IMF Executive Board Concludes 2005 Article IV Consultation with Sudan

This paper examines Sudan’s 2005 Article IV Consultation and the Final Review of the 2004 and 2005 Staff-Monitored Program (SMP). Between 2001 and 2004, the economy of Sudan grew at an average rate of 6.4 percent per year, and the non-oil sector expanded at an annual rate of 5.3 percent. The program for 2005 is based on prudent financial policies. The program will need to be adjusted by midyear to reflect additional financing arising from higher oil prices and aid and previously unfunded expenditures on social and infrastructure projects.


This paper examines Sudan’s 2005 Article IV Consultation and the Final Review of the 2004 and 2005 Staff-Monitored Program (SMP). Between 2001 and 2004, the economy of Sudan grew at an average rate of 6.4 percent per year, and the non-oil sector expanded at an annual rate of 5.3 percent. The program for 2005 is based on prudent financial policies. The program will need to be adjusted by midyear to reflect additional financing arising from higher oil prices and aid and previously unfunded expenditures on social and infrastructure projects.

On April 29, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Sudan.1


After more than two decades of civil conflict between the north and south of Sudan, a comprehensive peace agreement was concluded and signed between the Government of Sudan (GOS) and the Sudan People’s Liberation Movement (SPLM) on January 9, 2005. The peace agreement stipulates the creation of a federal system and the sharing of power and resources between the North and southern Sudan.

The Sudanese economy continued to grow in 2004. Real GDP growth is estimated to increase from 6 percent in 2003 to 7.3 percent in 2004 owing to a strong performance in the oil, manufacturing construction, power, and services sectors. Improvement in productive capacity led to a 21 percent expansion in oil sector’s GDP. Inflation rose to 8.4 percent in 2004 compared to 6.5 percent in 2003 reflecting loosening of monetary policy in the first half of 2004. The external current account deficit declined to an estimated 4.1 percent of GDP in 2004 from 5 percent in 2003, reflecting a surge in oil export receipts as well as strong recovery of non-oil export. Further, FDIs and private transfers rose to $2.5 billion—more than one third higher than in 2003. Gross official reserves reached 2.9 months of imports at end-2004 compared with 1.5 months at end-2003. The dinar appreciated by about 3 percent vis-à-vis the U.S. dollar and by about 8 percent in real effective terms.

Higher oil and non-oil revenues have turned the overall fiscal balance into a surplus in 2003 and 2004, despite higher spending. Total fiscal revenues reached 21.5 percent of GDP in 2004 compared to 16.8 percent of GDP in 2003. Non-oil revenues rose from 8 percent of GDP in 2003 to 10.4 percent in 2004, largely because of improved efficiency from the new large taxpayer unit, a reduction on exemptions, and a telecom license fee. Oil revenues continued to increase in 2004 mainly because of higher production and prices, which allowed 1.6 percent of GDP accumulation in the oil savings account. Expenditures also rose because of unanticipated emergency spending and capital outlays.

Broad money growth decelerated in December 2004 to 30.8 percent (after accelerating at an annual rate of 37 percent in the first half of 2004), compared to 30.3 percent (on annual basis) at 2003. In an attempt to contain the excessive growth of broad money, the central bank took steps to mop up liquidity in late 2004.

Sudan embarked on a number of policy and institutional reforms in recent years aimed at sustaining economic growth, maintaining macroeconomic stability, and meeting the challenges of the peace agreement with the south. On the fiscal front, a review of exemptions-granting regulations and agreements was completed and an action plan to streamline such regulations is being developed. Regarding monetary and financial sector reforms, the central bank has improved the management and monitoring of liquidity and the increase in minimum capital requirements for banks has been effected. A tariff reform program has been developed but its implementation has been delayed to 2006 because of the fiscal needs arising from the peace agreement. Oil sector transparency has improved; the Auditor General office has audited the accounts of the Sudan Petroleum Corporation and submitted his report to Parliament.

Executive Board Assessment

Executive Directors commended the Sudanese authorities for persevering with prudent fiscal and monetary policies and wide-ranging structural reforms in a difficult environment. These policies have translated into a favorable economic performance, marked by a pickup in foreign investment, a strengthening of the external position, and single-digit inflation. While oil production increased sharply, growth of the non-oil sector has also been strong—evidencing progress in diversifying the economy.

Directors welcomed the recent comprehensive peace agreement in south Sudan, and were encouraged by the positive response from the donor community for Sudan’s reconstruction and development. At the same time, Directors recognized the serious challenges ahead in ensuring the successful implementation of the peace agreement, and, in particular, in resolving the conflict and humanitarian crisis in Darfur. They stressed that decisive action in these areas will be key to allowing Sudan to realize its full economic potential, move towards normalizing its relations with creditors, and make progress toward reaching the Millennium Development Goals.

Directors welcomed the satisfactory implementation of the staff-monitored program in 2004 and the policy package embedded in the program for 2005. They noted that the implementation of the peace agreement will require strong efforts in institution building, and that its cost could put pressure on the 2005 economic program, while uncertainties also remain related to oil prices and the amount of donor support. In this regard, Directors recognized that the economic program and the budget for 2005 will likely need to be revised to take into account recent developments.

Most Directors supported the view that the policy commitments under the staff-monitored program for 2005 continue to be in line with what would be required for a Rights Accumulation Program (RAP). In this view, Sudan’s performance under the successive Staff Monitored Programs since 2002 should be reflected in the timetable for arrears clearance, when financing assurances from Sudan’s creditors become available. A number of Directors suggested that the RAP could be waived at that time. In the meantime, staff engagement will continue, including by stepping up Fund technical assistance in core areas that will be critical for the effective implementation of the peace accord.

Directors commended the authorities’ prudent fiscal policy in the last few years, which has been supported by tax reforms and the saving of oil revenues in the Oil Savings Account (OSA). They welcomed the cautious approach set out in the 2005 budget, including the postponement of the increase in civil service wages. Directors noted that the authorities’ decision to strengthen fiscal federalism by accelerating decentralization calls for the urgent strengthening of state and local government capacity. Given the need to protect social and infrastructure spending, Directors urged continued efforts at strengthening public expenditure management and restraining non-priority spending. On the revenue side, further efforts to boost non-oil receipts by broadening the tax base and improving tax collection will continue to be a priority. Some Directors suggested preparing contingency measures in the event that oil prices and donor support are lower than envisaged.

Regarding oil revenues, Directors called for increased transparency in oil sector operations. Some Directors suggested that transparency would be enhanced through Sudan’s participation in the Extractive Industries Transparency Initiative.

Directors commended Sudan’s continued prudent monetary policy. In light of emerging fiscal and monetary pressures, they urged the authorities to remain vigilant and tighten monetary conditions if inflationary risks emerge. They noted the importance of a closer coordination between the central bank and the fiscal authorities (including at the state level) as well as the need for establishing market-oriented operations in government securities.

Directors welcomed the recent measures to increase exchange rate flexibility and considered the managed float exchange rate regime appropriate at the current stage of Sudan’s development. Following the delay in launching the three-year tariff reform program, it will be important to incorporate these reforms in the 2006 budget to help reduce distortions, increase competitiveness, and send a strong signal to investors about Sudan’s commitment to an open trade regime.

Directors agreed with the conclusions of Sudan’s Financial Sector Stability Assessment. They welcomed the steps already taken to improve the banking system, and encouraged the authorities to press ahead with the implementation of the Financial Sector Assessment Program recommendations. Priorities should be to improve the ratios on nonperforming loans and capital adequacy, and to press ahead with the privatization of public banks and the financial sector reforms associated with the implementation of the peace agreement. Directors welcomed the recent legislation on anti-money laundering and combating the financing of terrorism, while encouraging further efforts to address any remaining weaknesses in the legal framework.

Directors expressed concern about the contracting of nonconcessional debt in 2004. They stressed that even though Sudan’s needs are high, the authorities should minimize nonconcessional borrowing to avoid aggravating the external debt overhang and complicating debt rescheduling negotiations. Directors expressed the strong hope that the implementation of the planned improvements in the authorities’ debt management strategy will effectively deal with this problem. They also stressed the importance of a comparable treatment of all bilateral creditors.

Directors welcomed the progress made in improving economic data, as well as Sudan’s participation in the General Data Dissemination System. They underscored the importance of moving ahead with the adoption of Government Finance Statistics methodology and of improving the quality of balance of payments and national accounts data.

Directors noted that the regularization of Sudan’s relations with creditors remains a critical challenge given the country’s large stock of external debt and arrears, and will require comprehensive efforts from all creditors. To help guide future discussions, Directors felt that it would be useful to fully update the paper presented in 2002 on the Fundamental Issues in Resolving Sudan’s Debt and Arrears. In this connection, while some Directors noted that it could be premature to enter into detailed discussions of an arrears clearance strategy at this time, some other Directors called for early concrete steps toward addressing these issues. More generally, many Directors stressed that progress in resolving Sudan’s debt and arrears problems requires a satisfactory solution of the Darfur crisis and implementation of the peace agreement. With respect to the level of payments to the Fund, some Directors encouraged the authorities to consider increasing payments in 2006 in line with Sudan’s improved debt servicing capacity. However, other Directors felt that the current level of payments remains broadly appropriate, given the substantial demands of implementing the peace process, including the large social and infrastructure needs.

Public Information Notices (PINs) form part of the IMF’s efforts to promote transparency of the IMF’s views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Sudan: Selected Economic and Financial Indicators, 2000–04

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Sources: Data provided by the Sudanese authorities, IMF staff estimates.

Including accumulation in the oil savings account (OSA).

On a cash basis, excluding public interest due and public transfers.


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. 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.

Sudan: Staff Report for the 2005 Article IV Consultation, Final Review of the 2004 Staff-Monitored Program, and the 2005 Staff-Monitored Program; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Sudan
Author: International Monetary Fund