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© 2006 International Monetary Fund
May 2006
IMF Country Report No. 06/182
Sudan: 2006 Article IV Consultation and Staff-Monitored Program—Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Sudan
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2006 Article IV consultation with Sudan and the staff-monitored program, the following documents have been released and are included in this package:
the staff report for the 2006 Article IV Consultation and Staff-Monitored Program, prepared by a staff team of the IMF, following discussions that ended on February 9, 2006, with the officials of Sudan on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on April 19, 2006. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
a staff statement of May 3, 2006 updating information on recent developments.
a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its May 3, 2006 discussion of the staff report and the staff-monitored program.
a statement by the Executive Director for Sudan.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Sudan*
Memorandum of Economic and Financial Policies by the authorities of Sudan*
Technical Memorandum of Understanding*
*Also included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to publicationpolicy@imf.org.
Copies of this report are available to the public from
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International Monetary Fund
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INTERNATIONAL MONETARY FUND
SUDAN
Staff Report for the 2006 Article IV Consultation and Staff-Monitored Program
Prepared by the Middle East and Central Asia and Policy Development and Review Departments
Approved by Lorenzo L. Pérez and Carlo Cottarelli
April 19, 2006
Contents
Executive Summary
I. Introduction
II. Stocktaking of Performance and Medium-Term Outlook
III. Recent Developments and Performance under the Program
IV. Report on the Discussions
A. Macroeconomic Policies
B. Structural Reforms
C. External Debt and Relations with Creditors
D. Data Issues and Technical Assistance
E. The 2006 Staff-Monitored Program
V. Risks to the Outlook
VI. Staff Appraisal
Text Boxes
1. Exchange Rate Trends and Competitiveness
2. Tax Reforms: Progress and Future Agenda
3. Macroeconomic Challenges of Implementing the CPA
Text Tables
1. Medium-Term Prospects, 2005–10
2. Selected Fiscal Indicators, 2004–06
Text Figures
1. Real GDP Growth, 2001–05
2. CPI Inflation, December 2001–February 2006
3. Balance of Payments, 2001–05
4. Exchange Rates, December 2000–December 2005
5. Non-oil Exports, 1998–2005
6. Fiscal Indicators, December 2001–05
7. Monetary Indicators, December 2001–February 2006
Tables
1. Medium-Term Macroeconomic Scenario, 2005–10
2. Selected Economic and Financial Indicators, 2001–06
3. Balance of Payments, 2002–06
4 Central Government Operations, 2002–06
5. Monetary Survey, 2002–06
6. Monetary Authorities’ Accounts, 2002–06
7. Quantitative Targets under the 2005 Staff-Monitored Program
8. Structural Benchmarks under the 2005 Staff-Monitored Program
9. Indicators of Debt Service Capacity, 2002–06
10. External Financing Requirements and Sources, 2002–06
11. Millennium Development Goals, 1990–2003
Appendices
I. Relations with the Fund
II. Relations with the World Bank
III. Statistical Issues
Attachments
I. Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding
Executive Summary
Sudan’s economic performance in recent years has been good despite internal conflicts and the difficulties of concluding and implementing the peace agreement with the South. Growth has been robust, inflation has been kept at a single-digit level, and important reforms have been undertaken. There has been progress with financial sector reforms and trade liberalization, and the managed floating exchange rate regime has been working well. Notwithstanding these achievements, several challenges remain to make the Government of National Unity fully operational, achieve peace throughout the country, and implement additional reforms to sustain growth and stability and deal with widespread poverty.
The economic program for 2006 addresses some of those challenges. Despite an increase in oil revenues, the fiscal space of the central government will be constrained because of the transfers required by the peace agreement and decentralization. These transfers, coupled with higher capital expenditures, will contribute to a substantial increase in pro-poor development spending. In this context, and to safeguard macroeconomic stability, an additional reorientation of expenditures is required, including through a reduction in fuel subsidies.
Sudan’s economic prospects are favorable, assuming a continuation of the reform effort. Critical actions going forward are as follows:
- Adhere to fiscal spending and reserve money targets in an environment of exchange rate flexibility to keep inflation in check.
- Introduce a new national currency to foster financial development in the South and economic integration.
- Ensure close coordination between the government of Southern Sudan, the other states, and the central government to harmonize spending and preserve macroeconomic stability.
- Initiate fiscal reporting according to Government Finance Statistics Methodology and publish detailed oil-sector data to improve expenditure management and transparency.
- Build capacity, transparency, and accountability at all levels of government and make the Fiscal and Financial Allocation and Monitoring Commission operational to support fiscal decentralization.
- Proceed with reforms to remove structural rigidities and lower transactions costs in order to improve competitiveness.
Sudan’s external debt problems continue to limit the country’s access to external development financing. Despite these and other emerging constraints, the staff has urged the authorities to maintain their record of cooperation on economic policies and payments to the Fund including minimizing nonconcessional borrowing in order to facilitate the prompt resolution of Sudan’s debt and arrears problems at the appropriate time.
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May 3, 2006
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Public Information Notice (PIN) No. 06/57
FOR IMMEDIATE RELEASE
May 24, 2006
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
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May 3, 2006
Key Points
Despite some initial delays due to various factors, including the untimely death of the First Vice President, John Garang, implementation of the CPA is on track and the payments of oil revenue to the Government Of Southern Sudan (GOSS) had been effected in line with the wealth sharing provision of the CPA. Implementation of other key elements of the CPA are also on track. However, lack of donor inflows is posing a challenge to the overall implementation of the peace agreement.
The Authorities are working hard towards reaching agreement with all concerned parties along the lines of the CPA, regarding the situation in Darfur. They request the Fund to play a visible role and act as a full partner in the planned Joint Assessment Mission (JAM), comprising the World Bank, Africa Development Bank, and UN agencies which will assess and determine the post-conflict requirements of Darfur.
In principle, the policy of the Sudanese authorities is not to contract nonconcessional loans. The authorities request for special consideration since they do not have access to any form of concessional or development funding, and given the enormous needs of providing key social and physical infrastructure to make the peace attractive and to enhance the growth potential of the economy.
The authorities are aware of the concern of Paris Club creditors about nonconcessional borrowing. They will approach their other creditors to seek concessional terms with a view to minimizing non-concessional borrowing in 2006. Furthermore, if the environment of higher than projected oil prices persists, they will be exploring the possibility of using the additional oil revenues to substitute for the intended borrowing.
After seven years of successful implementation of strong SMPs, the last four with policies equivalent in strength of Upper Credit Tranche conditionality, the authorities request that creditors and donors come up with a clear road map for Sudan on the way forward with respect to arrears clearance and debt relief under HIPC and MDRI.
