Flash Report / Suriname

Suriname: Implications of an opposition election victory

  • Early results from Monday's general election point to a win for the opposition
  • Opposition leader had pledged to restructure Suriname’s debt, which is already trading at distressed levels
  • But even if incumbent President Bouterse is re-elected, he still has a huge challenge on his hands

On Monday, general elections were held in Suriname with early results pointing to a win for the opposition. Final results have still to be published by the election council, and counting has been slow and subject to delays. Yesterday, according to Bloomberg, the opposition urged the government to concede defeat while President Desi Bouterse called for a recount. A contested result, amid allegations of irregularities from both sides, could lead to unrest and a disorderly transition. 

The election for the unicameral National Assembly of Suriname has returned preliminary results of: 20 seats for the opposition Progressive Reform Party (VHP), 16 for the ruling National Democratic Party (NDP), 7 for the General Liberation and Development Party, 4 for the National Party and 2 each for the Pertjajah and Brotherhood and Unity in Politics parties. These results are based on 70% of the vote being counted, according to reports on Wednesday. If confirmed, this sees an 11-seat gain for the VHP and a 10-seat loss for the NDP since the 2015 election. However, comparisons are more difficult to make this time, as coalitions such as the V7 and A-Combination have been dissolved since the last election. For instance, the VHP had been part of the V7, but left its previous alliance to run alone.

On Tuesday, opposition leader Chan Santokhi of the VHP claimed victory after 46% of votes had been counted, although a party or coalition needs a simple majority to take control of the National Assembly. The president is indirectly elected by the 51-seat National Assembly by a two-third majority. However, we don't know how long it will take to declare the final official results, or if they will be contested, and when a new president will take office (according to the 2026 bond prospectus, election results are typically certified one month after the election, and the president and vice-president are typically elected one month after the National Assembly takes power, so any transition could still take time).

Incumbent President Desi Bouterse of the NDP, and a former military dictator, has been president since 2010. Last year, he was sentenced to 20 years in prison, with Santokhi carrying out an investigation into political killings by Bouterse. The conviction has been appealed by Bouterse, and the case delayed until June due to the coronavirus pandemic. For now, the future of Suriname’s presidency remains unclear. 

Implications 

If the opposition win is confirmed and Santokhi assumes the presidency (although this might take time as mentioned above), this could have implications for the bonds, although they are already trading at distressed levels. Santokhi has previously pledged to restructure Suriname’s debt, according to media reports. The price of Suriname’s US$550mn international bond (9.25% 2026) has slumped to c30 from c90 pre-Covid-19; this might reflect a combination of election uncertainty as well as the domestic and global impact of Covid-19. 

This situation – if Santokhi wins and follows through on his pledge on the debt after taking office – has echoes of Barbados in 2018, when a newly elected opposition government (under new Prime Minister Mia Mottley) announced a debt moratorium and the intention to seek a comprehensive debt restructuring and IMF programme (an intention to deal with the debt was in her party's election manifesto). Like Barbados at the time, Suriname faces large upcoming debt service payments. Suriname has a US$22.1mn debt service payment (coupon and amortisation) on the US$125mn private placement from December 2019 due on 30 June. 

But there are some differences. First, Barbados had virtually run out of money, with reserves reportedly seven weeks' of imports when the new government took office, although Suriname's liquidity position has been somewhat fragile (and partly reinforced by expensive short-term commercial refinancing operations). Second, Barbados had a public debt/GDP ratio of about 150% at the time (subsequently revised up by the new government upon taking office to 175% after including arrears). Suriname's public debt ratio was 76% of GDP in 2019 (pre-Covid-19). Third, Mottley achieved a clean sweep in Barbados's elections, giving her a strong mandate. It is also clear that the new Barbados government was well-prepared and well-organised and had a coherent plan of action from Day One. It also transpired that the new Barbados government had a strong reformist zeal and embarked on a strong fiscal effort under IMF tutelage. In contrast, Suriname's IMF programme in 2016 was short-lived and ended pretty badly, with the authorities suspending it before making the first review. 

But even if Bouterse wins re-election, he will still have a huge challenge on his hands dealing with the economy and the debt, as well as his appeal. 

Figure 1: Price of SURINM 9.25% 2026 (US$)

Source: Bloomberg, Tellimer Research 



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Macro Analysis / Global

IMF emergency financing tracker: Quiet week; least activity since Covid-19 onset

  • Emergency financing now approved for 69 countries; 63 under emergency disbursements, 6 under existing programme reviews
  • The IMF approved two requests last week (Guatemala and second one for Rwanda); 2 more are on the agenda in coming week
  • Among the bigger countries whose requests are outstanding, we are waiting for Belarus, Sri Lanka and South Africa
Stuart Culverhouse @
Tellimer Research
17 June 2020

Our updated tracker* captures 82 countries that we know of so far that have either sought, or are seeking, emergency help from the IMF or have made drawings under their existing arrangements, or are seeking new ones, in response to the Covid-19 pandemic (this is up by two since our last update). Note that our count of 82 includes four countries that now have two entries.

Since our last update on 10 June, the IMF board has approved two new emergency financing disbursements (Guatemala and a second one for Rwanda), taking the total number of countries now to 63 on our count, and the total amount disbursed under these facilities to US$23.7bn. However, we had already anticipated these approvals in our grand total as we knew they were coming. Together with the approved programme reviews under their existing arrangements for six countries now (Armenia, Barbados, Benin, Georgia, Honduras and Togo), that takes the total number of countries for which emergency financing has been approved to 69.

According to the IMF board schedule, emergency financing requests for two countries are due over the next week, Guinea and Montenegro, which are new to our list. These will take the total number of countries for which emergency disbursements have been approved to 65, and the total for which emergency financing has been approved to 71.

Otherwise, it has been a quiet week, with perhaps the least activity since the onset of the pandemic. But of those whose request has still to be processed, among the bigger countries we know of that are outstanding, we are still waiting for Belarus, Sri Lanka and South Africa. Sri Lanka's request may be complicated by the timing of the country's general election (now set for 5 August) if there remain any concerns about its debt sustainability (see our research here).

Over half of the Fund's 189 members (54%) have requested emergency help since the start of the coronavirus pandemic, 102 countries according to the IMF press briefing on 21 May.

See the full report for the complete list of 82 countries covered in our tracker.

*Our updated tracker seeks to identify countries that have requested IMF financial support, under its different guises, in order to help them deal with the impact of Covid-19. We do not claim it is exhaustive, but hope it provides a useful guide to investors on the current state of play. It is based on information that has been reported by the IMF itself, various media or national governments. We aim to produce regular updates.


 
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Macro Analysis / Global

IMF emergency financing tracker: 30 countries approved so far

  • Over half of the Fund's members have sought emergency help
  • Total amount disbursed under emergency facilities is US$8.6bn
  • Recent approvals include Bolivia, Bosnia, Cote d'Ivoire and Paraguay, while South Africa may be looking to follow
Stuart Culverhouse @
Tellimer Research
24 April 2020

Our updated tracker seeks to identify countries that have requested IMF financial support, under its different guises, in order to help them deal with the impact of Covid-19. We do not claim it is exhaustive, but hope it provides a useful guide to investors on the current state of play. It is based on information that has been reported by the IMF itself, various media or national governments. We aim to produce regular updates.

The IMF Managing Director Kristalina Georgieva said on 15 April in her opening remarks to the IMF/WB Spring Meetings that 102 countries had requested emergency financing from the Fund so far and that the Board will have approved half of these requests by the end of this month. With demand running at 102 countries, that's over half (54%) of the Fund's 189 members. Emergency financing disbursements have now been approved for 30 countries. 

Our tracker captures 46 countries that we know of so far that have either sought, or are seeking, emergency help or have made drawings under their existing arrangements, or are seeking new ones (this is up by 15 from our last update). Since our last update on Friday 17 April, we identify 13 countries that have had emergency financing facilities approved, including Bolivia, Bosnia, Cote d'Ivoire and Paraguay, taking the total number of countries now to 30, and the total amount disbursed under them to US$8.6bn. In addition, Benin reached staff level agreement on the sixth and final review of its existing ECF arrangement, which would also provide US$103.5mn in additional financing. 

Media reports this week also suggest that South Africa had approached the IMF for financial support. We assume this is not for a formal programme, to which there appears to be a lot of domestic resistance, but for emergency financing, presumably under the RFI (100% of quota would amount to a US$4.2bn disbursement). 


 
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Global Themes / Global

Global remittances: Opportunities and risks in an industry upended by Covid-19

  • Inflows of hard currency from citizens, workers and families overseas are the financial lifeblood of emerging markets.
  • But remittance volumes could decline 20% in 2020, according to the World Bank, compounding a 35% drop in FDI.
  • Technology is also disrupting this US$50bn industry. Digital channels are c50% cheaper than using banks.
Rahul Shah @
Tellimer Research
7 May 2020

International remittances totalled US$714bn in 2019, sent by 272mn migrant workers. We think a further cUS$500mn was sent via informal channels. The largest source markets for remittances are the US, UAE and Saudi Arabia. Key recipient markets include India, China and Mexico. But this industry is changing fast, disrupted by new technologies and the economic impact of Covid-19.

Remittance volumes could decline 20% in 2020, according to the World Bank. Key drivers of this decline include negative GDP growth, lower trade volumes, tighter border restrictions and lower commodity prices.

Remittances will nonetheless top FDI and portfolio inflows in 2020. According to the World Bank, FDI inflows to EMs will decline by 35%, while portfolio debt and equity inflows will decline by 80%.

The most popular corridors are USA-Mexico, USA-China, UAE-India. The most exposed recipient countries include the Philippines, Sri Lanka, Egypt. EMs with large outbound remittances include the GCC, Mauritius, Malaysia. 

The average cost of international remittances is 6.8% of the volume sent. This translates to a US$50bn annual fee pool. Costs vary significantly by corridor, mode of transmission and ticket size. Remittance costs are typically highest in Sub-Saharan Africa, and lowest in South Asia.

The bulk of remittance fees are generated at the source rather than en-route or at the destination. Banks with meaningful remittances fee exposure include ALBI AB, RJHI AB, DBS SP.

Technology is disrupting the industry. Banks are typically the highest cost channel, while informal channels are cheapest. We think digital channels are c50% cheaper than using banks. Listed vehicles with exposure to this trend include SAFCOM KN, BRAC BG, EQBNK KN. There are also many payments operators in the unlisted fintech space.

Domestic remittances are likely larger still, as workers in cities send money to their families in rural areas. Globally, there are likely 680mn domestic migrants, with more than 100mn each in both China and India. Alternative channels are already capturing a significant share of these flows in EM (e.g. MPesa in Kenya, bKash in Bangladesh, Easypaisa in Pakistan).

Fast facts

The formal remittance market is estimated by the World Bank at US$714bn in 2019, up 5% yoy. This is equivalent to 0.8% of global GDP.

The informal remittance market could be as large as US$500bn per year. Published studies have estimated this market to be between 35% and 75% of the formal market. Our small international in-house survey points to a range of 10-60%, with greater penetration in South Asia than elsewhere. Due to a lack of data, we have excluded these informal sums from our analysis.

There are an estimated 272mn international migrant workers, of whom 26mn are refugees. They each send home US$2,600pa on average via formal channels.

Domestic migrant workers likely number 680mn, ie 2.5x the international number (Source: World Bank). China and India each have more than 100mn internal migrants. Although these workers each likely remit smaller amounts home, aggregate domestic remittances volume likely exceeds international remittances.

Economic activity is a key driver of global remittance flows, which have historically been closely linked to global GDP growth and trading activity. Structural drivers include income disparities, demographic differences, geographical proximity and political/ social ties.

Additional drivers of small-ticket remittances include poverty, illiteracy and the rigidity of the host country’s labour market.

Covid-19 could result in a 20% decline in remittances in 2020f, according to the World Bank. The Europe and Central Asia region is likely to witness the biggest decline (27.5%) followed by Sub-Saharan Africa (23.1%).

Remittances will likely overtake FDI and portfolio flows in 2020. FDI inflows for low and middle-income countries are expected to decline by 35% (to US$332bn) and portfolio flows by over 80% (to US$59bn). At US$443bn, even after a projected 20% fall, remittances will exceed the sum of these other flows.

India, China and Mexico are the largest remittances recipient countries. These three markets receive over a quarter of all international remittances. Other key recipient countries include the Philippines, Egypt, France and Nigeria.

The US, the UAE and Saudi Arabia are key source countries for remittances. Together with Switzerland, Germany, Russia and China, these seven countries are the source for almost half of global remittances.

Relative to GDP, remittance outflows are most material for Luxembourg, Oman, UAE, Kuwait and Maldives, with values ranging from 10% to 13%. Other notable markets include Mauritius, Saudi Arabia and Malaysia.

Relative to GDP, remittance inflows are most material for Nepal, Honduras, El Salvador, Jamaica and Georgia, with values ranging from 14% to 27%. Other economies in EM and FM dependent on remittance inflows include Zimbabwe, Lebanon, Philippines, Egypt, Pakistan, Sri Lanka.

The largest remittance corridor in the world, by far, is USA-Mexico. In 2017, US$30bn was transmitted through official channels (ie 5% of global remittances volume). The next biggest channel was USA-China, at US$16bn.

Investment conclusions

The total remittances fee pool likely amounts to US$50bn per annum. This is based on the 2019 global transaction volume of US$714bn and average transaction fees of 6.8%.

The bulk of the value in the remittance chain lies at the source. Remittance sending fees are typically 5x times remittance receiving fees, whether the transaction is conducted via banks or other media.

Banks do not rely much on remittances income. Remittance income is generally a small proportion of banks revenues, therefore a decline in remittances related to Covid-19 is unlikely to be material for most banks. Nonetheless, in Tables 1 and Table 6 we highlight banks that are active in remittances in selected markets. 

Banks exposed to remittances in sending and receiving markets. Major banks active in remittances in sending markets include Albilad and Al Rajhi in Saudi Arabia, DBS in Singapore, Societe Generale in France. On the remittances receiving side, UBL in Pakistan, BPI in Philippines, Bank of Rakayat in Indonesia, and Bank of Ceylon and People’s Bank in Sri Lanka are most exposed. 

Alternative ways to gain investment exposure to the remittances industry. Digital payments (mobile money) channels are typically 50% cheaper than traditional remittance channels, as well as being more convenient and (to the extent that no physical cash needs to be transported) safer for the customer. They are already popular for domestic remittances in many markets and we think they could also witness strong growth in international remittances. Potential listed investment vehicles include Safaricom and Equity Bank in Kenya, BRAC Bank in Bangladesh. There are also many options in the unlisted fintech start-up space.

The full report is available to Insights Pro subscribers.


 
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