The US-based Fitch Ratings has downgraded Suriname’s Long-Term Foreign-Currency (FC) Issuer Default Rating (IDR) from ‘C’ to ‘RD’ on the day when the Dutch-speaking Caribbean Community (Caricom) country had replaced its president, Desi Bouterse, with the former Justice Minister Chandrikapersad Santokhi.
The agency said that the downgrade of Suriname’s LT-FC IDR to ‘RD’ and the issue rating on the country’s 2023 notes to ‘D’ from ‘C’ follows the agreement by commercial bondholders on July 9 to the Government’s “consent solicitation” to amend the amortisation schedule of Suriname’s 2023 notes and the related accounts agreement.
Fitch said that a material change of terms of the original securities was agreed to avoid a traditional payment default by the expiration of the grace period on July 10, which constitutes a distressed debt restructuring and a default event.
The amendments to Suriname’s US$125-million 2023 notes reschedule the date of the first principal payment to December 30, this year, in an amount of US$15 million followed by six semi-annual instalments of US$18.3 million.
Originally, the notes were to amortise via US$15.6 million principal payments starting June 30. Further changes to terms of the related accounts agreement, including provisions relating to the state oil company’s dividend, grant the sovereign greater FC cash flow flexibility. An US$8 million interest coupon due June 30 fell into a 30-calendar-day grace period and was subsequently paid.
Fitch is affirming the ‘CC’ rating on Suriname’s US$550 million 2026 notes on which interest payment the Government is current. The next coupon payment on the 2026 notes is due October 26, this year.
Fitch said that it views the risk of a broader restructuring of FC debt as high, reflecting the Government’s high debt burden, acute shortage of FC and distressed financing conditions.
“Suriname’s international reserves have come under pressure during 2019-2020 as a result of widened current account deficits driven by large government deficits, increased imports, and more recently low oil export prices.”— Fitch Ratings
“Large government operational deficits averaging 10.4 per cent of GDP (gross domestic product) during the past three years (2017-2019) have increased Suriname’s high government debt burden, which Fitch expects to exceed 100 per cent of GDP at the end of 2020 up from 80 per cent of GDP in 2019.”
Fitch said that Suriname’s external liquidity position is exceptionally low with unrestricted international reserves, including gold, at US$188 million in May.
“Suriname’s international reserves have come under pressure during 2019-2020 as a result of widened current account deficits driven by large government deficits, increased imports, and more recently low oil export prices.
“On the capital account, FX (foreign exchange) cash outflows have also been recorded. Net external debt is high at 58 per cent of GDP at YE 2019, nearly double the current ‘B’ median. Fitch expects the central bank to implement an exchange-rate adjustment in the near term; the parallel exchange market continues to show a material premium over the official stabilised SRD-USD exchange rate.”
Meanwhile, there’s speculation as to whether or not the new Government can meet the salaries and holiday pay to workers due at the end of this month.
Both Santokhi and Vice President Ronnie Brunswijk acknowledged that the situation that the new Government will take over as from Thursday is not rosy.
“The country is financial to the ground. Last month it was already a problem to pay the salaries of civil servants. With great effort and intervention from Santokhi and others, we managed to get local banks to make advances to the Government, given to pay the wages of servants. Now salaries and holiday pay have to be paid again, but the treasury is empty,” said Brunswick.
Santokhi told reporters that there is no indication as yet regarding the payment of government salaries at the end of this month.
He said discussions with the banks are still ongoing. And the situation would become clearer when the new Government is sworn into office on Thursday.
Santokhi said that institutions such as the International Monetary Fund (IMF) are already discussing how to resolve the country’s financial crisis.
According to the agreement signed on Monday regarding the formation of the coalition Government, it was agreed among the partners that the first nine months will be towards dealing with the urgent issues such as the coronavirus (COVID-19) pandemic and the financial and economic matters facing the country.