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IMF Executive Board Concludes 2019 Article IV Consultation with Sudan

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with Sudan







March 10, 2020















WASHINGTON, DC
February 21, 2020 the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation

[1]

with Sudan.

Regime change has created a window of opportunity for fundamental reforms
to address major macro imbalances and lay the groundwork for inclusive
growth. However, the challenges facing the new government are daunting. The
economy is shrinking, macroeconomic imbalances are large, competitiveness
is weak, and the humanitarian situation is dire. Concerns about governance
and corruption persist. Sudan’s listing as a state sponsor of terrorism by
the United States also blocks progress toward HIPC debt relief and the
clearance of large arrears to the IMF.

Reflecting weak competitiveness, the poor business environment, and social
turmoil, GDP is estimated to have contracted by 2½ percent in 2019.
Moreover, the fiscal deficit rose by almost three percentage points to 10.8
percent of GDP in 2019, reflecting ballooning energy subsidies and weak
revenue mobilization. With limited external financing, the fiscal deficit
has primarily been financed by monetization, fueling a vicious cycle of
inflation, exchange rate depreciation, and deficit expansion. Inflation
rose to 60 percent in November 2019, while the parallel market exchange
rate continues to depreciate strongly. The exchange rate system remains
highly distorted with multiple currency practices, and the real exchange
rate is substantially overvalued.

The external position is weak, with the current account deficit standing at
7.8 percent of GDP in 2019 and low international reserves ($1.4 billion in
October 2019, 2 months of imports). Limited forex for fuel imports has led
to rationing, persistent shortages, and disruptions to electricity and food
supplies. Public and external debt ratios remain high and unsustainable,
and stood at 211.7 percent of GDP and 198.2 percent of GDP, respectively,
in 2019.

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With large imbalances and loose policies, the outlook is alarming without
policy reforms. Absent reforms, the weaknesses in competitiveness and in
the business environment will persist. GDP growth would then likely remain
negative in the near term, with minimal investment and subdued consumption,
while bank fragility will rise. High inflation, continued exchange rate
depreciation, and pervasive shortages will continue to aggravate social
tensions. The fiscal imbalance would also intensify over the medium term,
while the current

account deficit would remain large, raising risks of disorderly adjustment.
Downside risks to the outlook would dominate, albeit with large margins of
uncertainty.

Executive Board Assessment

[2]

Directors emphasized that gradual exchange rate liberalization is critical
for eliminating the distortions that hamper investment and growth. It would
bolster competitiveness and transparency, eliminate multiple currency
practices and associated distortions, reduce rent‑seeking, strengthen
central bank independence and boost fiscal revenues. The monetary policy
framework needs to be enhanced, and the banking system’s ability to sustain
shocks needs to be reviewed and strengthened prior to the unification of
the exchange rate. Moreover, there is a need to upgrade the central bank
law to boost its independence and effectiveness, and curb fiscal dominance.
The central bank should continue to upgrade its capacity to supervise and
mitigate financial stability risks, including by strengthening banking
regulation and supervision and continuing to address AML/CFT deficiencies.

Directors highlighted that substantial consolidation is needed to achieve
macroeconomic stability and fiscal sustainability. In this regard,
broadening the tax base and strengthening revenue administration are
important and would help strengthen governance, transparency and
accountability. Stronger public financial management and publication of
comprehensive fiscal data would improve governance. Directors called for
intensified efforts to mobilize additional domestic revenues to ensure
credible fiscal consolidation in 2020. They also emphasized that phasing
out fuel subsidies over the medium term is crucial for durable
consolidation. Strong information and communication efforts and a
substantially expanded social safety net that can credibly be financed with
donor assistance will be needed to build public support for reforms.

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Directors recognized that Sudan remains in debt distress and is eligible
for debt relief under the HIPC Initiative. They acknowledged that Sudan’s
inclusion in the state sponsors of terrorism list (SSTL) by the United
States constitutes one of the obstacles to potential debt relief. Directors
encouraged the authorities to continue to engage with international
partners to secure comprehensive support for debt relief, respect the
Fund’s preferred creditor status, and avoid selective debt service payments
and non‑concessional borrowing. They also emphasized the need to strengthen
cooperation with the Fund on policies and payments, including by making
regular payments to the Fund at least sufficient to cover obligations
falling due, and increasing them as Sudan’s payment capacity improves. In
this context, Directors welcomed the authorities’ interest in a Staff
Monitored Program to help build a track record of policy implementation to
facilitate debt relief.



Table 1. Sudan: Selected Economic Indicators, 2017–20

2017

2018

2019

2020

Est.

Proj.

Output and prices

(Annual change in percent)

Real GDP (market prices)

0.7

-2.3

-2.5

-1.2

Consumer prices (end of period)

25.2

72.9

60.2

70.2

Consumer prices (period average)

32.4

63.3

51.3

66.4

Central government

(In percent of GDP)

Revenue and grants

7.2

8.9

7.8

6.4

Of which:
Oil revenues

0.7

1.1

1.2

0.7

Tax revenue

5.5

6.7

5.4

4.9

Expenditure

13.7

16.7

18.7

21.4

Overall balance

-6.5

-7.9

-10.8

-15.0

Primary balance

-6.0

-7.6

-10.6

-14.7

Monetary sector

(Annual change in percent)

Broad money

26.5

21.8

66.8

97.2

Reserve money

63.8

170.5

76.5

122.7

Credit to the economy

29.8

21.0

65.8

68.2

Balance of payments

(In percent of GDP, unless otherwise indicated)

Exports of goods (annual percent change)

31.2

-13.2

-1.6

-0.9

Imports of goods (annual percent change)

10.1

-10.3

-2.3

-3.3

Current account balance (cash basis)

-7.2

-8.7

-7.8

-9.2

External debt 1/

154.5

180.8

198.2

204.3

External debt (in billions of US$)

53.9

55.1

56.3

57.5

Gross international reserves (in billions of US$)

0.7

0.9

1.2

1.1

In months of next year’s imports of G&S

1.1

1.3

1.7

1.5

Exchange rate (SDG/US$, period average) 2/

18.1

38.2

60.5

Balance of payments

Nominal GDP (in Millions of SDGs)

830,265

1,370,224

2,033,412

3,355,368

Sources: Sudanese authorities; and IMF staff estimates and
projections.

1/ GDP estimated at the weighted average of parallel and
official exchange rate.

2/ Exchange rate is calculated as the weighted average of
official and parallel exchange rate.


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[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.IMF.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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