Program Note

Sudan

Last Updated: June 6, 2009

Background

Sudan entered the twenty-first century mired in several conflicts. These conflicts have led to huge loss of life and have severely debilitated the country's capacity to rebuild and develop. The reconciliation between the North and the South in recent years has been partly overshadowed by the conflict in the Western region of Darfur.

Two factors—Sudan's emergence as an oil producer and its heavy debt burden—play an important role in explaining the country's economic performance and, perhaps more importantly, have a major bearing on it's outlook. The oil sector is still a modest part of overall economic output, but the impact on the external and fiscal balances is substantial: oil accounts for some 95 percent of exports and 60 percent of domestic revenue in 2008. Sudan's debt problems can be traced back to the 1960s when the country embarked on a strategy of large-scale industrialization, financed in part by foreign borrowing at nonconcessional terms, and initially accompanied by government regulation of the economy. External debt, which stood at about US$34 billion in 2008, most of which is in arrears (including to the IMF), is not sustainable in the absence of debt relief.

Role of the IMF

The IMF has played a multi-faceted role in Sudan. It has provided policy advice, usually in the context of SMPs, to promote macroeconomic stability and sustained growth; contributed extensive technical assistance and training to strengthen institutions and promote capacity building; and coordinated with donors in identifying development needs and canvassing for associated financial support.

The IMF has helped the government of Sudan reestablish macroeconomic stability since the mid-1990s, in the context of successive SMPs. These SMPs centered on strengthening the stance of fiscal policy and the tax base, improving expenditure control, adopting banking sector reforms, improving transparency, and liberalizing the exchange system. Extensive technical assistance was provided in these areas.

Progress to Date

The implementation of these and a range of other structural measures was successful in restoring macroeconomic and financial stability in Sudan. Average annual inflation dropped from 133 percent in 1996 to 17 percent in 1998 and has averaged less than 10 percent throughout the current decade. Real GDP growth surged from about 5 percent in the 1990s to 7.5 percent in 2000–08, one of the strongest in the region. Increases in oil production and international prices contributed to this vibrant performance. Moreover, progress was made in meeting some of the Millennium Development Goals (MDGs), including reducing the prevalence of underweight children, increasing immunization of one-year olds, and increasing the percentage of births attended by health professionals. However, parts of the country remain in the grip of civil conflict and large numbers of people live in poverty.

The Challenges Ahead

The challenges facing Sudan are immense and complex—from establishing and maintaining peace to rebuilding the country. Maintaining macroeconomic stability and promoting investment are essential to growth and development—and to making progress towards achieving the MDGs. These tasks have become more difficult because of the sharp fall in oil prices, problems in implementing the peace agreements, and lower foreign direct investment. Sudan's difficult debt position, which limits its access to concessional loans, further complicates the situation. There are risks that the notable achievements made over the last decade, including in reducing poverty, could be reversed with the sharp fall in oil revenues, underscoring the need to persevere with prudent macroeconomic policies and structural reforms to promote economic growth and development.

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