## 1sdnea2020001 ## Source details **Canonical URL:** [1sdnea2020001](https://www.imf.org/-/media/files/publications/cr/2020/english/1sdnea2020001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1sdnea2020001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1sdnea2020001.pdf.json) --- ### Context and Political-Institutional Background - Regime change after protests beginning in December 2018 and removal of ex‑President Al‑Bashir in April 2019 created a window for fundamental reforms. - Transitional governance: Sovereign Council composed of 6 civilian and 5 military members and a civilian cabinet led by a Prime Minister for a 39‑month transitional period, followed by general elections. - Key government objectives: comprehensive peace, fundamental economic reforms, strengthening anti‑corruption and governance, and re‑integration into the international community. - Constraints and legacy issues: - Large humanitarian needs: internally displaced people and refugees. - Sudan remains on the state sponsors of terrorism list (SSTL), blocking progress toward HIPC debt relief. - Large arrears blocking financing from the Fund, World Bank, and African Development Bank. - Authorities requested a Staff Monitored Program (SMP). - Governance and fiscal weaknesses highlighted: - Pervasive corruption, lack of judicial independence, weak rule of law, and weak public‑sector accountability. - Little published fiscal information; internal monitoring from unreconciled data sources. - Spending control and bank account reconciliation need strengthening. - Multiple currency practices (MCPs) persist and encourage rent‑seeking. - Need for an extensive information and communication campaign (ICC) and rapid expansion of a social safety net (SSN). ### Developments, Outlook, and Risks - Growth and activity: - GDP contracted by "2¼ percent" in 2018 and "2½ percent in 2019". - Outlook: GDP growth likely to remain negative in the near term without reforms; minimal investment and subdued consumption expected. - Fiscal developments (exact figures preserved): - Revenues and grants: increased by "1¾ percentage points to almost 9 percent of GDP in 2018" then fell to "7¾ percent of GDP in 2019." - Total expenditure (including off‑budget implicit fuel subsidies): "16¾ percent of GDP in 2018" and "18¾ percent of GDP in 2019." - Total (explicit and implicit) fuel subsidies: "rose by an estimated 7½ percentage points to 11¾ percent of GDP over 2018–19." - Wage bill: "fell by 1¼ percent of GDP" in 2018; estimated to have "risen by ½ percent of GDP" in 2019. - Capital expenditure: "fell by ½ percent of GDP to nearly zero" in 2019. - Fiscal deficit: "risen rapidly, from 6½ percent of GDP in 2017 to 10¾ percent of GDP in 2019." - Financing and monetization: - With limited external financing, the fiscal deficit has primarily been financed by monetization, fueling exchange rate depreciation and deficit expansion. - Exchange rates and inflation (preserve values): - Parallel market exchange rate: "SDG 27/$ at end-2017 to SDG 85/$ in December 2019." - Inflation: "rose to 73 percent in December 2018 before falling to 44 percent in January 2019" and "increased to 60 percent in November 2019." - Multiple exchange rates in use: budget "SDG 18/$", official/commercial revaluations "SDG 47.5/$ (Oct‑2018)" and "SDG 45/$ (Apr‑2019)"; customs "SDG 15/$"; fuel import "SDG 6.7/$"; parallel market accounts for "about 80 percent of all transactions." - External sector and reserves: - Current account deficit (cash basis): "8¾ percent of GDP in 2018" and "7¾ percent of GDP in 2019"; model‑implied deficit "4.3 percent." - REER: "overvalued by 36 percent." - Gross international reserves: "$1.4 billion in October 2019 (2 months of imports)." - Limited forex for fuel imports led to rationing, shortages, and disruptions. - Debt and banking fragility: - Public and external debt ratios: "211.7 percent of GDP" and "198.2 percent of GDP," respectively, in 2019. - Sudan remains in debt distress; most external debt in arrears. - Reserve money growth: "63.8 percent in 2017" to "171 percent in 2018"; "74 percent as of October 2019." - Real credit to the private sector: "contracted by 20 percent in 2018" but gradually picked up in 2019. - Banking sector: "twelve banks have capital adequacy ratios below the regulatory 12 percent minimum"; "16 out of 37 commercial banks (with more than 40 percent market share) had short net foreign exchange positions, with 6 banks positions outside the regulatory limit"; authorities own stakes in "15 of the 37 banks." - Risks (direction and highlights): - Downside risks dominate: failure to manage expectations, delays in reforms, high inflation impacts on social cohesion, higher oil prices worsening balances. - Upside risks: removal from the SSTL and debt relief, lasting peace in South Sudan boosting oil revenues. ### Key Considerations and Policy Priorities for Successful Reforms - Core reform requirements and sequencing: - Liberalize the exchange rate and eliminate MCPs. - Implement revenue measures and base‑broadening. - Phase out fuel subsidies, with an expanded SSN to mitigate impacts on vulnerable groups. - Sequence reforms conditional on readiness (condition‑based rather than time‑bound). - Ensure SSN expansion is in place prior to disruptive subsidy reforms. - Introduce adequate monetary policy instruments and bolster banking system resilience before unifying the exchange rate at a market‑clearing level. - Structural reforms on anti‑corruption, governance, and the business environment. - Extensive ICC to secure public buy‑in. - Institutional priorities (timing preserved): - Bank‑by‑bank review of resilience and preparation of measures by "end of 2020: Q1." - Increase the SSN to cover "60 percent of the population" and implement an ICC by "2020: Q4." - Establish an effective reserve money targeting framework "by mid-2020." ### Illustrative Reform Scenario (assuming adequate donor assistance) - Preconditions and sequencing (dates preserved): - Bank sector review and measures by "end of 2020: Q1." - SSN increase to "60 percent of the population" and ICC by "2020: Q4." - Reserve money targeting framework by "mid-2020." - Revenue and governance measures: - Base‑broadening revenue measures to commence immediately and target an increase of "at least one percent of GDP over the medium term." - Governance and anti‑corruption measures to commence immediately. - Exchange rate and subsidy reforms sequencing: - With bolstered banking resilience and appropriate monetary policy, unify and liberalize all but the customs exchange rate in "mid-2020." - Customs exchange rate liberalization and commencement of energy subsidy reform in "2020: Q4" once expanded SSN is in place. - Remaining energy subsidies to be gradually phased out in subsequent years. - External financing needs for illustrative scenario: - Excluding potential bank restructuring costs, external financing needed to eliminate deficit monetization, increase reserves to about "3 months of imports," and stabilize the exchange rate is "$6.2 billion over 2020–21," with more needed thereafter. - Expected macro outcomes: - Reduce the fiscal deficit to sustainable levels. - Strengthen the external position. - Reduce inflation to single digits. - Stabilize the exchange rate. - Support significantly higher growth. ### Fiscal‑Social Tradeoffs, SSN and Subsidy Design - Authorities’ SSN preferences and staff alternatives: - Authorities indicated about "60 percent of the population (about 4 million families) need assistance." - Authorities preferred a temporary QUBI covering "80 percent of the population" with a monthly benefit equal to the SDG equivalent of "$5 per person"; pilot to begin early 2020 covering 4.5 million persons. - Staff estimate of QUBI cost: "$2 billion (5¼ percent of GDP) a year." - Staff recommended expanding existing cash transfer scheme to cover 4 million families at "$20 per family per month," costing "about 2½ percent of GDP (full‑year basis)." - Staff caution: QUBI would be difficult to finance and politically difficult to exit; reducing QUBI coverage to "60 percent" compromises targeting advantages. - Energy subsidy sequencing and tensions: - Staff: gradual fuel subsidy reform only after extensive ICC and substantial SSN expansion; backload kerosene and LPG subsidy removal. - Authorities initially preferred faster elimination: eliminate gasoline subsidy and significantly reduce electricity subsidy by March/April 2020; phase out diesel subsidy in H2 2020. - Staff note social sensitivity and advise caution. ### 2020 Budget Assessment and Risks (headline numeric points) - Budget actions and assumptions: - Authorities removed references to fuel subsidy removal in the 2020 budget; national conference in March 2020 to seek public consensus on pace. - Full cost of QUBI not budgeted; only the pilot appears; greater clarity on external financing expected after donor conference in April/May 2020. - Specific budget measures and figures: - Nominal public wages increased by "123 percent"; staff noted this will increase the wage bill by "one percent of GDP." - Share of state governments in total budgeted revenues increases from "28 percent to 30 percent." - Public investment increased to "1¾ percent of GDP." - Revenues and grants projected to increase by "9 percent of GDP," reflecting: - "$2 billion in-kind grants from (unidentified) bilateral and multilateral donors," - a non‑transparent contribution of "$2 billion from security sector owned companies," and - optimistic oil revenue projections. - Uncertainty: the two $2 billion receipts are likely one‑off; amounts are uncertain. - Deficit projections and downside: - Headline budget deficit projected to decline to "2¼ percent of GDP"; including implicit subsidies raises the deficit to "7¼ percent of GDP." - If expected large receipts fail to materialize the deficit could rise up to "14¾ percent of GDP." ### Medium‑term Fiscal Scenarios and Illustrative Outcomes - Staff illustrative fiscal scenario (selected outcomes and exact figures): - Fiscal deficit would decline from "10¾ percent of GDP in 2019 to 8½ percent of GDP in 2020", with an associated external fiscal financing need of "$4.7 billion." - For 2021, complete removal of fuel subsidies and customs exchange rate reform would lower the fiscal deficit to "5 percent of GDP." - Transitioning from the QUBI to a smaller targeted cash transfer over subsequent years would continue to reduce the fiscal deficit, though additional revenue mobilization would be needed to meet the medium‑term fiscal target. - Risks to implementation: - Preconditions for adjustment could take significantly more time than anticipated; public reaction uncertain; capacity weaknesses substantial; revenue yields could disappoint. - If risks materialize, fiscal adjustment would be more gradual and require larger donor financing; absent donor financing, monetization or arrears accumulation likely. ### External Sector, Debt, and Debt Relief Path - External and reserves: - Gross international reserves: "$1.4 billion in October 2019 (2 months of imports)" and end‑2019 estimate "$1,203" million (1.7 months). - Fund reserve adequacy benchmark cited: "6–8 months" of imports. - Debt stocks and DSA conclusions (selected exact figures): - Public debt ratio: "211.7 percent of GDP" (2019). - External debt ratio: "198.2 percent of GDP" (2019). - External debt (US$ million): 2019: "56,311". - Sudan remains in debt distress; most external debt in arrears (about "85 percent" of external debt in arrears in 2019). - As of end‑December 2019, outstanding arrears to the IMF: "SDR 964.12 million." - HIPC pathway requirements: - Obtain assurances of support for HIPC from creditors representing at least "70 percent of HIPC‑eligible debt." - Establish with the IMF an adequate track record under an SMP judged to meet policy standards. - Clear arrears with the IMF and have a fully financed plan/timetable to clear arrears with World Bank and AfDB. - DSA vulnerability highlights: - PV of PPG external debt about "163.4 percent of GDP at end‑2019." - PV of total public debt about "212.9 percent of GDP at end‑2019." - Under combined shock (including exchange rate depreciation of "51 percent") PV of debt‑to‑GDP would increase from "163 percent to 196 percent." ### Scenarios Comparison: Authorities’ Preferred vs Staff Illustrative (key divergences and numbers preserved) - Exchange rate liberalization timing: - Staff: full liberalization by end‑2020; liberalize budget rate in mid‑2020 after preconditions. - Authorities: prefer liberalization completed by mid‑2021; use budget exchange rate of "SDG 55/$" throughout 2020; liberalize all but customs and budget rates in March/April 2020. - Energy subsidy reform pace: - Staff: gradual removal over medium term. - Authorities: rapid elimination (gasoline and diesel subsidies eliminated in 2020), raising short‑term inflation risk. - Social safety net design and cost: - Authorities: QUBI covering "80 percent of the population" at "$5 per person" costing about "$2 billion per year." - Staff: SSN expansion to cover "4 million families (about 60 percent of the population)" at "$20 per family per month" costing "$960 million" annually. - External financing gaps (selected exact rows): - Authorities’ scenario external financing gap examples: "2020 5,296 (Millions US$); 2021 1,298; 2022 1,260; 2023 457; 2024 573; 2025 592." - Staff illustrative example: "2020 3,954; 2021 2,281; 2022 2,123; 2023 1,198; 2024 762; 2025 404 (Millions US$)." - Implication: Authorities’ preferred rapid reforms imply substantially higher nominal financing needs and higher risk that required financing would not be forthcoming. ### Data, Statistics, and Projection Highlights (selected exact series) - Real GDP (market prices), annual change: - 2017: 0.7; 2018: -2.3; 2019: -2.5; 2020: -1.2; 2021: -0.6; 2022: 0.4; 2023: 1.1; 2024: 1.5; 2025: 1.5. - Consumer prices (period average), annual: - 2017: 32.4; 2018: 63.3; 2019: 51.3; 2020: 66.4; 2021: 74.8; 2022: 80.2; 2023: 3.2; 2024: 85.0; 2025: 85.7. - Revenue and grants (% of GDP): - 2017: 7.2; 2018: 8.9; 2019: 7.8; 2020: 6.4; 2021: 5.6; 2022: 5.1; 2023: 4.8; 2024: 4.7; 2025: 4.6. - Expenditure (total) (% of GDP): - 2017: 13.7; 2018: 16.7; 2019: 18.7; 2020: 21.4; 2021: 22.6; 2022: 22.8; 2023: 23.1; 2024: 23.3; 2025: 23.2. - Subsidies (% of GDP): - 2017: 4.2; 2018: 9.6; 2019: 11.8; 2020: 12.6; 2021: 14.1; 2022: 14.5; 2023: 15.0; 2024: 15.2; 2025: 15.2. - Overall balance (central government, % of GDP): - 2017: -6.5; 2018: -7.9; 2019: -10.8; 2020: -15.0; 2021: -16.9; 2022: -17.7; 2023: -18.3; 2024: -18.6; 2025: -18.6. - Public debt (percent of GDP): - 2017: 159.6; 2018: 185.6; 2019: 211.7; 2020: 227.6; 2021: 242.5; 2022: 251.4; 2023: 254.7; 2024: 256.0; 2025: 256.7. - Gross international reserves (US$ million and months of imports): - Levels: 2017: 725; 2018: 853; 2019: 1,203; 2020: 1,101; 2021: 877; 2022: 553; 2023: 249; 2024: 150; 2025: 190. - Imports coverage (months): 2017: 1.1; 2018: 1.3; 2019: 1.7; 2020: 1.5; 2021: 1.2; 2022: 0.8; 2023: 0.3; 2024: 0.2; 2025: 0.2. - Financial indicators: - Reserve money growth (annual change): 2017: 63.8; 2018: 170.5; 2019: 76.5; 2020 (proj.): 122.7; 2021 (proj.): 101.0. - Broad money (annual change): 2017: 68.8; 2018: 111.8; 2019: 66.8; 2020: 97.2; 2021: 120.5. - Credit to private sector (% of GDP): 2017: 8.8; 2018: 9.0; 2019: 11.5; 2020: 12.0; 2021: 9.5; 2022: 7.3; 2023: 5.4; 2024: 4.0; 2025: 3.0. ### Risk Assessment and Policy Responses (selected) - Global and regional risks: weaker global growth, geopolitical tensions, higher energy prices — policy responses include greater exchange rate flexibility, fiscal consolidation with phasing out energy subsidies, and revenue mobilization. - Country‑specific high‑impact risks: loose policy settings, renewed domestic unrest — policy responses include careful sequencing, SSN scale‑up prior to disruptive reforms, and strong ICC. - RAM relative likelihood definitions preserved as in source: "low" <10 percent, "medium" 10–30 percent, "high" ≥30 percent. ### Conclusions and Policy Recommendations (concise) - Sudan faces large macroeconomic imbalances, high inflation, an overvalued currency, weak competitiveness, and dire humanitarian needs; external debt remains in distress and arrears block access to concessional financing. - Priority policy package elements (preserve technical wording): - Exchange rate liberalization and elimination of multiple currency practices. - Fiscal revenue mobilization and base‑broadening. - Phasing out fuel subsidies with an expanded SSN in place to protect vulnerable groups. - End monetization of fiscal deficits; adopt a reserve money targeting framework as an interim monetary anchor and develop monetary instruments; move toward inflation targeting in medium‑term when capacity allows. - Bank‑by‑bank review and measures to bolster banking resilience; upgrade central bank law to strengthen independence and governance. - Strengthen public financial management, transparency, and governance; publish comprehensive fiscal data and improve procurement. - Intensify ICC and engagement with civil society to build public consent for reforms. - Pursue a prudent debt strategy, minimize non‑concessional borrowing, and continue outreach to creditors for HIPC pathway (need creditor assurances representing at least "70 percent of HIPC‑eligible debt" and a track record under an SMP). - Conditionality for SMP progress: adequate reform package finalization and sufficient external financing assurances from donors. *Source: IMF staff report excerpt (SUDAN).* ### 1. Selected Governance Indicators _______________________________________________________________ 30 ### 1. Selected Governance Indicators ### Context - Regime change created a window for fundamental reforms after prolonged protests beginning in December 2018 and removal of ex-President Al-Bashir in April 2019. - Transitional governance: Sovereign Council composed of 6 civilian and 5 military members and a civilian cabinet led by a Prime Minister for a 39-month transitional period, followed by general elections. - Key government objectives: comprehensive peace, fundamental economic reforms, strengthening anti-corruption and governance, and re-integration into the international community. - Constraints: - Humanitarian situation: large numbers of internally displaced people and refugees. - U.S. sanctions: revoked in October 2017, but Sudan remains on the state sponsors of terrorism list (SSTL), blocking progress toward HIPC debt relief. - Large arrears blocking financing from the Fund, World Bank, and African Development Bank. - Authorities have requested a Staff Monitored Program (SMP). - Governance weaknesses noted: - Pervasive corruption, lack of judicial independence, weak rule of law and public-sector accountability. - Fiscal governance weaknesses: little published fiscal information; internal monitoring from unreconciled data sources; spending control and bank account reconciliation need strengthening. - Multiple currency practices (MCPs) persist, encouraging rent-seeking and increasing vulnerabilities to corruption. - Need for an extensive information and communication campaign (ICC) and rapid expansion of a social safety net (SSN). ### Developments, Outlook, and Risks - Growth and activity: - GDP contraction: "contracted by 2½ percent in 2019" following "a 2¼ percent contraction in 2018." - Outlook: GDP growth likely to remain negative in the near term without reforms; minimal investment and subdued consumption expected. - Fiscal developments: - Revenues and grants: increased by "1¾ percentage points to almost 9 percent of GDP in 2018" then fell to "7¾ percent of GDP in 2019." - Total expenditure (including off-budget implicit fuel subsidies): increased by "3 percentage points to 16¾ percent of GDP in 2018" and by "2 percentage points to 18¾ percent of GDP in 2019." - Total (explicit and implicit) fuel subsidies: "rose by an estimated 7½ percentage points to 11¾ percent of GDP over 2018–19." - Wage bill: fell by "1¼ percent of GDP" in 2018; estimated to have risen by "½ percent of GDP" in 2019. - Capital expenditure: fell by "½ percent of GDP to nearly zero" in 2019. - Fiscal deficit: "risen rapidly, from 6½ percent of GDP in 2017 to 10¾ percent of GDP in 2019." - Financing and monetization: - With limited external financing, the fiscal deficit has primarily been financed by monetization, fueling exchange rate depreciation and deficit expansion. - Exchange rates and inflation: - Parallel market exchange rate: depreciated from "SDG 27/$ at end-2017 to SDG 85/$ in December 2019." - Inflation: "rose to 73 percent in December 2018 before falling to 44 percent in January 2019" and "increased to 60 percent in November 2019." - Exchange rate system distortions: - October 2018 unification and devaluation from "SDG 18/$ to SDG 47.5/$"; official revaluation to "SDG 45/$ in April 2019." - Budget forex transactions continued to use "SDG 18/$." - Customs duty exchange rate at "SDG 15/$." - Fuel import exchange rate remained at "SDG 6.7/$." - Parallel market accounts for "about 80 percent of all transactions." - External sector: - Current account deficit (cash basis): decreased "from 8¾ percent of GDP in 2018 to 7¾ percent of GDP in 2019" but weaker than "4.3 percent implied by fundamentals." - REER: "overvalued by 36 percent." - Gross international reserves: "low at $1.4 billion in October 2019 (2 months of imports)." - Limited forex for fuel imports led to rationing, shortages, and disruptions to electricity and food supplies. - Debt: - Public and external debt ratios: "211.7 percent of GDP" and "198.2 percent of GDP," respectively, in 2019. - Sudan remains in debt distress; most external debt in arrears. - Monetary and banking sector: - Reserve money growth: "increased sharply from 63.8 percent in 2017 to 171 percent in 2018" and "remains high at 74 percent as of October 2019." - Real credit to the private sector: "contracted by 20 percent in 2018" but has gradually picked up in 2019. - Banking sector fragility: - Reported NPL definitions underestimate impairment; twelve banks have capital adequacy ratios below the regulatory "12 percent minimum." - As of November 2019, "16 out of 37 commercial banks (with more than 40 percent market share) had short net foreign exchange positions, with 6 banks positions outside the regulatory limit." - Equity injections led to authorities owning stakes in "15 of the 37 banks." - Correspondent banking lines declined sharply after 2014 U.S. penalties; reluctance to re-establish relationships due to ML/TF risks, AML/CFT deficiencies, and the SSTL. - Risks: - Downside risks dominate (Annex I): failure to manage expectations, delays in reforms, high inflation impacts on social cohesion, higher-than-expected oil prices worsening fiscal/external imbalances. - Upside risks: removal from the SSTL and debt relief, and lasting peace in South Sudan boosting oil revenues. ### Key Considerations for Successful Reforms - Core requirements: - Liberalize the exchange rate. - Implement revenue measures. - Phase out fuel subsidies. - Expand the SSN to mitigate impacts on vulnerable groups. - Carefully sequence reforms; condition-based rather than time-bound. - Ensure the expanded SSN is in place prior to potentially disruptive subsidy reforms. - Introduce adequate monetary policy instruments and bolster banking system resilience before unifying the exchange rate at a market-clearing level. - Structural reforms focused on anti-corruption, governance, and the business environment. - Extensive ICC to strengthen public buy-in. - Institutional priorities: - Bank-by-bank review of resilience to exchange rate, credit, and liquidity shocks and preparation of measures by "end of 2020: Q1." - Increase the SSN to cover "60 percent of the population" and implement an ICC by "2020: Q4." - Establish an effective reserve money targeting framework "by mid-2020." ### Illustrative Reform Scenario (assuming adequate donor assistance) - Preconditions and sequencing: - Bank sector review and measures by "end of 2020: Q1." - SSN increase to "60 percent of the population" and ICC by "2020: Q4." - Reserve money targeting framework by "mid-2020." - Revenue and governance measures: - Base-broadening revenue measures to commence immediately and target an increase of "at least one percent of GDP over the medium term." - Governance and anti-corruption measures to commence immediately. - Exchange rate and subsidy reforms: - With bolstered banking resilience and appropriate monetary policy, unify and liberalize all but the customs exchange rate in "mid-2020." - Customs exchange rate liberalization and commencement of energy subsidy reform in "2020: Q4" once expanded SSN is in place. - Remaining energy subsidies to be gradually phased out in subsequent years. - External financing needs: - Excluding potential bank restructuring costs, external financing needed to eliminate deficit monetization, increase reserves to about "3 months of imports," and stabilize the exchange rate is "$6.2 billion over 2020–21," with more needed thereafter. - Expected outcomes: - Reduce the fiscal deficit to sustainable levels. - Strengthen the external position. - Reduce inflation to single digits. - Stabilize the exchange rate. - Support significantly higher growth. ### Reform Implementation Risks - Timing and capacity: - Preconditions for adjustment could take significantly more time than anticipated. - Public reaction to reforms is uncertain. - Capacity weaknesses are substantial. - Yield from revenue measures could disappoint. - Consequences of risks: - Flexibility on reform timelines will be needed. - If risks materialize, fiscal adjustment would be more gradual, requiring larger donor financing to cover deficits. - If donor financing is unavailable, monetization or arrears accumulation would likely be the only financing options, with elevated risks. ### Selected Key Statistics and Exact Figures - GDP contractions: "2¼ percent" (2018) and "2½ percent" (2019). - Revenues and grants: "almost 9 percent of GDP" (2018); "7¾ percent of GDP" (2019). - Total expenditure: "16¾ percent of GDP" (2018); "18¾ percent of GDP" (2019). - Fuel subsidies: "rose by an estimated 7½ percentage points to 11¾ percent of GDP over 2018–19." - Wage bill changes: "fell by 1¼ percent of GDP" (2018); "risen by ½ percent of GDP" (2019). - Fiscal deficit: "6½ percent of GDP in 2017" to "10¾ percent of GDP in 2019." - Parallel exchange rate: "SDG 27/$ at end-2017" to "SDG 85/$ in December 2019." - Official exchange rates: "SDG 18/$" (pre-Oct 2018), "SDG 47.5/$" (Oct 2018), "SDG 45/$" (Apr 2019); budget forex transactions used "SDG 18/$"; customs duty exchange rate "SDG 15/$"; fuel import exchange rate "SDG 6.7/$." - Parallel market share: "about 80 percent of all transactions." - Inflation: "73 percent" (Dec 2018), "44 percent" (Jan 2019), "60 percent" (Nov 2019). - Current account deficit (cash basis): "8¾ percent of GDP in 2018" and "7¾ percent of GDP in 2019"; fundamentally implied deficit "4.3 percent." - REER overvaluation: "36 percent." - Gross international reserves: "$1.4 billion in October 2019 (2 months of imports)." - Public debt ratio: "211.7 percent of GDP" (2019). - External debt ratio: "198.2 percent of GDP" (2019). - Reserve money growth: "63.8 percent in 2017" to "171 percent in 2018"; "74 percent as of October 2019." - Real credit to the private sector: "contracted by 20 percent in 2018." - Banking sector: "twelve banks have capital adequacy ratios below the regulatory 12 percent minimum"; "16 out of 37 commercial banks" had short net FX positions as of November 2019, with "6 banks positions outside the regulatory limit." - External financing needed in illustrative scenario: "$6.2 billion over 2020–21." - SSN coverage target in scenario: "60 percent of the population." - Reserve adequacy benchmark mentioned: "6–8 months" of imports suggested by the Fund’s reserve adequacy metric. - Fuel price gap table (evaluated at exchange rate of SDG 82/US$) entries shown as: - Gasoline: Current domestic prices "6.44" (SDG/litre), Current international prices "4.66" (SDG/litre) 1/, Price increase "(percent) 124.9", Share in total consumption "(percent)" [table formatting indicates these values but full clarity limited in source extract]. - Diesel: "4.34", "3.69", "1054.7" [note: source formatting unclear in extract]. - Fuel oil: "4.33", "2.56", "55.2". - Kerosene: "4.14", "0.18", "60.2". - LPG: "5.22", "4.93", "12.7". - Table note: "1/ Evaluated at exchange rate of SDG 82/US$." - Fuel price increase illustrative scenario (percentage change) timeline entries (Oct-20, Jan-21, Jan-22, Jan-23, Jan-24, Jan-25): - Diesel: "60 50 50 50 50 43" - Gasoline: "70 70 60 60 60 44" - Fuel Oil: "60 60 60 60 50 48" - Kerosene: "... 60 60 60 50 47" - LPG: "... 60 60 60 50 18" *Source: IMF staff report excerpt (SUDAN).* ### 20. There was broad agreement about key reform priorities, and the authorities had clear ### 1sdnea2020001 - 20. There was broad agreement about key reform priorities, and the authorities had clear ### Major reform priorities and authorities’ preferences - Authorities concurred on the need for exchange rate liberalization, revenue mobilization, an expanded SSN, energy subsidy removal, and structural reforms to boost inclusive growth and competitiveness. - Authorities preferred a larger expansion of the social safety net and higher public wages—conditional on available external financing—to pave the way for more rapid removal of energy subsidies. - Staff highlighted that the implied large external financing would be difficult to obtain and raised risks of a return to monetization. - Social pressures derailed initial plans for energy subsidy reforms; a viable plan will require extensive outreach efforts. ### Outreach, communication, and governance - Authorities have begun media interviews and outreach to political parties, academics, and professionals; staff urged intensified outreach (ICC) to include civil society and local communities. - ICC should be transparent, explain the rationale for reform, explain the cost of the status quo, discuss potential adverse effects, present mitigating measures, and seriously address public feedback. - Surprise announcements of adjustment measures should be avoided. - Consensus that strengthening governance and institutions and curbing corruption is critical to sustain public support. - Measures include timely publication of comprehensive data and reports, upgrading the public sector regulatory framework to international best practices, and active engagement of civil society and private sector in curbing corruption. - Authorities plan to strengthen central bank governance, extend the tax net to cover security sector owned companies, and strengthen Public Financial Management. - Authorities requested an IMF comprehensive governance diagnostic mission in early 2020. ### Exchange rate, monetary, and financial sector policies - Agreement that a unified market-clearing exchange rate is critical to restore macro stability, bolster competitiveness and transparency, eliminate MCPs, boost central bank independence, and minimize rent-seeking. - Authorities’ operational preferences: - Use a budget exchange rate of SDG 55/$ throughout 2020 to simplify budget management. - Liberalize all but the customs and budget exchange rates in March/April 2020. - Liberalize the customs rate more gradually than staff recommended (from July 2020 to June 2021). - Pros and cons of upfront versus gradual exchange rate reform (as presented): - Upfront liberalization — Pros: Strong signal, reduce delays/interference. Cons: Significantly larger upfront impact on prices, higher risk of overshooting, authorities view as riskier. - Gradual liberalization — Pros: Smaller initial impact on prices, less social upheaval, more time to ramp up SSN. Cons: Less credible commitment, longer persistence of overvaluation and MCPs. - Customs and tariff implications: - Customs rate liberalization would raise the average effective tariff rate and the effective rate of VAT on imports from about 3 percent and 2.8 percent to 20 percent and 17 percent, respectively. - Staff recommended moving toward lower and more uniform tariff rates and requested TA to help with tariff reforms. - Monetary policy and nominal anchor: - Exchange rate liberalization must be accompanied by announcing an end to monetization and adopting appropriate monetary and exchange rate policies. - Inflation targeting is a potential medium-to-long-term objective but not immediately implementable due to data and capacity gaps. - Interim step: adopt a reserve money targeting framework to be announced and operationalized concurrently with exchange rate liberalization. - Monetary tightening and instruments: - Key to tightening is eliminating deficit monetization. - Central bank should urgently develop effective monetary instruments, including sales of securities (offering higher returns) and consider higher reserve requirements. - Authorities intend to learn from other Islamic financial regimes about developing the government securities market. - Central bank governance and supervision: - Fiscal dominance has undermined central bank governance; plans are underway to upgrade the central bank law and seek Fund TA. - Need to modernize banking regulations in line with Islamic Financial Stability Board standards, strengthen coordination between regulation and supervision, conduct frequent stress testing, and ensure all banks respect prudential regulation. - Authorities plan to address AML/CFT deficiencies, improve understanding of ML/TF risks, increase effectiveness of the Financial Intelligence Unit (FIUSU), fully implement risk-based AML/CFT supervision, and improve the process of freezing terrorist assets in line with Fund TA. ### Fiscal consolidation—targets, revenue measures, and composition - Consensus that medium-term fiscal consolidation is essential to eliminate monetization and stabilize inflation and the exchange rate. - A deficit target of one percent of GDP is recommended as the appropriate medium-term fiscal anchor. - Revenue mobilization expectations and estimates: - Staff estimates that revaluation of oil revenues would add 1¾ percent of GDP. - Higher effective taxation of imports would add 3¼ percent of GDP. - Authorities’ immediate focus: base-broadening measures, including expanding the tax net to cover security-sector-owned commercial companies and rationalizing tax exemptions (notably in the Investment Law). - Public financial management improvements planned for budget planning, fiscal reporting, fiscal risk management, the single treasury account (TSA), and public procurement. ### Social Safety Net (SSN) and subsidy reform specifics and costs - Authorities indicated about 60 percent of the population (about 4 million families) need assistance. - Authorities preferred a temporary (2–3 year) Quasi-Universal Basic Income (QUBI) covering 80 percent of the population, with a monthly benefit equal to the SDG equivalent of $5 per person. - Implementation plan: begin in early 2020 with a pilot covering 4.5 million persons, expand to QUBI after 6 months. - QUBI would be implemented with World Bank and UN assistance. - Additional planned measures: substantial increases in allocations for health insurance coverage and school feeding programs, and abolition of fees for basic education and health care. - Staff cost estimates and alternatives: - Staff observed the QUBI would cost $2 billion (5¼ percent of GDP) a year. - Reducing QUBI coverage to 60 percent would increase targeting challenges and eliminate many QUBI advantages. - Expanding the existing cash transfer scheme to cover 4 million families with a monthly cash benefit of $20 per family would raise expenditure by about 2½ percent of GDP (full-year basis). - Authorities stated they could reduce spending plans (including QUBI coverage) if envisaged external financing does not materialize and were optimistic about revenue yields; they believed exiting the QUBI should be manageable with clear upfront communication. ### Energy subsidy reform sequencing and tensions - Staff suggested gradual fuel subsidy reforms commencing only after extensive ICC and substantial SSN expansion; removal of kerosene and LPG subsidies should be backloaded. - Authorities initially preferred substantially faster elimination: - Eliminate gasoline subsidy and significantly reduce electricity subsidy by March/April 2020. - Phase out the diesel subsidy in H2 2020. - Staff cautioned against rapid fuel subsidy removal given recent international experience of high social sensitivity. ### 2020 budget assessment, risks, and headline figures - Authorities removed all references to fuel subsidy removal in the 2020 budget and will hold a national conference in March 2020 to seek public consensus on the pace of fuel subsidy removal. - The full cost of the QUBI was not budgeted; only the pilot appears, with greater clarity on external financing expected after a donor conference in April/May 2020. - Budget specifics and risks: - Nominal public wages will be increased by 123 percent to mitigate tensions; staff noted this will increase the wage bill by one percent of GDP. - Share of state governments in total budgeted revenues is to increase from 28 percent to 30 percent. - Public investment is to be increased to 1¾ percent of GDP. - Revenues and grants are projected to increase by 9 percent of GDP, reflecting: - $2 billion in-kind grants from (unidentified) bilateral and multilateral donors, - a non-transparent contribution of $2 billion from security sector owned companies, - optimistic oil revenue projections requiring sharp increases in oil production. - Uncertainty: the two $2 billion receipts are likely one-off; amounts are uncertain. - The large receipt from the security sector raises questions on oversight and how much donor financing is really needed. - Authorities plan to place oversight of all public enterprises under the Ministry of Finance to strengthen governance. - Deficit projections: - Headline budget deficit is projected to decline to 2¼ percent of GDP; including implicit subsidies would raise the deficit to 7¼ percent of GDP. - If expected large receipts fail to materialize the deficit could rise up to 14¾ percent of GDP. ### Medium-term fiscal scenarios and implications - Fully realizing authorities’ medium-term plans requires successful energy subsidy reforms, a timely exit from the QUBI, and revenue measures. - Staff’s illustrative fiscal scenario outcomes (relative to the budget): - Successful removal of diesel and gasoline subsidies, adoption of a full QUBI, and adjustments to transfers and wage/GDP ratio would reduce overall expenditure (including implicit subsidies) by 3½ percent of GDP compared to the budget. - More conservative oil revenue projections, treating in-kind grants as financing, and exchange rate reform impacts would cause total revenues to decline by 4¾ percent of GDP relative to the budget. - Overall, the fiscal deficit would decline from 10¾ percent of GDP in 2019 to 8½ percent of GDP in 2020, with an associated external fiscal financing need of $4.7 billion. - With limited donor assistance this would imply higher risks of renewed deficit monetization and elevated macroeconomic imbalances. - For 2021, complete removal of fuel subsidies and customs exchange rate reform would lower the fiscal deficit to 5 percent of GDP. - In subsequent years, transitioning from the QUBI to a smaller targeted cash transfer scheme would continue to reduce the fiscal deficit, though additional revenue mobilization would be needed to meet the medium-term fiscal target. ### Public financial management, transparency, and debt relief engagement - Key public financial management priorities: budget planning, fiscal reporting, fiscal risk management, the TSA, and public procurement. - Efforts to incorporate a medium-term fiscal framework into budget planning and strengthen the macro-fiscal unit are underway. - TSA progress has been made; remaining actions include improving cash forecasting, extending cash ceilings from one to three months for ministries/departments/agencies, improving payments management, and gradually extending TSA to extrabudgetary funds. - Fiscal governance would be improved by publishing comprehensive fiscal data and strengthening public procurement rules. - Debt relief and international engagement: - Authorities continue to engage with international partners to secure comprehensive support for debt relief and discussions with the U.S. government on removal from the SSTL are ongoing. - Authorities reaffirmed commitment to cooperate with the Fund on policies and payments, including continuing annual payments on arrears to the Fund of a minimum $10 million, and at least enough to cover Sudan’s obligations falling due. - Authorities hope to build a track record of sound economic policies under an SMP as a pre-condition to get to the HIPC decision point; efforts to prepare a full PRSP continue. - Staff encouraged a prudent debt strategy minimizing non-concessional borrowing and avoiding selective debt servicing of bilateral lenders. ### Supply-side reforms - Structural reforms to boost inclusive growth and competitiveness were highlighted as a priority (no further details provided in the supplied content). *Content based on IMF staff report excerpt provided in the source content.* ### 37. Unlocking Sudan’s private sector development potential is key for higher inclusive ### 37. Unlocking Sudan’s private sector development potential is key for higher inclusive ### Private sector development and donor support - The IFC and the World Bank, together with donors, have been supporting efforts to: - improve the investment climate, - foster Public-Private Dialogue, - strengthen the legal and institutional framework for Public-Private Partnerships (PPPs), - support MSME development focusing on access to finance, business entry and taxation, innovation and entrepreneurship. - An IFC private sector diagnostic will be completed around mid-2020 to provide the analytical underpinning for prioritizing economy-wide and sector-specific interventions. - The IFC intends to scale up its advisory services to support the establishment of the new Investment and Private Sector Development Authority and assess investment projects envisaged by the authorities. ### Data gaps and capacity constraints - National accounts: - Based on 1968 SNA with a base year of 1981. - Weaknesses in quality and timeliness—the latest data are from 2016. - Balance of payments: - Coverage of FDI, remittances, and gold exports is limited, impairing BOP compilation. - Labor market data: - Practically nonexistent. - Monetary data: - Coverage is not complete as some monetization items are not included in the database. - Authorities acknowledge major shortcomings and hope to improve data quality building on Fund TA. ### Preconditions for a Staff-Monitored Program (SMP) - Progress toward an SMP is contingent on: - adequate progress in finalizing the authorities’ reform package, - sufficient external financing assurances from donors. - Once sufficient progress has been made on viable plans for subsidy and SSN reforms, and on securing donor financing, a mission will be fielded to negotiate the SMP. - Without adequate donor financing, finalizing an SMP would be very difficult; Fund engagement might have to be based on surveillance and TA to help mitigate risks. ### Staff appraisal — macroeconomic challenges and reform priorities - Overall assessment: - Macroeconomic imbalances are large. - Competitiveness is weak. - The currency is substantially overvalued. - The humanitarian situation is dire. - Sudan’s continued listing as a state sponsor of terrorism blocks progress toward HIPC debt relief and clearance of large arrears to the IMF. - Key elements of a comprehensive reform package include: - exchange rate liberalization, - fiscal revenue mobilization, - phasing out fuel subsidies, - increasing social transfers to mitigate adjustment pain. - Implementation risks: - Social, political, and financial constraints are substantial. - Reforms face high implementation risk. ### Governance, sequencing, and social protection - Governance and anti-corruption: - Boosting governance and institutions and curbing corruption are critical to sustain public support. - Measures include timely publication of comprehensive data and reports, aligning public sector regulatory framework with international best practices, and encouraging active engagement of civil society and the private sector. - Sequencing and conditionality: - Reforms should be carefully sequenced, flexible, and condition-based rather than time-bound. - An expanded social safety net needs to be in place prior to implementing potentially disruptive subsidy and exchange rate reforms. - Monetary policy framework enhancement and banking system resilience review are required prior to exchange rate unification. - An extensive information and communication campaign will be critical to strengthen public buy-in. - Social safety net options and costs: - Authorities’ preferred temporary Quasi-Universal Basic Income (QUBI) scheme would cost $2 billion a year and would be difficult to finance; exiting QUBI would likely be politically difficult. - Expanding the existing cash transfer scheme to cover 4 million families with a monthly cash benefit of $20 per family (in the range the World Bank considers appropriate) would be significantly less expensive. ### Exchange rate, monetary policy, and central bank governance - Exchange rate liberalization: - Critical for restoring macro stability and strengthening investment and growth. - Expected benefits: bolster competitiveness and transparency, eliminate multiple currency practices and associated distortions, minimize rent-seeking activities, strengthen central bank independence, and boost fiscal revenues. - Should be preceded by measures to bolster banking sector resilience to exchange rate shocks and to develop an effective monetary policy. - Given data and capacity gaps, a reserve money targeting framework should be established first to help curb inflation and support a more stable exchange rate, with inflation targeting as an appropriate medium-to long-term objective. - Central bank governance: - Fiscal dominance has led to loss of monetary control and undermined governance. - Protection of senior central bank staff from political interference and summary dismissal is limited. - The central bank law should be upgraded to boost central bank independence and effectiveness; the Fund stands ready to provide TA. - The central bank should continue to upgrade capacity to supervise and mitigate financial stability risks, including modernizing banking regulations, strengthening banking supervision, and addressing AML/CFT deficiencies in line with Fund TA. ### Fiscal policy and subsidies - Fiscal consolidation: - A deficit target of one percent of GDP would be an appropriate medium-term fiscal anchor: it is about the maximum that can be financed from non-inflationary domestic sources and would generate a gradual decline in the debt ratio. - While exchange rate liberalization would substantially increase fiscal revenues, broadening the tax base and strengthening revenue administration are also important. - Stronger public financial management and publication of comprehensive fiscal data would improve governance. - 2020 fiscal outlook: - Additional measures are needed to ensure credible fiscal consolidation in 2020. - The 2020 budget incorporates optimistic revenue projections and large expenditure increases. - Intensified efforts to build public support for commencing energy subsidy reforms and mobilize additional revenue will be key. - Fuel subsidy reform: - Phasing out fuel subsidies over the medium term is crucial for durably reducing the fiscal deficit and its monetization. - Strong information and communication efforts and an expanded social safety net will be needed to build public support for energy subsidy reforms ahead of the national conference in March 2020. - Reforms should be gradual; removal of kerosene and LPG subsidies (which disproportionately benefit the poor) should be backloaded. ### Debt relief and Article VIII issues - Debt status: - 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 and strengthen cooperation with the Fund on policies and payments. - Article VIII: - Authorities note the findings of MCPs and exchange restrictions and expect 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 (informational annex), and no approval is recommended, as there is no clear timetable for their removal. *IMF staff appraisal as presented in the source text.* ### 52. Staff proposes that the next Article IV consultation take place on the standard ### 1sdnea2020001 - 52. Staff proposes that the next Article IV consultation take place on the standard 12-month cycle. ### Medium-term output, prices, and projections - Real GDP (market prices), annual change: - 2017: 0.7 - 2018: -2.3 - 2019: -2.5 - 2020: -1.2 - 2021: -0.6 - 2022: 0.4 - 2023 (proj.): 1.1 - 2024 (proj.): 1.5 - 2025 (proj.): 1.5 - Nominal GDP (in millions of SDGs): - 2017: 830,265 - 2018: 1,370,224 - 2019: 2,033,412 - 2020: 3,355,368 - 2021: 5,819,335 - 2022: 10,517,766 - 2023 (proj.): 19,463,402 - 2024 (proj.): 36,474,018 - 2025 (proj.): 68,765,283 - Nominal GDP (in $US million), annual: - 2017: 45,812 - 2018: 35,891 - 2019: 33,609 - 2020: 34,543 - 2021: 35,042 - 2022: 35,609 - 2023 (proj.): 36,245 - 2024 (proj.): 36,878 - 2025 (proj.): 37,521 - Consumer prices (period average), annual: - 2017: 32.4 - 2018: 63.3 - 2019: 51.3 - 2020: 66.4 - 2021: 74.8 - 2022: 80.2 - 2023 (proj.): 3.2 - 2024 (proj.): 85.0 - 2025 (proj.): 85.7 - Note: "The 2020-2025 projection is based on a no-policy measures assumption." ### Fiscal sector — central government (levels and percent of GDP) - Revenue and grants (% of GDP), 2017–2025: - 2017: 7.2 - 2018: 8.9 - 2019: 7.8 - 2020: 6.4 - 2021: 5.6 - 2022: 5.1 - 2023 (proj.): 4.8 - 2024 (proj.): 4.7 - 2025 (proj.): 4.6 - Tax revenue (% of GDP), 2017–2025: - 2017: 5.5 - 2018: 6.7 - 2019: 5.4 - 2020: 4.9 - 2021: 4.5 - 2022: 4.2 - 2023 (proj.): 4.1 - 2024 (proj.): 4.0 - 2025 (proj.): 4.0 - Expenditure (total) (% of GDP), 2017–2025: - 2017: 13.7 - 2018: 16.7 - 2019: 18.7 - 2020: 21.4 - 2021: 22.6 - 2022: 22.8 - 2023 (proj.): 23.1 - 2024 (proj.): 23.3 - 2025 (proj.): 23.2 - Subsidies (% of GDP): - 2017: 4.2 - 2018: 9.6 - 2019: 11.8 - 2020: 12.6 - 2021: 14.1 - 2022: 14.5 - 2023 (proj.): 15.0 - 2024 (proj.): 15.2 - 2025 (proj.): 15.2 - Overall balance (central government, % of GDP): - 2017: -6.5 - 2018: -7.9 - 2019: -10.8 - 2020: -15.0 - 2021: -16.9 - 2022: -17.7 - 2023 (proj.): -18.3 - 2024 (proj.): -18.6 - 2025 (proj.): -18.6 - Primary balance (% of GDP): - 2017: -3.3 - 2018: -2.6 - 2019: -1.9 - 2020: -3.7 - 2021: -4.1 - 2022: -4.3 - 2023 (proj.): -4.4 - 2024 (proj.): -4.4 - 2025 (proj.): -4.5 - Central government operations (in SDG billions), selected levels: - Revenue and grants: 2020 Budget: 568.3; 2021: 216.2; 2022: 328.0; 2023 (proj.): 536.3; 2024 (proj.): 941.3; 2025 (proj.): 1,710.3; 2025 (next line) 3,167.1 (table shows both revenue/grants and a later aggregate—numbers preserved as presented). - Total expenditure (SDG billions): 2020 Budget: 642.4; 2021: 718.5; 2022: 1,313.1; 2023 (proj.): 2,399.1; 2024 (proj.): 4,499.9; 2025 (proj.): 8,485.9; 2025 continuation: 15,986.6. - Overall balance (SDG billions): 2017: -53.7; 2018: -107.9; 2019: -220.1; 2020 Budget: -74.1; 2021: -502.3; 2022: -985.1; 2023 (proj.): -1,862.8; 2024 (proj.): -3,558.6; 2025 (proj.): -6,775.5; 2025 continuation: -12,819.5. ### Public debt - Public debt (percent of GDP), 2017–2025: - 2017: 159.6 - 2018: 185.6 - 2019: 211.7 - 2020: 227.6 - 2021: 242.5 - 2022: 251.4 - 2023 (proj.): 254.7 - 2024 (proj.): 256.0 - 2025 (proj.): 256.7 ### Monetary sector and central bank - Broad money (annual change in percent), selected: - 2017: 68.8 - 2018: 111.8 - 2019: 66.8 - 2020: 97.2 - 2021: 120.5 - 2022: 79.5 - 2023 (proj.): 79.3 - 2024 (proj.): 86.0 - 2025 (proj.): 87.7 - Reserve money (annual change, end of period), selected: - 2017: 63.8 - 2018: 170.5 - 2019: 76.5 - 2020 (proj.): 122.7 - 2021 (proj.): 101.0 - 2022 (proj.): 80.8 - 2023 (proj.): 80.6 - 2024 (proj.): 87.4 - 2025 (proj.): 89.2 - Central Bank of Sudan summary accounts (SDG millions), selected: - Net foreign assets, 2019: -311,268; 2020 (proj.): -315,849 - Gross international reserve (in millions of US$), memorandum: 2014: 1,283; 2015: 832; 2016: 697; 2017: 725; 2018: 853; 2019: 1,203; 2020 (proj.): 1,101 - Reserve money (SDG millions): 2019: 513,304; 2020 (proj.): 1,143,050 ### External sector and balance of payments - Current account balance (US$ million), 2017–2025: - 2017: -4,611 - 2018: -4,679 - 2019: -4,030 - 2020: -4,602 - 2021: -4,280 - 2022: -4,896 - 2023 (proj.): -4,161 - 2024 (proj.): -3,740 - 2025 (proj.): -3,377 - Current account balance (cash basis), US$ million: - 2017: -3,297 - 2018: -3,118 - 2019: -2,621 - 2020: -3,192 - 2021: -2,870 - 2022: -3,627 - 2023 (proj.): -2,806 - 2024 (proj.): -2,325 - 2025 (proj.): -1,962 - Trade balance (US$ million): - 2017: -3,935 - 2018: -3,242 - 2019: -3,463 - 2020: -3,759 - 2021: -3,471 - 2022: -3,433 - 2023 (proj.): -3,041 - 2024 (proj.): -2,898 - 2025 (proj.): -2,632 - Exports, f.o.b. (US$ million), and composition: - Total exports: 2017: 4,100; 2018: 3,485; 2019: 3,219; 2020: 3,241; 2021: 3,629; 2022: 3,772; 2023 (proj.): 4,062; 2024 (proj.): 4,224; 2025 (proj.): 4,341 - Of which: Gold (US$ million): 2017: 1,559; 2018: 832; 2019: 711; 2020: 810; 2021: 857; 2022: 895; 2023 (proj.): 933; 2024 (proj.): 972; 2025 (proj.): 1,002 - Oil exports (US$ million): 2017: 417; 2018: 520; 2019: 373; 2020: 350; 2021: 334; 2022: 330; 2023 (proj.): 331; 2024 (proj.): 334; 2025 (proj.): 334 - Imports, f.o.b. (US$ million): - 2017: 8,220 - 2018: 7,065 - 2019: 6,854 - 2020: 7,131 - 2021: 7,315 - 2022: 7,441 - 2023 (proj.): 7,430 - 2024 (proj.): 7,487 - 2025 (proj.): 7,391 - External debt (US$ million) and percent of GDP: - External debt (US$ million): 2017: 53,857; 2018: 55,084; 2019: 56,311; 2020: 57,546; 2021: 58,774; 2022: 58,475; 2023 (proj.): 59,049; 2024 (proj.): 60,331; 2025 (proj.): 61,623 - External debt (percent of GDP): 2017: 154.5; 2018: 180.8; 2019: 198.2; 2020: 204.3; 2021: 211.3; 2022: 209.7; 2023 (proj.): 209.8; 2024 (proj.): 211.7; 2025 (proj.): 213.0 - Gross international reserves (US$ million, and months of next year's imports of G&S): - Levels (US$ million): 2017: 725; 2018: 853; 2019: 1,203; 2020: 1,101; 2021: 877; 2022: 553; 2023 (proj.): 249; 2024 (proj.): 150; 2025 (proj.): 190 - Imports coverage (months): 2017: 1.1; 2018: 1.3; 2019: 1.7; 2020: 1.5; 2021: 1.2; 2022: 0.8; 2023 (proj.): 0.3; 2024 (proj.): 0.2; 2025 (proj.): 0.2 ### Financial sector and banking - Summary commercial banks (SDG millions), selected: - Deposits: 2017: 138,646; 2018: 302,283; 2019: 303,459; 2020 (proj.): 779,373 - Claims on non-government sectors: 2017: 98,134; 2018: 156,002; 2019: 259,351; 2020 (proj.): 456,531 - Reserves: 2017: 48,974; 2018: 181,609; 2019: 91,829; 2020 (proj.): 307,182 - Financial soundness indicators (percent), selected: - Regulatory capital to risk-weighted assets: 2016: 18.7; 2017: 16.2; 2018: 9.9; 2019 (partial): 14.5 - Gross NPLs to gross loans: 2016: 5.2; 2017: 3.3; 2018: 3.2; 2019 (up to July): 3.3 - Loans' provision to NPLs: 2016: 60.0; 2017: 81.3; 2018: 72.1; 2019 (to July): 78.5 - ROA (before tax): 2016: 4.7; 2017: 3.8; 2018: 4.9; 2019 (to July): 1.8 - ROE (before tax): 2016: 46.1; 2017: 48.0; 2018: 95.0; 2019 (to July): 27.9 ### Key macro relationships and trends (from figures and tables) - Real GDP growth contracted during 2017–2021 with modest recovery projected for 2022–25 (see real GDP series above). - Inflation (CPI) rose sharply, with period averages reported: 2018: 63.3; 2019: 51.3; 2020: 66.4; 2021: 74.8; 2022: 80.2. - Fiscal deficits widened substantially 2019–2023 with large subsidy spending (subsidies reached 15.0–15.2 percent of GDP in 2023–25 projections). - Large fiscal financing was monetized: CBOS financing (domestic financing) grew to high shares of financing—CBOS financing (percent of GDP) examples: 2017: 5.2; 2018: 5.8; 2019: 9.9; 2020 (proj.): 2.1; 2021: 14.7; 2022: 16.6; 2023 (proj.): 17.4; 2024 (proj.): 18.0; 2025 (proj.): 18.3. - External indicators show a persistent current account deficit and rising external debt as percent of GDP (external debt projected at 213.0 percent of GDP by 2025). - Gross international reserves peaked in 2019 (1,203 US$ million) then projected to decline to 150 US$ million in 2024 before slightly rising to 190 US$ million in 2025; import coverage falls to 0.2 months by 2024–25. ### Observations embedded in the data (policy-relevant points) - Fiscal pressures: - Large and rising subsidy spending (subsidies reaching 15.0–15.2 percent of GDP in projections) and low revenue ratios (revenue and grants 4.6 percent of GDP by 2025) drive widening overall balances (overall balance -18.6 percent of GDP in 2024–25 projections). - Primary balances remain deeply negative through projections (around -4.4 to -4.5 percent of GDP). - Monetary-financing nexus: - Reserve money and broad money growth are extremely high in recent years (e.g., reserve money growth: 2018: 170.5 percent; broad money 2018: 111.8 percent). - Large central bank claims on government (NCGG) and substantial CBOS financing of the fiscal deficit (CBOS financing rising to 17–18 percent of GDP in projections) underline monetization of fiscal deficits. - External sustainability: - External debt stock and arrears are substantial: arrears reported (US$ million) rising (2017: 46,547; 2018: 48,128; 2019: 49,702; 2020: 51,279; 2021: 52,859; 2022: 54,441; 2023 (proj.): 56,027; 2024 (proj.): 57,616; 2025 (proj.): 59,209). - Gross international reserves provide very limited import coverage (0.2–0.3 months projected for 2023–25). - Financial intermediation: - Credit to the private sector remains low relative to GDP (credit to private sector percent of GDP: 2017: 8.8; 2018: 9.0; 2019: 11.5; 2020: 12.0; 2021: 9.5; 2022: 7.3; 2023 (proj.): 5.4; 2024 (proj.): 4.0; 2025 (proj.): 3.0), indicating limited financial deepening despite recent nominal credit growth. *Sources: Central Bank of Sudan and Ministry of Finance and Economic Planning; and IMF staff estimates and projections.* ### Annex I. Risk Assessment Matrix 1/ ### Annex I. Risk Assessment Matrix 1/ ### Global risks: likelihood, impact, and policy responses - Weaker-than-expected global growth. - Source/Regional specifics: Idiosyncratic factors in the U.S (medium risk), Europe (high), China (high), and stressed emerging markets (medium) feed off each other to result in a synchronized and prolonged growth slowdown. - Relative likelihood / Impact if realized: Medium/High — Medium - Key effects: Lower exports, FDI and deteriorating external balance. Rising pressure on the exchange rate and reserves. Lower growth. - Policy responses: - Greater exchange rate flexibility would help cushion the shock and prevent reserve losses. - Fiscal consolidation, focusing on decisive phasing out of energy subsidies and revenue mobilization, to create room for higher social and infrastructure spending while supporting external adjustment. - Intensification of geopolitical tensions and security risks (e.g., in the Middle East). - Relative likelihood / Impact if realized: High — Medium to High - Key effects: Lower remittances and weaker external balance. Lower growth and high inflation. - Policy responses: - Strengthen domestic revenue mobilization to increase social safety nets. - Governance and structural reforms to boost inclusive growth. - Higher energy prices due to steeper-than-anticipated export declines in some producers. - Relative likelihood / Impact if realized: Medium — Medium to High - Key effects: Higher export receipts but more than offset by higher import bill. Rising pressure on the exchange rate, reserves, and fiscal balance via fuel subsidies. - Policy responses: - Remove fuel subsidies. - Greater exchange rate flexibility to reduce external pressures and improve competitiveness. ### Regional risk - Oil production in South Sudan increases following peace agreement. - Relative likelihood / Impact if realized: High — High - Key effects: Reduction in fiscal and internal imbalances and inflation. - Policy responses: - Greater scope to increase exchange rate flexibility and phase out fuel subsidies to boost competitiveness and support fiscal consolidation. ### Country-specific risks: likelihood, impact, and policy responses - Larger than expected impact of loose policy settings on macro stability. - Relative likelihood / Impact if realized: High — High - Key effects: Sharp increases in inflation and exchange rate depreciation, potentially undermining social cohesion. - Policy responses: - Exchange rate liberalization to boost competitiveness and fiscal revenues. - Revenue mobilization. - Phase out fuel subsidies to help tighten fiscal and monetary policies. - Renewed domestic unrest from continued economic hardship. - Relative likelihood / Impact if realized: Medium/High — High - Key effects: Political instability and limited reform progress. - Policy responses: - Careful sequencing. Implementation of painful adjustment measures only after scaling up the SSN and extensive information and communications campaign deployed to secure public support. *1/ The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability of 30 percent or more). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.* --- ### Annex II. Path to Debt Relief ### Eligibility and current status for HIPC - Sudan is eligible for debt relief under the HIPC initiative but has yet to meet all the qualifications. - Key impediment: Sudan remains on the SSTL, which prevents the United States from offering aid (including debt relief) and impedes the reaching of consensus on debt relief in the Paris Club. - Conditions Sudan currently meets for HIPC: - 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 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 for participation - The resources required for the IMF’s participation in the HIPC Initiative have not yet been identified. - As of end-December 2019, Sudan’s outstanding arrears to the IMF stood at SDR 964.12 million. --- ### Annex III. External Stability Assessment ### Overall assessment - The external position of Sudan in 2019 was substantially weaker than implied by fundamentals. - Key contributing factors: repeated nominal devaluations in 2018, a depreciating parallel exchange rate, accelerating inflation, weak responses by exports and imports, exchange rate restrictions, and multiple-currency practices. - Recommended corrective actions: tighten fiscal and monetary policies, eliminate deficit monetization, remove multiple exchange rate practices and allow for greater exchange rate flexibility, and undertake urgent structural reforms to improve export competitiveness. ### Current account - Background: - The current account deficit (cash basis) decreased to an estimated 7.8 percent of GDP in 2019 from 8.6 percent in 2018. - Grants from friendly countries improved the current account, while the trade balance was broadly the same as in 2018. - The trade deficit accounts for most of the current account deficit. - In U.S. dollar terms, imports in 2019 are estimated to be lower than 2018 due to suppressed demand, but exports are also lower, leaving the trade balance somewhat higher in 2019. - Large trade deficit reflects overvalued exchange rates, slow recovery in oil production, and large dependence on imported food. - Assessment: - EBA-lite analysis results: - Cyclically-adjusted current account (2019): 7.8 percent of GDP - Multilaterally-consistent cyclically-adjusted current account norm (2019): -4.3 percent - Underlying CA gap: -3.6 percent of GDP - Of which explained by policy deviation: -0.6 percent (large and growing fiscal deficit, less than desired growth in reserves, contracting private credit) - Remaining unexplained portion reflects factors not well captured by the model (e.g., SSTL listing, arrears, 2011 secession effects) ### Real Effective Exchange Rate (REER) - Background: - In April 2019, the customs rate and the commercial bank rate were revalued: customs rate from SDG18/$ to SDG15/$ and commercial bank rate from SDG47.5/$ to SDG45/$, despite a depreciating parallel exchange rate. - Budget exchange rate remains at SDG18/$; parallel market rate at SDG 85/$ where about 80 percent of transactions take place. - Five exchange rates currently in use: (i) budget rate SDG 18/$; (ii) official central and commercial bank rate SDG 45/$; (iii) fuel exchange rate SDG 6.7/$; (iv) customs duty rate SDR15/$; (v) parallel market rate SDG 85/$. - Assessment: - EBA-lite Current Account model estimates REER remains overvalued by 36 percent. - Elasticities used/estimated: - Exports elasticity: -0.4 - Imports elasticity: 0.2 - Composite current account elasticity implied: -0.1 - Implication: Reducing the current account deficit by 1 percent of GDP requires about 10 percent real depreciation; closing the CA gap of -3.6 percent of GDP implies about 36 percent depreciation in the REER. - Other indicators of overvaluation: persistent current account deficit; large gap between official and parallel exchange rates; much higher inflation relative to trading partners while official exchange rates are fixed; low international reserves; continued accumulation of external arrears. - Note: REER overvaluation estimate would be higher if one-off grants from Gulf countries (which reduced the 2019 current account deficit) are excluded. ### Capital and financial flows - Background: - Capital flows dominated by FDI and Other Inflows (averaging around 40 percent and 60 percent, respectively, in 2014–18). - FDI declined to $1 billion in 2019 (3.0 percent of GDP), lower than $1.1 billion of FDI in 2018. - Other Inflows increased to $2.7 billion in 2019 from $2.2 billion in 2018 due to a $500 Million deposit made by Saudi Arabia and UAE in the Central Bank of Sudan Account. - Assessment: - Recent easing of U.S. sanctions is unlikely to affect the level or composition of capital flows in the short term. - Constraints: Sudan remains on the U.S. list of State Sponsors of Terrorism (SSTL), limiting access to external resources; slow reform progress and sizeable external debt and arrears also drag on capital flows. ### Reserves - Background: - Gross international reserves were estimated at $1.2 billion (1.7 months of imports) at end-2019, a slight increase from $852 million in 2018. - Reserves increased after deposits received from Saudi Arabia and the UAE. - Assessment: - Under current policies, little prospect of reserves increasing over the medium term. - Reserves are projected to remain at about 1 month of imports in the medium term. - Comparison benchmarks: traditionally recommended minimum of 3 months of imports; IMF reserve adequacy metric suggests 6–8 months. ### EBA-lite Assessment results (Percent of GDP) - CA-Actual: -7.8 - Cyclical Contributions (from model): 0.1 - Cyclically adjusted CA: -7.9 - CA-Norm: -4.7 - Cyclically adjusted CA Norm: -4.8 - Multilaterally Consistent Cyclically adjusted CA Norm: -4.3 - CA-Gap: 3.6 - of/which Policy gap: 3.5 - REER Gap: 35.5 - CA-Fitted: -0.6 - Residual: -7.2 - Natural Disasters and Conflicts: 0.6 --- ### Annex IV. Baseline and Policy Reform Scenarios ### Baseline projections assumptions and outcomes - Assumption: No policy changes implemented over the medium term. - Projected outcomes under the baseline: - Fiscal deficit continues to balloon. - Inflation continues to rise. - Growth remains negative in the near term. - Current account deficit continues to be large. - International reserves become depleted. ### Budget status and uncertainty - A budget was passed in late December, but: - It gives an incomplete picture of authorities’ policy intentions and is unlikely to be viable in its current form without substantial additional measures. - Notable omissions/concerns: - Planned energy subsidy reforms were removed at the last minute and decisions deferred to a national conference in March. - Plans for establishing a QUBI are not fully incorporated in the budget—which only incorporates the pilot program for 4.5 million persons. - The budget incorporates very optimistic revenue projections; if revenue expectations do not materialize, planned expenditures may need reconsideration. - Given uncertainty, the 2020 budget numbers were not directly incorporated in the baseline but are shown in a separate column. *Source: Annexes I–IV, Sudan country report materials.* ### 3. Against this background, staff prepared two scenarios—the authorities preferred ### 1sdnea2020001 - 3. Against this background, staff prepared two scenarios—the authorities preferred ### Overview - Staff prepared two scenarios to contrast the authorities’ preferred reform scenario (assuming sufficient political support and donor financing to fully implement the authorities’ package) with staff’s illustrative reform scenario. - The scenarios highlight differences in exchange rate policy, energy subsidy reform, social safety nets, fiscal revenue and expenditure measures, external balance, and financing gaps. ### Key differences between the two scenarios - Exchange rate policy - Staff recommended full exchange rate liberalization completed by the end of 2020. - Authorities preferred completing exchange rate liberalization by mid-2021. - Authorities preferred to liberalize all but customs and budget rates in March/April 2020; staff advised doing this in mid-2020 after key preconditions are met. - Authorities preferred to use a budget exchange rate of SDG 55/$ throughout 2020. - Staff advised liberalizing the budget rate together with other rates in mid-2020. - Both scenarios envisage average tariffs cut to 10 percent over the same horizon as customs exchange rate reform. - Staff recommended tightening monetary policy in the first three years of reform to minimize second round inflationary effects of gradual energy subsidy removal; authorities’ rapid reforms would make this unnecessary in their scenario. - Energy subsidy reform - Staff recommended gradual removal of subsidies over the medium term. - Authorities preferred a significantly faster pace: gasoline and diesel subsidies (about 80 percent of the total) eliminated in 2020 and the remainder soon thereafter. - Authorities’ rapid subsidy removal implies much higher inflation in 2020–21 than staff’s scenario, and nominal GDP in the authorities’ scenario is much higher than in staff’s scenario as a result. - Social safety net - Staff recommended expanding the SSN to cover 4 million families (about 60 percent of the population) at $20 per family per month, with a total annual cost of $960 million. - Authorities preferred a temporary (2½ year) QUBI covering 80 percent of the population at $5 per person, costing about $2 billion per year until removed; thereafter transition to a traditional cash transfer scheme covering about 30 percent of the population. - Fiscal revenue measures - Authorities’ immediate focus: expand the tax net to cover security sector owned companies, notably the $2 billion contribution expected from these companies in 2020. - Staff envisaged additional base-broadening measures over the medium term, including streamlining tax exemptions embedded in the Investment Law. - Fiscal expenditure plans - Staff recommended public wages keep up with inflation. - Authorities preferred a significantly higher public wage increase in 2020 (123 percent), permanently raising the public wage bill by ¾ percent of GDP. - With a higher revenue/GDP ratio in staff’s scenario, transfers to states (30 percent of total revenues) are also higher; capital expenditure rises faster in staff’s scenario. - External balance and financing gap - Staff’s scenario envisages a more appreciated REER path and more gradual current account adjustment. - International reserves paths in both scenarios set at three months of imports. - Although authorities’ fiscal deficit in 2020 is somewhat smaller than staff’s (in percent of GDP), differences in nominal GDP and exchange rate paths imply 2020 financing need under the authorities’ scenario is substantially higher than staff’s, entailing a significantly higher risk that required financing would not be forthcoming. ### Selected macroeconomic projections and key statistics (as presented) - Output and prices (selected rows) - Real GDP (market prices): 2019 Est. -2.5; Proj. 2020: 2.9 (Authorities), 2.9 (Staff illustrative?) [table shows multiple columns] - Nominal GDP (Billions SDG) (Authorities’ columns): 2019 Est. 2,033; 2020 Budget 2,080; 2021 Proj. 3,500; later years include 10,913; 15,332; 18,366; 20,826; 23,412 - Consumer prices (period average) (Authorities' columns): 2019 51.3; 2020 30.0; 2021 68.6; 2022 206.8; 2023 37.1; 2024 16.3; 2025 9.1 (table includes alternative scenario values such as 30.2, 19.4, 6.5, 6.2, 5.8, 4.8) - Central government revenue and grants (percent of GDP) - Total revenue and grants (Authorities' column examples): 2019 7.8; 2020 16.9; 2021 12.2; 2022 14.5; 2023 14.3; 2024 14.3; 2025 14.2 - Staff illustrative scenario examples: 2019 7.8; 2020 14.1; 2021 17.1; 2022 16.5; 2023 16.8; 2024 16.8; 2025 16.8 - Taxes (percent of GDP): 2019 5.4; 2020 4.7; 2021 5.7; later years show increases to 9.3 in 2025 in one column and alternative staff values reaching 13.0 in 2025. - Oil revenue (percent of GDP): 2019 1.3; 2020 3.2; 2021 2.3; 2022 4.7; alternative columns show 2019 1.3; 2020 4.3; 2021 3.7; 2022 2.7; etc. - Expenditure (percent of GDP) - Total expenditure 1/: 2019 18.7; 2020 19.1; 2021 20.6; later staff illustrative column shows 2019 18.7; 2020 23.0; 2021 23.2; 2022 22.1; 2023 20.5; 2024 19.4; 2025 17.8 - Subsidies (percent of GDP): 2019 11.8; 2020 7.6; 2021 7.5; staff illustrative shows subsidies decline over time to 1.3 by 2025. - Of which: Fuel (percent of GDP) Authorities' column examples: 2019 10.6; 2020 ...; later staff column shows fuel subsidies falling to 0.0 by 2025. - Transfers (percent of GDP): 2019 1.7; 2020 3.2; 2021 3.7; staff illustrative: 2019 1.7; 2020 4.2; 2021 5.1; 2022 5.0; 2023–2025 about 5.1. - Social spending (percent of GDP): 2019 0.7; 2020 1.3; 2021 2.5; staff illustrative peaks at 7.6 in 2022 then declines toward 3.1 in later years. - Overall balance and non-oil balance (percent of GDP) - Overall balance 1/: 2019 -10.8; 2020 -2.2; 2021 -8.4; staff illustrative: 2019 -10.8; 2020 -9.0; 2021 -6.1; 2022 -5.6; 2023 -3.7; 2024 -2.6; 2025 -1.0 - Non Oil Balance: 2019 -12.2; 2020 -5.4; 2021 -10.7; alternative columns show -12.2, -13.3, -9.9, -8.3, -6.4, -5.2, -3.5. - Monetary and external sector (selected) - Broad money (annual change percent) Authorities' columns: 2019 66.8; 2020 50.0; 2021 73.5; staff illustrative shows 2019 66.8; 2020 35.9; 2021 23.1; 2022 11.8; 2023 26.2; 2024 14.7; 2025 14.8. - Current account balance (cash basis) (percent of GDP): 2019 -7.8; subsequent projections vary across scenarios (examples include -7.7, -4.6, -7.1, -5.0, -4.4). - External debt (in billions of US$): 2019 54.6; projections include 61.1, 58.2, 57.9, 57.6, 58.9, 60.2 in later rows; staff illustrative shows 2019 54.6; 2020 59.7; 2021 59.2; 2022 58.7; 2023 58.3; 2024 59.1; 2025 60.0. - Gross international reserves (in millions of US$): 2019 1,203; later rows show 1,788; 1,829; 1,882; 1,934; 1,988; 2,044; staff illustrative shows 2019 1,203; 2020 2,061; 2021 2,243; 2022 2,302; 2023 2,357; 2024 2,411; 2025 2,466. - Reserves in months of imports: 2019 1.9; projections set to 3.0 across scenario horizons. - External Financing Gap (Millions US$) - Authorities’ scenario (example rows): 2020 5,296; 2021 1,298; 2022 1,260; 2023 457; 2024 573; 2025 592. - Staff illustrative scenario (example rows): 2019 ...; 2020 3,954; 2021 2,281; 2022 2,123; 2023 1,198; 2024 762; 2025 404. - Of which: Budget Support examples: Authorities’ scenario includes 4,711 in one row and 1,256, 1,208, 404, 518, 537 in subsequent rows; staff illustrative examples include 2,719, 1,941, 1,879, 1,144, 708, 349. - Reserve Augmentation and Exchange Rate Stabilization items reported with series including small values (e.g., Reserve Augmentation ... 585, 42, 53, 52, 54, 56; staff illustrative ... 858, 183, 59, 54, 54, 55; Exchange Rate Stabilization ... 377, 158, 185, 0, 0, 0). - Exchange rates (Period Averages) - Parallel Exchange Rate: 2019 69.4; 2020 116.8; projections include 358.3, 491.2, 571.4, 623.7, 674.5; alternative staff illustrative shows 2019 69.4; 2020 85.4; 2021 85.4; 2022 85.4; 2023 90.3; 2024 95.6; 2025 100.2. - Budget Exchange Rate: 2019 18.0; 2020 55; columns show 55 then align to 358.3, 491.2, etc.; staff illustrative shows 2019 18.0; 2020 79.1; 2021 85.4; etc. - Official Rate: 2019 45.6; later series include 106.2 and alignment to large depreciations; weighted average series show 60.5 and later values. ### Debt sustainability findings - DSA conclusion: Sudan continues to be in debt distress; both public and external debt ratios remain high, and the bulk of external debt is in arrears. - External debt is assessed to be unsustainable. - All external debt indicators breach their indicative thresholds under the baseline scenario and stay above thresholds throughout the time horizon of the analysis. - External debt levels and composition - External debt amounts to about $55 billion, or 193 percent of GDP at end-2019, rising from 176 percent of GDP in 2018 due to currency depreciation from SDG45/$ to SDG72/$ on a weighted average basis. - About 85 percent of the external debt was in arrears in 2019. - Total PPG $54,560.09 million in 2019 (2010 total PPG $37,927.00 million shown for comparison). - Composition (2019): Multilateral 5,467.50 (10.0 percent); Bilateral 41,258.60 (75.6 percent) split roughly equally between Paris Club $20,550.10 (37.7 percent) and Non-Paris Club $20,158.50 (36.9 percent); Commercial 7,833.90 (14.4 percent). - Principal of PPG in arrears about $10.9 billion; the remainder are interests in arrears. - Total public debt reached 211.7 percent of GDP by end-2019; domestic debt accounts for about 10 percent of GDP. - Debt carrying capacity - Sudan’s Composite Indicator (CI) index: 1.882 (noted as 1.88/1.881 in nearby text), indicating weak debt-carrying capacity in the revised LIC-DSA framework. - Applicable thresholds (selected): PV of debt-to-exports threshold 140 (up from 100); GDP benchmark 30; Debt service-to-exports threshold 10 (down from 15); Debt service-to-revenue 14 (down from 18); PV of total public debt benchmark 35 (down from 38). ### Risks and policy implications highlighted - Critical to undertake sound economic policies, including a prudent borrowing strategy, and to continue garnering support for debt relief. - Normalization of relations with external creditors and reaching HIPC decision point are key preconditions for debt relief. - The authorities requested a Staff Monitored Program (SMP) contingent on finalization of the authorities’ reform package and on sufficient external financing assurances from donors. - Significant debt statistic gaps require reconciliation of external debt data; IFIs and private sector representatives are working with authorities to reconcile external debt data. - Major risk: Authorities’ preferred rapid reform pace and associated higher financing needs in 2020 raise the risk that required financing would not be forthcoming, with potentially destabilizing effects. *Source: Ministry of Finance and IMF Staff estimates; IMF staff report excerpts as provided in the supplied content.* ### Box 1. Macroeconomic Assumptions 2019–39 ### Box 1. Macroeconomic Assumptions 2019–39 ### Natural resources - Oil production: 72 thousand barrels/day in 2019, showing a continued decline. - Medium-term oil production: flat due to ageing oil fields and moderate exploration. - Oil price projection: Sudan’s crude oil is projected to average $60/barrel in the medium term. - Fuel subsidy costs: rising due to increasing crude imports and the fuel import exchange rate being fixed at SDG 6.7/$. - Exchange rates (as of December 2019): official exchange rate at SDG 45/$ and the dominant parallel market at SDG 85/$. ### Real sector - Real GDP growth: - 2019: contract by 2.5 percent. - 2020: contract by 1.2 percent. - 2021: contract by 0.6 percent. - 2025: reach 1.5 percent (positive growth only after 2021 absent reforms). - Inflation: - 2019: about 51 percent. - 2025: about 86 percent. - Exchange rate: nominal exchange rate will continue to depreciate dramatically. - Drivers and risks: - Weak competitiveness, poor business environment, and social turmoil drove 2019 contraction. - Baseline assumes no active policy measures while the new civilian government prepares reforms. - Overvalued exchange rate, loose fiscal policies financed by money creation, and weak business environment widen macro imbalances and compromise growth. ### Fiscal sector - Baseline fiscal deficit: - Projected to deteriorate over the medium term to 18.6 percent in 2025. - Primary deficit over the longer run and through 2039 expected to stabilize at about 18.8 percent of GDP. - Causes of deterioration: revenue losses from use of overvalued official exchange rate for government transactions and tariff collection, dwindling revenues, and rising fuel subsidy spending. - Domestic debt: projected to continue rising and remain unsustainable under these assumptions. ### External sector - Current account deficit: - Expected to remain elevated over the medium term, at about 5.2 percent of GDP by end-2025. - Long run: imports expected to contract and trade balance to slowly improve in absolute terms, but remain elevated. - Financing of deficit: anticipated to be financed by foreign direct investment and modest external debt accumulation. ### External debt (baseline assumptions) - New loan disbursements: expected to remain limited, at about 0.12 percent of GDP during 2019–39. - Composition of new loans: share of new concessional loans assumed at around one-third. - Arrears policy: assumed continued non-service of obligations arising from the stock of arrears. - Effective interest rate: declining because interest payments decrease over time while the stock of debt continues to grow. - Projected financing gaps: added to the external debt stock. ### Financing assumption (domestic) - Government financing in the medium term: bulk from the central bank’s direct monetization, given large external arrears and limited domestic financial market depth. - Longer term: financing from other domestic creditors expected to increase. - Interest rate on government bonds: latest available market interest rate (which in real terms is negative) applied in projections; commercial banks have limited investment options and investing in government bonds reduces losses relative to holding cash. ### B. External Debt Sustainability (key outcomes) - PPG external debt indicators: remain above indicative thresholds throughout the 20-year projection period. - PV of PPG external debt: - About 163.4 percent of GDP at end-2019 (more than threefold the 30 percent threshold for weak policy performers). - Projected to stay above the threshold through the projection period. - PV of debt-to-exports: about 1193.3 percent in 2019. - Debt service: will continue to increase steadily over the long term. - Debt service will increase by $512 million due to scheduled interest payment to Saudi Arabia and U.A.E in 2022. - Reform scenario: debt path improves but remains unsustainable without debt relief. ### B. External Debt Sustainability (vulnerabilities and shocks) - Vulnerabilities: - PV of debt-to-GDP most vulnerable to combined shock. - PV of debt-to-exports and debt service-to-exports most vulnerable to an export shock. - Combined shock definition and impact: - Key variables (real GDP growth, primary balance, exports, other flows) adjusted by 0.5 standard deviation from their historical averages and exchange rate depreciates by 51 percent. - PV of debt-to-GDP would increase from 163 percent to 196 percent under the combined shock. ### C. Overall Risk of Public Debt Distress - Public debt sustainability: - Present value of public debt: about 212.9 percent of GDP at end-2019. - Projected to remain above threshold through projection period, reaching 420 percent of GDP by 2039. - PV of public debt to revenue: - 2718.7 percent by end of 2019. - Projected to increase to about 9465.9 percent by 2039. - Drivers of the historical scenario: rapidly rising historical scenario largely due to structural break caused by the separation of South Sudan leading to negative historical averages. - Interest/profit margins in Islamic banking system: remain at 12-15 percent even after inflation rose to about 70 percent in 2019. - Public DSA bound tests: public debt path most vulnerable to real GDP growth. ### Comparisons, data quality, and realism tools - Differences from previous DSA: significant differences compared to the previous DSA driven mainly by large depreciation of parallel market exchange rate, mounting inflation, and reduced fiscal space leading to increased arrears and worsening debt carrying capacity. Use of older model in DSA 2013 may also contribute to discrepancies. - Realism tool findings: - Any adjustment greater than 2.5 percent of GDP over a 3-year period falls in the top quartile of adjustments within the sample. - A significant fiscal adjustment of 4 percent of GDP may be needed to stay within financing constraints and enhance confidence during the reform episode. - Large fiscal consolidation could create a temporary drag on growth, while continued monetization of implicit fuel subsidies by the central bank has contributed to severe decline in growth. - Data quality issues: - Multiple currency practices and continued depreciation of the parallel market exchange rate complicate analysis. - Poor quality and timeliness of fiscal and balance of payments data. - Authorities’ published national account is outdated with a base year of 1981/82; data on investment and consumption lack accuracy. - Staff unable to provide a proper analysis of contribution of investment to real GDP due to data limitations. *Source: Box 1. Macroeconomic Assumptions 2019–39* ### CONCLUSIONS ### CONCLUSIONS ### Debt sustainability and macroeconomic outlook - Sudan’s external debt remains in distress and unsustainable. - The results of this DSA are broadly unchanged from previous DSAs, as no major policy correction has been undertaken and no debt relief has been granted to Sudan. - The economy continues to shrink, fiscal and external imbalances widen, inflation is high, the currency is overvalued, and competitiveness is weak. - Under these conditions it is impossible for Sudan to service its disproportionate debt. - 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 remains unsustainable, driven mostly by external debt dynamics. - Data shortcomings: major shortcomings in macroeconomic data, in terms of quality and timeliness, impair economic analysis and create uncertainty on potential reform outcomes. ### Key statistics (selected, as reported) - External debt (nominal): 2018 = 180.8; 2019 = 198.2; 2020 = 204.3; 2021 = 211.3; 2022 = 209.7; 2023 = 209.8; 2024 = 211.7. - PV of PPG external debt-to-GDP ratio: 2018 = 149.1; 2019 = 163.4; 2020 = 163.0; 2021 = 164.7; 2022 = 160.4; 2023 = 158.9; 2024 = 159.7; 2029 = 166.6; 2039 = 180.1. - Public sector debt (percent of GDP, selected years): 2016 = 127.9; 2017 = 159.6; 2018 = 185.6; 2019 = 211.7; 2020 = 227.6; 2021 = 242.5; 2022 = 251.4; 2023 = 254.7; 2024 = 256.0; 2029 = 312.8; 2039 = 418.3. - PV of public debt-to-GDP ratio (projections, selected): 2021 = 212.9; 2022 = 229.6; 2023 = 245.2; 2024 = 253.2; 2025 = 256.3; 2029 = 315.2; 2039 = 420.7. - Gross external financing need (Million of U.S. dollars): 2018 = 6,164.0; 2019 = 5,386.9; 2020 = 6,116.7; 2021 = 5,833.8; 2022 = 8,000.6; 2023 = 6,393.2; 2024 = 5,322.1; 2029 = 4,003.9; 2039 = 3,259.6. - Real GDP growth (in percent, selected): 2018 = -2.3; 2019 = -2.5; 2020 = -1.2; 2021 = -0.6; 2022 = 0.4; 2023 = 1.1; 2024 = 1.5; 2029 = 1.5; 2039 = -0.8 (note: table lists a range of years and projections). - Government revenues (excluding grants, in percent of GDP): 2018 = 8.7; 2019 = 7.4; 2020 = 6.3; 2021 = 5.5; 2022 = 5.0; 2023 = 4.8; 2024 = 4.7; 2029 = 4.4. - Inflation rate (GDP deflator, in percent, selected): 2016 = 20.7; 2017 = 28.9; 2018 = 68.9; 2019 = 52.2; 2020 = 67.0; 2021 = 74.5; 2022 = 80.0; 2023 = 83.0; 2024 = 84.7. ### Policy recommendations and required actions - Further efforts are needed for Sudan to obtain much-needed debt relief and regain access to external financing. Sudan needs to: - (i) continue to step up outreach efforts to its creditors to garner broad support for debt relief; - (ii) continue to cooperate with the IMF on economic policies and payments with a view to establishing a track record of sound macro policies; - (iii) renew the commitment to develop a full-fledged PRSP; and - (iii) minimize new borrowing on non-concessional terms, since it further increases the future debt burden, and instead secure foreign support on highly concessional terms to finance necessary development and infrastructure expenditures. - Address major shortcomings in macroeconomic data (quality and timeliness) to improve economic analysis and reduce uncertainty about reform outcomes. ### Authorities’ views and planned reforms - The authorities concurred with staff that absent reforms, debt restructuring and access to debt relief, the current economic prospects appear bleak and debt will remain unsustainable. - The authorities are engaged in designing a reform plan which will address the main sources of imbalances and boost inclusive growth, including: - liberalization of the exchange rate; - revenue measures and phasing out of fuel subsidies, accompanied by an expansion of social safety nets to mitigate the impact of adjustment on vulnerable groups; - measures to fight corruption, improve governance and the business environment. - The authorities continue to engage with creditors and are intensifying outreach efforts to the donors’ community to pave the way toward debt relief. - The authorities have been petitioning key donors for the de-listing of Sudan from the SSTL and have requested an IMF Staff Monitored Program to help reestablish macroeconomic stability and create conditions for stronger, broad-based economic growth. *Source: CONCLUSIONS (Sudan): staff report and debt sustainability analysis.* ### 1. Our Sudanese authorities thank staff for the constructive engagement and candid ### Our Sudanese authorities thank staff for the constructive engagement and candid discussions during the recent Article IV Consultation mission in Sudan ### Context - Rapid deterioration in economic and social conditions in recent years amid a political impasse sparked protests that culminated in regime change in April 2019. - A power-sharing deal agreed in August 2019 paved the way for the formation of the Transitional Government of Sudan. - The new government inherited legacy challenges: a shrinking economy, large fiscal and external imbalances, high inflation, a difficult humanitarian situation, and substantial governance challenges. - Sudan’s designation as a State Sponsor of Terrorism (SST) has: - prevented progress towards debt relief and clearance of arrears to the Fund; - weighed heavily on correspondent banking relationships. - Government priorities since taking office: - implement fundamental economic reforms; - reintegrate Sudan into the global economy; - promote peace across the country. - Early progress: - good progress in peace talks with armed rebels in the first four months in office; - commenced efforts to normalize relations with the U.S. government to remove Sudan from the SST list and pave the way for debt relief. - Consensus-building on reforms: - intensified media interviews and outreach to political parties, academia, and professionals; - national economic conference planned for March 2020 to determine reform priorities and pace/sequence of key policy measures, including fuel subsidy reforms; - donor conference to mobilize financial resources expected in April/May 2020. ### Key Reform Priorities - Authorities view reforms as needing proper sequencing, flexibility, and condition-based implementation. - Prioritized areas: strengthening social safety nets, subsidy reform, prudent fiscal management, and reform of the monetary policy framework. - International community seen as important to ease the burden of reforms. A. Reforming Fuel Subsidies - Authorities intend to fully remove fuel subsidies over the near to medium terms. - First step: partial removal of subsidies on commercial fuel in February 2020. - Continued outreach to build public support and use outcomes of the March 2020 national economic conference to determine pace. B. Strengthening Social Safety Nets - Preparatory work commenced with support from the World Bank and United Nations. - Intend to adopt a Quasi-Universal Basic Income (QUBI) scheme with near-universal coverage due to pervasiveness and high rate of poverty. - Rationale: broader QUBI coverage better suited for targeting and logistical challenges than a targeted approach. - Plan to leverage fintech to enhance QUBI outreach and utilize data from the national registry and the forthcoming population census to improve targeting. - Intend to increase public wages that have been frozen since 2017 despite the massive increase in inflation. - Intend to increase spending on education and health to achieve the 2030 Sustainable Development Goals. C. Enhancing Revenue Mobilization - Completed a comprehensive stock take of existing tax policies and practices to inform policy formulation. - Plans include: - rationalize tax exemptions and broaden the tax base, including extending tax coverage to the security sector’s commercial companies; - significant increase in grants and loans; - expectations that recovery and sale of stolen government assets will yield additional revenues; - considered increase in the customs rate to augment revenues from customs duty and import VAT, to be implemented gradually to moderate effects on the already high inflation rate. - Authorities have requested Fund technical assistance on tariff reform. D. Improving Public Financial Management - Plans to strengthen public financial management, reform state-owned enterprises, and overhaul the public procurement system to address governance weaknesses and reduce expenditure leakages. - Improve budget planning through adoption of a medium-term fiscal framework and strengthen capacity of the macro-fiscal unit in the Ministry of Finance and Economic Planning (MOFEP). - Efforts to operationalize the treasury single account to enhance MOFEP’s control of public finances. - Measures taken to incorporate all public enterprises, including the security sector’s commercial companies, under MOFEP oversight. - Implemented measures to reduce monetization of the fiscal deficit. - Authorities appreciate Fund technical assistance on management of fiscal risks. E. Restoring Monetary and Exchange Rate Stability - Tightening monetary policy considered critical to contain rising inflation and exchange rate pressures. - Plans include: - keep central bank financing of the budget within statutory limits; - employ available monetary policy instruments to mop-up excess liquidity. - Fully liberalized artisanal gold market to help contain monetary expansion associated with gold purchases by the Central Bank of Sudan (CBOS) and ease inflationary pressures. - Work underway to amend the CBOS Act to strengthen autonomy and improve monetary policy transmission; Fund technical assistance requested. - Intend to adopt a reserve money targeting framework in the short to medium term to help anchor inflation and lay foundation for eventual inflation targeting. - Authorities recognize importance of unifying multiple exchange rates but prefer a more gradual pace to minimize inflationary impact and provide more room to strengthen social safety nets. F. Strengthening Financial Sector Resilience - Continue modernizing banking regulations and strengthening supervisory capacity to preserve financial stability and enhance resilience. - Specific measures: - augment bank capitalization; - review options for voluntary bank mergers; - mitigate exchange rate risks. - Addressing AML/CFT deficiencies by operationalizing risk-based AML/CFT supervision, strengthening the Financial Intelligence Unit, and improving efficacy of AML/CFT supervisory actions in line with Fund TA recommendations. ### Structural Reforms - Stepped up efforts to strengthen governance, improve the business environment, and boost private investment. - Recently approved laws to fight corruption and unlawful enrichment and expedite recovery of stolen government assets, including a law to establish an independent anti-corruption commission. - Amending the Investment Law, fostering dialogue with the private sector, and strengthening legal and institutional frameworks for Public-Private Partnerships (PPPs) with support from the World Bank and IFC. - Plan to promote financial inclusion through enhanced access to finance for MSMEs and leverage fintech and the electronic mobile payments system to extend financial coverage to remote areas. ### Conclusion - Authorities committed to implementing prudent macroeconomic policies and structural reforms to restore macroeconomic stability and support economic recovery. - Formally requested a Staff Monitored Program (SMP) to anchor economic reforms and catalyze support for debt relief. - Recognize importance of donor support to facilitate reform implementation and have requested assistance. - Authorities express appreciation to the Fund for advice and technical assistance provided thus far and look forward to additional support in implementing reforms. *Source: IMF staff report content provided in the supplied PDF excerpt.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1sdnea2020001.pdf_