Feb 2014 Financial News

Moody’s downgrades Suriname economic outlook

Feb 17, 2014

NEW YORK, United States, Saturday February 15, 2014, CMC – The US-based international credit rating agency, Moody’s Investors Service, has changed the outlook on Suriname's Ba3 government bond rating from positive to stable.

The Wall Street-based agency attributed the change to deterioration in the government's fiscal performance and rising debt levels, despite rapid economic growth”.

Moody’s also said the change resulted from the “impact of lower anticipated reference level prices for key commodities on Suriname's fiscal performance” and “the implementation of a planned sovereign wealth fund, which would have ?limited benefits to creditworthiness in the short term”.

The rating agency said even though Suriname's real gross domestic product (GDP) growth has averaged 4.1 per cent since 2009 and medium-term prospects remain favourable, “the country's fiscal performance has weakened substantially”.

Moody's estimated that the deficit increased substantially in 2013 from 2.1 per cent in 2009. It said increases in wage expenditures and capital spending have contributed to widening the fiscal imbalance.

But Moody’s said Suriname’s government debt has been on “an upward trend” over the past five years, reaching an estimated 25.9 per cent of GDP at the end of 2013 from 15.6 per cent in 2009.

Moody's said it expects the authorities' plans to finance the acquisition of equity stakes in two mining concessions to exacerbate the increase in debt levels.

It forecasts that the government debt will increase to about 28 per cent of GDP in 2014, “even as the authorities seek to rein in the fiscal deficit”.

In light of lower gold and commodity prices, Moody’s said government revenues have “underperformed the authorities' estimates and contributed to fiscal slippage in 2013”.

Moody's believes that fiscal slippage risks remain moderate for 2014.

“Despite a lower probability of another large drop in gold prices, spending pressures remain high ahead of elections in 2015. Government revenues derived from extractive industries add an element of uncertainty to fiscal performance.”

As a result, Moody's said the implementation of a planned sovereign wealth fund (SWF) will have “limited benefits to creditworthiness in the short term”.

Over the medium term, it said the two large mining projects and the expansion of the operations of the state-owned oil company are likely to lead to higher deposits into the SWF, “but their impact on deficit reduction will be muted”.

Moody's said it would consider upgrading the rating “if a sustainable narrowing of the fiscal deficit supports a reversal of the upwards trend in government debt metrics, or if substantial fiscal savings accumulate in the sovereign wealth fund”.

It also said a strengthening of the budgetary and fiscal framework, through institutional enhancements that decrease fiscal volatility, would also lead to upward pressure on the government's rating.

Moody’s said Suriname's sovereign rating could be downgraded “in the event of material fiscal slippage that leads to a continued increased of government debt ratios or a material weakening of economic growth prospects”.


Source:
Caribbean 360
Monday February 17, 2014

http://www.caribbean360.com/index.php/business/1106722.html#ixzz2tbvVSsBD