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Republic of Suriname Foreign And Local Currency Ratings Raised To ‘CCC+/C’ From ‘SD’

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Republic of Suriname Foreign And Local Currency Ratings Raised To ‘CCC+/C’ From ‘SD’

Suriname Currency Ratings

Outlook Stable

On Dec. 6, 2023, we raised our long- and short-term foreign and local currency sovereign credit ratings on Suriname to ‘CCC+/C’ from ‘SD’ (selective default). At the same time, we withdrew our ratings on Suriname’s senior unsecured debt. We also raised our transfer and convertibility assessment to ‘CCC+’. The outlook on the long-term ratings is stable.

The stable outlook balances the government’s commitment to fiscal reform and macroeconomic stabilization with the finalization of the debt restructuring and risks presented by developing institutions and weaknesses in governance, including debt management.

We could lower our ratings over the next six-12 months if expected financing from multilateral lending institutions failed to materialize, or if other policy or administrative developments raised the likelihood of another default.

We could raise our ratings over the next year if the government continues to progress on concluding restructuring agreements with its creditors, continues to make progress on its reform targets and meeting the conditions of multilateral lending institutions with which it has agreements, and develops a track record of strengthened debt management, and proactive economic policies that reduce the likelihood of another commercial debt payment default.

The ‘CCC+’ long-term sovereign ratings on Suriname reflect our view that the country is dependent on favorable business, financial, and economic conditions to meet its financial commitments. The ratings also reflect still-high inflation, a difficult socio-political environment, and financial sector vulnerabilities. Suriname’s recent restructuring agreements follow missed payments on commercial debt outstanding and subsequent restructuring announcements in 2020 and 2021 (see “Republic Of Suriname Local Currency Rating Lowered To ‘SD’ From ‘CC’; Foreign Currency ‘SD’ Rating Affirmed,” published June 3, 2021, on RatingsDirect; “Republic of Suriname US$125 Million Bond Due December 2023 Downgraded to ‘D’ From ‘CC’; Other Ratings Affirmed,” Dec. 2, 2020; and “Republic of Suriname Foreign Currency Rating Lowered to ‘SD’; Issue-Level Rating On Bond Due 2026 Lowered to ‘D’,” Nov. 6, 2020).

We raised the long-term rating to ‘CCC+’ following Suriname’s foreign currency debt exchange, which addressed the government’s commercial U.S. dollar bond debt outstanding. The government received sufficient consent to exchange and/or modify all outstanding aggregate principal amounts of each series of its 2023 and 2026 bonds. The two bonds outstanding had been capitalized at 9.25% and 12.875% and totaled US$912 million. Given this outcome, we believe this exchange will be the final resolution of the 2023 and 2026 bonds. At the same time, we believe that the near-term litigation risk to future debt service posed by creditors is limited.

In addition to some debt cancellation, the new bonds extend the previous maturities to 2033, and have an accrued 7.95% interest rate, with a payable 4.95% interest rate prior to 2026, and the remaining 3% interest capitalized. Suriname will not pay principal on the bonds until January 2027. The US$314.7 million aggregate notional amount of oil-linked securities will pay out only if Suriname receives oil royalties from offshore oil Block 58. After US$100 million of oil royalties are paid to the government, creditors would receive 30% of the yearly oil royalties from Block 58 until bondholders have been compensated for the haircut to which they have consented.

This latest restructuring of the 2023 and 2026 bonds follows an earlier restructuring of the 2023 bonds in the summer of 2020 (see “Republic of Suriname FC Ratings Lowered to ‘SD’; Issue-Level Rating on December 2023 Bond Lowered to ‘D’,” July 13, 2020).

We believe the current negotiations will lead to the resolution of the sovereign’s defaulted obligations and are adopting a forward-looking opinion about Suriname’s creditworthiness on its foreign and local currency debt. In addition to the restructuring agreement that has been reached with foreign-currency commercial bondholders, Suriname has also reached agreements with all official creditors, excluding China; commercial creditors that provided export credit agency-backed loans; and the Central Bank of Suriname. At the same time, Suriname is finalizing agreements with other domestic and foreign commercial creditors, representing small shares of debt outstanding.

We expect the government will continue to make reforms under its economic recovery program and the International Monetary Fund (IMF) program. The IMF approved a 36-month extended fund facility (EFF) program for Suriname on Dec. 22, 2021, and has recently reached a staff-level agreement on the fourth review under the program. The government has also requested an extension of the program until March 2025, and an augmentation of the program, which would raise IMF support to Suriname to about US$650 million. The current government of President Santokhi took office in mid-2020 amid difficult economic circumstances. Under the current program, Suriname is working on, among other reforms, broadening the base of the value-added-tax (VAT); registering all civil servants; halting salary payments to unregistered workers; reducing fuel, electricity, and gas subsidies; strengthening fiscal and monetary institutions, including the central bank; and reforming governance practices.

We believe the government is committed to concluding its debt restructuring and meeting its fiscal targets, despite the difficulty in implementing reforms. Progress under the EFF program went off-track between mid-2022 and 2023 due to delays in implementing a VAT, the introduction of fuel subsidies and higher public sector wages, missed fiscal targets, and high depreciation and inflation. Since then, the government has implemented the VAT and is working to broaden its base, made progress on removing fuel subsidies, and enacted a new Central Bank Act.

In our view, Suriname’s debt payment culture is weak, and it will take time to build a stronger track record once the government concludes its restructuring agreements. Suriname has experienced poor public sector management and financial instability in the past. The government has relied heavily on natural resource revenues from gold and oil and failed to develop more stable and sustainable revenues, leaving the country vulnerable to downturns in commodity prices. In addition, the government is working on addressing capacity weaknesses in its debt management office, as well as outdated procedures and failures in the coordination between various government entities that led to missed payments in 2023.

Table 1

Suriname Selected Indicators

Table 2

Suriname Ratings Score Snapshot

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After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts.

The committee’s assessment of the key rating factors is reflected in the Ratings Score Snapshot above.

The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action (see ‘Related Criteria And Research’).

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