • Transshipment services in Guyana and French Guiana • Port and airport facilities in neighboring countries are inadequate. • Rapidly expanding domestic demand • Mining, industry, agriculture, trade, and tourism industries require better infrastructure and communications to rural areas and neighboring countries.

20. Private sector investment – agriculture • Comparative advantages • Ample land and water. • Largest deep-sea harbor in the region. • Low wage and high productivity workforce. • Supportive government. • Experience in large-scale export agriculture • Bananas and rice have been exploited in large-scale operations for the European market (ACP access). • Available markets • French Guyana is a high-cost producer that imports most foodstuffs. • Tropical foodstuffs can be easily shipped by sea or air to Europe.

21. Private sector investment – tourism • Eco and jungle tourism • Pristine Amazonian jungle, large rivers. • Will require investments to access the jungle at higher volume and lower costs. • Health tourism • Health services for Dutch-speaking Europeans. • Could include specialized surgeries and reconvalescent care.

22. Public-private partnerships • Oil sector • Oil companies are actively engaged in exploration, the refinery capacity. • Ancillary service provision and strategic partnerships are needed. • Privatization • Government is aiming to sell public enterprises. • Utilities need significant investment. • Strategic partnerships are possible (oil industry, national airline, etc.). • Infrastructure • Road, bridge, and waterway needs are significant. • Energy needs are growing rapidly. • Government would welcome private sector participation in infrastructure investments.