Abstract
Selected Issues
Enhancing Governance and Reducing the Opportunities for Corruption in Sudan1
A. Introduction
1. A large body of literature and country analyses confirm that weak governance and corruption undermine economic growth, amplify income inequality and erode public trust in the institutions. Based on these findings, the IMF has revised its “Framework for Enhanced Engagement on Governance”2 to better help its membership in addressing governance and corruption issues. The Framework, which builds on the 1997 Governance Policy,3 is designed to promote a “systematic, effective, candid and evenhanded engagement with member countries when governance vulnerabilities and corruption are judged to be macroeconomically critical”.4 Sudan has been assessed to be one of the countries where such engagement should be a priority.
2. Overarching challenges in Sudan: fragility, lack of transparency and accountability, poor data quality. The analysis of governance performance and of the vulnerability to corruption in Sudan needs to take into account the inherent fragility of the country, its limited institutional capacity, the lack of reliable and timely data and, in general, an inadequate level of transparency, all of which are conducive to weak governance and make the effects of corruption, where present, particularly acute. Relatedly, the assessment exercise and engagement strategy need to strictly adhere to the elements designed in the IMF Guidance on Fragile and Conflict State (FCS).5 Fund advice should be well-informed and tailored to economic settings and institutional constraints, accurately phased and timed to ensure realism and feasibility, based on authorities’ ownership of reforms and coupled with capacity developments initiatives to avoid reversal of achievements.
3. This note provides a first stock-taking of the scale, main transmission channels and potential costs of poor governance and corruption in Sudan and offers preliminary recommendations. Measuring the effects of governance shortcomings and of corruption is usually difficult, not least because they are often disguised or hidden. Although over the years the literature has developed many indicators of corruption, as they are mostly based on perception and the dataset is often incomplete they should be interpreted with caution.6 This note uses qualitative and quantitative information, also collected in the field during the latest missions, measured against international and peer country best practices and contextualized for Sudan as a fragile state to provide preliminary findings that could help inform the ongoing policy dialogue with the government. A broader and deeper IMF governance diagnostic mission has been requested by the authorities and is planned for the first half of 2020.
B. Definition of Governance, Perception and Costs of Corruption
4. Governance, per se, is a neutral concept. While there are a range of different definitions of “governance” among IFIs and academia, the IMF has provided a classification that encompasses “the various institution mechanisms and established practices through which a country exercises governmental authority, discharges its responsibility and manages its public resources”, which is generally well received and accepted.7 Governance represents the manner in which power is exercised in the management of a country’s resources, bridging different domains: economic, social and political. Good governance, or lack of it, deeply affects the growth, development and inclusion of a country and it has been often referred to as the single most crucial factor in the fight to eradicate poverty and promote progress. Governance is defined “good” when it respects 8 major characteristics: it is participatory; consensus oriented; accountable; transparent; responsive; effective and efficient; equitable and inclusive; and follows the rule of law.
5. A widely accepted definition of corruption, adopted by the Fund and other IFIs, is “the abuse of public office for private gain” (IMF 2016).8 Where systemic and severe, it contributes in preventing countries from realizing their potential and achieving sustainable and inclusive growth, while favoring large income distribution disparities. It is therefore imperative for governments to understand the extent of corruption in their countries and how it affects their economic performance, so that they can determine the best strategy to fight it. It is also critical that the civil society and development partners support governments in their efforts through active participation, appropriate policy advice, technical assistance, and financial support.
6. Weak governance and corruption, perceived or real, are often strictly linked and impose economic costs. Corruption is often an indicator of poor governance. Moreover, in an environment characterized by weak governance, it is more difficult to effectively fight corruption. Hence, to successfully fight corruption in the long term, governance issues need to be addressed at institutional level and a “culture” of good practices needs to be established, especially in a case like Sudan where corruption is considered endemic. The existing literature highlights that inadequate governance and corruption can weaken the state’s capacity to collect revenue, reduce equity and efficiency of public expenditure, discourage private investment, create inflation, and undermine trust in public institutions (IMF 2016), ultimately hampering inclusive growth. In turn, low rates of inclusive growth hinder
“The Role of the IMF in Governance Issues: Guidance Note from 1997” and in 2017 “The Role of the Fund in Governance Issues-Review of the Guidance Note-Preliminary Considerations”. That said, as corruption is often facilitated or initiated by a private actor(s), any effective anti-corruption strategy needs to also address behavior within the private sector. governance advancement and can facilitate persistent or augmented levels of corruption, creating a vicious circle very difficult to break.
7. Sudan has limited institutional capacity and multiple constraints (Figure 1). Hence, it is paramount to start by rebuilding a trusted framework of good governance, reliant on transparent and accountable procedures, based on a clear communication campaign, calling on the direct involvement of the private sector and civil society as watchdog of the institutions and their functioning whenever possible. In the past years there have been a few virtuous examples of success in the fight against corruption, which hinged on the authorities seizing the opportunity of a major political change to build social consensus and make significant progress (Georgia, Rwanda, Estonia and Liberia to name a few).9 Sudan’s regime change has created a window of opportunity for essential reforms and improving governance could prove fundamental in addressing major macro imbalances and revamp broad-based growth. The authorities have officially committed to engage in wide-ranging efforts to this end.
Sudan: Selected Governance Indicators 1/
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
Sources: Worldwide Governance Indicators, D. Kaufmann (Natural Resource Governance Institute and Brookings Institution) and A. Kraay (World Bank), 2017; Ibrahim Index of African Governance, Transparency International, and IMF staff calculations.Note: 1/ Use of these indicators should be considered carefully, as they reflect perceptions-based data.2/ Worldwide Governance Indicator scores are normalized each year to mean zero and hence measure relative performance.3/ Corruption Perception Index from Transparency International index varies from 0 to 100, with lower values indicating higher corruption. They are constructed by averaging 12 different data sources that capture the perceptions of business people and country experts about the level of corruption in the public sector.4/ The key components of Ibrhim Index of African Governance are classified in four categories, including safety & rule of law, participation & human rights, sustainable economic opportunity and human development. The index provide data for 54 African countries for the year from 2008–2017. Indicators for the index are collected from 35 independent sources, such as UN agencies, the World Bank and African Development Bank, data projects, and surveys. Therefore, it also includes perceptions-based data. The gray and orange bar represent the distance of the 3rd and 1st qunatile from the median of selected groups5/ Confidence interval is not available.C. Fiscal Governance
8. Strong fiscal governance is a crucial pillar of strategic development and services delivery for governments. In view of the volume of spending it represents, governments have a fundamental responsibility to carry out Public Financial Management (PFM) and especially public procurement efficiently, ensuring high standards of conduct, adequate quality of public service delivery and cost-effectiveness to safeguard the public interest. PFM, procurement, and public investment should be informed by transparency and integrity and their procedures need to be accessible, cost-effective, monitorable, subject to third party evaluation and ultimately accountable. Stakeholders and citizens should have free and easy access to all relevant documents and the applicable legislation should ensure avoidance or minimization of conflict of interests, cronyism and misallocation of resources.10
9. PFM and procurement present serious shortcomings in Sudan. The analysis of Sudan’s fiscal framework highlights weaknesses in the quality and timeliness of data, lack of an organized structure of check and balance and absent or insufficient publicity of information and transparency of procedures.11 Until recently access to budgetary data has been scarce and procedures opaque. Notably, progress has lagged in incorporating a medium-term fiscal framework into budget planning and in strengthening the macro-fiscal unit to enhance policy formulation. The Single Treasury Account (TSA) needs to be fully implemented at central government level including by improving cash forecasting, extending the setting of cash ceilings for ministries, departments, and agencies from one to three months, and improving management of payments. The reports of the Auditor General had no traction or publicity despite highlighting weaknesses and inefficiencies and in some cases a series of financial irregularities. Procurement and investment activities are performed with a closed group of companies pre-identified by dedicated Units at the Ministry of Finance, and as a result, tenders are advertised without an adequate publicity mechanism that would ensure open participation. The contracts, once assigned, are monitored by the recipients of the service and it is unclear how underperformance, delays or cost overruns can be dealt with. Lack of digitalization and of an easily accessible archive system prevents any efficiency analyses and stock taking of the ongoing projects which are very scarcely monitored after the contracts are signed.
10. These governance inadequacies could be exploited to facilitate corruption which in turn further decreases the efficiency of the public system and erodes public trust. During the recent Article IV mission, the authorities announced that the procurement and investment regulation needs to be revised to incorporate international best practices and standards and lamented the difficulties faced due to lack of resources and continuous rotation of personnel which prevents them from forming long-term specialized competencies. Both the IMF and The World Bank have been providing TA on these issues and the new government has committed to address outstanding inefficiencies.
11. A complex and opaque tax system can facilitate corruption and reduce the state’s capacity to raise revenue. An overly complex and unaccountable tax system that grants generous tax exemptions is favor of selected business or creates “ad hoc” loopholes can be the result of a weak fiscal governance framework or the proof of a high level of corruption and “state capture”. Perception of inefficiency and of corruption are very often mutually reinforced and linked but bad governance (lack of transparency, excess of regulation, lack of automated processes and of codes of conduct and so on) provides the occasion for corruption, without necessarily being the result of corruption. In either case, it encourages perceptions of corruption and create more opportunities for bribery and tax avoidance. It is proven that the perception of corruption harms the culture of compliance and increases tax evasion. Numerous and complex tax rules necessitate more frequent encounters with public officials and increase compliance costs, which also raise incentives for avoidance and corruption (Mauro 1997, Martini 2014, and IMF 2016).
12. Sudan’s tax collection is low, at about 6 percent of GDP in 2019, and far below its peers. (Chapter II. Revenue Mobilization). Income tax accounts for less than 10 percent of tax revenue, in part because of the historical importance of oil revenue but also because of numerous tax holidays and exemptions in the Investment Law (IMF 2017 Article IV Report) and a large informal sector (UNDP 2018 estimates it at more than 60 percent of GDP). Indirect taxes, specifically through customs, excises, and VAT, are the main sources of tax revenue, but have “too many rates” (World Bank 2014), are subject to frequent changes and deeply impacted by the multiple currency practices. As a consequence, firms in Sudan rate “customs and trade regulations” and “tax administration” as their biggest obstacles for doing business (Figure 2),12 and trading across borders is one of Sudan’s worst performing indicators in the World Bank’s Doing Business report (World Bank Group 2019).13
Sudan: Biggest Obstacles to Firms’ Operation
(Percent of firms surveyed)
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
Source: Sudan Enterprise Surveys 2015.13. Weak governance and corruption can also reduce the fairness and efficiency of public expenditure. The allocation of government spending can be diverted from public services such as education, health, and sanitation in favor of large infrastructure projects and defense systems where collecting substantial bribes is easier (Delavallade 2006). Inefficient governance can weaken public service delivery and facilitate corruption which in turn by exploiting weak monitoring and accountability processes can cause large leakages in side-payments and bribes to local officials so that only a fraction of the spending reaches the intended beneficiaries (Reinikka and Svensson 2004). Lastly, as highlighted in the previous paragraph, it can reduce the efficiency of public investment through poor project selection, inadequate procurement procedures or off-budget financing, and lack of check and balances mechanisms (IMF 2016). In this respect, the large Sudanese parastatal SOE system appears particularly vulnerable to inefficiencies and abuses due to its opacity and preferential allocation of contracts. The General Auditor chamber has been very active in signaling these shortcomings with very little traction until now. The new government committed to engage in a far-reaching set of reforms and the IMF diagnostic governance mission tabled for the first half of 2020 should be of great help in prioritizing necessary measures.
14. Sudan spends less on basic education and health than other countries in the region (Figure 3). Service delivery is weak, resulting in lower access to most basic services (Figure 4). Evidence suggests that past spending on public investment has been often inefficient. A cross-country benchmarking of the efficiency of public investment using the Data Envelopment Analysis (DEA) shows that Sudan operates far from the local efficiency frontier (Figure 5).14 The analysis estimates that peer countries operating on the efficiency frontier are producing the same level of public capital with up to 70 percent less spending. Governance shortcomings and corruption are among the potential contributing factors of inefficiency, together with lack of institutional capacity, lingering effects of the civil war, difficulties in transporting materials to remote areas, and shortages of materials and skilled professionals.
Sudan: Level of Education and Health Spending
(Percent of GDP)
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
Source: World Development Indicators.Sudan: Access to Services
(Percent of population)
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
Sudan: Estimating Public Investment Efficiency
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
Source: IMF Investment and Capital Stock Dataset, 2015, and IMF staff estimates.D. Financial Sector Oversight
15. Sudan’s financial sector has been subject to international sanctions since 1997. Although in 2017 the United States revoked its trade and financial sanctions, others, including Australia, Canada, the United Kingdom, the European Union, and the United Nations, kept their sanctions in place. In addition, the United States has kept Sudan on its list of state sponsors of terrorism (SSTL), which hampers negotiations of debt relief. Two decades of economic sanctions led to the exit of most correspondent banking relationships (CBRs). The sanctions continue to cost heavily in lost trade, investment, and humanitarian aid (IMF 2017). The financial system is small and financial inclusiveness is very low, especially outside of the major urban centers.
16. Corruption can slow down a country’s financial market development and increase vulnerability to money laundering and terrorist financing. Corruption makes foreign banks reluctant to engage in business activities in a “risky” country: the probability of being sanctioned by the home supervisors for doing business with an opaque and potentially corrupt system is a very high deterrent for international credit institutions, especially in the aftermath of the global financial crisis. Weak governance, which also means supervisory forbearance and an inadequate AML/CFT framework, increases the risk of corruption and of attracting criminals and money launderers who target countries where defenses are weak.15 Moreover, corruption and lack of financial inclusiveness can create a vicious circle: an undeveloped financial system facilitates the use of cash which can more easily hide corrupt activities, while the same illicit activities slow down the financial sector development by encouraging the use of cash instead of the banking system.
17. Weak banking sector governance and regulatory/supervisory shortcomings can deeply affect the system’s stability and growth, reducing the availability of credit to the economy, favoring cronyism in lending practices and the accumulation of nonperforming Loans (NPL). Sudan is a fully Islamic financial system, which makes it complex to compare international soundness indicators and supervisory rules to peers. A recent stress testing proved the system to be more fragile than showed by the previous reported data and that supervisory practices are affected by significant shortcomings, lack of capacity and continued turnover of the limited personnel which hinders the creation of necessary specialized competencies. The authorities have requested IMF TA to revise the Central Bank’s Law, to strengthen its effectiveness and improve its supervisory action.
E. Central Bank Governance and Operations
18. Central Bank safeguard assessment. Since 2000, the IMF has conducted safeguard assessments on the central banks of members who have an approved Fund financial arrangement with a focus on protecting Fund resources from misuse and misreporting of program monetary data. The safeguards diagnostic evaluates the governance and control framework of a central bank in five fundamental areas: external audit, legal structure and autonomy, financial reporting and transparency, internal audit and internal controls. Assessments are usually performed before the start of a program or at its inception and completed before the first program review. As Sudan—having been in arrears with the IMF and other multilateral donors since 1984—could not receive financial support from the Fund since long before 2000, the Central Bank of Sudan (CBOS) has never undergone a safeguards assessment. Hence the knowledge of its governance and operations is mainly based on the evidence collected during the bilateral surveillance missions and the analysis of desk-based information.
19. Main elements of the legal framework. The Bank of Sudan Act (2002), does not stipulate operational independence, financial autonomy, accounting reporting principles and transparency, and internal and external controls. The objectives, functions and powers of the central bank are not clearly stated (Art. 6). The oversight board lacks in practice independence from the executive management as, despite part of its members being non-executive, the oversight powers can be delegated to the Chairman, who is the CBOS governor, which defies one of the basic rules of institutional governance. Moreover, the internal audit is subordinate to the Governor’s office, which undermines its effectiveness and impartiality. Senior officials are appointed and removed by the Presidency and obligated to respond to the Presidency, and to act in representation of ministries and governmental institutions (lack of autonomy from political power). In the last couple of years of President’s Bashir power, there was a high turnover of Governors, which de facto almost paralyzed central bank operations. There is no provision on conflict of interest or other ethics rules. The reporting framework of the CBOS is not in line with best practices and standards and the quality and timeliness of the data is poor and often difficult to reconcile across institutions.
20. Supervisory activity. The CBOS is the majority shareholder in several banks and financial institutions which creates a conflict of interest with its role as supervisor and regulator. Supervisory activities are hindered by high rotation and lack of personnel, loose application of regulations and poor quality of data from the system. The central bank law does not ban commercial banks shareholders to be appointed as executive officials, which could further impair sound supervisory practices.
21. External audit and publicity. The Central Bank Law subjects the CBOS to being audited by the General Audit Chamber, in accordance with the General Audit Chambers Act, 1999. The required standards to be followed are not mentioned, and neither is the transparency regime to be followed by the auditors. The governor of the CBOS is requested to present to the National Assembly, at the end of every year, a statement including the general policies, plans and future programs of the Central Bank, and a report on the general performance for the previous year. It is unclear whether the report should be made public and in which form. The financial statements audit of the CBOS by the National Audit Chamber are not subject to publication. A recent report by the General Auditor highlights several governance and accounting shortcomings and called for corrections including by amending the Central Bank of Sudan Law. Until recently the General Auditor’s recommendations have received very little traction, as in the case of the other institutions.
22. Fiscal dominance in Sudan. On the back of a protracted economic crisis (Figure 6) and owing to the lack of autonomy of the Central Bank of Sudan and the described governance shortcomings, the government has become more reliant on seigniorage and quasi-fiscal financing (Blackburn and others 2008), with high monetization of its fiscal deficits. Fiscal dominance has weakened central bank independence and the credibility of monetary policy, increasing inflationary expectations, and has facilitated the use of multiple exchange rates. Inflation is entrenched, averaging 33 percent since the 1970s and 23 percent in the last ten years. Following the government’s continued monetization of fiscal deficits inflation exceeded 70 percent in 2018 and is projected around 60 percent in 2019. Under the country’s fixed exchange rate regime, persistently high inflation resulted in a long period of significant real exchange rate overvaluation (Figure 7), which eroded Sudan’s non-resource exports competitiveness and resulted in a parallel exchange rate system.
Sudan: Macroeconomic Performance
(1970–2017)
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
Source: IMF WEO.Sudan: Evolution of Exchange Rates in Sudan
(SDG per US$)
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
Source: Sudanese authorities and IMF staff calculations.23. Multiple currency practices (MCP) persist. The government currently maintains several exchange rates, including (i) the central bank’s official and commercial bank exchange rate (SDG 45/US$); (ii) the customs exchange rate (SDG 15/US$); (iii) the fuel import rate (SDG6.7/US$), and (iv) the parallel market rate, at which all other transactions (about 80 percent of total) take place (around SDG 80/US$). Moreover, the latest budget has been prepared using an exchange rate of SDG 55/US$. The use of MCP raises corruption risk by encouraging rent-seeking (differential rates allow for making large profits through access to more advantageous rates) and large speculation, dragging on the economy and facilitating income polarization. Over the years, it has been reported that the use of MCP in Sudan has contributed to an expansion of the informal economy, smuggling of exports, loss of migrants’ remittances from formal channels and exacerbated shortages of foreign exchange in the country (Ebaidalla 2015).
24. Recent developments. The authorities have indicated plans for a reform of the Central Bank Law to bring it in line with international best practices and improve the overall governance mechanism and operational activities of the CBOS. They have requested IMF support in revising the new law along these lines.
F. Market Regulation
25. Inadequate governance and corruption can discourage private investment. Burdensome regulation and red tape create opportunities for corruption, which act as a tax on profitability (Mauro 1997). Lack of governance and appropriate check and balances on investments and expenditure coupled with a high perception of corruption may also create uncertainty about the returns to investment because of possible delays in licensing or clearance of customs, unpredictable policies, or uneven enforcement of regulation. Corruption also diverts talents from more productive activities.
26. Sudanese businesses report corruption among their top five constraints (Figure 2). Corruption was rated as a “major” or “very severe” constraint by 65 percent of firms—higher than the average in the region (41 percent). Concerns are greatest among smaller firms and those in the services sector (Figures 8–10).16 Within services, firms in wholesale and retail—important sectors for job creation—are more likely to report corruption as major or severe constraint. Finally, in a separate survey, a very large proportion of firms in the informal sector said corruption was their most severe constraint (World Bank 2009). These facts underscore the potential importance of corruption as an impediment to job creation in Sudan.
Sudan: To What Degree is the Following an Obstacle to the Current Operations of the Firm?
(Percent of firms surveyed)
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
Source: Sudan Enterprise Surveys 2015.Sudan: Corruption Perception by Firm Size
(Percent of firms surveyed)
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
Source: Sudan Enterprise Surveys 2015.Sudan: Corruption Perception by Industry
(Percent of firms surveyed)
Citation: IMF Staff Country Reports 2020, 073; 10.5089/9781513536743.002.A001
G. Rule of Law and Anti-Corruption Enforcement
27. The rule of law is a major principle of governance. According to it “all persons, institutions and entities, public and private, including the State itself, are accountable to laws that are publicly promulgated, equally enforced and independently adjudicated, and which are consistent with international human rights norms and standards. It requires, as well, measures to ensure adherence to the principles of supremacy of law, equality before the law, accountability to the law, fairness in the application of the law, separation of powers, participation in decision-making, legal certainty, avoidance of arbitrariness and procedural and legal transparency”.17 It is considered a fundamental aspect of peacebuilding and is critical in accelerating sustainable development in LICs and fragile countries by improving safety and providing access to fair and well-functioning legal systems that adhere to international human rights standards, thus reducing or preventing violence and conflict, promoting economic investment, encouraging inclusive growth and eradicating poverty. The quality of a country’s rule of law can be measured against some fundamental aspects of the institutions in charge to it: their capacity, performance, integrity, transparency and accountability.
28. According to international agencies and existing literature, Sudan has scored very poorly on compliance with rule of law best practices in the past. Criticism has been particularly severe with regards to the objectivity and impartiality of the judiciary and the police forces. This paper will not assess these areas, among other reasons for lack of direct information, as it was not possible to gather relevant data during the latest mission. The new government is committed to enforce a fair, accountable and transparent new set of measures and actions in this sector. The forthcoming IMF macro-diagnostic governance mission requested for the first half of 2020 will be the appropriate setting for a thorough evaluation of the state of art and for providing a set of recommendations to accompany the authorities in their reform efforts.
H. Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) and Anti-Corruption Framework
29. The AML framework includes a set of measures that can support efforts to counter corruption, such as the scrutiny of transactions of politically exposed persons (PEPs), the reporting of suspicious transactions, and criminal justice actions against proceeds of corruption and criminals.
30. Effective implementation of preventive measures is key, particularly in relation to politically exposed persons (PEPs). When implementing customer due diligence (CDD), financial and non-financial institutions should identify customers, including PEPs, and apply ongoing monitoring to identify suspicious behavior. If a suspicion arises, concerned transactions should be reported to the financial intelligence unit (FIU). In Sudan, the implementation of CDD is not effective, including by nonbank institutions. The reporting of suspicious transactions is overall insufficient and limited to banks. The implementation of requirements on PEPs would be facilitated by the publication of PEP’s comprehensive asset declarations. This would assist domestic banks, and financial institutions abroad to identify Sudanese politically exposed persons, compare the assets declared and the assets in their books, and report information to their respective financial intelligence units in case of unexplained discrepancy and suspicious transactions, potentially triggering prosecution of the laundering of the proceeds of acts of corruption. Such enforcement actions by foreign law enforcement agencies, could create an additional incentive for better governance in Sudan while domestic anti-corruption frameworks are being strengthened.
31. Transparency on beneficial ownership of legal persons and arrangements to prevent their misuse for laundering the proceeds of corruption are necessary. The 2012 FATF standards require heightened scrutiny of transactions conducted by PEPs and adequate transparency of company ownership. In Sudan, financial and non-financial institutions face challenges in obtaining adequate, accurate and current information on beneficial ownership of legal persons and arrangements, who may be PEPs. Making such information readily available through a national registry or other mechanisms covered by the FATF standards should assist domestic and foreign financial institutions, law enforcement agencies, journalists and civil society in identifying legal persons and arrangements connected to PEPs.
32. Effective criminal justice actions against money launderers can dissuade criminals from committing acts of corruption. In Sudan, it is not a common practice to launch parallel financial investigations of money laundering if a criminal conduct is being investigated. The number of convictions of money laundering and confiscations of proceeds of corruption, and proceeds of crime more generally, are limited. Therefore, the AML framework should be more effectively used to prosecute corruption.
I. Concluding Remarks
33. For a complex fragile state with limited institutional capacity such as Sudan, reforms have to be carefully calibrated and sequenced to avoid the risks of reform failure or of quick reversal. A broad approach to creating a sound and more robust governance framework, reinforcing institutional capacity and investing in human capital would be the appropriate starting point to create the environment to effectively tackle corruption. The most immediate action that should be implemented would be to increase the timeliness, quality and integrity of data and statistics, in parallel building a culture of transparency and accountability in public institutions and agencies. To avoid reform failure the civil society and private stakeholders should be actively engaged with the authorities in designing the policy strategy and the implementation plan to adopt it.
34. Transparency, accountability and comprehensive communication should be the backbone of governance and anti-corruption reforms in each sector. This approach should specifically include (i) significant and systemic improvements in transparency and data reporting; (ii) regulatory alignment with international best practices (through UNCAC compliance and peer review report, supervisory and accounting compliance with international standards, continued progress in the implementation of AML/CFT best practices etc.) (iii) domestic law alignment to incentivize non-corrupt behavior (such as through tax provisions) (iv) institutional enhancement (capacity development, creation of check-and-balances, better reporting and enforcement of sanctions). A culture of accountability and controls needs to be created and adequately communicated to the public to reconstruct trust in public institutions. As briefly underlined above, a big political transition like the one currently happening in Sudan represents a valuable window of opportunity to make big strides in the fight to governance abuse and corruption. It is paramount that the authorities, with the assistance of competent third parties whenever necessary, undertake a detailed and comprehensive inventory of the existing challenges preventing a smooth and effective functioning of the public institutions and accompany these efforts with continued participation of the civil society and private stakeholder to ensure sustained public support.
35. Rationalizing tax exemptions and phasing out tax holidays would strengthen governance while boosting fiscal revenues. Heavy corporate tax and VAT revenue losses arising from widespread tax exemptions and tax holidays can be substantially reduced by rationalizing exemptions and phasing out tax holidays, which would help reduce perceptions of corruption and tax avoidance. Reducing the number of corporate tax rates and introducing a presumptive tax for small businesses would further simplify and enhance the transparency of the tax system, improve compliance, and expand the tax base.
36. Customs and tax administration should be strengthened. In Sudan, firms on average make 42 payments and spend more than 23 days (180 hours) a year to comply with tax regulations (World Bank Group 2017). Reducing the number of steps needed to comply with tax regulations and investing in new technology (e.g., introducing electronic filing and payment systems) to make compliance easier would reduce opportunities for corruption, improve the business climate, and help reduce informality. These steps could be accompanied by taxpayer education, personnel training and improvements in internal control and oversight of tax collection.
37. Eliminating off-budget subsidies. A substantial portion of fuel subsidies are recorded on the central bank’s balance sheet, not in the budget. Shifting these costs onto the budget and recognizing full costs of subsidies would lead to better accountability and transparency of the budget and help reduce unsustainable spending.
38. Strengthening PFM and procurement. Improving public investment management could close as much as two-thirds of the efficiency gap (IMF 2015) and reduce opportunities for corruption. Specific effective measures to improve PFM and public investment management in particular include an overall increase in transparency, including by publishing detailed information related to the complete life of the project at regular intervals and until its realization; greater use of open tenders; improving project evaluations and requiring prefeasibility studies for large projects; supporting the auditor-general’s office in the assessment of the financial and legal soundness of public investment projects; and enhancing technical capacity in line ministries. The procurement process should also be redesigned and entrusted to an independent, fully staffed and highly specialized unit in charge of all the procurement process, from project design and budget allocation to final disbursement and quality controls. At this stage and given the significant shortcomings of the current system, undertaking a procurement audit could prove very effective and helpful to design measures along the all process. Full disclosure on the SOEs, their shareholders, balance sheets and interlinkages with relevant institutions should also be pursued as a priority, including to identify inefficiencies, wastefulness and redundancies.
39. Unifying multiple exchange rates. A unified market-based exchange rate would boost competitiveness and reduce rent-seeking activities, helping to establish a level playing field that would encourage investment. At the same time, assessing import duty and oil revenues at a market-determined exchange rate would generate a large revenue windfall.
40. Enforcing limits on central bank financing of the budget. Limits on central bank monetization of fiscal deficits should be reinforced to contain inflation. Relieving the central bank of responsibility for subsidies and other quasi-fiscal activities and strengthening its operational independence will improve its credibility and its capacity to deliver on the price stability mandate.
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Mungiu-Pippidi, M. and Johnston, M., 2017 “Transition to Good Governance,” Cheltenham UK and Northampton USA: Edward Elgar Publishing.
Organization for Economic Cooperation and Development, 2014, “OECD Foreign Bribery Report: An Analysis of the Crime of Bribery of Foreign Public Officials,” OECD Publishing.
Organization for Economic Cooperation and Development, 2015, “OECD Recommendation on Public Procurement” OECD Publishing.
Organization for Economic Cooperation and Development, 2017, “OECD Recommendation on Public Integrity, A Strategy Against Corruption” OECD Publishing.
Reinikka, R. and Svensson, J., 2004, “Local Capture: Evidence from a Central Government Transfer Program in Uganda,” Quarterly Journal of Economics 119 (2): 679–705.
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Prepared by Marta Spinella and Mizuho Kida, with contributions from Arz Murr. The authors are thankful to Alice French and Sebastiaan Pompe who provided helpful comments and constructive criticism to improve the note.
See IMF, “The Role of the Fund in Governance Issues-Review of the Guidance Note-Preliminary Considerations”, 2017 and IMF, “Review of 1997 Guidance Note on Governance—A proposed Framework for Enhanced Fund Engagement,” 2018.
See IMF, “The Role of the IMF in Governance Issues: Guidance Note from 1997.”
IMF Press Release n. 18/142, April 22, 2018.
IMF, “Staff Guidance Note on the Fund’s Engagement with countries in Fragile Situation”, April 25, 2012 and IMF, “Staff Guidance Note on Fund Engagement with Fragile and Conflict-Affected States (FCS)”, January, 2019.
See “Use of third parties’ indicators in Fund Reports”, 11/2017.
See “The Role of the Fund in Governance Issues-Review of the Guidance Note-Preliminary Considerations”, 2017.
While there are several definitions of “corruption” in use, the IMF chose in his documents this definition which focuses on the abuse by public actors and doesn’t cover fraudulent acts perpetrated exclusively by private citizens. See also
See “Fiscal Monitor: Chapter 2, Curbing Corruption”, April 2019.
OECD, 2015. “OECD Recommendation on Public Procurement” OECD Publishing; OECD. 2017. ““OECD Recommendation on Public Integrity. A Strategy Against Corruption” OECD Publishing.
Kukutschka, Martinez R. B. 2017, “Sudan: Overview of Corruption and anti-corruption” U4 Anti-Corruption Resource Center, Transparency International, Berlin, and information collected during the 2020 Article IV mission.
Based on Sudan Enterprise Surveys 2015, in which business owners and senior managers in 662 firms were interviewed from September 2014 through February 2015. It reflects a snapshot of the biggest business environment obstacles as perceived by firms, and the numbers indicate percent of firms surveyed that identified the obstacle as among the top 10 constraints. The survey results should be interpreted with caution owing to a limited number of respondents, a limited geographical coverage, and standardized assumptions on business constraints and information availability.
In 2019, Sudan ranked 183 out of 189 countries and had a distance-to-frontier score of 19 out of 100 in the aggregate indicators of trading across borders (with 100 representing the best performer). The indicators of trading across borders are based on the time and costs estimates reported by local experts in practice associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods. The results should be interpreted with caution owing to a limited number of respondents, a limited geographical coverage, and standardized assumptions on business constraints and information availability.
The empirical implementation of the DEA methodology in this note closely follows IMF (2015), but we update the data on both inputs and outputs to allow for data constraints in Sudan. The efficiency scores estimated here use an input-oriented DEA model, so that the estimated efficiency scores are interpreted as the proportional amount by which the country could reduce public capital inputs while producing the same level of infrastructure services. The efficiency scores are calculated relative to a peer group consisting of linear combinations of input-output observations for efficient countries. Two adjustments are made so that each country is compared to others with similar characteristics. First, in addition to pubic capital, we use per capita GDP as a second input in the model. Second, instead of constant returns to scale for the model (which assumes that all countries in the sample are performing at optimal scale), we use variable returns to scale.
Based on Sudan Enterprise Surveys 2015, in which business owners and senior managers in 662 firms were interviewed from September 2014 through February 2015. The results should be interpreted with caution owing to a limited number of respondents, a limited geographical coverage, and standardized assumptions on business constraints and information availability.
Although the term “rule of law” is widely used, there are several definitions in literature and among different institutions. The definition used in this chapter is taken from a report to the Security Council by the United Nations Secretary-General in 2004.
