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IMF Country Report No. 20/289

SUDAN

STAFF-MONITORED PROGRAM—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR SUDAN

October 2020

In the context of the Staff-Monitored Program, the following documents have been released and are included in this package:

  • A Press Release including a statement by the Chair of the Executive Board.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 23, 2020, following discussions that ended on June 18, 2020, with the officials of Sudan on economic developments and policies underpinning the IMF arrangement under the Staff-Monitored Program. Based on information available at the time of these discussions, the staff report was completed on September 10, 2020.

  • A Debt Sustainability Analysis prepared by the staff of the IMF and the International Development Association (IDA).

  • A Statement by the Executive Director for Sudan.

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

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PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623–7430 • Fax: (202) 623–7201

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International Monetary Fund

Washington, D.C.

© 2020 International Monetary Fund

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SUDAN

STAFF-MONITORED PROGRAM

September 10, 2020

Executive Summary

Context: The transitional government has requested a Staff-Monitored Program (SMP) to help address major macro imbalances, lay the groundwork for inclusive growth, and establish a track record of sound policies that is a requirement for eventual HIPC debt relief. Major challenges lie ahead. Economic contraction since 2018 is set to intensify sharply in 2020 as a result of the COVID-19 pandemic. Fiscal and external imbalances are large, inflation is high and rising, the currency is overvalued, and competitiveness is weak. The humanitarian situation is dire with large numbers of internally displaced people and refugees. Despite the desperate situation, Sudan cannot access Fund financial assistance on account of (i) arrears to the Fund, (ii) arrears to other IFIs and other creditors, and (iii) unsustainably large external debt. Sudan remains on the U.S. state sponsors of terrorism list (SSTL), which effectively hinders progress toward HIPC debt relief. While there is broad agreement between the authorities and staff about the key reform priorities, public tolerance for painful reforms is fragile given prolonged economic hardship. Notably, donor financial assistance has been well short of the amounts needed to facilitate gradual orderly adjustment. Hence, risks to the SMP are high.

Policies embedded in the SMP:

  • A move to a unified and market-clearing exchange rate, preceded by measures to (i) identify and address individual bank resilience to exchange rate shocks, and (ii) set up a reserve money targeting framework.

  • Fiscal adjustment of 4 percent of GDP in the revised 2020 budget, reflecting the impact of exchange rate reform on foreign currency denominated receipts, revenue measures, higher donor grants, and the elimination of diesel and gasoline subsidies. The measures also create fiscal space to address COVID-19 and mitigate policy adjustment pain through significantly higher social, health, and wage spending.

  • A further fiscal adjustment of 3¼ percent of GDP for 2021 as the completion of customs exchange rate reform substantially increases the taxation of imports and the adverse impact of COVID-19 on revenues is reversed, notwithstanding higher social spending with the full implementation of the Sudan Family Support Program.

  • Measures to strengthen governance and curb corruption, including establishing an independent anti-corruption commission, strengthening oversight and corporate governance rules for public enterprises, publishing comprehensive fiscal data, strengthening public financial management, and vigorously reclaiming the illicit wealth of the previous regime.

  • Upgrade of the central bank law to strengthen its independence and governance, limit monetization of deficits, and establish a mandate based on price stability. The central bank will also continue to strengthen financial sector soundness and mitigate risks, including through enhanced risk-based AML/CFT supervision.

  • Structural reforms, in consultation with the World Bank and IFC, to support private sector development and higher and more inclusive growth.

Modalities. Staff agreed with the authorities on a 12-month SMP with semi-annual reviews, from July 2020–June 2021. The first review based on end-December 2020 benchmarks and targets would be completed by end-March 2021; the second review would be based on end-June 2021 targets set during the first review. Quantitative benchmarks comprise: (i) a ceiling on banking system net credit to government; (ii) a ceiling on central bank net domestic assets; (iii) a floor on net international reserves; and (iv) a ceiling on non-concessional external borrowing. In addition, there are indicative targets on social spending, reserve money, and the non-oil primary fiscal deficit. There are 11 structural benchmarks focusing on customs exchange rate reform, public financial management (PFM), governance and anti-corruption efforts, central bank independence, and banking supervision.

Board engagement. In staff’s view, the SMP contains forward-looking policy commitments of UCT quality. Staff will seek Directors’ endorsement of this view at a Board meeting tentatively planned for September 23, 2020.

Risks. Public tolerance for policy adjustment has been eroded by economic hardship, and delays in implementing fundamental reforms are gradually undermining the goodwill the government enjoys, limiting the window of opportunity for implementing reforms. Limited donor support implies substantial monetization and high inflation and exchange rate pressures alongside reform implementation, potentially aggravating social tensions. Capacity weaknesses are substantial. The authorities have committed to take additional policy measures to ensure the attainment of program objectives if implementation risks were to materialize. However, flexibility on reform timelines may also be needed given the fragility of the social and economic conditions.

Approved By

Subir Lall (MCD) and Gavin Gray (SPR)

A virtual mission was held during June 8–22, 2020. The team comprised Daniel Kanda (head), Qiaoe Chen, Atif Chaudry, Mohammed Zaher (all MCD), Tryggvi Gudmundsson (SPR), and Abdikarim Farah, (Resident Representative). Carol Baker (incoming mission chief), Mr. Mahlinza (OED) and Mr. Ismail (OED) participated in the discussions. The mission met with outgoing Finance Minister Ibrahim Elbadawi, incoming Acting Finance Minister Hiba Ahmed, Central Bank Governor Mohamed Elfatih Zeinelabdin Mohamed, other senior government officials, and members of the diplomatic community.

Contents

  • CONTEXT

  • RECENT DEVELOPMENTS AND OUTLOOK

  • THE STAFF-MONITORED PROGRAM

  • A. Exchange Rate, Monetary, and Financial Sector Policies

  • B. Fiscal Consolidation

  • C. Strengthening Governance

  • D. Promoting Inclusive Growth

  • E. Program Modalities

  • F. Progress Towards HIPC Debt Relief

  • STAFF APPRAISAL

  • FIGURES

  • 1. Selected Economic Indicators

  • 2. Fiscal Sector

  • 3. Monetary Sector

  • 4. External Sector

  • TABLES

  • 1. Selected Economic Indicators, 2017–25

  • 2. Medium-Term Macroeconomic Outlook, 2017–25

  • 3a. Balance of Payments, 2017–25 (Millions of U.S. dollars)

  • 3b. Balance of Payments, 2017–25 (Percent of GDP)

  • 4a. Central Government Operations, 2017–25 (Billions of Sudanese pounds)

  • 4b. Central Government Operations, 2017–25 (Percent of GDP)

  • 5. Monetary Survey, 2014–21

  • 6. Summary Accounts of the Central Bank of Sudan, 2014–21

  • 7. Summary Accounts of the Commercial Banks, 2014–21

  • 8. Financial Soundness Indicators

  • 9. Quantitative Targets, 2019–2021

  • 10: Prior Actions and Structural Benchmarks Under the SMP

  • ANNEXES

  • I. Path to Debt Relief

  • II. External Stability Assessment

  • III. Capacity Development

  • APPENDIX

  • I. Letter of Intent

  • Attachment I. Memorandum of Economic and Financial Policies for 2020–2021

  • Attachment II. Technical Memorandum of Understanding

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SUDAN

STAFF-MONITORED PROGRAM—DEBT SUSTAINABILITY ANALYSIS

September 10, 2020

Approved By

Subir La ll, Gavin Gray (IMF) and Marcello Estevão (IDA)

Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA)

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This debt sustainability analysis (DSA) confirms that Sudan continues to be in debt distress.1 Both public and external debt ratios remain high, and the bulk of external debt is in arrears. Consistent with the results of past DSAs, Sudan’s external debt is assessed to be unsustainable. All external debt indicators breach their indicative thresholds under the baseline scenario and debt solvency indicators stay above the thresholds throughout the time horizon of the analysis. Restoring debt sustainability will require Sudan to implement needed reforms, undertake sound economic policies, and build a strong track record of policy implementation to remove obstacles as the country moves towards HIPC debt relief.