On December 3, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Sudan.
Sudan’s economy has yet to recover from the shock of South Sudan’s secession three years ago, which took away three-quarters of oil production, half of its fiscal revenues, and two-thirds of its international payments capacity. In March 2014, Sudan reached understandings with IMF staff on a staff-monitored program (SMP) for 2014
Economic performance in 2014 has been mixed. Growth remains relatively low, and inflation high. The budget deficit has narrowed compared with 2013 on account of improved revenue collection and tight expenditure control. Growth in monetary aggregates has slowed significantly from the end of 2013. Following a large appreciation of the parallel market exchange rate and a small devaluation of the official exchange rate, the gap between those rates has declined considerably. The current account deficit is estimated to have narrowed to 6.5 percent of GDP on account of continued fiscal consolidation.
Implementation of the authorities’ adjustment program should help restore macroeconomic stability and improve growth prospects over the medium term. Driven by agriculture, minerals, and oil, growth is expected to accelerate gradually to about 4.7 percent in 2019. With prudent macroeconomic policies, inflation is expected to fall to single digits by 2017. The external current account deficit is expected to gradually narrow toward sustainable levels. However, the external debt overhang and the large arrears, along with protracted political transition and unsettled regional civil conflicts will continue to hinder access to external financing and weigh on growth prospects.
Resolving Sudan’s unsustainable external debt is of paramount importance for the successful adjustment to the impact of South Sudan’s secession, implementation of the government’s poverty reduction policies, and for supporting inclusive growth. The key pillar of the requirements for debt relief is normalization of relations with external creditors, including the Fund, other multilateral institutions, and bilateral creditors. In this regard, it is critical for the authorities to reach out to their external creditors, including under the framework of the Joint Approach with South Sudan and the African Union High-level Implementation Panel. The recent agreement between the governments of Sudan and South Sudan to extend the “zero option” for another two years till October 2016 is a welcome step2.
Executive Board Assessment3
Executive Directors noted a gradual improvement in Sudan’s macroeconomic performance despite difficult economic and social conditions related to South Sudan’s secession and political insecurity. Directors welcomed Sudan’s continued engagement with the Fund under the staff-monitored program (SMP). They encouraged the authorities to sustain the reform momentum in order to reduce macroeconomic imbalances, foster resilience, and promote broad-based, inclusive growth.
Directors welcomed the improved fiscal performance in the first half of 2014, which helped create fiscal space for much-needed social and investment outlays. They called for a consolidation of recent gains, through a further streamlining of low-priority expenditures and enhanced revenue mobilization, and recommended cuts in tax exemptions and reform of gold-related taxation, as well as a reduction in fuel subsidies. Directors cautioned that the decline in subsidies should also be accompanied by reinforced social safety nets, to help safeguard the poor and vulnerable and enhance the success of the economic reforms. They noted that an integrated public financial management system would be critical to modernize the budgetary framework and improve fiscal governance.
Directors called for a tightening of the monetary stance and strengthening of the monetary policy framework, to contain high inflation. They encouraged continued use of reserve money as the nominal anchor, and advised that monetization of the budget deficit and unsterilized gold purchases be curtailed. Directors noted that reforms to strengthen the independence of the central bank would help bolster monetary policy credibility.
While welcoming the recent adjustment of the official exchange rate, Directors called for enhanced exchange rate flexibility to help eliminate the parallel market rate premium and improve the availability of foreign exchange, to rebuild international reserves and promote external competitiveness. They considered remaining exchange restrictions and multiple currency practices unhelpful in addressing the underlying external imbalances, and recommended their removal.
Directors encouraged the authorities to advance structural reforms to foster sustained and inclusive growth. They supported reforms to strengthen the business environment and the legal framework for private investment, including improvements to the AML/CFT regime and implementation of other policies identified in the Interim Poverty Reduction Strategy.
Directors recognized that the external debt overhang weighs heavily on the country’s development. They welcomed the recent extension to September 2016 of the “Zero Option” agreement, whereby Sudan retains all the external liabilities after South Sudan’s secession conditional upon receipt of commitment to debt relief from the international community within two years. Directors supported continued joint outreach to creditors with South Sudan and the African Union High Level implementation Panel, to help garner support for debt relief. They encouraged Sudan to minimize non-concessional borrowing, avoid selective debt servicing, and continue strengthening the cooperation with the IMF on policies and payments.
|(Annual changes in percentage)|
|Real GDP (at factor costs)||−0.3||−2.2||3.3||3.1|
|Consumer prices (period average)||18.0||35.1||37.1||38.4|
|Gross capital formation (in percent of GDP)||19.1||18.7||20.0||17.5|
|Gross Savings (in percent of GDP)||18.6||9.5||11.4||11.0|
|(In percent of GDP)|
|Revenue and Grants||18.0||9.8||9.9||11.4|
|Overall primary balance||1.4||−2.3||−0.9||−0.1|
|Non-oil primary balance||−4.1||−3.8||−2.9||−1.5|
|In percent of nonoil GDP||−4.7||−3.9||−3.0||−1.6|
|(Annual changes in percentage)|
|Credit to the economy||8.0||34.1||23.2||28.0|
|Balance of payments|
|(In percent of GDP)|
|Exports of goods (in US$, annual percent change)||−12.9||−53.7||−6.4||7.6|
|Imports of goods (in US$, annual percent change)||−7.5||2.6||4.7||−4.1|
|Current account balance||−0.4||−9.2||−8.6||−6.5|
|Total external debt||59.4||81.4||77.8||79.9|
|Gross international reserves (in millions of US$)||1,317||1,693||1,619||1,716|
|In months of next year’s imports of G&S.||1.5||1.9||1.9||1.9|
|Exchange rate: SDGs per U.S. dollar|
|End of period||2.68||4.42||5.70|
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.
In September 2012, Sudan and South Sudan reached the so-called “zero option” agreement under which Sudan would retain all the external liabilities after the secession of South Sudan, provided that the international community gave firm commitments to the delivery of debt relief to Sudan within two years. Absent such a commitment, Sudan’s external debt would be apportioned based on a formula to be determined.
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.