## 1. Exchange Rate System

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### Context
- Economic conditions challenging since the secession of South Sudan in 2011 and the associated loss of the bulk of oil production and exports.
- Authorities allowed greater exchange rate flexibility and reduced fuel subsidies in November 2016, but these measures were insufficient to achieve sustained macroeconomic stability and broad-based growth.
- Key external constraints: arrears and limited access to external financing, U.S. sanctions (suspended January 2017; permanently revoked October 12, 2017), and withdrawal of correspondent bank relations.
- Permanent revocation of U.S. sanctions on October 12, 2017:
  - Cited progress on cessation of hostilities, improved cooperation on regional stability, counterterrorism, and humanitarian access.
  - Expected effects: significant reductions in costs of imports, trade, and international financial services, potential new import sources and export destinations.
  - Domestic optimism increased since the January 2017 suspension, though most investors and correspondent banks remained cautious.
- Political developments: National Consensus Government installed May 2017; new constitution to be drafted; 12 of 31 ministerial portfolios given to opposition parties; First Vice President Saleh named Prime Minister.
- Authorities intend to pursue removal from the State Sponsors of Terrorism List (SSTL) and expressed interest in another Staff-Monitored Program (SMP).

### Developments, Outlook, and Risks
- External position and current account:
  - External position substantially weaker than implied by fundamentals, gap narrowing.
  - Overvaluation of average real exchange rate declined from about 38 percent in 2015 to 30 percent in 2016.
  - Current account deficit (cash basis) declined by 1½ percentage points to 6 percent of GDP in 2016.
  - Based on H1 2017 data, projected 3¼-percentage point decline in the current account deficit (cash basis) to 2¾ percent of GDP in 2017, implying reduction in overvaluation to about 15–19 percent.
- Drivers of recent improvement in the current account deficit:
  - Strong depreciation of the parallel exchange rate and introduction in late 2016 of a commercial bank incentive rate close to the parallel rate.
  - Fuel and electricity price hikes in November 2016 curbing domestic demand.
  - Quantitative import restrictions adopted in 2016 (negative list and prohibited list).
  - Lower international import prices improving terms of trade.
- Gross international reserves:
  - Increased by $100 million in H1 2017; very low at $1.1 billion, 1¾ months of imports.
- Exchange rate system:
  - Highly distorted with Multiple Currency Practices (MCPs) used to implement fiscal and social objectives, hampering investment and growth.
  - Four exchange rates cover most transactions:
    - central bank official buying rate (SDG 6.6/$);
    - wheat import rate (SDG 7.5/$);
    - commercial bank incentive rate (SDG 18/$);
    - parallel market rate (SDG 20.7/$) where close to two-thirds of transactions take place.
- Output and growth:
  - GDP grew an estimated 3½ percent in 2016; H1 2017 data indicate weaker real domestic demand; 3¼ percent growth projected for 2017.
- Monetary and fiscal developments:
  - On-budget fiscal deficit expected to widen from 1.6 percent of GDP in 2016 to 1.8 percent of GDP in 2017 (better than budget target of 2 percent).
  - True fiscal deficit estimated at 6½ percent of GDP for 2017 (including subsidies linked to official exchange rates recorded off-budget).
  - Total CBOS financing (percent of GDP): 2013 3.1; 2014 2.0; 2015 4.9; 2016 5.6; 2017 Proj. 7.3.
  - CBOS financing of the budget (percent of GDP): 2013 1.5; 2014 0.7; 2015 3.1; 2016 2.3; 2017 Proj. 2.5.
  - Total CBOS monetization of fiscal needs (percent of GDP): 2013 2.1; 2014 1.4; 2015 3.5; 2016 3.3; 2017 Proj. 4.3.
  - Reserve money growth (y/y) increased from 27½ percent at end-2016 to 60 percent in August 2017.
  - Inflation stood at 35.1 percent in September 2017, up from 18.3 percent in September 2016.
- Public and external debt:
  - Remain high and unsustainable; most external debt in arrears. All external debt indicators breach indicative thresholds under the baseline.
- Banking sector:
  - Constrained by breakdown of correspondent bank relations since mid-2014.
  - Aggregate financial soundness indicators improved, though several banks remain weak; 14 of 37 banks fully or partly owned by authorities after equity injections.
  - Banks operate under Islamic finance principles; overall long net foreign exchange open position on balance sheets (off-balance-sheet items would cause a short position).
- Outlook scenarios and risks:
  - Baseline (sanctions revoked, no further progress toward debt-relief, no far-reaching reforms): growth projected at 3¾ percent on average near term; risk of intensified external imbalances and inflationary pressures with disorderly adjustment possible.
  - Upside: ambitious reforms amplify benefits from sanctions revocation.
  - Downside: fiscal and monetary settings incompatible with macro stability; risks to external financing.
  - Staff-concurred assessment: authorities broadly agree with staff’s outlook and risks.

### Box 1 — MCPs and exchange restrictions (summary)
- Exchange restrictions and MCPs under Article VIII, Sections 2 and 3 include:
  - government limitations on availability and allocation of foreign exchange;
  - system of multiple exchange rates (CBOS rate, wheat rate, commercial bank incentive rate) producing effective exchange rates deviating by more than two percent;
  - large spreads between CBOS rate and parallel market due to limited foreign exchange availability channeling transactions to parallel market;
  - imposition of cash margin requirement for most imports.

### Policy Discussions and Recommendations
- Urgency of reforms: consensus that reforms are urgently needed to reestablish macro stability and enable broad-based growth; revocation of sanctions increases payoffs from policy adjustments.
- Core policy priorities:
  - Exchange rate reform and tighter monetary and fiscal policies, including tax and subsidy reform.
  - Structural reforms to strengthen supply response and boost inclusive growth.
- Exchange rate reform specifics:
  - Staff recommended unifying all exchange rates at the same time to eliminate distortions upfront; authorities broadly agreed.
  - Pre-reform actions: review banks’ financial positions and asset quality; authorities requested Fund TA for bank stress tests and remedial measures.
- Fiscal consolidation:
  - Fiscal deficit of one percent of GDP is about the maximum credibly financed from non-inflationary sources; reducing deficit to no more than 1 percent of GDP would eliminate monetization and reduce inflationary pressures.
  - Achieving this requires revenue mobilization and expenditure measures, notably phasing-out subsidies partly offset by increased social and capital spending.
- Revenue mobilization and tariff policy:
  - Estimated revenue gain of about 5 percent of GDP from assessing import duty and US dollar-denominated oil revenues at the parallel exchange rate.
  - In 2016, central government tax to GDP ratio was 5.3 percent of GDP.
  - World Bank findings: economy-wide average tariff 20 percent; numerous tariff lines at 40 percent; about 54 percent of imports exempted via tax holidays and exemptions.
  - Recommended revenue measures: rationalize exemptions, phase out tax holidays, increase personal income tax rates and progressivity, harmonize corporate tax rates, strengthen customs and tax administration, introduce presumptive tax for small businesses, reform gold taxation.
- Subsidy reform and social protection:
  - Total fuel and wheat subsidies (on and off budget) about 5¾ percent of GDP; evidence suggests they largely benefit upper income urban population.
  - Staff recommendation: eliminate subsidies in a phased but time-bound manner (2–3 years), starting with fuel; shift subsidies to the budget and implement transparently.
  - Targeted social mitigation: strengthen existing cash transfer programs covering about 700,000 vulnerable families; use traditional Zakat system to identify vulnerable persons; authorities requested Fund TA to upgrade social safety nets.
- Monetary and financial sector policies:
  - Central bank sold limited amounts of government paper to mop up excess liquidity; plans to augment this effort and consider higher reserve requirement.
  - Staff emphasized reinforcing limits on monetization and additional tightening during exchange rate reforms.
  - Transition to a new nominal anchor: staff support inflation targeting as medium-term objective but recommend building capacity and consider reserve money targeting as intermediate anchor; authorities requested Fund TA to build capacity to directly target inflation.
  - Financial sector resilience: complete restructuring of remaining weak banks ahead of exchange rate unification; continue strengthening supervisory vigilance; AML/CFT progress: FATF removed Sudan from grey list in 2015; FIU joined Egmont Group in June 2017.

### Reform Scenario — key assumptions and estimated impacts (Annex III)
- Assumptions:
  - Exchange rates fully liberalized at beginning of 2018 and unified thereafter.
  - Energy and wheat subsidies phased out over 2019–21.
  - Social spending increased from 2018 onward to ease adjustment.
  - Capital expenditure boosted over medium term.
  - Fiscal deficit reduced to below 1 percent of GDP; monetary policy tightened; structural reforms pursued.
- Estimated price impacts:
  - Assessing customs duty at the parallel market rate ⇒ about a 26 percent increase in local currency prices of imports.
  - With 30 percent weight of imports in consumption basket, estimated overall price level increase after exchange rate liberalization (no subsidy removal): about 12 percent.
  - Subsidy removal effects if all removed at once: Gasoline price rise 48 percent; Diesel price rise 164 percent; Wheat price rise 214 percent.
  - Subsidy removal would raise overall price level by "40 percentage points"; combined impact of exchange rate liberalization and subsidy removal: "over 50 percentage points."
  - If subsidy reform implemented over 2019-21, price impact would be staggered.
- Output and growth effects:
  - Short-term: inflation accelerates above 36 percent (compared to 23 percent in baseline); GDP growth may slow to 2 percent (compared to 4 percent in baseline) in immediate aftermath.
  - Medium-term: significant improvements in fiscal and external balances and inflation, and stronger growth outlook.
- Reform vs. Baseline selected indicators (selected values):
  - Real GDP (percent) — Baseline: 2017: 3.2; 2018: 4.0; 2019: 3.7; 2020: 3.3; 2021: 3.1; 2022: 3.0. Reform: 2017: 3.2; 2018: 2.0; 2019: 4.0; 2020: 4.5; 2021: 5.5; 2022: 6.0.
  - Consumer prices (period average, percent) — Baseline: 2017: 29.8; 2018: 23.0; 2019: 23.1; 2020: 24.7; 2021: 26.9; 2022: 29.1. Reform: 2017: 29.8; 2018: 36.8; 2019: 35.9; 2020: 25.5; 2021: 20.3; 2022: 6.6.
  - Current account balance (cash basis, percent of GDP) — Baseline: 2017: -2.8; 2018: -3.9; 2019: -4.0; 2020: -4.4; 2021: -4.9; 2022: -6.0. Reform: 2017: -2.8; 2018: -3.0; 2019: -2.9; 2020: -2.2; 2021: -0.9; 2022: 0.2.
  - Gross international reserves (US$) — Baseline: 2017: 969.6; 2018: 829.8; 2019: 872.4; 2020: 953.1; 2021: 946.6; 2022: 828.8. Reform: 2017: 969.6; 2018: 1,569.7; 2019: 2,118.5; 2020: 2,718.0; 2021: 3,359.1; 2022: 3,986.3.
  - GIR (months of next year's imports of G&S) — Baseline: 2017: 1.4; 2018: 1.1; 2019: 1.1; 2020: 1.1; 2021: 1.1; 2022: 0.9. Reform: 2017: 1.4; 2018: 2.0; 2019: 2.5; 2020: 3.0; 2021: 3.4; 2022: 3.8.

### Exchange rate unification: fiscal and macro effects (section highlights)
- Assessing import duty and US dollar-denominated oil revenues at the parallel exchange rate (rather than overvalued official rates) and adjusting for import volume changes results in an estimated revenue gain of about 5 percent of GDP.
- True deficit would fall from 6½ percent of GDP to 3½ percent of GDP after unification, even accounting for increases in foreign currency denominated expenditure.
- Deficit monetization would fall sharply; after initial price impacts, inflationary pressures would be reduced.
- Heavier import duty burden implies possible need to reduce import tariff rates to mitigate distortionary impacts.

### Tariff policy and revenue implications
- World Bank recommendations cited:
  - Reduce number of tariff peaks.
  - Reduce maximum tariff rate from 40 percent to 25 percent.
  - Phase out tariffs on food.
- World Bank findings on tariff schedule:
  - High proportion of peaks (15 percent and above).
  - Economy-wide average tariff: 20 percent.
  - Numerous tariff lines taxed at 40 percent.
  - About 54 percent of imports exempted from taxation via tax holidays and exemptions.
- Negative revenue impact from tariff rate reduction and simplification should be offset by broadening tax base and strengthening customs administration.

### Authorities’ views and pacing of reforms
- Authorities agreed in principle with staff advice but concerned about:
  - Potential exchange rate overshooting.
  - Social impact given minimal international reserves and lack of cushion.
  - High social cost after prolonged hardship and absence of concessional IFI loans.
- Authorities leaned toward a gradual pace of exchange rate reforms; alternative phased approach considered (unify commercial bank incentive rate and parallel rate first, move other official rates gradually).
- Staff cautioned costs of gradual reform and recommended time-bound adjustment to ensure credibility; mitigation measures include upgrading business environment, improving governance, tighter monetary and fiscal policies, stronger up-front revenue mobilization, and domestic energy and wheat price increases.

### Fiscal consolidation, public financial management, and capacity building
- Fiscal consolidation to no more than 1 percent of GDP would remove monetization and markedly reduce inflationary pressures; requires revenue mobilization and expenditure measures.
- Public financial management improvements:
  - Single treasury account established; budget planning being improved.
  - Authorities requested TA to incorporate medium-term fiscal framework and strengthen macro-fiscal unit.

### Monetary policy, nominal anchor, and financial sector
- Central bank actions: sale of government paper (mop up liquidity), plans to issue central bank securities, consider higher reserve requirement.
- Staff recommended limits on monetization and additional tightening when implementing exchange rate reforms.
- Nominal anchor transition: inflation targeting supported as medium-term objective but not immediately implementable; reserve money targeting recommended as intermediate anchor; authorities requested Fund TA to build capacity.
- Financial sector: complete restructuring of weak banks, strengthen supervision, continue AML/CFT improvements; authorities intend to request Fund’s FSSR instrument.

### Supply-side and structural reforms
- Business climate requires major overhaul; Sudan ranks 168 out of 190 in 2017 World Bank Doing Business rankings.
- Priorities: boost investment and productivity in agriculture, gold, and oil; improve public infrastructure and human capital; address constraints on female entrepreneurship and employment.
- WTO accession: high-level committee and eight sub-committees identified 151 laws to be amended or modernized.
- Anti-corruption measures: Auditor General Act of 2017, Special Prosecutor General, Anti-Corruption Commission.

### Data, Fund cooperation, and payments
- Major shortcomings in macroeconomic data, especially national accounts and balance of payments; limited coverage of FDI and informal gold exports.
- Authorities agreed on need to strengthen statistics.
- Sudan’s arrears to the Fund declined to SDR 966.3 million at end-October 2017; authorities paid US$5 million in 2017 (close to US$10 million annually since 1995 on average); payments should continue and increase with capacity.

### Debt sustainability and DSA findings (selected)
- External debt stock remains unsustainable under baseline; all PPG external debt level ratios breach indicative thresholds throughout 20-year projection.
- PV of PPG external debt about 166 percent of GDP at end-2016; projected to stay above threshold.
- In 2016: PV debt-to-exports about 1,860 percent; PV debt-to-revenue about 1,930 percent.
- Public DSA: present value of public debt about 172 percent of GDP at end-2016, projected to reach about 200 percent of GDP by 2037.
- One-time 30 percent depreciation shock in 2018 would increase PV-of-debt to 188 percent of GDP in that year.
- External debt (nominal): 2016 110.8; 2017 94.9; 2018 97.7.
- Total public debt reached 116 percent of GDP by end-2016; external debt was bulk of public debt.
- External debt reached USD52.4 billion or 111 percent of GDP at end-2016; about 84 percent of external debt was in arrears in 2016.
- New external debt contracted (2012–2017, US$ million): 2012 431; 2013 618; 2014 152; 2015 262; 2016 319; 2017Q2 170.

### Risk Assessment (selected entries)
- Global risks: Weaker-than-expected global growth (Relative Likelihood: Medium; Impact: Medium); intensification of fragmentation/security dislocation (Relative Likelihood: High; Impact: Medium to High); lower energy prices (Relative Likelihood: Low; Impact: Medium to High).
- Regional risks: Oil production in South Sudan declines owing to civil conflicts (Relative Likelihood: High; Impact: High); heightened tensions between Sudan and South Sudan (Relative Likelihood: Low to Medium; Impact: Low to Medium).
- Country-specific risks: sustained breakdown in correspondent bank relations (Relative Likelihood: High; Impact: High) — leads to FX shortages, exchange rate pressure, contraction in trade; policy responses include outreach to restore correspondent banking, tighter monetary policy, enhanced AML/CFT implementation, and greater exchange rate flexibility.
- Sudden stop of financial support from Gulf countries (Relative likelihood: Medium — High) — direct adverse effects: foreign exchange shortage, exchange rate depreciation, drop in imports; recommended responses: greater exchange rate flexibility, tighten monetary and fiscal policies, structural reforms, improve social safety nets.

### Key macroeconomic indicators (selected figures from source)
- Real GDP (market prices): 2013 2.2; 2014 3.2; 2015 3.0; 2016 3.5; 2017 3.2; 2018 4.0.
- Consumer prices (end of period): 2013 41.9; 2014 25.7; 2015 12.6; 2016 30.5; 2017 26.1; 2018 22.2.
- Fiscal sector (percent of GDP): Revenue and grants: 2017 8.6; 2018 8.6. Total expenditure: 2017 10.3; 2018 10.6. Overall balance: 2017 -1.8; 2018 -2.1. Primary balance: 2017 -1.3; 2018 -1.6. Non-oil primary balance: 2017 -2.1; 2018 -2.4. Public debt: 2017 99.6; 2018 102.9.
- Monetary sector: Broad money (annual change): 2013 13.0; 2014 17.0; 2015 19.8; 2016 30.0; 2017 49.5; 2018 28.9. Reserve money (annual change): 2013 20.3; 2014 16.0; 2015 21.6; 2016 27.5; 2017 46.7; 2018 27.5. Credit to the economy (annual change): 2013 23.2; 2014 17.6; 2015 20.8; 2016 26.5; 2017 40.0; 2018 28.9.
- External sector and reserves: Current account balance (cash basis, percent of GDP): 2017 -2.8; 2018 -3.9. Gross international reserves (millions of US$): 2013 1,611.5; 2014 1,461.1; 2015 1,003.0; 2016 874.7; 2017 969.6; 2018 829.8. GIR (months of next year's imports of G&S): 2013 1.9; 2014 1.7; 2015 1.4; 2016 1.4; 2017 1.4; 2018 1.1.

### Staff appraisal — overarching messages
- Since 2011 Sudan faced challenging conditions, loss of oil production and exports, and insufficient reforms to restore sustained macro stability and broad-based growth.
- Without reforms, current situation unsustainable: substantial fiscal deficits persist, inflation high, growth below potential; delaying reforms would require greater eventual adjustment with higher social impact.
- Permanent revocation of U.S. sanctions presents unique opportunity to strengthen outlook but requires appropriate macro and structural measures.
- Exchange rate unification is critical to eliminate distortions hampering investment and growth; best to unify all exchange rates simultaneously.
- Successful unification requires supportive macroeconomic and structural policies, identification and mitigation of negative impacts (notably banks’ resilience), and transparent budgeting of subsidies currently recorded off-budget on CBOS balance sheet.
- Exchange rate unification would strengthen fiscal position and curb monetization; assessing import duty and oil revenues at market exchange rate would generate a large revenue windfall and substantially reduce the true deficit.

*IMF staff report — "1. Exchange Rate System" (cr17364).*

### 1. Exchange Rate System ___________________________________________________________________________6

### 1. Exchange Rate System

### Context
- Economic conditions have been challenging since the secession of South Sudan in 2011 and the associated loss of the bulk of oil production and exports.
- Authorities implemented partial policy adjustments, most recently by allowing for greater exchange rate flexibility and reducing fuel subsidies in November 2016, but these measures were insufficient to achieve sustained macroeconomic stability and broad-based growth.
- Key external constraints include arrears and limited access to external financing, U.S. sanctions, and the withdrawal of correspondent bank relations.
- The permanent revocation of U.S. sanctions on trade and financial flows on October 12, 2017:
  - Cited progress on cessation of hostilities, improved cooperation on regional stability, counterterrorism, and humanitarian access.
  - Expected to lead to significant reductions in costs of imports, trade, and international financial services, and potentially open new import sources and export destinations.
  - Has raised domestic optimism since the January 2017 suspension of sanctions, though most investors and correspondent banks remain cautious.
- Political developments: A National Consensus Government with participation from opposition parties was installed in May 2017; a new constitution is to be drafted; 12 of the 31 ministerial portfolios were given to opposition parties; First Vice President Saleh was named Prime Minister.
- With sanctions revoked, authorities intend to pursue negotiations to remove Sudan from the State Sponsors of Terrorism List (SSTL); removal is necessary for elimination of statutory prohibitions on U.S. aid and progress toward debt relief and arrears clearance.
- Authorities have expressed interest in another Staff-Monitored Program (SMP) to pursue sound macroeconomic policies and fulfil debt-relief conditionality.

### Developments, Outlook, and Risks
- External position and current account:
  - The external position is substantially weaker than implied by fundamentals, but the gap appears to be narrowing.
  - The overvaluation of the average real exchange rate declined from about 38 percent in 2015 to a still-high 30 percent in 2016 (Annex II).
  - The current account deficit (cash basis) declined by 1½ percentage points to 6 percent of GDP in 2016.
  - Based on H1 2017 data, a 3¼-percentage point decline in the current account deficit (cash basis) is projected, to 2¾ percent of GDP in 2017, implying reduction in overvaluation to about 15–19 percent.
- Drivers of recent improvement in the current account deficit:
  - (i) Strong depreciation of the parallel exchange rate and introduction in late 2016 of a commercial bank incentive rate close to the parallel rate for many formal transactions.
  - (ii) Fuel and electricity price hikes in November 2016 which helped curb domestic demand.
  - (iii) Quantitative import restrictions adopted in 2016, including a negative list and a prohibited list of selected imports.
  - (iv) Lower international import prices which improved the terms of trade.
- Gross international reserves:
  - Increased by $100 million in H1 2017, but remain very low at $1.1 billion, 1¾ months of imports.
- Exchange rate system:
  - Highly distorted with Multiple Currency Practices (MCPs) used to implement fiscal and social objectives, hampering investment and growth (see Box 1).
- Output and growth:
  - GDP grew at an estimated 3½ percent in 2016, led by private and public consumption and a positive contribution from net exports.
  - H1 2017 data indicate weaker real domestic demand partly offset by strengthening net exports (notably due to lower imports); 3¼ percent growth is projected for 2017.
- Monetary and fiscal developments:
  - On-budget fiscal deficit expected to widen from 1.6 percent of GDP in 2016 to 1.8 percent of GDP in 2017; this outturn is slightly better than the budget target of 2 percent of GDP.
  - Revenue shortfalls (largely oil related) have been more than offset by expenditure restraint in goods and services, capital expenditure, and transfers to state governments.
  - With low external financing and limited non-inflationary domestic financing, monetization of fiscal financing needs continues to rise.
  - The true fiscal deficit is much larger than presented on-budget because subsidies linked to official exchange rates are not recorded on-budget; staff’s estimate based on available data is 6½ percent of GDP for 2017, with much larger deficit monetization than presented on-budget.
  - Reserve money growth (y/y) increased from 27½ percent at end-2016 to 60 percent in August 2017.
  - Credit to the private sector had been growing at a slower pace but is picking up.
  - Inflation stood at 35.1 percent in September 2017, up from 18.3 percent in September 2016.
- Public and external debt:
  - Remain high and unsustainable; most external debt are in arrears.
  - All external debt indicators breach their indicative thresholds under the baseline scenario and stay above thresholds throughout the analysis horizon (see accompanying DSA).
- Banking sector:
  - Constrained by the breakdown of correspondent bank relations since mid-2014.
  - Aggregate financial soundness indicators have improved (significant capital buffers, declining nonperforming loans, increased profitability), though several banks remain weak.
  - Authorities fully or partly owned 14 of the 37 banks after equity injections; one bank stake sold to private investors, with plans to sell others.
  - Bank balance sheets indicate an overall long net foreign exchange open position; adding off-balance-sheet items would cause a short position.
  - Banks operate under Islamic finance principles.
- Outlook scenarios and risks:
  - Baseline scenario (current conditions persist: sanctions revoked, no further progress toward debt-relief, no far-reaching reforms):
    - Growth projected at 3¾ percent on average over the near term, driven by mining and agriculture.
    - With a still-overvalued exchange rate, weak business environment, and loose fiscal policies financed by money creation, external imbalances and inflationary pressures are likely to intensify, raising risks of disorderly adjustment and compromising growth over time.
  - Risks are broadly balanced with large uncertainty margins:
    - Upside: implementation of ambitious reforms amplifying benefits from sanctions revocation.
    - Downside: fiscal and monetary policy settings incompatible with macro stability, and risks to external financing which has declined from earlier peaks.
  - Staff-concurred assessment: authorities broadly agree with staff’s outlook and risks.

Box 1. Exchange Rate System (summary of MCPs and restrictions)
- Sudan maintains the following exchange restrictions and multiple currency practices subject to Fund jurisdiction under Article VIII, Sections 2 and 3:
  - An exchange restriction arising from the government's limitations on the availability of foreign exchange and the allocation of foreign exchange to certain priority items.
  - A multiple currency practice and exchange restriction arising from the establishment by the government of a system of multiple exchange rates used for official and commercial transactions (i.e., the CBOS rate, the wheat rate, and the commercial bank incentive rate), which gives rise to effective exchange rates that deviate by more than two percent.
  - A multiple currency practice and exchange restriction arising from large spreads between the CBOS rate and the parallel market exchange rate due to the CBOS’ limitation on the availability of foreign exchange which channels current international transactions to the parallel market.
  - A multiple currency practice and exchange restriction arising from the imposition by the government of a cash margin requirement for most imports.
- Currently, four exchange rates cover most transactions:
  - (i) the central bank official buying rate (SDG 6.6/$), for selected government transactions and for customs duty calculations;
  - (ii) the wheat import rate (SDG 7.5/$);
  - (iii) the commercial bank incentive rate (SDG 18/$), for other government and formal private sector transactions; and
  - (iv) the parallel market rate (SDG 20.7/$) where all other transactions (close to two-thirds of total) take place.

Selected fiscal and central bank financing indicators (staff estimates and projections)
- Total CBOS financing (percent of GDP): 2013 3.1; 2014 2.0; 2015 4.9; 2016 5.6; 2017 Proj. 7.3.
- CBOS financing of the budget (percent of GDP): 2013 1.5; 2014 0.7; 2015 3.1; 2016 2.3; 2017 Proj. 2.5.
- True fiscal deficit (percent of GDP): 2013 3.8; 2014 2.6; 2015 3.5; 2016 4.9; 2017 Proj. 6.5.
- Total CBOS monetization of fiscal needs (percent of GDP): 2013 2.1; 2014 1.4; 2015 3.5; 2016 3.3; 2017 Proj. 4.3.
- Memorandum: Budget deficit (percent of GDP): 2013 2.2; 2014 1.3; 2015 1.7; 2016 1.6; 2017 1.8.

### Policy Discussions and Recommendations
- Urgency of reforms:
  - Consensus that reforms are urgently needed to reestablish macroeconomic stability and create conditions for stronger broad-based growth.
  - Without corrective measures, the cycle of loose policy settings, inflationary pressures, and depreciation would continue and become unsustainable, requiring greater eventual adjustment with higher social impact.
  - The revocation of sanctions increases the payoff from policy adjustments—an opportunity that should not be missed.
- Core policy priorities:
  - Exchange rate reform and tighter monetary and fiscal policies, including tax and subsidy reform.
  - Structural reforms to strengthen supply response and boost inclusive growth.
- Staff analysis of a reform scenario vs. baseline:
  - In a scenario with full exchange rate liberalization, phasing-out of fuel and wheat subsidies with compensating targeted social spending, and supply-side reforms:
    - Short-term impact: inflation accelerating above 36 percent (compared to 23 percent in the baseline scenario), and GDP growth slowing to 2 percent (compared to 4 percent in the baseline scenario).
    - Medium-term impact: significant improvements in fiscal and external balances and inflation, and a significantly stronger growth outlook (Annex III).
- Exchange rate reform specifics:
  - Staff and authorities broadly agreed that exchange rate liberalization is critical for restoring macro stability and eliminating distortions that hamper investment and growth.
  - Benefits of a unified market-based exchange rate:
    - Remove adverse incentives against exports implicit in the overvalued exchange rate.
    - Improve profitability of domestic companies competing against more-appropriately priced imports.
    - Reduce rent-seeking and establish a level playing field to encourage investment.
    - Improve fiscal policy by boosting revenues and improve monetary policy by relieving the central bank of subsidies and other quasi-fiscal activities.
  - Staff recommended unifying all exchange rates at the same time to eliminate distortions upfront and send a clear signal to investors; this is consistent with authorities’ plans for deep macroeconomic and structural reforms and WTO membership ambitions.
  - Upfront unification would reduce the risk of delay and interference from vested interests.
  - Pre-reform actions: review banks’ financial positions and asset quality to assess resilience to exchange rate changes and identify measures to address potential risks.
  - Authorities requested Fund Technical Assistance (TA) to help conduct bank stress tests and identify remedial measures as needed.

*Source: IMF staff report — "1. Exchange Rate System" (cr17364).*

### 14.      Exchange rate unification would substantially increase revenues and strengthen the

### cr17364 - 14.      Exchange rate unification would substantially increase revenues and strengthen the

### Exchange rate unification: fiscal and macro effects
- Assessing import duty and US dollar-denominated oil revenues at the parallel exchange rate (rather than at overvalued official exchange rates), and adjusting for import volume changes using plausible price elasticities, results in an estimated revenue gain of about 5 percent of GDP.
- The true deficit (including all fuel and wheat subsidies) would fall from 6½ percent of GDP to 3½ percent of GDP, even accounting for increases in foreign currency denominated expenditure.
- Deficit monetization would fall sharply, and—after the initial impact of the unification on prices—this would reduce inflationary pressures and help buy additional time for socially sensitive subsidy reforms.
- With a heavier import duty burden implied by a market exchange rate, there may be a need to reduce import tariff rates to mitigate distortionary impacts.

### Tariff policy and revenue implications
- World Bank recommendations cited:
  - Reduce the number of tariff peaks.
  - Reduce the maximum tariff rate from 40 percent to 25 percent.
  - Phase out tariffs on food.
- World Bank findings on the tariff schedule:
  - A high proportion of peaks (15 percent and above).
  - Economy-wide average tariff: 20 percent.
  - Numerous tariff lines taxed at a 40 percent rate.
  - About 54 percent of imports are exempted from taxation via tax holidays and exemptions.
- The negative impact on revenues caused by tariff rate reduction and simplification should be offset by broadening the tax base and strengthening customs administration.

### Authorities’ views and proposed pacing of reforms
- Authorities agreed in principle with staff advice but were concerned about:
  - Potential for exchange rate overshooting.
  - Social impact of adjustment given minimal international reserves and lack of cushion to moderate volatility.
  - High social cost after prolonged hardship and absence of concessional loans from International Financial Institutions.
- Authorities leaned toward a gradual pace of exchange rate reforms.
- Alternative phased approach under consideration:
  - Unify the commercial bank incentive rate and the parallel rate; the new private-sector rate then determined by market forces.
  - Move other official rates gradually toward the market rate at a yet-to-be-determined pace.

### Costs of gradual exchange rate reform and required mitigation
- Staff noted costs of gradual reform that must be mitigated and recommended time-bound adjustment to ensure credibility:
  - Weaker competitiveness, investment, and growth from incomplete exchange rate adjustment and continued MCPs and rent-seeking; mitigation requires upgrading the business environment, improving governance, and tighter monetary and fiscal policies.
  - Continued fiscal revenue losses from use of overvalued official exchange rates in customs duty assessments and valuation of foreign currency denominated revenues; mitigation requires stronger up-front revenue mobilization.
  - Continued large costs on the central bank’s balance sheet from provision of foreign currency at overvalued official exchange rates for fuel and wheat imports; mitigation requires additional increases in domestic energy and wheat prices.

### Fiscal consolidation to bolster macro stability and growth
- A fiscal deficit of one percent of GDP is about the maximum credibly financed from non-inflationary sources; reducing the deficit to no more than 1 percent of GDP would eliminate monetization of deficits and significantly reduce inflationary pressures.
- Achieving this would require revenue mobilization and expenditure measures—notably phasing-out subsidies, partly offset by increased social and capital spending.
- Over time, lower fiscal deficits and sustained growth would generate a clear decline in the public debt ratio.

### Revenue mobilization: current position and measures
- In 2016, Sudan’s central government tax to GDP ratio was 5.3 percent of GDP.
- Regional comparisons (central government tax revenue, in percent of GDP):
  - Sudan: Total Tax Revenue 5.3; Personal Income Tax 0.1; Corporate Income Tax 0.4; Goods and Services Tax 3.4; International Trade Tax 1.4
  - Sub-Saharan Africa: Total Tax Revenue 16.8; Personal Income Tax 2.7; Corporate Income Tax 2.5; Goods and Services Tax 3.6; International Trade Tax 4.2
  - Middle-East and Central Asia: Total Tax Revenue 12.7; Personal Income Tax 1.7; Corporate Income Tax 3.5; Goods and Services Tax 3.2; International Trade Tax 1.2
- Key revenue measures recommended:
  - Rationalize exemptions and phase out tax holidays to reduce corporate tax and VAT revenue losses.
  - Increase personal income tax rates and progressivity.
  - Harmonize multiple corporate tax rates.
  - Strengthen customs and tax administration.
  - Introduce a presumptive tax for small businesses and reform gold taxation.
- Strong revenue mobilization would create scope to reduce import tariff rates and fund higher capital and social spending.

### Subsidy reform and social protection
- Total fuel and wheat subsidies (on and off budget) are about 5¾ percent of GDP, and evidence suggests they largely benefit the upper income urban population rather than vulnerable groups.
- Staff recommendation: eliminate subsidies in a phased but time-bound manner (2–3 years), starting with fuel, to reduce inflationary deficit monetization and create room for priority social and capital spending.
- In the event of exchange rate unification, subsidies should be shifted to the budget and implemented transparently (for example, direct local-currency budget payments to importers to maintain local prices).
- Sustainable fuel subsidy reforms require:
  - A comprehensive policy framework.
  - Mechanisms to depoliticize future price adjustments.
  - Clear communication to facilitate consensus building.
  - Improved efficiency of state-owned enterprises.
- Targeted social mitigation:
  - Strengthen existing cash transfer programs covering about 700,000 vulnerable families.
  - Use the traditional Zakat system to identify vulnerable persons.
  - Authorities requested Fund TA to upgrade social safety nets and consider time-bound cash transfers to a broader segment of the population.

### Containment of other current expenditures
- Foreign currency denominated fiscal expenditures would increase by an estimated 2 percent of GDP with exchange rate unification.
- Savings should be sought particularly in goods and services.
- Cost-of-living adjustments to public sector wage rates should reflect inflation developments to avoid raising tensions; capital expenditure should be boosted to support growth.

### Public financial management and capacity building
- A single treasury account has been established and budget planning is being improved.
- Authorities requested TA to:
  - Incorporate a medium-term fiscal framework into budget planning.
  - Strengthen the macro-fiscal unit to enhance policy formulation.

### Monetary and financial sector policies
- Central bank actions to contain rising inflation:
  - Sold limited amounts of government paper to mop up excess liquidity; plans to continue and augment this effort including through sales of central bank securities.
  - Consideration of a higher reserve requirement rate.
- Staff emphasized reinforcing limits on monetization of fiscal deficits and additional tightening in the event of exchange rate reforms to curb second-round inflation effects.
- Transition to a new nominal anchor:
  - Authorities intend to transition as the exchange rate regime is liberalized.
  - Staff support inflation targeting as a medium-term objective but note it cannot be implemented immediately given data and capacity gaps; recommend building capacity and consider reserve money targeting as an intermediate anchor.
  - Authorities requested Fund TA to build capacity to directly target inflation.
- Financial sector resilience and supervision:
  - Complete restructuring of remaining weak banks, especially ahead of exchange rate unification.
  - Continue strengthening supervisory vigilance.
  - AML/CFT progress: FATF removed Sudan from the grey list in 2015; shifted from enhanced to regular follow-up in 2016; FIU joined the Egmont Group in June 2017.
  - Authorities intend to request inclusion in the Fund’s Financial Sector Stability Review (FSSR) instrument.

### Supply-side and structural reforms
- Business climate needs major overhaul to support investment and growth:
  - Sudan ranks 168 out of 190 countries on the 2017 World Bank Doing Business rankings.
  - Major improvements needed in getting credit, protecting minority investors, and trading across borders.
- Priorities:
  - Boost investment and productivity in agriculture, gold, and oil.
  - Improve public infrastructure and human capital.
  - Explore and address constraints hindering female entrepreneurship and employment.
- WTO membership process: high-level committee and eight sub-committees identified 151 laws to be amended or modernized.
- Anti-corruption measures: Auditor General Act of 2017, establishment of a Special Prosecutor General, and an Anti-Corruption Commission.

### Data, Fund cooperation, and payments
- Major shortcomings in macroeconomic data, especially national accounts and balance of payments statistics; FDI and informal gold exports coverage is limited.
- Authorities agreed on need to strengthen statistics.
- Sudan’s arrears to the Fund declined to SDR 966.3 million at end-October 2017.
- Partial payments to the Fund resumed in 1995; since 2014 the authorities have paid close to US$10 million annually, on average.
- So far, the authorities have paid US$5 million in 2017; these payments should continue and increase in line with payment capacity.

### Staff appraisal: overarching messages
- Since the secession of South Sudan in 2011 Sudan has faced challenging economic conditions, loss of oil production and exports, and insufficient reforms to restore sustained macro stability and broad-based growth.
- Without reforms, the current economic situation appears unsustainable: substantial fiscal deficits persist, inflation is high, and growth remains below potential; delaying reforms would likely require greater eventual adjustment with higher social impact.
- The permanent revocation of U.S. sanctions presents a unique opportunity to strengthen the outlook but requires appropriate measures to strengthen macro stability and the investment climate.
- Exchange rate unification is critical for eliminating distortions that hamper investment and growth; best to unify all exchange rates at the same time to eliminate distortions upfront.
- Successful exchange rate unification requires supportive macroeconomic and structural policies, proactive identification of negative impacts (notably banks’ resilience), and transparent budgeting of subsidies currently recorded off-budget on the central bank’s balance sheet.
- Exchange rate unification would improve macro stability by strengthening the fiscal position and curbing monetization of fiscal deficits; assessing import duty and oil revenues at a market-determined exchange rate would generate a large revenue windfall and cause the true deficit to fall substantially.

*IMF staff report excerpt (cr17364).*

### 39.      Additional fiscal consolidation would be needed to eliminate deficit monetization and

### cr17364 - 39.      Additional fiscal consolidation would be needed to eliminate deficit monetization and

### Fiscal consolidation and public debt
- Over the medium term, a fiscal deficit not exceeding one percent of GDP would be appropriate: it is about the level that can be financed from non-inflationary sources, and adherence to this target would eliminate the monetization of deficits, significantly reducing inflationary pressures.
- Over time, lower fiscal deficits and sustained growth will also generate a clear decline in the public debt ratio.
- Revenue measures:
  - Focus on reducing the large number of exemptions.
  - Strengthen tax and customs administration.
  - Increase personal income tax rates and their progressivity.
- Expenditure measures:
  - Phase out fuel and wheat subsidies, which disproportionately benefit the wealthier urban population.
  - Mitigate the pain of adjustment on the poor via increased targeted cash transfers.
- Public financial management:
  - Further strengthen budget planning.
  - Operate the single treasury account.

### Monetary policy and nominal anchor
- Monetary policy should be tightened to contain rising inflation.
- Limits on the monetization of fiscal deficits should be reinforced, alongside fiscal consolidation, since this is a key source of inflationary pressures.
- The central bank should actively use all available instruments to mop up excess liquidity and contain inflationary pressures.
- Nominal anchor:
  - While inflation targeting is an appropriate nominal anchor in the medium-term, it cannot be implemented immediately given data and capacity gaps.
  - Until the building blocks to directly target inflation are in place, a reserve money targeting framework would be helpful to anchor monetary policy.

### Financial sector supervision and AML/CFT
- The central bank should continue to upgrade its capacity to supervise and mitigate financial stability risks.
- Complete efforts to restructure remaining weak banks and further strengthen supervisory vigilance.
- Sudan has made commendable progress in addressing AML/CFT deficiencies; authorities continue to strengthen the framework with Fund assistance.

### Competitiveness, business climate, and structural reforms
- Exchange rate and trade policy reform would contribute to competitiveness, but the business climate must be overhauled to support investment and growth.
- Sudan ranks very low in the 2017 World Bank doing business rankings, with major weaknesses in:
  - Getting credit.
  - Protecting minority investors.
  - Trading across borders.
- Authorities have intensified efforts to modernize the business environment in the context of their application for WTO membership; staff encourages continued effort.
- The business environment would benefit from intensified anti-corruption measures.
- Boosting investment and productivity in key sectors (agriculture, gold, and oil), better public infrastructure, and improved human capital could yield large dividends.

### Debt relief, HIPC, and Fund cooperation
- Sudan remains in debt distress and is eligible for debt relief under the HIPC Initiative.
- Authorities should continue to engage with international partners to secure comprehensive support for debt relief.
- Continue to strengthen cooperation with the Fund on policies and payments, including:
  - Making regular payments to the Fund at least sufficient to cover obligations falling due, and increasing them as Sudan’s payment capacity improves.
- Adopt a prudent debt strategy that minimizes non-concessional borrowing and avoid selective debt servicing of bilateral lenders since this risks complicating future fund-raising efforts to clear arrears and secure debt relief.
- Early implementation of comprehensive reforms would lay the basis for a track record of sound economic policies that would facilitate agreement and successful implementation of an SMP, which is a pre-condition to get to the HIPC decision point.
- Efforts to prepare a full PRSP should also continue.

### Article VIII issues and consultations
- The authorities note the findings of MCPs and exchange restrictions and expect that these will be removed as plans for exchange rate reforms are finalized and implemented.
- The authorities are not requesting approval for the exchange restrictions and MCPs (see informational annex), and no approval is recommended, as there is no clear timetable for their removal.
- Staff proposes that the next Article IV consultation take place on the standard 12-month cycle.

### Risk Assessment Matrix — Global risks
1. Weaker-than-expected global growth, including slowdown in China (medium likelihood), in other large emerging markets (medium), and structurally weak growth in key advanced (high) economies
- Relative Likelihood: Medium
- Impact if Realized: Medium
- Policy Responses:
  - Greater exchange rate flexibility would help cushion the shock and prevent reserve losses.
  - Declining revenue and lack of fiscal space would likely require pro-cyclical spending cuts.
  - Lower exports, FDI and deteriorating external balance.
  - Rising pressure on the exchange rate and reserves.
  - Lower growth.

2. Intensification of the risks of fragmentation/ security dislocation in the Middle East, Asia, and Europe, leading to socioeconomic disruptions
- Relative Likelihood: High
- Impact if Realized: Medium to High
- Policy Responses:
  - Strengthen domestic revenue mobilization to increase social safety nets.
  - Mobilize international financing to support refugees.
  - Lower remittances and weaker external balance.
  - Lower growth and high inflation.

3. Lower energy prices, driven by stronger-than-expected US shale and/or recovery of oil production in the African continent
- Relative Likelihood: Low
- Impact if Realized: Medium to High
- Policy Responses:
  - Remove fuel subsidies.
  - Greater exchange rate flexibility to reduce external pressures and improve competitiveness.
  - Increase domestic revenue mobilization to reduce reliance on oil-related revenues.
  - Lower export receipts but also lower import bill.
  - Lower inflows from Gulf countries would put pressures on reserves.
  - Possible renegotiation of the agreement with South Sudan, lowering oil-related revenues.

### Risk Assessment Matrix — Regional risks
4. Oil production in South Sudan declines owing to civil conflicts
- Relative Likelihood: High
- Impact if Realized: High
- Policy Responses:
  - Rising fiscal and internal imbalances and inflation.
  - Greater exchange rate flexibility to encourage nonoil exports and reduce external imbalances.
  - Tight monetary policy would control inflation.
  - Rationalize spending and increase domestic revenue mobilization.

5. Heightened tensions between Sudan and South Sudan
- Relative Likelihood: Low to Medium
- Impact if Realized: Low to Medium
- Policy Responses:
  - Rising military spending.
  - Advance economic and political cooperation with the South to lessen tensions.
  - Provide assistance to South Sudan refugees and encourage international community to intermediate to reduce tensions.
  - Rationalize spending and tighten monetary policy.
  - Higher budget deficit and its monetization.
  - Rising inflation.

### Risk Assessment Matrix — Country-specific risks
6. Sustained breakdown in correspondent bank relations, and reduced financial services by global/regional banks
- Relative Likelihood: High
- Impact if Realized: High
- Policy Responses:
  - Drop in exports and imports.
  - Outreach efforts to restore correspondent banking relationships.
  - Tighten monetary policy as needed to control inflation.
  - Enhanced exchange rate flexibility would reduce shortages.
  - Effective implementation of the AML/CFT framework.
  - Lower supply and higher cost of imports fueling inflation.
  - Foreign exchange shortage.
  - Expansion of the informal sector.

*International Monetary Fund — Sudan staff report excerpts*

### 7. Sudden stop of financial support

### 7. Sudden stop of financial support from Gulf countries

### Risk assessment and direct impacts
- Relative likelihood: Medium — High
- Direct adverse effects identified:
  - Foreign exchange shortage.
  - Exchange rate depreciation.
  - Drop in imports.

### Policy recommendations and mitigations
- Greater exchange rate flexibility.
- Tighten monetary and fiscal policies.
- Implement structural reforms.
- Improve social safety nets.

### Key macroeconomic indicators and fiscal/monetary context (selected figures from the source)
- Output and inflation:
  - Real GDP (market prices): 2013 2.2; 2014 3.2; 2015 3.0; 2016 3.5; 2017 3.2; 2018 4.0.
  - Consumer prices (end of period): 2013 41.9; 2014 25.7; 2015 12.6; 2016 30.5; 2017 26.1; 2018 22.2.
- Fiscal sector (percent of GDP):
  - Revenue and grants: 2017 8.6; 2018 8.6.
  - Total expenditure: 2017 10.3; 2018 10.6.
  - Overall balance: 2017 -1.8; 2018 -2.1.
  - Primary balance: 2017 -1.3; 2018 -1.6.
  - Non-oil primary balance: 2017 -2.1; 2018 -2.4.
  - Public debt: 2017 99.6; 2018 102.9 (percent of GDP).
- Monetary sector:
  - Broad money (annual change): 2013 13.0; 2014 17.0; 2015 19.8; 2016 30.0; 2017 49.5; 2018 28.9.
  - Reserve money (annual change): 2013 20.3; 2014 16.0; 2015 21.6; 2016 27.5; 2017 46.7; 2018 27.5.
  - Credit to the economy (annual change): 2013 23.2; 2014 17.6; 2015 20.8; 2016 26.5; 2017 40.0; 2018 28.9.
- External sector and reserves:
  - Current account balance (cash basis, percent of GDP): 2017 -2.8; 2018 -3.9.
  - Gross international reserves (millions of US$): 2013 1,611.5; 2014 1,461.1; 2015 1,003.0; 2016 874.7; 2017 969.6; 2018 829.8.
  - Gross international reserves (in months of next year's imports of G&S): 2013 1.9; 2014 1.7; 2015 1.4; 2016 1.4; 2017 1.4; 2018 1.1.

### Transmission channels emphasized by the analysis
- A sudden stop in Gulf support would lead to a foreign exchange shortage, exerting downward pressure on the exchange rate and reducing the volume of imports.
- Fiscal revenue shortfalls and higher monetization have been observed; a withdrawal of external support would exacerbate pressure on reserves and fiscal financing.
- Monetary aggregates have grown rapidly while real private-sector credit remains stagnant and low relative to peers; such imbalances would complicate policy responses to a funding shock.

*Source: cr17364 - 7. Sudden stop of financial support.*

### Annex I. Path to Debt Relief

### Annex I. Path to Debt Relief

### Eligibility and current status
- Sudan is eligible for debt relief under the HIPC initiative but has yet to meet all qualifications.
- Sudan currently meets:
  - "Sudan faces an unsustainable debt burden that cannot be addressed through traditional debt relief mechanisms"; and
  - "It has developed an Interim Poverty Reduction Strategy (I-PRSP) document." Sudan’s I-PRSP and the Joint Staff Advisory Note were discussed at the IMF’s and World Bank’s Executive Boards in September 2013. The Government is implementing the Interim-PRSP and started the process of preparing a full PRSP.

### Requirements to reach the HIPC Decision Point
- Obtain assurances of support for HIPC debt relief from a large majority of creditors representing at least 70 percent of HIPC-eligible debt.
- Establish with the IMF an adequate track record of strong policy performance in the period leading up to the Decision Point, under an SMP judged by the Executive Board to meet the policy standards associated with upper-credit tranche arrangements.
- Clear its arrears with the IMF, and have a fully-financed plan and a timetable to clear arrears with the World Bank and the African Development Bank to restore its eligibility to borrow from these sources.

### IMF financing and arrears
- "The resources required for the IMF’s participation in the HIPC Initiative have not yet been identified."
- As of end-September 2017, Sudan’s outstanding arrears to the IMF stood at SDR 968.07 million.

---

### Annex II. External Stability Assessment

### Overall assessment
- "The external position is substantially weaker than implied by fundamentals, though the gap appears to be narrowing amid partial exchange rate liberalization and a declining current account deficit."
- Key drivers of weakness:
  - Differential between the parallel and official rate has continued to widen since the secession of South Sudan in 2011.
  - Twenty years of U.S. sanctions, permanently revoked in October 2017, and the high cost of doing business impeded adjustment after the loss of oil exports.
  - EBA-lite estimates point to substantial overvaluation of the real exchange rate.
  - Continued accumulation of external arrears and vulnerability to external shocks due to a narrow export base.
- Required policies: structural reforms, exchange rate unification and greater exchange rate flexibility, clearance of external arrears, debt relief, and prudent fiscal and monetary policies to support exchange rate unification.

### Recent developments
- "Gradual exchange rate liberalization is taking place." Since November 2016, measures partially liberalized the exchange rate regime, allowing most private sector transactions closer to the parallel rate; some transactions (mainly for wheat and fuel imports) still occur at overvalued official rates.
- Current account: "In 2016, the current account deficit (on a cash basis) declined to 6.1 percent from 7.7 percent of GDP." Exports declined by 2.6 percent year-on-year while imports fell by 12.5 percent.
- Parallel market: "The parallel exchange rate reached SDG/USD 20.7 as of October 11, 2017—a 82 percent depreciation since end-2015, while the official rate was adjusted by only 10 percent. This suggests that the parallel rate premium stood at 210 percent."

### Price competitiveness
- Official REER: "the (official) real effective exchange rate (REER) appreciated by 49.5 percent between December 2015 and September 2017."
- Parallel market REER: "depreciated by 14 percent."
- EBA-lite findings:
  - 2016 (cash) current account deficit: 6.1 percent of GDP.
  - Estimated current account norm: "about -1.6 percent of GDP."
  - Implied current account gap: "about 4.5 percent of GDP."
  - Low long-term elasticity of the current account to the real exchange rate: "-0.15".
  - Implied average real exchange rate overvaluation: "about 30 percent."
- Note: model-based estimates should be interpreted with caution due to severe external constraints and non-price related structural rigidities.

### Non-price competitiveness
- Institutional and business environment weaknesses:
  - "Sudan ranks 168th among 190 countries covered by the 2017 World Bank Doing Business Survey, slipping by 4 places compared to its 2016 ranking."
  - Major weaknesses: access to credit, protecting minority investors, trading across borders.
  - World Bank CPIA 2017: Sudan classified "as a weak performer with an overall score of 2.5 vis-à-vis 3.1 for Sub-Saharan African countries," scoring poorly in Public Sector Management and Institutions.

### Reserve adequacy
- "Sudan’s gross international reserves (GIR) are very low."
- As of August 2017: GIR = US$ 1.1 billion or 1.7 months of imports, despite about US$2.7 billion in financial support from Gulf countries from 2015 to early 2017.
- Projected medium-term GIR: "about 1 month of imports," below the traditionally recommended 3 months.

### Conclusion and policy priorities
- Evidence that the REER is overvalued includes:
  - (i) a persistently large current account deficit;
  - (ii) very low international reserves;
  - (iii) appreciation of the real exchange rate over 2013-2017;
  - (iv) results of the EBA-lite methodology; and
  - (v) weak external payment capacity as evidenced by continued accumulation of external arrears.
- Recommended actions:
  - Fully unify the exchange rate and allow for greater exchange rate flexibility.
  - Implement fiscal and monetary policies supportive of external stability.
  - Improve the business environment and implement wide-ranging structural reforms and infrastructure investments to improve competitiveness.
  - Enhanced outreach to garner international support for debt relief under the Heavily Indebted Poor Country Initiative is critical.

---

### Annex III. Policy Reform Scenario

### Assumptions of the reform scenario
- Exchange rates fully liberalized at the beginning of 2018, and remain unified and market determined thereafter.
- Energy and wheat subsidies phased out over 2019–21.
- Social spending increased from 2018 onward to ease the adjustment pain from the reforms.
- Capital expenditure boosted over the medium term to support inclusive growth.
- Impact of tariff reforms on revenues is offset by other revenue mobilization measures to broaden the tax base and improve administration.
- Fiscal deficit reduced to below 1 percent of GDP to avoid monetization.
- Monetary policy tightened to contain inflation.
- Structural reforms vigorously pursued to boost the business environment.

### Estimated price impacts
- Assessing customs duty at the parallel market rate ⇒ about a 26 percent increase in local currency prices of imports.
- With a 30 percent weight of imports in the consumption basket underlying the CPI, estimated overall price level increase after exchange rate liberalization (no subsidy removal): "about 12 percent."
- Subsidy removal effects if all removed at once:
  - Gasoline price rise: 48 percent.
  - Diesel price rise: 164 percent.
  - Wheat price rise: 214 percent.
- Applying CPI weights and pass-through: subsidy removal would raise the overall price level by "40 percentage points."
- Combined impact of exchange rate liberalization and subsidy removal: "over 50 percentage points."
- If subsidy reform is implemented over 2019-21, price level impact would be staggered over those years.
- Fiscal and monetary tightening assumed to reduce the underlying inflation path; "headline inflation falls sharply in 2022 after all the reforms have been concluded."

### Output and growth effects
- Immediate impact on GDP growth likely negative: "the immediate adverse impact on GDP growth could be about 2 percentage points."
- Medium-term effect: stronger competitiveness and structural reforms expected to boost growth above the baseline, supported by stronger investment.
- Sanctions revocation effect: "permanent revocation of sanctions significantly improves the outlook for growth and inflation in a reform scenario" via increased foreign investment, particularly into mining and agriculture; may temporarily widen the current account deficit but expected to shrink over the medium term.

### Key indicators — Baseline and Reform scenario (selected values)
- Real GDP (percent):
  - Baseline: 2017: 3.2; 2018: 4.0; 2019: 3.7; 2020: 3.3; 2021: 3.1; 2022: 3.0
  - Reform: 2017: 3.2; 2018: 2.0; 2019: 4.0; 2020: 4.5; 2021: 5.5; 2022: 6.0
- Consumer prices (period average, percent):
  - Baseline: 2017: 29.8; 2018: 23.0; 2019: 23.1; 2020: 24.7; 2021: 26.9; 2022: 29.1
  - Reform: 2017: 29.8; 2018: 36.8; 2019: 35.9; 2020: 25.5; 2021: 20.3; 2022: 6.6
- Central government overall balance (percent of GDP) 1/:
  - Baseline: 2017: -1.8; 2018: -2.1; 2019: -2.3; 2020: -2.8; 2021: -3.1; 2022: -3.7
  - Reform: 2017: -1.8; 2018: -3.6; 2019: -2.0; 2020: -0.7; 2021: -0.7; 2022: -0.7
- Current account balance (cash basis, percent of GDP):
  - Baseline: 2017: -2.8; 2018: -3.9; 2019: -4.0; 2020: -4.4; 2021: -4.9; 2022: -6.0
  - Reform: 2017: -2.8; 2018: -3.0; 2019: -2.9; 2020: -2.2; 2021: -0.9; 2022: 0.2
- External financing gap (percent of GDP):
  - Baseline: 2017: 0.0; 2018: 1.1; 2019: 1.5; 2020: 1.9; 2021: 2.2; 2022: 4.0
  - Reform: 2017: 0.0; 2018: 0.0; 2019: 0.0; 2020: 0.0; 2021: 0.0; 2022: 0.0
- Gross international reserves (US$ and months of next year's imports of G&S):
  - Baseline (in US$ dollars): 2017: 969.6; 2018: 829.8; 2019: 872.4; 2020: 953.1; 2021: 946.6; 2022: 828.8
    - in months of next year's imports of G&S: 2017: 1.4; 2018: 1.1; 2019: 1.1; 2020: 1.1; 2021: 1.1; 2022: 0.9
  - Reform (in US$ dollars): 2017: 969.6; 2018: 1,569.7; 2019: 2,118.5; 2020: 2,718.0; 2021: 3,359.1; 2022: 3,986.3
    - in months of next year's imports of G&S: 2017: 1.4; 2018: 2.0; 2019: 2.5; 2020: 3.0; 2021: 3.4; 2022: 3.8

1/ "The decline of the fiscal balance in 2022 is related to assumed interest payments on the deposits of Gulf states in the central bank."

*Source: IMF staff.*

### 5.      Under the fiscal reform scenario, the changes in revenue are driven by exchange rate

### 5.      Under the fiscal reform scenario, the changes in revenue are driven by exchange rate 

### Fiscal reform scenario — revenue effects
- Exchange rate liberalization causes sharp increases in import duties and foreign currency denominated fiscal revenues (currently assessed at overvalued official rates).
- Estimated full-year revenue gain of about 5 percent of GDP from exchange rate liberalization.
- Over the medium term, revenue mobilization efforts lead to additional increases in revenues, creating added space for:
  - reductions in tariff rates;
  - higher social and capital spending;
  - reducing the fiscal deficit.

### Fiscal Reform Scenario: Sanctions Fully Revoked — Key fiscal aggregates (presented as in source)
- Year headings (as presented): 20172017 2018 2019 2020 2021 2022
- True deficit 1/ (note: evaluated using an average parallel market exchange rate of SDG19.5/$ for 2017)
- Total Revenue: 8.6 8.6 13.6 13.7 14.4 14.7 15.4
- Taxes on Goods & Services: 3.4 3.4 5.4 6.2 6.1 6.2 6.4
- Taxes on International Trade: 1.0 1.0 2.8 3.0 3.7 3.9 4.1
- Taxes on Income, Profit, Property etc: 0.5 0.5 0.5 0.6 0.8 0.9 1.2
- Other Revenue & Grants: 3.6 3.6 4.8 4.0 3.8 3.6 3.6
- Total Expenditure: 10.3 15.1 17.2 15.7 15.1 15.4 16.2
- Wages: 3.4 3.4 3.6 3.6 3.6 3.6 3.6
- Subsidies: 1.0 5.8 5.3 1.8 0.8 0.2 0.0
- Transfers: 2.3 2.3 2.8 2.7 2.8 2.8 2.8
- Social Spending: 0.6 0.6 1.7 1.9 2.0 2.0 2.0
- Capital Spending: 1.0 1.0 1.4 3.2 3.4 4.1 4.1
- Other Expenditure: 2.0 2.0 2.4 2.5 2.6 2.7 3.6
- Overall Balance: -1.8 -6.5 -3.6 -2.0 -0.7 -0.7 -0.7

### Financing breakdown (as presented)
- Financing totals: 1.8 6.5 3.6 2.0 0.7 0.7 0.7
- Foreign Financing: 0.3 0.3 0.6 0.7 0.6 0.6 0.6
- Domestic Financing: 1.5 6.3 3.0 1.3 0.1 0.1 0.1
  - Central Bank: 0.9 5.7 2.4 0.8 0.0 0.0 0.0
  - Commercial Bank: 0.3 0.3 0.3 0.3 0.1 0.1 0.1
  - NonBank: 0.3 0.3 0.3 0.2 0.0 0.0 0.0

### Note on exchange rate assumption
- 1/ Evaluated using an average parallel market exchange rate of SDG19.5/$ for 2017

### Contextual excerpts from the staff report (selected)
- The economy has not fully adjusted to the secession of South Sudan in 2011, which resulted in a sharp decline in oil exports and fiscal revenues (lost about three-quarters of oil production, two-thirds of exports, and half of fiscal revenues).
- U.S. sanctions were revoked with effect from October 12, 2017.
- Economic performance in 2016: growth 3.5 percent; inflation 17.8 percent; fiscal deficit 1.6 percent of GDP; external current account deficit (accrual basis) narrowed but remained high.

*Prepared by Middle East and Central Asia Department (Informational Annex), SUDAN — STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION*

### 8.9 percent of GDP and international reserves remained low. Import growth weakened in light of measures

### cr17364 - 8.9 percent of GDP and international reserves remained low. Import growth weakened in light of measures

### Economic performance and near-term outlook
- Import growth weakened in light of measures taken in 2016, including:
  - introduction of a commercial bank incentive rate close to the parallel rate and which is now used for many formal transactions;
  - fuel and electricity price increases in November 2016;
  - adoption of a negative list on selected “luxury” imports.
- In 2017:
  - economic performance is expected to remained relatively unchanged.
  - Economic growth is projected to slightly slowdown to 3.2 percent on the back of weaker domestic demand.
  - Fiscal deficit is projected at 1.8 percent of GDP.
  - the current account deficit is expected to continue to improve driven by lower imports.
  - inflation reached 35.1 percent in September 2017, driven by continued loose monetary policy conditions, hikes in fuel and electricity prices, and exchange rate depreciation.
- Risks to the outlook are broadly balanced with large margins of uncertainty with the current set of policies in place.

### Prospects for debt relief
- Debt relief prospects are predicated on:
  - obtaining assurances of support from key creditors;
  - normalizing relations with international financial institutions;
  - establishing a track record of cooperation with the IMF on policies and payments.
- In 2016, the Sudanese authorities agreed with South Sudan to extend the deadline for the “zero-option” until October 2018.
- Authorities agreed to continue to reach out to creditors to garner support for debt relief.
- Note on the “zero-option”:
  - It is a 2012 agreement between Sudan and South Sudan whereby Sudan retains all the external liabilities after the secession of South Sudan, provided that the international community gives firm commitments of delivery of debt relief within two years.
  - Absent such commitment, Sudan’s external debt would be apportioned with South Sudan based on a formula to be determined.
  - This deadline lapsed in September 2016, but the parties agreed to extend for two years to September 2018.

### Structure and stock of external debt
- External debt levels and exchange rate dynamics:
  - External debt reached USD52.4 billion or 111 percent of GDP at end-2016.
  - Because of large exchange rate depreciation, external debt rose by 29.5 percent of GDP in 2016.
  - On an end-of-period basis, the SDG depreciated about 59 percent in 2016 against the US dollar; on a period-average basis, the SDG depreciated by 36 percent against the US dollar.
  - The discrepancy between end-of-period and period average exchange rate movements generates large residuals for 2016 and 2017 in Table 1.
  - In 2017, the debt-to-GDP ratio is projected to decline to 95 percent reflecting a sharp increase in prices (and nominal GDP); nominal GDP is projected to increase by 39 percent in 2017.
- Composition and arrears:
  - The structure of external debt has been stable over the last decade.
  - It includes an estimated USD2.5 billion deposited in the Central Bank of Sudan by official creditors in 2016 and 2017.
  - About 84 percent of the external debt was in arrears in 2016.
  - The bulk is public and publicly guaranteed (PPG) debt: USD50.7 billion (of which 85 percent are in arrears).
  - PPG debt is mainly owed to bilateral creditors and roughly equally divided between Paris Club and non-Paris Club creditors.
  - Private debt owed to suppliers amounted to USD1.7 billion.

### Recent external borrowing and official deposits
- External borrowing has been limited in recent years:
  - Sudan has been largely cut off from access to external financing due to its arrears with the creditors and U.S. sanctions.
  - New debt contracted has been below 1 percent of GDP per year since 2012, mainly from a limited number of multilateral and non-Paris Club bilateral creditors.
  - The newly contracted debt has been mainly used to finance projects in the agriculture, services and energy sectors.
- New external debt contracted (2012–2017):
  - 2012: Total new debt 431 (in US$ million), 0.6 percent of GDP.
  - 2013: Total new debt 618 (in US$ million), 1.1 percent of GDP.
  - 2014: Total new debt 152 (in US$ million), 0.2 percent of GDP.
  - 2015: Total new debt 262 (in US$ million), 0.4 percent of GDP.
  - 2016: Total new debt 319 (in US$ million), 0.6 percent of GDP.
  - 2017Q2: Total new debt 170 (in US$ million), 0.3 percent of GDP.
  - Concessional component and creditor shares by year shown in table (concessional and nonconcessional breakdowns preserved in source).
- Official deposits from friendly Gulf countries:
  - Estimated USD1.6 billion deposited in the Central Bank of Sudan in 2015.
  - USD0.8 billion deposited in 2016.
  - These amounts were added to outstanding debt.
  - So far in 2017, only one bilateral loan of USD170 million was contracted to finance projects in electricity generation.
- Terms disclosure:
  - The authorities did not disclose the exact terms and conditions of the deposits, but indicated that the interest rate was about 4–5 percent, and the average maturity in the range of 5–7 years.

### Total public debt and domestic debt projections
- Sudan’s total public debt reached 116 percent of GDP by end-2016.
- The bulk of the public debt is external debt.
- Domestic debt reached 8.4 percent of GDP by end-2016.
- Domestic debt is expected to rise to about 12 percent of GDP by 2037 given the elevated deficits and limited external financing.

### Debt Sustainability Analysis (DSA) — overview and baseline assumptions
- The DSA update:
  - Macroeconomic assumptions underlying this DSA have been updated based on developments in 2016 and 2017H1.
  - The baseline scenario assumes a deteriorating fiscal deficit and monetizing of the deficit, an overvalued official exchange rate and permanent removal of sanctions.
  - This DSA update does not include arrears clearance, possible external debt relief, or debt apportionment between Sudan and South Sudan in its baseline or alternative scenarios.
- External debt sustainability summary:
  - Sudan’s external debt stock remains unsustainable under the baseline scenario.
  - All PPG external debt level ratios continue to breach their indicative thresholds throughout the 20-year projection period.
  - The present value (PV) of PPG external debt is about 166 percent of GDP at end-2016—more than fivefold the 30 percent threshold for weak policy performers—and is projected to stay above the threshold through the projection period.
  - In 2016:
    - The PV of debt-to-exports is about 1,860 percent.
    - The PV of debt-to-revenue ratio is about 1,930 percent.
    - Both are well above their respective thresholds.
  - Under the historical averages scenario, the debt path shows improvements over the medium/long-terms given the lower current account deficit (3.7 percent of GDP average for 2007–16).
  - However, loss of most oil revenue after secession and incomplete policy adjustment have worsened the outlook for the current account balance.

### Box 1 — Macroeconomic assumptions 2017–37 (selected projections and assumptions)
- Natural resources:
  - Oil production is projected at 90 thousand barrels/day in 2017, slightly lower than the 2016 production level.
  - Oil production remains flat at 90 thousand barrels/day over the medium term.
  - Price of Sudan’s crude oil is projected to average USD$47/barrel in the medium term.
- Real sector:
  - Real GDP growth rate is expected to slightly decline to 3.2 percent in 2017.
  - Real growth is expected to increase to 4 and 3.7 percent in 2018 and 2019, respectively.
  - Growth is then projected to gradually decline to 3 percent by 2022, and remain unchanged on average over 2022–37.
  - Inflation (GDP deflator) is projected to slightly increase from about 25.7 percent in 2017 to about 26 percent in 2022.
  - Inflation is expected to increase in the medium to long term averaging 31.2 percent in 2023–37.
- Fiscal sector:
  - The fiscal deficit is projected to deteriorate over the medium term to 3.7 percent by 2022.
  - Over the long run post-2022, the fiscal deficit is expected to stabilize at 3.5 percent through 2032 and thereafter improve slightly to 3.4 percent by 2037.
  - Under those assumptions, the domestic debt-to-GDP ratio is projected to rise over the long run.
- External sector:
  - The current account deficit is expected to worsen over the medium term, to a high of about 8.5 percent of GDP by end-2022.
  - In the long run, it is projected to remain elevated at 6.3 percent of GDP, on average.
  - The deficit will be financed by foreign direct investment and continued accumulation of external debt.
  - Sizable financing gaps are assumed to be covered by external debt throughout the projection period.
- External debt:
  - Disbursements of new loans are expected to be limited, at about 0.6 percent of GDP during 2017–37.
  - The share of new concessional loans is assumed at around one-third.
  - It is assumed that Sudan will continue not to service obligations arising from the stock of arrears.
  - Projected financing gaps are added to the external debt stock.

### DSA shocks, vulnerabilities, and public debt outlook
- Vulnerabilities to shocks:
  - The PV of debt-to-GDP is most vulnerable to a one-time depreciation shock.
  - The PV of debt-to-exports and debt service-to-exports ratios are most vulnerable to an export shock.
  - The debt-to-revenue and debt service-to-revenue ratios are most vulnerable to a GDP deflator shock.
  - A standard one-time 30 percent depreciation shock in 2018 would increase the PV-of-debt to 188 percent of GDP in that year and remain elevated over the projection horizon.
- Public debt sustainability:
  - Public DSA remain unsustainable and mirror those of the external DSA.
  - The present value of public debt is about 172 percent of GDP at end of 2016 and will remain above the threshold through the projection period reaching about 200 percent of GDP by 2037.
  - The PV of public debt to revenue will increase to about 2,732 percent from its current level of 1,974 percent by end of 2016.
  - Public DSA bound tests show that the public debt path is most vulnerable to a one-time 30 percent real depreciation.

*International Monetary Fund — cr17364 (selected excerpts).*

### CONCLUSIONS

### CONCLUSIONS

### Debt sustainability assessment: main findings
- Sudan’s external debt remains in distress and unsustainable.
- The results of this DSA are broadly unchanged from those in previous DSAs because: no major policy correction has been undertaken and no debt relief has been granted to Sudan.
- The debt burden increases over time as the amounts needed to close projected financing gaps are added to the outstanding debt stocks.
- In the long term, all public and public-guaranteed external debt burden ratios remain well above their respective indicative thresholds.
- Public debt is also unsustainable, driven mostly by external debt dynamics.
- Debt service burdens are beyond Sudan’s debt servicing capacity, and as a result Sudan continues to accumulate external debt arrears.

### Policy recommendations and required actions
- Step up outreach efforts to creditors to garner broad support for debt relief.
- Continue to cooperate with the IMF on economic policies and payments to establish a track record of sound macro policies.
- Continue efforts to develop a full-fledged PRSP (the I-PRSP has been developed and the process of preparing a full PRSP has commenced).
- Minimize new borrowing on non-concessional terms; secure foreign support on highly concessional terms to finance necessary development and infrastructure expenditures.
- Seek technical assistance on external debt management, external debt statistics, macroeconomic policies, financial programming, tax reform, upgrading the social safety net, medium-term budget planning, and managing financial risks.
- Authorities plan to continue fiscal consolidation, phase out fuel and wheat subsidies gradually, strengthen social safety nets financed by the budget, contain and regularly review the wage bill, meet dues arising from domestic financing in a timely manner, and strengthen customs and tax policy and administration.
- Central Bank of Sudan (CBOS) will tighten monetary policy, mop up excess liquidity (recent sale of SDG 1.0 billion government securities), launch central bank-issued securities Shihab 2, consider setting reserve money as a nominal anchor, and consider implementing an inflation targeting (IT) framework over the medium term.
- Authorities favor a gradual exchange rate liberalization and request IFI financial support and Fund technical assistance to mitigate risks and remove multiple currency practices (MCPs) and exchange rate restrictions as part of reform.
- Continue banking sector reforms, expand access to microfinance, improve payment systems, and request Fund technical assistance on financial risk management.
- Undertake overhaul of legal framework governing investment to improve business environment and WTO accession efforts.
- Continue dialogue with the U.S. Government and other creditors to mobilize support for debt relief and removal from the list of State Sponsors of Terrorism (SSTL).

### Authorities' views and commitments
- Authorities generally agreed with the DSA results and assessments, acknowledging unsustainable external debt and the need to minimize non-concessional borrowing.
- They reiterated that debt relief is urgently needed for economic development and remain hopeful the international community will provide debt relief in the near future.
- Authorities are developing a national debt strategy (workshop in February 2016; strategy awaiting government approval) focusing on debt management and meeting HIPC requirements and developing domestic debt markets.
- Authorities committed to continue reaching out to creditors and to engage with the Fund, request a new Staff Monitored Program (SMP), commit to making arrears’ payments to the Fund in line with payment capacity, and seek Board support toward reaching the decision point for debt relief.

### Numerical highlights and DSA indicators (selected)
- External debt (nominal): 82.8 (2014), 81.3 (2015), 110.8 (2016), 94.9 (2017), 97.7 (2018), 99.6 (2019), 101.7 (2020), 104.3 (2021), 104.2 (2022), 124.8 (2027 average), 169.6 (2037 average).
- Public and publicly guaranteed (PPG) external debt: 80.1 (2014), 78.6 (2015), 107.8 (2016), 92.0 (2017), 94.8 (2018), 96.7 (2019), 98.8 (2020), 101.5 (2021), 101.4 (2022), 121.7 (2027 average), 164.8 (2037 average).
- Change in external debt: 5.4 (2014), -1.5 (2015), 29.5 (2016), -15.9 (2017), 2.8 (2018), 1.8 (2019), 2.1 (2020), 2.6 (2021), -0.1 (2022), 4.5 (2027 average), 4.3 (2037 average).
- PV of external debt: 166.2 (2016), 140.4 (2017), 141.9 (2018), 141.7 (2019), 141.7 (2020), 142.3 (2021), 139.5 (2022), 153.8 (2027 average), 192.8 (2037 average).
- PV of PPG external debt: 163.2 (2016), 137.5 (2017), 139.0 (2018), 138.9 (2019), 138.9 (2020), 139.5 (2021), 136.7 (2022), 150.6 (2027 average), 188.0 (2037 average).
- PV of PPG external debt in percent of exports: 1859.5 (2016), 1537.6 (2017), 1518.1 (2018), 1463.3 (2019), 1480.5 (2020), 1531.4 (2021), 1596.7 (2022), 1487.8 (2027 average), 1164.8 (2037 average).
- PV of PPG external debt in percent of government revenues: 1932.0 (2016), 1663.5 (2017), 1663.5 (2018), 1738.8 (2019), 1840.1 (2020), 1919.5 (2021), 1975.4 (2022), 2151.7 (2027 average), 2579.0 (2037 average).
- Debt service-to-exports ratio: 32.7 (2014), 37.1 (2015), 33.5 (2016), 37.1 (2017), 36.1 (2018), 34.1 (2019), 33.9 (2020), 34.7 (2021), 69.9 (2022), 31.5 (2027 average), 36.5 (2037 average).
- PPG debt service-to-revenue ratio: 32.5 (2014), 32.5 (2015), 34.2 (2016), 39.5 (2017), 39.0 (2018), 39.9 (2019), 41.4 (2020), 42.6 (2021), 85.6 (2022), 44.3 (2027 average), 78.4 (2037 average).
- Total gross financing need (Billions of U.S. dollars): 3.9 (2014), 5.0 (2015), 4.0 (2016), 2.9 (2017), 3.4 (2018), 3.5 (2019), 3.8 (2020), 4.2 (2021), 6.7 (2022), 4.8 (2027 average), 6.0 (2037 average).
- Key macro assumptions: Real GDP growth: 3.2 (2014), 3.0 (2015), 3.5 (2016), 1.0 (2017), 5.1 (2018), 3.2 (2019), 4.0 (2020), 3.7 (2021), 3.3 (2022), 3.1 (2027 average), 3.0 (2037 average).
- Grant element of new public sector borrowing (in percent): 35.2, 33.3, 33.1, 33.0, 32.9, 32.9, 33.4, 32.7, 32.4 (projected series).
- Government revenues (excluding grants, in percent of GDP): 10.3 (2014), 9.7 (2015), 8.4 (2016), 8.3 (2017), 8.4 (2018), 8.0 (2019), 7.5 (2020), 7.3 (2021), 6.9 (2022), 7.0 (2027 average), 7.3 (2037 average).
- Aid flows (Billions of US dollars): 0.4 (2014), 0.2 (2015), 0.1 (2016), 0.2 (2017), 0.1 (2018), 0.1 (2019), 0.1 (2020), 0.1 (2021), 0.1 (2022), 0.0 (2027 and 2037 averages).
- Memorandum: Nominal GDP (Billions of US dollars): 62.3 (2014), 64.1 (2015), 57.6 (2016), 60.8 (2017), 61.7 (2018), 63.5 (2019), 65.3 (2020), 67.0 (2021), 68.9 (2022), 71.0 (2027), 67.0 (2037).
- PV of PPG external debt (in Billions of US dollars): 76.7 (2016), 78.2 (2017), 80.2 (2018), 82.4 (2019), 84.8 (2020), 87.4 (2021), 88.1 (2022), 100.0 (2027), 117.8 (2037).

### Stress tests and sensitivity analysis: summary
- Alternative scenarios and bound tests indicate persistent vulnerability across PV of debt-to-GDP, PV of debt-to-exports, and PV of debt-to-revenue ratios under multiple shocks, including:
  - A1: Key variables at historical averages in 2017-2037.
  - A2: New public sector loans on less favorable terms in 2017-2037.
  - B1–B6: Bound tests including lower real GDP growth, lower export value growth, lower US dollar GDP deflator, lower net non-debt creating flows, combinations of shocks, and a one-time 30 percent nominal depreciation in 2018.
- The most extreme stress tests prior to 2027 include one-time depreciation and export shocks, which yield the highest ratios on or before 2027 across several indicators.
- Public sector debt sensitivity tables show large increases in PV of debt-to-revenue and debt service ratios under adverse scenarios (e.g., one-time 30 percent real depreciation produces markedly higher ratios).

*Sources: Country authorities; and staff estimates and projections.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17364.pdf_