## 1sdnea2020003

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### Executive summary — context and objectives
- Transitional government requested a Staff‑Monitored Program (SMP) to: help address major macro imbalances, lay the groundwork for inclusive growth, and establish a track record of sound policies required for eventual HIPC debt relief.
- Major challenges:
  - Economic contraction since 2018, set to intensify sharply in 2020 due to the COVID-19 pandemic.
  - Large fiscal and external imbalances, high and rising inflation, an overvalued currency, and weak competitiveness.
  - Dire humanitarian situation with large numbers of internally displaced people and refugees.
  - Sudan cannot access Fund financial assistance because of (i) arrears to the Fund, (ii) arrears to other IFIs and other creditors, and (iii) unsustainably large external debt.
  - Sudan remains on the U.S. state sponsors of terrorism list (SSTL), which effectively hinders progress toward HIPC debt relief.
- Public tolerance for painful reforms is fragile given prolonged economic hardship; donor assistance has been well short of amounts needed and risks to the SMP are high.
- SMP modalities:
  - Duration: 12-month SMP with semi-annual reviews, from July 2020–June 2021.
  - Quantitative benchmarks: ceiling on banking system net credit to government; ceiling on central bank net domestic assets; floor on net international reserves; ceiling on non-concessional external borrowing.
  - Indicative targets: social spending; reserve money; non-oil primary fiscal deficit.
  - Structural benchmarks: 11 benchmarks focusing on customs exchange rate reform, PFM, governance and anti-corruption, central bank independence, and banking supervision.
- Staff view: SMP contains forward-looking policy commitments of UCT quality; Directors’ endorsement to be sought at a Board meeting tentatively planned for September 23, 2020.

### Recent developments and near-term outlook
- Growth and contraction:
  - GDP contracted by 2½ percent in 2019 (on top of a 2¼ percent contraction in 2018).
  - An additional contraction of 8½ percent is expected in 2020 due to the pandemic.
- Fiscal developments (selected):
  - Revenues and grants: 7¾ percent of GDP in 2019.
  - Total expenditure: 18¾ percent of GDP in 2019.
  - Fiscal deficit: 10¾ percent of GDP in 2019.
  - Available data through April 2020 indicate total revenues and grants were 50 percent below initial budget projections.
- External financing and donor support:
  - At Sudan Partnership Conference (June 25, 2020) donor pledges totaled $1.8 billion, plus a World Bank pre-arrears clearance grant of about $400 million expected to be approved in September 2020.
  - About $200 million previously received to support COVID-19 response.
  - Overall about $1.1 billion in additional external financing made available by donors thus far to support fiscal operations over 2020–21; together with normal development project grants estimated at $410 million, total external financing over 2020–21 is estimated at $1.5 billion.
  - Staff estimates a financing need of $5.4 billion to eliminate fiscal deficit monetization and increase gross usable international reserves to 3 months of imports.
- Exchange rate, inflation, reserves:
  - Parallel market exchange rate depreciated from SDG 85/$ at end-2019 to SDG 143/$ in July 2020.
  - Inflation rose from 57 percent in December 2019 to 144 percent in July 2020.
  - Gross usable international reserves: $190 million at end 2019 (0.3 months of imports).

### Outlook without reforms vs. SMP projected outcomes
- Without corrective measures:
  - Growth likely to remain very weak; bank fragility will continue to rise; high inflation and shortages will aggravate social tensions; fiscal and current account deficits will widen, raising risk of disorderly adjustment.
- SMP projected macro outcomes if successfully implemented with sufficient financing and debt relief:
  - GDP growth to 4½ percent over the medium term.
  - Current account deficit reduced to 3¼ percent of GDP over the medium term.
  - Deficit decline by 7¼ percent of GDP over 2020–21 (from fiscal measures and donor grants).
  - Restoration of external viability and improvement in international reserves albeit from very low levels.
- Staff assessment: macroeconomic and structural policies under the SMP are of UCT quality; authorities show commitment and capacity including adoption of prior actions in critical areas.

### Exchange rate, monetary, and financial sector reforms
- Exchange rate reform:
  - Move to a unified and market‑clearing exchange rate; unification of all but the customs exchange rate to occur in September 2020 (structural benchmark); customs exchange rate (current SDG 15/$) to be adjusted gradually from end‑September 2020 and unified with market rate by June 2021 (structural benchmark).
  - Band on daily exchange rates set by banks and FX bureaus during initial reform period; band to be widened progressively and discussed post end‑March 2021.
  - Authorities committed to refrain from imposing administrative restrictions on current account transactions.
- Preparatory measures and bank resilience:
  - Bank-by-bank stress testing completed; results indicated nine banks vulnerable to exchange rate adjustment; remedial measures agreed including capital injections, dividend restrictions, and other regulatory measures in September. About SDG 3 billion could be needed to increase capital in problematic banks.
- Monetary policy and instruments:
  - Reserve money targeting framework under SMP to help contain inflation; central bank may tighten policy by increasing required reserves; sales of central bank securities to be deployed though stock is limited.
  - Active treasury committee to enhance coordination between CBOS and the ministry of finance.
  - Convert central bank long‑term claims on government (SDG 263 billion, about 13 percent of GDP in 2019) into government securities to increase available stock for monetary policy.
- Central bank governance and supervision:
  - New Central Bank Law to be submitted to legislative council by end‑December 2020; passage of the law a structural benchmark for June 2021.
  - Strengthen supervision: modernize banking regulations in line with Islamic Financial Stability Board standards; limits on net open FX positions and on‑lending in foreign currency.
  - By end‑March 2021: establish communication procedures between supervision and regulation and conduct semi‑annual stress tests (structural benchmark).
  - Asset quality reviews of systemically important banks by June 2021; strengthen bank recovery and resolution framework by September 2021.
  - Replace central bank officials on commercial bank boards with independent directors by end 2020; central bank to exit positions in state‑owned banks by February 2021 and commercial banks by December 2021.
- AML/CFT:
  - Complete national ML/TF risk assessment; increase FIU capacity; fully implement risk‑based AML/CFT supervision; thematic AML/CFT on‑site inspections of highest‑risk banks by end‑March 2021 and provide aggregate data to the Fund on violations and sanctions (structural benchmark).

### Fiscal consolidation: measures, arithmetic, and projections
- Fiscal adjustment and prior actions:
  - Revised 2020 budget incorporates fiscal adjustment of 4   percent of GDP in 2020 reflecting exchange rate reform impacts, revenue measures, higher donor grants, and elimination of diesel and gasoline subsidies (prior action).
  - Further fiscal adjustment of 3¼ percent of GDP for 2021 as customs exchange rate reform increases import taxation and COVID‑19 revenue impacts reverse.
- Fuel subsidy reforms:
  - Reform commenced in February 2020 with announcement of commercial prices about five times fully subsidized prices; full elimination of gasoline and diesel subsidies planned for September 2020.
  - Total spending on fuel subsidies reduced by 8¼ percent of GDP in 2020 and 1½ percent of GDP in 2021.
- Major fiscal changes (exact figures):
  - Social spending rise: 1¼ percent of GDP in 2020 and 1¾ percent of GDP in 2021.
  - Public wages rise: 2¼ percent of GDP in 2020 and stable in 2021.
  - Capital expenditure rise: ¼ percent of GDP in 2020 and ½ percent of GDP in 2021.
  - Transfers to states: decline by ½ percent of GDP in 2020 and rise by 3 percent of GDP in 2021.
  - Overall fiscal expenditure: decline by 5 percent of GDP in 2020, rise by 3¾ percent of GDP in 2021.
- Revenue and grants dynamics (exact figures):
  - Valuation effects from exchange rate reform raise oil revenue ½ percent of GDP in 2021.
  - Additional donor grants increase receipts by 1 percent of GDP in 2020 and 1¼ percent of GDP in 2021.
  - Customs exchange rate adjustment raises import taxation revenues by ½ percent of GDP in 2020 and 3½ percent of GDP in 2021.
  - COVID‑19 reduces revenues by 2½ percent of GDP in 2020, assumed partially reversed in 2021.
  - Broadening VAT base raises revenue by ¼ percent of GDP in 2020 and ½ percent of GDP in 2021.
  - Overall, revenue and grants decrease by 1 percent of GDP in 2020 and increase by 7 percent of GDP in 2021.
- Overall fiscal balance effects:
  - Measures and donor grants reduce fiscal deficit by 4 percent of GDP in 2020 and 3¼ percent of GDP in 2021.
  - Medium‑term target: deficit in the range of 1–2 percent of GDP as appropriate anchor; restoring debt sustainability requires HIPC debt relief.

### Social protection and Sudan Family Support Program (SFSP)
- SFSP design and rollout:
  - Payments commenced in July 2020.
  - Coverage to be progressively expanded until 80 percent of the population is covered by February 2021; urban areas prioritized earlier.
  - Monthly benefit per person: SDG 500 (about $3) in 2020, with an inflation adjustment in 2021.
  - SFSP cost: 1¼ percent of GDP in 2020 and 1¾ percent of GDP in 2021 (estimated including additional health expenditure).
  - Planned exit from SFSP in 2022 to be replaced with a targeted cash transfer system covering only vulnerable families.
- Importance: SFSP critical to mitigate adjustment pain and facilitate reform implementation; strong upfront communication needed to mitigate political difficulties from exiting SFSP.

### Responding to COVID‑19: allocations and donor grants
- Authorities allocated SDG 45 billion to respond to COVID‑19, including:
  - Health and related infrastructures: 23.5 SDG billion
  - Unemployment benefits: 4.5 SDG billion
  - Social protection (cash transfers during lock-down): 7 SDG billion
  - Basic commodities support: 10 SDG billion
  - Total: 45 SDG billion
- Donor support and grant figures (as presented; verbatim where provided):
  - Project grants 120 0.1 290 0.9
  - COVID-19 grants 202 0.4 0 0.0
  - Family Support Program grants3281.06001.8
  - Total6501.5 8902.7
  - Note: "In 2020,  project grants and $113 million for covid-19 was converted to national currency at budget rate of SDG/$55. The rest is converted at SDG/$138 in line with the exchange rate reform in the second half of 2020."
- Observation: "With cases continuing to rise, however, more could be needed than currently budgeted to deal with the healthcare implications."
- COVID‑19 health impact (reported): Number of infected people rose rapidly to 13,189, with 823 deceased (as of August 30).

### Debt, DSA conclusions, and HIPC pathway
- Debt levels and arrears:
  - Public and external debt ratios: 200.3 percent of GDP and 198 percent of GDP, respectively, in 2019 (other tables show similar high ratios).
  - Sudan’s external debt estimated about $56.3 billion, or 199 percent of GDP at end‑2019; about 85 percent of external debt was in arrears in 2019.
  - As of end‑June 2020, Sudan’s outstanding arrears to the IMF stood at SDR 963.58 million.
- DSA findings and projections (selected verbatim figures):
  - External debt (nominal) (in percent of GDP): 2020: 253.1; 2021: 245.6; 2022: 210.0; 2023: 196.4; 2024: 191.5; 2025: 187.3; 2040: 97.6.
  - PV of PPG external debt-to-GDP ratio (selected years): 2022: 164.6; 2023: 172.9; 2024: 177.7; 2025: 179.3; 2040: 130.6.
  - Gross external financing need (Million of U.S. dollars) (selected years): 2020: 6010.1; 2021: 6164.0; 2022: 6329.1; 2023: 5306.5; 2024: 4590.1; 2025: 6576.6.
  - Nominal GDP (Million of US dollars) (selected years): 2017: 45,944; 2018: 35,680; 2019: 33,359; 2020: 32,576; 2021: 32,476; 2022: 31,868; 2025: 35,354.
- Path to HIPC Decision Point (key conditions):
  - Complete debt reconciliation and obtain assurances of support from creditors representing at least 70 percent of HIPC-eligible debt.
  - Establish an adequate track record of strong policy performance under an SMP judged by the Executive Board to meet UCT standards.
  - Clear arrears with the IMF and have a fully financed plan and timetable to clear arrears with the World Bank and AfDB.
  - Prepare an updated I-PRSP or full PRSP.
  - Agree on Completion Point triggers.
- Staff recommendations:
  - Adopt a prudent debt strategy minimizing non-concessional borrowing and avoid selective debt servicing; strengthen debt management capacity with World Bank assistance.
  - Need to mobilize resources for IMF’s share of debt relief.
- DSA conclusion: Sudan remains in debt distress; restoring debt sustainability will require HIPC debt relief combined with program implementation and financing.

### Structural reforms, governance, and PFM strengthening
- Governance and anti‑corruption:
  - Prepare and pass a new Anti‑Corruption Law by October 2020 (structural benchmark); establish an independent Anti‑Corruption Commission by March 2021 (structural benchmark).
  - Implement December 2019 law to dismantle corrupted institutions, recover looted assets, prosecute individuals associated with the former regime; recovered assets to be transferred to the Ministry of Finance and used transparently.
- State‑owned enterprises (SOEs):
  - Publish inventory of all SOEs by end‑December 2020.
  - Transfer oversight responsibilities of all SOEs (excluding purely military companies) to the Ministry of Finance by end‑December 2020.
  - Introduce new corporate governance rules for SOEs and assess strategic objectives to determine public vs. privatized entities.
- Public Financial Management (PFM):
  - Incorporate medium‑term fiscal framework into budget planning by 2022.
  - Strengthen macro‑fiscal unit, extend cash ceilings from one to three months, improve payment management and expand TSA coverage.
  - Structural benchmark: publish monthly budget execution reports consistent with GFSM2001 by end‑December 2020.
  - Strengthen public procurement rules with World Bank TA.
- Private sector and inclusive growth:
  - IFC and World Bank support to improve investment climate, PPP frameworks, MSME development, and prepare a private sector diagnosis; IFC to scale up advisory services to support the new Investment and Private Sector Development Authority.
  - Authorities to prioritize improving macroeconomic data quality (national accounts, BOP, labor market).

### Program monitoring, benchmarks, and reporting requirements
- Prior actions (completed):
  - (i) Completing bank-by-bank stress tests to exchange rate shocks and remedial measures including recapitalization and temporary regulatory forbearance ahead of exchange rate reform.
  - (ii) Passing revised 2020 budget consistent with program objectives including SFSP expansion and revenue mobilization.
- Quantitative benchmarks and indicative targets (Table 1, verbatim examples):
  - Banking system net credit to the central government (ceiling: SDG billion): 386 (2019 Dec); 672 (2020 Dec); 819 (2021 Jun).
  - CBOS net domestic assets (ceiling: SDG billion): 830 (2019 Dec); 1,083 (2020 Dec); 1,203 (2021 Jun).
  - Net international reserves (floor: in millions of U.S. dollars): (728) (2019 Dec); (594) (2020 Dec); (511) (2021 Jun).
  - Social spending (floor: SDG billion): 15 (2019 Dec); 99 (2020 Dec); 201 (2021 Jun).
  - Reserve money (ceiling: SDG million): 516 (2019 Dec); 766 (2020 Dec); 890 (2021 Jun).
- Structural benchmarks (selected deadlines and objectives):
  - MOFEP to publish monthly budget execution reports (GFSM2001) — Dec. 2020.
  - Adopt automatic fuel pricing mechanism — Sept. 2020.
  - Publish SOE inventory and transfer oversight to MOFEP — Dec. 2020.
  - Pass Anti‑Corruption Law — Oct. 2020; establish Anti‑Corruption Commission — March 2021.
  - Unify all but customs exchange rate and allow market setting of rates within band — Sept. 2020.
  - Customs exchange rate unified with market rate — Jun. 2021.
  - Central Bank Law finalized — Dec. 2020; enacted — Jun. 2021.
  - Semi‑annual stress tests and AML/CFT inspections — Mar. 2021.
- Program Monitoring Committee:
  - Composition: senior officials from Ministry of Finance, Ministry of Minerals, Oil and Gas, CBOS, Ministry of Labor and Administrative Reforms; IMF Resident Representative observer.
  - Reporting: monthly progress report to IMF within four weeks of end of each month.

### Data reporting and templates (selected timing requirements)
- CBOS balance sheet and CB‑1SR: monthly — 30 days after end of month.
- Monetary survey and banking system balance sheet: monthly — 30 days after end of month.
- Cash flow of foreign exchange: monthly — 2 weeks after end of month.
- Banking indicators (capital adequacy, NPLs, liquidity, open FX positions): monthly — 30 days.
- Central government operations (GFSM2001 format): monthly — 45 days after end of month.
- Social spending (direct cash transfer, education, health, training): monthly — 45 days after end of month.
- Exchange rates: daily — 2 days after end of each week.
- Balance of payments: quarterly — 2 months after end of quarter.
- External debt contracting/guarantees: quarterly — 1 month after end of quarter.

### Risks, distributional effects, and political economy
- Major risks:
  - Elevated political and social risks: public tolerance for policy adjustment eroded by prolonged hardship; delays in reforms and peace processes add social uncertainty.
  - Financing constraints: limited donor support implies substantial monetization, high inflation, and exchange rate pressures.
  - Capacity weaknesses are substantial; yield from revenue measures could disappoint.
  - COVID‑19 impact could be larger or more persistent than envisaged.
- Distributional effects and mitigation:
  - Reforms associated with additional contraction and higher inflation; wage increases and SFSP would mitigate some adjustment pain.
  - Authorities committed to take additional policy measures if implementation risks materialize; flexibility on reform timelines may be needed.

### Staff appraisal and recommended priorities
- SMP viewed as comprehensive package to stabilize the economy and lay foundations for growth; successful implementation expected to:
  - Help Sudan exit the dire economic situation.
  - Strengthen credibility of the transitional government.
  - Advance requirements for eventual HIPC debt relief, clearance of arrears, and resumption of financing from key IFIs.
- Emphasis on:
  - Strong policy implementation by authorities.
  - Critical need for donors to deliver on pledges in a timely fashion and provide significantly more financing.
  - Exchange rate reform and fiscal consolidation as central pillars; development of government securities market and reduction in deficit monetization essential.

_Italic source: 1sdnea2020003 — International Monetary Fund (excerpts and tables as provided)._

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The transitional government requested a Staff-Monitored Program (SMP) to: help address major macro imbalances, lay the groundwork for inclusive growth, and establish a track record of sound policies required for eventual HIPC debt relief.
- Major challenges:
  - Economic contraction since 2018, set to intensify sharply in 2020 due to the COVID-19 pandemic.
  - Large fiscal and external imbalances, high and rising inflation, an overvalued currency, and weak competitiveness.
  - Dire humanitarian situation with large numbers of internally displaced people and refugees.
  - Sudan cannot access Fund financial assistance because of (i) arrears to the Fund, (ii) arrears to other IFIs and other creditors, and (iii) unsustainably large external debt.
  - Sudan remains on the U.S. state sponsors of terrorism list (SSTL), which effectively hinders progress toward HIPC debt relief.
- Public tolerance for painful reforms is fragile given prolonged economic hardship.
- Donor financial assistance has been well short of amounts needed to facilitate gradual orderly adjustment; risks to the SMP are high.

### Policies embedded in the SMP
- Exchange rate and monetary policy reforms:
  - A move to a unified and market-clearing exchange rate, preceded by measures to (i) identify and address individual bank resilience to exchange rate shocks, and (ii) set up a reserve money targeting framework.
- Fiscal consolidation and social protection:
  - Fiscal adjustment of 4   percent of GDP in the revised 2020 budget, reflecting:
    - the impact of exchange rate reform on foreign currency denominated receipts,
    - revenue measures,
    - higher donor grants,
    - elimination of diesel and gasoline subsidies.
  - The 2020 measures also create fiscal space to address COVID-19 and mitigate policy adjustment pain through significantly higher social, health, and wage spending.
  - A further fiscal adjustment of 3¼ percent of GDP for 2021 as customs exchange rate reform substantially increases taxation of imports and the adverse impact of COVID-19 on revenues is reversed, notwithstanding higher social spending with full implementation of the Sudan Family Support Program.
- Governance and anti-corruption:
  - Establish an independent anti-corruption commission.
  - Strengthen oversight and corporate governance rules for public enterprises.
  - Publish comprehensive fiscal data and strengthen public financial management.
  - Vigorously reclaim illicit wealth of the previous regime.
- Central bank and financial sector:
  - Upgrade the central bank law to strengthen independence and governance, limit monetization of deficits, and establish a mandate based on price stability.
  - Continue to strengthen financial sector soundness and mitigate risks, including enhanced risk-based AML/CFT supervision.
- Structural reforms:
  - In consultation with the World Bank and IFC, undertake reforms to support private sector development and higher and more inclusive growth.

### Modalities of the SMP
- Agreed duration and review schedule:
  - A 12-month SMP with semi-annual reviews, from July 2020–June 2021.
  - First review based on end-December 2020 benchmarks and targets to be completed by end-March 2021.
  - Second review based on end-June 2021 targets set during the first review.
- Quantitative benchmarks comprise:
  - a ceiling on banking system net credit to government;
  - a ceiling on central bank net domestic assets;
  - a floor on net international reserves;
  - a ceiling on non-concessional external borrowing.
- Indicative targets on:
  - social spending;
  - reserve money;
  - the non-oil primary fiscal deficit.
- Structural benchmarks: 11 benchmarks focusing on customs exchange rate reform, public financial management (PFM), governance and anti-corruption efforts, central bank independence, and banking supervision.

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

### Risks and implementation constraints
- Elevated political and social risks:
  - Public tolerance for policy adjustment has been eroded by economic hardship.
  - Delays in implementing fundamental reforms are undermining government goodwill and narrowing the window for reforms.
  - Delays in concluding a comprehensive peace agreement with all rebel groups and establishing a legislative assembly add social uncertainty.
  - Authorities’ information and communication campaign (ICC) will be needed to bolster public support.
- Financing constraints and macro risks:
  - Limited donor support implies substantial monetization, high inflation, and exchange rate pressures alongside reform implementation, potentially aggravating social tensions.
  - Capacity weaknesses are substantial.
  - Authorities committed to take additional policy measures if implementation risks materialize; flexibility on reform timelines may be needed given fragile conditions.

### Recent developments and outlook
- Growth and contraction:
  - GDP contracted by 2½ percent in 2019 (on top of a 2¼ percent contraction in 2018).
  - An additional contraction of 8½ percent is expected in 2020 due to the pandemic.
- Fiscal developments:
  - Revenues and grants fell to 7¾ percent of GDP in 2019.
  - Total expenditure increased to 18¾ percent of GDP in 2019.
  - The fiscal deficit rose to 10¾ percent of GDP in 2019.
  - Available data through April 2020 indicate total revenues and grants were 50 percent below initial budget projections as COVID-19 disrupted tax collections and grant disbursement.
- External financing and donor support:
  - At the Sudan Partnership Conference (June 25, 2020), donor pledges totaled $1.8 billion, plus a World Bank pre-arrears clearance grant of about $400 million expected to be approved in September 2020.
  - Bulk of donor pledges were off-budget humanitarian and development projects; about $500 million pledged to support the Sudan Family Support Program (SFSP).
  - About $200 million had been previously received to support COVID-19 response.
  - Overall about $1.1 billion in additional external financing has been made available by donors thus far to support fiscal operations over 2020–21; together with normal development project grants estimated at $410 million, total external financing over 2020–21 is estimated at $1.5 billion.
  - Staff estimates a financing need of $5.4 billion to eliminate fiscal deficit monetization and increase gross usable international reserves to 3 months of imports.
- Exchange rate, inflation, and reserves:
  - Parallel market exchange rate depreciated from SDG 85/$ at end-2019 to SDG 143/$ in July 2020.
  - Inflation rose from 57 percent in December 2019 to 144 percent in July 2020.
  - Multiple currency practices (MCPs) persist; customs duty exchange rate and fuel import exchange rate remained at SDG 15/$ and SDG 6.7/$, respectively.
  - EBA-lite estimates indicate a 53 percent average real exchange rate overvaluation in 2019.
  - Gross usable international reserves stood at $190 million at end 2019 (0.3 months of imports).
- Debt and debt distress:
  - Public and external debt ratios stood at 200.3 percent of GDP and 198 percent of GDP, respectively, in 2019.
  - Sudan continues to be in debt distress with most external debt in arrears.
- Monetary and financial sector developments:
  - Reserve money growth stood at 54 percent as of June 2020.
  - Banking sector fragility: 12 banks (accounting for 25 percent of banking system capital) have capital adequacy ratios below the regulatory 12 percent minimum.
  - As of March 2020, 10 out of 37 commercial banks (with more than 40 percent market share) had short net foreign exchange positions, with 5 banks having positions outside the regulatory limit.
  - Correspondent banking relationships remain limited due to ML/TF concerns, AML/CFT deficiencies, and the SSTL.
- COVID-19 health impact (as reported):
  - Number of infected people rose rapidly to 13,189, with 823 deceased (as of August 30).

*Source: EXECUTIVE SUMMARY — 1sdnea2020003*

### 14.      With large imbalances and loose policies, the outlook is alarming without policy

### 14.      With large imbalances and loose policies, the outlook is alarming without policy reforms

### Outlook without reforms
- Absent corrective measures:
  - Growth likely to remain very weak over the medium term, with minimal investment and subdued consumption.
  - Bank fragility will continue to rise.
  - High inflation and pervasive shortages will continue to aggravate social tensions.
  - The large fiscal imbalance would increase substantially.
  - The current account deficit would remain large, and risks of disorderly adjustment would continue to rise strongly.

### The Staff‑Monitored Program (SMP): objectives and projected outcomes
- SMP aims to support comprehensive reforms to stabilize the economy and promote robust and inclusive growth through:
  - Exchange rate, monetary, and financial sector reforms, and fiscal consolidation.
  - Governance and structural reforms to strengthen institutions, reduce corruption, and improve the business environment.
- Key projected macro outcomes if the program is successfully implemented and combined with sufficient financing and debt relief:
  - GDP growth to 4½ percent over the medium term.
  - Sharp reduction in the current account deficit to 3¼ percent of GDP over the medium term.
  - Deficit decline by 7¼ percent of GDP over 2020–21 (from fiscal measures and donor grants), with further deficit reduction in 2022 following planned exit from the SFSP.
  - Restoration of external viability and some improvement in international reserves albeit from very low levels.
- Staff assessment:
  - Macroeconomic and structural policies under the SMP are of UCT quality.
  - Authorities show commitment and capacity to implement the proposed policies, including adoption of prior actions in critical areas.

### Risks, distributional effects, and political economy
- Adjustment costs and social effects:
  - Reforms would be associated with additional economic contraction and much higher inflation over the program period given limited donor assistance, potentially increasing social tensions.
  - Wage increases and the SFSP would mitigate some adjustment pain.
  - Failure to implement reforms would leave Sudan in an untenable position politically and economically, undermining credibility and prospects for donor assistance.
- Implementation risks (substantial):
  - Inadequate donor funding for the SFSP → more monetization, higher inflation, added risks to social stability.
  - Public reaction to reforms is uncertain and capacity weaknesses are substantial.
  - Yield from revenue measures could disappoint.
  - The impact of COVID-19 on the outlook could be larger or more persistent than envisaged.
  - Authorities committed to take additional policy measures if risks materialize (LOI), but flexibility on reform timelines may be needed.
  - If donor financing is insufficient, additional monetization or arrears accumulation would likely be the only financing option.

### Exchange rate, monetary, and financial sector policies
- Unified market‑clearing exchange rate:
  - Critical for restoring macro stability and growth: will bolster competitiveness, transparency, central bank independence, and reduce rent-seeking.
  - Unification of the customs exchange rate would increase fiscal revenues substantially but cause substantial increases in prices of imported goods and the overall price level; a gradual pace is advisable.
- Authorities’ exchange rate reform plan (MEFP ¶11–13):
  - Pre‑requisites in place include:
    - Financial stability: bank-by-bank stress testing completed. Results indicated nine banks (of which two are systemically important) could be vulnerable to exchange rate adjustment; central bank met with each and agreed measures including capital injections, restrictions on dividend payouts, and other regulatory measures to ensure stability in September. About SDG 3 billion could be needed to increase capital in the problematic banks to levels that support resilience to exchange rate reform.
    - Monetary policy anchored to reserve money targets under the SMP to help contain inflation. Given strong fiscal dominance, fiscal adjustment is the primary tool to contain reserve money growth. The central bank stands ready to tighten monetary policy by increasing the rate of required reserves if needed, though this may adversely affect banking system profitability. Sales of central bank securities could also be deployed, with relatively marginal impact given the limited stock.
    - Establishment of an active treasury committee to enhance coordination between the central bank and the ministry of finance to improve liquidity management and forecasting.
  - Timetable and measures:
    - All but the customs exchange rate to be unified in September 2020; banks and FX bureaus permitted to set exchange rates in line with market conditions (Structural benchmark).
    - A band on daily exchange rates set by banks and FX bureaus to manage initial volatility; band to be widened progressively. Post end‑March 2021, staff and authorities will discuss removal of the band if appropriate.
    - Customs exchange rate (current SDG 15/$) to be adjusted gradually from end‑September 2020 and unified with the market rate by June 2021 (structural benchmark); import tariff reform to reduce average import tariff rate from 20 percent to 10 percent with IMF TA to limit price impact.
    - Authorities committed to refrain from imposing administrative restrictions on current account transactions as a means of constraining exchange rate movements.
- Government securities market and central bank balance sheet:
  - Progressive increase in sales of government securities to build a sizeable market and augment securities for central bank operations.
  - Conversion of substantial long‑term claims of the central bank on the government (SDG 263 billion, about 13 percent of GDP in 2019) into government securities to increase available stock for monetary policy.
  - In the short run, given low ROE of commercial banks (around 11.7 percent in 2020), government securities would be attractive to banks even with negative real return; significant sales outside the financial sector would require much higher returns and would likely gain traction only as inflation declines.
- Central bank governance and supervision:
  - New Central Bank Law to be submitted to the legislative council by end‑December 2020 focusing the central bank’s mandate on price and financial stability, limiting monetary financing of the government, and strengthening central bank governance (structural benchmark). Passage of the law will be a structural benchmark for June 2021.
  - Strengthen supervisory capacity: modernize banking regulations in line with Islamic Financial Stability Board standards; boost prudential oversight (limits on net open FX positions and on‑lending in foreign currency).
  - By end‑March 2021: establish regular communication procedures between banking supervision and regulation departments and conduct semi‑annual stress tests (structural benchmark).
  - Asset quality reviews of systemically important banks based on international standards by June 2021.
  - Strengthen bank recovery and resolution framework by September 2021.
  - Replace central bank officials serving on commercial bank boards with independent directors by end 2020; central bank to exit positions in state‑owned banks by February 2021 and commercial banks by December 2021.
  - AML/CFT priorities (MEFP ¶18): complete national ML/TF risk assessment; increase FIU capacity; fully implement risk‑based AML/CFT supervision; thematic AML/CFT on‑site inspections of highest‑risk banks by end‑March 2021 and provide aggregate data to the Fund on violations and sanctions (structural benchmark).

### Fiscal consolidation: measures and fiscal arithmetic
- Fiscal measures over 2020–21 aim to balance consolidation with space for essential social needs (MEFP ¶19–23). Measures for 2020 incorporated into supplementary budget for 2020 (prior action).
- Fuel subsidy reforms:
  - Reform of diesel and gasoline subsidies commenced in February 2020 with announcement of commercial prices about five times the fully subsidized prices.
  - Share of fuels sold at commercial prices steadily increased, cutting subsidization; sharp reduction in government fuel imports given limited forex also reduced the subsidy but caused substantial shortages.
  - Planned full elimination of gasoline and diesel subsidies in September 2020.
  - Total spending on fuel subsidies would be reduced by 8¼ percent of GDP in 2020 and 1½ percent of GDP in 2021.
- Major fiscal changes (exact figures preserved from source):
  - Social spending (including the SFSP and additional health expenditure to address COVID-19) would rise by 1¼ percent of GDP in 2020 and 1¾ percent of GDP in 2021.
  - Public wages would rise by 2¼ percent of GDP in 2020 and be stable in 2021.
  - Capital expenditure would rise by ¼ percent of GDP in 2020 and ½ percent of GDP in 2021.
  - Transfers to the states would decline by ½ percent of GDP in 2020 and rise by 3 percent of GDP in 2021.
  - Overall fiscal expenditure would decline by 5 percent of GDP in 2020, driven by fuel subsidy reform, but rise by 3¾ percent in 2021 with higher social and capital spending, and higher transfers to the states.
- Revenue and grants dynamics:
  - Valuation effects from exchange rate reform would raise oil revenue ½ percent of GDP in 2021.
  - Additional donor grants would increase receipts by one percent of GDP in 2020 and 1¼ percent of GDP in 2021.
  - Customs exchange rate adjustment would raise revenues from import taxation by ½ percent of GDP in 2020 and 3½ percent of GDP in 2021.
  - COVID‑19 related disruptions reduce revenues by 2½ percent of GDP in 2020, assumed partially reversed in 2021.
  - Additional measures (broadening VAT base) would raise revenue by ¼ percent of GDP in 2020 and ½ percent of GDP in 2021.
  - Overall, revenue and grants decrease by 1 percent of GDP in 2020 and increase by 7 percent of GDP in 2021.
- Overall fiscal balance effects:
  - These measures and additional donor grants would reduce the fiscal deficit by 4 percent of GDP in 2020 and 3¼ percent of GDP in 2021. If donor support falls short, deficits would be larger and more monetization would be needed absent commensurate expenditure cuts.
- Medium‑term consolidation:
  - Additional consolidation beyond 2021 to focus on rationalizing tax exemptions (notably those embedded in the Investment Law and personal and corporate income taxes) and increasing the base and progressivity of the personal income tax.
  - Exiting the SFSP would create room for further consolidation.
  - A deficit target in the range of 1–2 percent of GDP would be an appropriate medium‑term fiscal anchor.
  - Restoring debt sustainability would require HIPC debt relief.

### Social protection and SFSP design
- Strong rollout of the SFSP is critical to mitigate adjustment pain and facilitate reform implementation:
  - Payments commenced in July.
  - Coverage to be progressively expanded until 80 percent of the population is covered by February 2021.
  - Urban areas prioritized for earlier expansion; more distant and rural areas covered later.
  - Monthly benefit per person would be SDG 500 (about $3) in 2020, with an inflation adjustment implemented in 2021.
  - Need for strong upfront communication to mitigate political difficulties arising from exiting the SFSP in 2022; planned exit to be replaced with a targeted cash transfer system covering only vulnerable families.

*Source: 1sdnea2020003 - 14.      With large imbalances and loose policies, the outlook is alarming without policy reforms (IMF).*

### 28.      Responding to COVID-19 requires significant fiscal resources. The authorities have

### 1sdnea2020003 - 28.      Responding to COVID-19 requires significant fiscal resources. The authorities have

### Responding to COVID-19: allocations and expenditures
- The authorities have allocated SDG 45 billion to respond to COVID-19, including:
  - Health and related infrastructures: 23.5 SDG billion
  - Unemployment benefits: 4.5 SDG billion
  - Social protection (cash transfers during lock-down): 7 SDG billion
  - Basic commodities support: 10 SDG billion
  - Total: 45 SDG billion
- Purposes specified:
  - Increase healthcare equipment such as ambulances, CT scans, laboratory test kits and other medical supplies
  - Establish isolation facilities and ICUs
  - Train health care staff and strengthen education of public on COVID-19
  - Social protection schemes including unemployment benefits, cash transfers, and provision of basic commodities
- Observation: "With cases continuing to rise, however, more could be needed than currently budgeted to deal with the healthcare implications."

### Donor support and grant figures (as presented)
- (in million dollars) (% of GDP)
- (in million dollars)   ( % of GDP)
- Project grants 120 0.1 290 0.9
- COVID-19 grants 202 0.4 0 0.0
- Family Support Program grants3281.06001.8
- Total6501.5 8902.7
- Note: "In 2020,  project grants and $113 million for covid-19 was converted to national currency at budget rate of SDG/$55. The rest is converted at SDG/$138 in line with the exchange rate reform in the second half of 2020."
- Donor Support under the SMP
  - 2020
  - 2021

### Public Financial Management (PFM) strengthening
- Key PFM areas to be strengthened: budget planning, fiscal reporting, fiscal risk management, and the treasury single account (TSA).
- Specific measures and timelines:
  - Intend to incorporate a medium-term fiscal framework into budget planning by 2022.
  - Strengthen the macro-fiscal unit to enhance policy formulation.
  - Progress made in establishing the TSA; intend to continue improving cash forecasting.
  - Extend setting of cash ceilings for ministries, departments, and agencies from one to three months.
  - Improve management of payments and gradually extend TSA to extrabudgetary funds, in line with Fund TA.
  - Recently consolidated all bank accounts of ministries and public corporations held at the central bank into a single account.
  - To enhance transparency of budget execution: by end-December 2020, the authorities will publish monthly budget execution reports consistent with the GFSM2001 (structural benchmark).
  - Strengthen public procurement rules with technical assistance from the World Bank.

### Strengthening Governance
- Commitment to strengthening anti-corruption efforts and governance, in line with the new constitution.
- Immediate focus areas and timelines:
  - Prepare a new Anti-Corruption Law expected to be passed by October 2020 (structural benchmark).
  - Once law is passed, establish an independent Anti-Corruption Commission by March 2021 with a strong mandate to prevent, detect, and investigate (structural benchmark).
  - The law aims to strengthen the role of civil society and journalism in combating corruption.
  - Implement the law passed in December 2019 to dismantle corrupted institutions of the former regime, recover looted assets, and bring to justice individuals associated with the former regime; all recovered assets will be transferred to the Ministry of Finance with disposal/use adhering to fully transparent procedures.
  - Publish by end-December 2020 an inventory of all SOEs including those supervised by ministry of finance, line ministries and the security sector.
  - By end-December 2020 oversight responsibilities of all SOEs (excluding purely military companies) will be transferred to the ministry of finance, and new corporate governance rules governing SOEs will be introduced.
  - Over the medium term, assess strategic objective of each SOE to determine those that should remain public and those to be privatized.
  - Deploy an IMF comprehensive governance diagnostic mission once COVID-19 is under control.

### Promoting Inclusive Growth
- Exchange rate and governance reform expected to strengthen competitiveness; unlocking private sector development is key to higher inclusive growth.
- Support and initiatives:
  - IFC and World Bank, together with donors, support efforts to improve investment climate, foster Public-Private Dialogue, strengthen legal and institutional framework for PPPs, and support MSME development (access to finance, business entry and taxation, innovation and entrepreneurship).
  - IFC will prepare a private sector diagnosis to underpin prioritization of economy-wide and sector-specific interventions.
  - IFC intends to scale up advisory services to support establishment of the new Investment and Private Sector Development Authority and assess the authorities’ investment projects.
  - Authorities intend to prioritize efforts to significantly improve macroeconomic data quality, including national accounts, BOP, and labor market data.

### Program Modalities (SMP)
- Agreed SMP duration: 12-month SMP with semi-annual reviews, from July 2020–June 2021.
- Reviews and support:
  - First review based on end-December 2020 benchmarks and targets to be completed by end-March 2021.
  - Second review based on end-June 2021 targets set during the first review.
  - Two staff visits to support active engagement with the authorities.
- Prior actions (both completed):
  - (i) Completing bank by bank stress tests to exchange rate shocks and developing remedial measures including recapitalization and temporary regulatory forbearance, ahead of exchange rate reform.
  - (ii) Passing a revised 2020 budget consistent with program objectives, including incorporating a substantial expansion of the social safety net under the Sudan Family Support Program, increased health expenditure to address COVID-19 needs, and revenue mobilization through customs exchange rate reform and expansion of the tax base.
- Quantitative targets comprise:
  - A ceiling on banking system net credit to government.
  - A ceiling on central bank net domestic assets.
  - A floor on net international reserves.
  - A ceiling on non- concessional external borrowing.
- Indicative targets on social spending, reserve money, and the non-oil primary fiscal deficit.
- Structural benchmarks: 11 structural benchmarks focusing on customs exchange rate reform, PFM, governance and anti-corruption, central bank independence, and banking supervision.

### Progress Towards HIPC Debt Relief
- Authorities continue to engage with international partners to secure comprehensive support for debt relief.
- Ongoing actions and recommendations:
  - Discussions continue with the U.S. government on the removal of Sudan from the SSTL.
  - With AfDB and World Bank assistance, a full PRSP is nearing completion.
  - Staff recommended adopting a prudent debt strategy that minimizes non-concessional borrowing and avoids selective debt servicing of bilateral lenders.
  - Strengthen debt management capacity considerably, with World Bank assistance ahead of HIPC debt relief.
  - Work on a debt reconciliation exercise underway with support from Fund and Bank staff.
  - Need to mobilize resources for the IMF’s share of debt relief given that the original financing of the HIPC Initiative did not include the cost of debt relief to Sudan.
- Authorities’ payment stance:
  - With highly limited sources of external financing, partial debt service payments have been made to those creditors who provide net positive flows to Sudan to assure the flow of financing for critical development projects.
  - Sudan’s capacity to repay has fallen considerably due to substantial reduction in reserves and the impact of the COVID-19 pandemic.
  - Authorities welcomed staff’s assessment supporting a reduced annual payment to the Fund sufficient to cover obligations falling due and remain committed to increase payments as capacity to repay improves.

### Staff Appraisal: assessment and priorities
- SMP seen as a comprehensive package to stabilize the economy and lay foundations for robust and more inclusive growth.
- Successful implementation expected to:
  - Help Sudan exit the dire economic situation.
  - Strengthen credibility of the transitional government.
  - Advance requirements for eventual HIPC debt relief, clearance of arrears, and resumption of financing from key IFIs.
- Emphasis on:
  - Importance of strong policy implementation by the authorities.
  - Critical need for donors to deliver on pledges in a timely fashion and provide significantly more financing.
- Exchange rate reform:
  - A unified market-clearing exchange rate considered critical for strengthening competitiveness, facilitating fiscal consolidation, and bolstering governance.
  - The authorities’ plan envisages unification and market determination of the exchange rate with a band to limit intra-day volatility; band is described as "sufficiently wide" and may be dropped as concerns about volatility subside.
- Fiscal consolidation:
  - Fiscal consolidation is deemed crucial for macroeconomic stabilization and efforts to restore external viability; authorities envisage substantial adjustment in 2020.

*Source: 1sdnea2020003 (PDF chapter/section)*

### 2021. In the revised 2020 budget—despite the adverse impact of COVID-19 on revenues—the

### 1sdnea2020003 - 2021. In the revised 2020 budget—despite the adverse impact of COVID-19 on revenues—the

### Fiscal policy, budget revisions, and medium-term outlook
- Revised 2020 budget features valuation effects of exchange rate reform on foreign currency denominated receipts, higher donor grants, and elimination of diesel and gasoline subsidies enabling higher social, health, and wage spending while substantially reducing the fiscal deficit.
- A further large fiscal adjustment is envisaged for 2021 as COVID-19’s adverse impact on revenues is reversed and completion of customs exchange rate reform increases taxation of imports, despite higher social spending with full implementation of the SFSP.
- It is assumed enough donor support would be forthcoming to ensure deficit monetization does not exceed programmed levels.
- Additional base-broadening revenue measures and exiting from the SFSP would help reduce the fiscal deficit further over the medium term to the 1–2 percent of GDP range that is consistent with macro stability.
- Selected fiscal figures from tables / projections:
  - Overall balance (percent of GDP): -6.5 (2017), -7.9 (2018), -10.9 (2019), -6.9 (2020), -3.5 (2021), -2.4 (2022), -2.1 (2023), -1.7 (2024), -1.3 (2025).
  - Revenue and grants (percent of GDP): 7.2 (2017), 8.9 (2018), 7.9 (2019), 6.8 (2020), 13.9 (2021), 13.2 (2022), 14.3 (2023), 15.0 (2024), 15.7 (2025).
  - Expenditure (percent of GDP): 13.6 (2017), 16.8 (2018), 18.8 (2019), 13.7 (2020), 17.4 (2021), 15.6 (2022), 16.4 (2023), 16.7 (2024), 17.0 (2025).
  - Subsidies (percent of GDP): 4.2 (2017), 9.6 (2018), 11.9 (2019), 3.8 (2020), 2.1 (2021), 2.3 (2022), 2.4 (2023), 2.4 (2024), 2.4 (2025).
  - Social spending (percent of GDP, memorandum in Table 4b): 0.6 (2017), 0.8 (2018), 0.7 (2019), 2.2 (2020), 3.9 (2021), 1.6 (2022), 1.5 (2023), 1.5 (2024), 1.6 (2025).

### Governance, institutions, and anti-corruption measures
- Boosting governance and institutions, and curbing corruption, are critical for enhancing inclusive growth and sustaining public support for the government and reforms.
- Authorities are finalizing plans to:
  - Pass an anti-corruption law and establish an independent anti-corruption commission in line with international best practice.
  - Substantially improve oversight of state-owned enterprises.
  - Upgrade the central bank law to strengthen its independence.
- Public accountability actions are being vigorously implemented against corrupt practices of the previous regime.
- Continued progress in strengthening public financial management with Fund TA.
- Broadening the tax base, strengthening revenue administration and publication of comprehensive fiscal data would strengthen governance, transparency and accountability.

### Monetary policy, central bank plans, and financial sector
- Central bank plans to upgrade capacity to supervise and mitigate financial stability risks broadly in line with Fund advice, including:
  - Modernizing banking regulations.
  - Strengthening banking supervision.
  - Continuing to address AML/CFT deficiencies in line with Fund TA.
- Monetary and banking indicators (selected):
  - Broad money (annual percent change): 68.8 (2017), 111.8 (2018), 60.1 (2019), 88.2 (2020), 86.1 (2021), 45.9 (2022), 38.4 (2023), 23.1 (2024), 16.8 (2025).
  - Reserve money (annual percent change): 63.8 (2017), 170.5 (2018), 77.5 (2019), 94.5 (2020), 68.6 (2021), 43.4 (2022), 32.9 (2023), 21.5 (2024), 16.7 (2025).
  - Credit to the private sector (percent of GDP): 8.7 (2017), 9.0 (2018), 8.9 (2019), 7.6 (2020), 5.6 (2021), 5.5 (2022), 5.6 (2023), 5.6 (2024), 5.8 (2025).
  - Financial Soundness Indicators (selected): Gross NPLs to gross loans 5.2 (2016), 3.3 (2017), 3.2 (2018), 3.5 (2019), 3.0 (2020); Loans' provision to NPLs 60.0 (2016), 81.3 (2018), 72.1 (2019), 78.5 (2020), 79.0 (2021).

### External sector, debt, and reserves
- 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.
- External outlook and projection highlights:
  - Current account balance (percent of GDP): -10.0 (2017), -13.1 (2018), -15.1 (2019), -12.7 (2020), -9.8 (2021), -10.7 (2022), -9.5 (2023), -8.2 (2024), -7.2 (2025).
  - Trade balance (percent of GDP): -8.6 (2017), -9.1 (2018), -13.4 (2019), -11.1 (2020), -8.9 (2021), -6.8 (2022), -6.5 (2023), -5.8 (2024), -4.9 (2025).
  - Gross usable international reserves (in millions of US$): 193 (2017), 178 (2018), 190 (2019), 324 (2020), 491 (2021), 870 (2022), 1,688 (2023), 2,595 (2024), 3,600 (2025).
  - External debt (percent of GDP): 150.4 (2017), 177.1 (2018), 198.9 (2019), 253.1 (2020), 245.6 (2021), 210.0 (2022), 196.4 (2023), 191.5 (2024), 187.3 (2025).

### Growth, inflation, and macro projections
- Real GDP (market prices, annual change): 0.7 (2017), -2.3 (2018), -2.5 (2019), -8.4 (2020), 0.8 (2021), 1.4 (2022), 2.7 (2023), 3.6 (2024), 4.5 (2025).
- Consumer prices (end of period): 25.2 (2017), 72.9 (2018), 57.0 (2019), 198.9 (2020), 103.0 (2021), 36.7 (2022), 21.2 (2023), 7.9 (2024), 16.0 (2025).
- IMF staff assessment: macroeconomic and structural policies under the SMP are of UCT quality; successful implementation would restore a viable external position and support sustainable inclusive growth over the medium term if combined with sufficient program financing and debt relief.

### Risks, implementation challenges, and policy flexibility
- Reform implementation risks are substantial:
  - Public tolerance for policy adjustment eroded by economic hardship.
  - Shortfalls in projected donor support could undermine the SFSP and amplify deficit monetization, potentially aggravating social tensions.
  - Capacity weaknesses are material; additional measures may be needed if implementation risks materialize.
  - Flexibility on reform timelines may be needed given fragile social and economic conditions (LOI).
  - Implementation slippages could undermine the UCT assessment of the program.
- Nevertheless, failure to implement reforms would leave Sudan in an untenable situation with no clear path toward exiting the dire economic and humanitarian situation and high vulnerability to a variety of shocks.

*International Monetary Fund staff report excerpts and tables (selected figures and projections as presented in the source).*

### 1. The MOFEP to publish on its website monthly budget execution reports that show

### 1sdnea2020003 - 1. The MOFEP to publish on its website monthly budget execution reports that show

### Fiscal policy and governance actions
- 1. The MOFEP to publish on its website monthly budget execution reports that show actual revenue and expenditure for budgetary central government in comparison with original and revised budget, consistent with the GFSM2001.
  - Deadline: Dec. 2020
  - Objective: Improve budget classification and fiscal reporting
  - Policy area: Expenditure policy
- 2. Adopt automatic fuel pricing mechanism to ensure that retail diesel and gasoline prices reflect all costs, thus eliminating subsidization.
  - Deadline: Sept. 2020
  - Objective: Support fiscal consolidation
  - Policy area: Governance
- 3. Prepare and publish an inventory of all state-owned enterprises including those supervised by ministry of finance, line ministries and security sector.
  - Deadline: Dec. 2020
  - Objective: Improve fiscal transparency
- 4. Pass a new anti-corruption law, in line with international best practices as agreed in consultation with the IMF, that clearly defines what actions constitute corrupt practices and creates an independent anti-corruption commission.
  - Deadline: Oct. 2020
  - Objective: Fight corruption and improve governance
- 5. Establish an independent anti-corruption commission, consistent with the provisions of the new anti-corruption law.
  - Deadline: March. 2021
  - Objective: Fight corruption and improve governance

### Monetary and financial sector reforms
- 6. Finalize an amended Central Bank Law in consultation with IMF staff to, inter alia, (i) establish a central bank mandate focusing on price stability; (ii) strengthen the Central Bank institutional, functional, personal, and financial autonomy, including by limiting monetary financing of the Government and prohibiting the central bank to conduct quasi-fiscal operations; (iii) improve its decision-making structure, by ensuring collegial decision-making, providing for effective oversight over executive; and (iv) enhance transparency and accountability provisions.
  - Deadline: Dec. 2020
  - Objective: Enhance central bank independence and improve governance
- 7. Enact a new Central Bank Law in consultation with IMF staff that, inter alia, (i) establishes a proper central bank mandate focusing on price stability; (ii) strengthens the Central Bank institutional, functional, personal, and financial autonomy, including by limiting monetary financing of the Government and prohibiting the central bank to conduct quasi-fiscal operations; (iii) improves its decision-making structure, by ensuring collegial decision-making, providing for effective oversight over executive; and (iv) enhances transparency and accountability provisions.
  - Deadline: Jun. 2021
  - Objective: Enhance central bank independence and improve governance
- 8. Unify all but the customs exchange rate and allow commercial banks and FX bureaus to set exchange rates in line with market conditions, but subject to an adjustable band around the daily official exchange rate. Central Bank sets daily official exchange rate based on market average exchange rate.
  - Deadline: Sept. 2020
  - Objective: Strengthen competitiveness and reduce distortions
- 9. Gradually adjust customs exchange rate towards market exchange rate and fully unify by June 2021.
  - Deadline: Jun. 2021
  - Objective: Eliminate distortion in the exchange rate market
- 10. Establish regular procedures for communication between banking supervision and regulation departments; and conduct semi-annual stress tests to identify and address vulnerabilities of individual banks to exchange rate movements.
  - Deadline: Mar. 2021
  - Objective: Strengthen financial sector soundness
- 11. (i) Conduct thematic AML/CFT on-site inspections of the ten highest-risk banks as determined by the CBOS off-site tool, focusing on politically exposed persons (PEPs), suspicious transaction reporting, and higher-risk customers and transactions in the real estate sector; and (ii) provide aggregate data to the Fund on any related violations found and sanctions levied by the CBOS, in line with the existing legal framework.
  - Deadline: Mar. 2021
  - Objective: Reduce vulnerabilities to corruption and related money laundering

### Annex I — Path to Debt Relief (key points)
- Sudan is eligible for debt relief under the HIPC initiative but has yet to meet all the qualifications; progress is blocked because Sudan remains on the SSTL, which prevents the United States from offering aid (including debt relief) and impedes consensus on debt relief in the Paris Club.
- Conditions noted for HIPC Decision Point:
  - Complete a debt reconciliation process and 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;
  - Prepare an updated Interim Poverty Reduction Strategy (I-PRSP) or a full PRSP document (previous I-PRSP and Joint Staff Advisory Note discussed in September 2013 is now out of date);
  - Reach an agreement on appropriate Completion Point triggers to be included in the Decision Point document.
- Financial note:
  - The resources required for the IMF’s participation in the HIPC Initiative have not yet been identified.
  - As of end-June 2020, Sudan’s outstanding arrears to the IMF stood at SDR 963.58 million.

### Annex II — External Sector Assessment (findings and projections)
- Current account
  - The current account deficit (cash basis) increased to 10.5 percent of GDP in 2019 from 8.7 percent in 2018.
  - The EBA-lite analysis estimates the cyclically adjusted current account deficit at 10 percent of GDP in 2019, while the multilaterally consistent cyclically-adjusted current account norm was -1.8 percent.
  - The resulting CA gap was assessed at -8.1 percent, of which -4.5 percent could be explained by deviation of the authorities’ current policies from desirable policies.
  - The model’s unexplained portion reflects external constraints not captured by the model, including Sudan’s listing on the U.S. State Sponsors of Terrorism List (SSTL) and arrears to most creditors, and the structural break from the 2011 secession of South Sudan.
- Real Effective Exchange Rate (REER)
  - Multiple official exchange rates exist:
    - official rate: SDG 55/$ (for government, central bank and commercial bank transactions);
    - fuel exchange rate: SDG 6.7/$ (for fuel imports);
    - customs duty rate: SDG15/$ (for calculation of import duties and VAT on imports);
    - parallel market rate: SDG 143/$ in July 2020 (where about 80 percent of total transactions take place).
  - The EBA-lite Current Account model estimates the REER remains overvalued by 53 percent (REER Gap 52.7).
  - Estimated elasticities used:
    - exports elasticity: -0.4
    - imports elasticity: 0.3
    - aggregate elasticity (estimated): -0.15
  - Implication: reducing the current account deficit by 1 percent of GDP requires about 6.5 percent real depreciation; closing the CA gap of 8.1 percent of GDP implies about 53 percent REER depreciation.
- Capital and financial flows
  - Capital flows dominated by FDI and Other Inflows (averaging around 40 percent and 60 percent, respectively, in 2014–18).
  - FDI declined to $945 million in 2019 (2.8 percent of GDP), down from $1.1 billion in 2018.
  - Other inflows increased to $2.7 billion in 2019 from $1.8 billion in 2018, partly due to a $500 million deposit made by Saudi Arabia and the UAE in the Central Bank of Sudan Account.
  - Recent easing of U.S. sanctions is unlikely to affect capital flows in the short term; removal from the SSTL has not occurred.
- Reserves and projections
  - Gross usable international reserves:
    - end-2019: $190 million (0.2 months of imports), up from $183 million in 2018.
    - as of May 31, 2020: $324 million, primarily due to accumulation of $134 million monetary gold acquired through money creation.
  - Assessment: international reserves will remain highly inadequate in the short run but are projected to increase to 4 months of imports over the medium term under the SMP, above the traditionally recommended minimum of 3 months of imports but below the 6–8 months suggested by the IMF’s reserve adequacy metric.

- Table summary (from EBA-lite outputs, 2019)
  - CA-Actual: 10.5
  - Cyclical Contributions (from model): -0.5
  - Adjusted CA: -10.0
  - CA Norm (from model) 1/: -1.8
  - Adjusted CA Norm: -1.8
  - CA Gap: -8.1
  - o/w Policy gap: -4.5
  - Elasticity: -0.15
  - REER Gap (in percent): 52.7

### Annex III — Capacity development (TA priorities and assessment)
- Overall assessment
  - Sudan received substantial technical assistance (TA) over the past two decades covering macroeconomic statistics, exchange rate policy, AML/CFT, bank supervision and regulation, credit registry, financial stability and stress testing, bank restructuring, currency reform, public financial management, energy subsidies, tax and customs administration and policy, and medium-term fiscal framework.
  - Implementation of TA recommendations was limited due to lack of political will in the previous regime, scarce resources, and low absorption capacity. Notable progress: treasury single account reform (good progress) and macroeconomic statistics (moderate progress).
- Priorities under the SMP
  - Strengthen coordination among TA providers to address limited absorption capacity and focus on key short-run impediments to reforms and a medium-term TA strategy.
  - TA focus areas supporting the SMP: fiscal consolidation, monetary and financial sector reforms, and improving governance.
  - Near-term TA support possibilities:
    - Review drafts of Central Bank Act, Banking Act, and Anti-Corruption Law to ensure they meet international standards.
    - Support development of a government securities market.
    - Assist efforts to improve fiscal transparency and anti-corruption legislation.
  - Medium-term TA (once travel feasible): improving governance, macroeconomic modeling and forecasting, import tariff reform, debt management, monetary policy framework and financial stability.

*International Monetary Fund — 1sdnea2020003 (extracted content unit)*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Overview and Commitments
- Transitional government committed to implementing an economic reform program during 2020–21 to stabilize the economy, entrench credible macroeconomic and financial management, accelerate structural reforms, and fight corruption.
- Adopted a revised 2020 budget in line with reform priorities; program to be monitored by IMF staff (SMP) and intended to facilitate dialogue with multilateral and bilateral creditors and eventual resolution of Sudan’s external debt.
- Aims to reach the HIPC decision point through credible policy implementation and external support.
- Key reform priorities: remove fuel subsidies, reform foreign exchange rate system, strengthen governance and anti-corruption measures, strengthen independence of the Central Bank of Sudan (CBOS), and improve the business environment.
- Government authorizes IMF to publish this letter, the attached Memorandum of Economic and Financial Policies (MEFP), and accompanying staff report.

*Signatories: Hiba Ahmed, Acting Minister, Ministry of Finance and National Economy; Mohamed Elfatih Zeinelabdin Mohamed, Governor, Central Bank of Sudan.*

### Recent Macroeconomic Developments
- GDP contractions:
  - 2018: contraction of 2¼ percent.
  - 2019: contraction of 2½ percent.
  - 2020: projected contraction of 8½ percent due to COVID-19 and containment measures.
- Fiscal and external imbalances:
  - Fiscal deficit: 10.8 percent in 2019.
  - External current account deficit (cash basis): 10.5 percent of GDP in 2019.
  - Gross usable international reserves: $190 million at end-2019.
  - Parallel market exchange rate: SDG85/$ in December 2019 to SDG 143/$ in July 2020.
  - Inflation: 144 percent in July 2020.
- Banking sector: several banks undercapitalized; sector described as fragile.
- COVID-19 context: Sudan reported the fifth highest number of cases in Sub-Saharan Africa and second highest number of reported fatalities (as described in the source).

### Economic Program Objectives and Medium-Term Projections
- Program objectives for July 1, 2020–June 30, 2021: restore macroeconomic stability, support higher and inclusive growth, and implement home-grown structural reforms.
- Targeted outcomes:
  - Reduce the fiscal deficit by 7¼ percent of GDP by 2021 (with further significant reduction in 2022 following planned exit from the SFSP).
  - Increase GDP growth to 4½ percent over the medium term.
  - Narrow the external current account deficit significantly and reduce internal and external imbalances to lower inflation over time.
- External financing needs: estimated overall external financing need of $5.4 billion over 2020–21 to eliminate fiscal deficit monetization, finance the SFSP, and support reserve accumulation.
- Current donor pledges (at time of document): about $1.1 billion for fiscal financing; no pledges for augmenting international reserves.
- Asset recovery and sales: identified easily marketable assets valued at about SDG 76 billion (or $490 million) for disposal as market conditions improve.

### Social Mitigation and COVID-19 Response
- Sudan Family Support Program (SFSP):
  - Quasi-universal basic income scheme piloted in June 2020.
  - Planned expansion to cover 80 percent of families by Q1 2021.
- Estimated cost of SFSP and additional health expenditure:
  - 1¼ percent of GDP in 2020.
  - 1¾ percent of GDP in 2021.
- Civil service wage action:
  - May 2020 wage increases added 2 percent of GDP to expenditure in 2020; wage bill to be kept constant as a share of GDP in subsequent years.
- Transfers to states:
  - Decline by ½ percent of GDP in 2020.
  - Increase by 3 percent of GDP in 2021.

### Exchange Rate, Monetary, and Financial Sector Policies
- Exchange rate reform:
  - Unify all exchange rates (except the customs rate) and allow greater flexibility for commercial banks and FX bureaus by September 2020 (structural benchmark).
  - Establish a band on exchange rates set by commercial banks and FX bureaus during initial reform period; take stock after end-March 2021 jointly with IMF staff.
  - Adjust customs exchange rate gradually from current SDG 15/$ from September 2020 and unify with market rate by June 2021 (structural benchmark).
  - Reduce average import tariff rate from current 20 percent to 10 percent (to limit price impact).
  - Refrain from imposing administrative restrictions on current account transactions to constrain exchange rate movements.
- Preparatory measures and safeguards:
  - Bank-by-bank stress tests to exchange rate shocks completed; remedial measures developed including recapitalization and temporary regulatory forbearance (prior action).
  - Anchor monetary policy to reserve money targets under SMP to help contain inflation.
- Monetary instruments and liquidity management:
  - Establish an active treasury committee to enhance coordination between CBOS and MFEP.
  - Use existing instruments (reserve requirements, limited central bank securities) to tighten monetary policy as needed.
  - Build a strong and liquid government securities market over the medium term with IMF TA.
  - Convert central bank claims on government (SDG 263 billion, 13 percent of GDP) into Musharaka and other Sharia compliant securities progressively.
  - Increase real rate of return on government securities through market mechanisms.
- Central bank independence and governance:
  - New Central Bank Law to be submitted to legislative council by end-December 2020 (structural benchmark); passage of law will be a structural benchmark for June 2021. Law to focus central bank mandate on price and financial stability, limit monetary financing, and strengthen governance.
- Supervision and financial stability measures:
  - Modernize banking regulations in line with Islamic Financial Stability Board standards.
  - Establish regular communication procedures between banking supervision and regulation departments and conduct semi-annual stress tests by end-March 2021 (structural benchmark).
  - Strengthen bank recovery and resolution framework: introduce processes for monitoring recovery and resolution of weak banks, particularly systemically important ones by September 2021.
  - Complete asset quality reviews of systemically important banks by June 2021.
  - Replace central bank officials serving on commercial bank boards with independent directors by end-2020.
  - Central bank to exit positions in state-owned banks by February 2021 and in commercial banks by December 2021.
- AML/CFT priorities:
  - Complete a national ML/TF risk assessment; increase FIU capacity; fully implement risk-based AML/CFT supervision; improve freezing of terrorist assets.
  - Conduct by end-March 2021 thematic AML/CFT on-site inspections of the 10 highest-risk banks and provide aggregate data to the Fund on violations and sanctions (structural benchmark).

### Fiscal Policy and Budget Measures
- Fiscal consolidation focus: fuel subsidy reform, revenue mobilization, expand social safety net (SFSP), increase health expenditure, raise public wages to mitigate social tensions, and enhance oversight of state enterprises.
- 2020 revised budget (prior action) contains measures expected to reduce the fiscal deficit by 4 percent of GDP in 2020; carryover plus additional measures to reduce deficit by 3¼ percent of GDP in 2021.
- Fuel and energy subsidies:
  - Fossil fuel subsidies account for 79 percent of total subsidies.
  - Gradual increase in market share of gasoline and diesel sold at commercial rates (SDG 28/liter for gasoline and SDG 23/liter for diesel) beginning February 2020; these are on average five times the subsidized prices.
  - Completed removal of all diesel and gasoline subsidies as of September 1, 2020; expected savings: 8¼ percent of GDP in 2020 and additional 1½ percent of GDP in 2021.
  - Electricity subsidy to be eliminated over 2021–24.
- Revenue mobilization:
  - Revenue measures expected to yield the equivalent of ¾ percent of GDP in second half of 2020 and 4 percent full year in 2021.
  - COVID-19 expected to reduce revenue by 2½ percentage points of GDP to 5¼ percent of GDP in 2020, before rising to 11 percent of GDP in 2021.
  - Anticipated additional donor support (based on pledges at Sudan Partnership Conference on June 25, 2020): $1.1 billion over 2020–2021, increasing foreign grants by 1½ percent of GDP in 2020 and 2 percent of GDP in 2021. Project grants expected to increase by 1 percent of GDP in 2021.
- Specific revenue and tax measures (included in 2020 supplementary budget):
  - By August 1, 2020:
    - Remove VAT exemptions on sales of sports equipment (local and imported), manufacturing inputs, plates and plate-printing machines, diesel, gasoline, and sugar.
    - Raise VAT rate on telecommunication services from 35 percent to 40 percent.
    - Raise corporate income tax rates from 10–12 percent to 15–25 percent and the property lease tax rate from 10 percent to 12 percent.
    - These measures expected to yield ½ percent of GDP in additional revenue in 2020, with full year impact in 2021.
  - Valuation effects of liberalizing all but the customs exchange rate on oil revenue and grants expected to yield ¼ percent of GDP in second half of 2020, with additional full year impact in 2021.
  - Gradually increasing the customs exchange rate while reducing average import tariff rate from 20 percent to 10 percent expected to raise VAT and import duty receipts by ½ percent of GDP in 2020 and 3½ percent of GDP in 2021.
  - Remove income tax exemptions for roughly 80 percent of currently benefiting companies under 2021 budget.
  - Continue tax administration improvements, consolidation of tax collection agencies, and measures to widen tax base and curb tax evasion.
- Budget financing needs and composition:
  - 2020 budget financing need: SDG 308 billion (6.8 percent of GDP).
    - Assumes net external financing limited to SDG 7 billion ($127.3 million or 0.2 percent of GDP); remainder covered by domestic financing: sale of recovered assets (SDG 35 billion) and credit from banking system (SDG 267 billion).
  - 2021 budget financing need: SDG 367 billion (3.5 percent of GDP).
    - Expected external financing: about SDG 42 billion ($130 million or 0.4 percent of GDP); remaining SDG 325 billion (3.1 percent of GDP) covered by domestic bank financing and proceeds from sale of recovered assets.
  - If external financing exceeds programmed amounts, government borrowing from banking system will be reduced by the excess.
- Public financial management reforms:
  - Strengthen budget planning, fiscal reporting, fiscal risk management, and treasury single account (TSA).
  - Integrate medium-term fiscal framework into budget planning by 2022.
  - Consolidated all bank accounts of ministries and public corporations at CBOS into a single treasury account.
  - MFEP to publish on its website monthly budget execution reports consistent with GFSM2001 by end-December 2020 (structural benchmark).
  - Strengthen public procurement rules with World Bank TA.

### Other Structural Reforms
- Private sector development:
  - IFC and World Bank support for investment climate improvement, Public-Private Dialogue, legal/institutional PPP frameworks, MSME development, access to finance, business entry and taxation, innovation and entrepreneurship.
  - IFC to prepare private sector diagnostic and scale up advisory services to support new Investment and Private Sector Development Authority.
- Anti-corruption and governance:
  - Passage of a new Anti-Corruption Law by October 2020 (structural benchmark).
  - Establish independent Anti-Corruption Commission by March 2021 with strong mandate (structural benchmark).
  - Full implementation of December 2019 law to dismantle corrupted institutions, recover looted assets, and prosecute individuals associated with former regime; recovered assets to be transferred to MFEP with transparent disposal procedures.
  - Enhance oversight of SOEs:
    - Publish inventory of all SOEs by end-December 2020, including those supervised by MFEP, line ministries, and security sector.
    - Transfer financial oversight responsibilities of all SOEs to MFEP by end-December 2020.
    - Medium-run assessment of strategic objectives of SOEs to determine those to remain public and those to be privatized.
- Statistical improvements:
  - Prioritize improvement of macroeconomic data quality (national accounts, BOP, labor market data) with IMF, IFI, and bilateral donor TA.

### External Debt and Relief Prospects
- External debt situation:
  - External debt stock about $56 billion, or 198 percent of GDP at end-2019 (up from 176 percent of GDP in 2018 due to currency depreciation from SDG45/$ to SDG72/$ on a weighted average basis).
  - About 85 percent of external debt was in arrears in 2019.
  - Bulk is public and publicly guaranteed (PPG) debt: $54.6 billion, of which 85 percent are in arrears, mainly owed to bilateral creditors roughly equally divided between Paris Club and non-Paris Club.
  - About $1.8 billion is private debt owed to suppliers.
  - Sudan continues to accumulate arrears.
- Debt strategy and outreach:
  - Continue partial servicing to creditors who provide net positive flows.
  - Minimize non-concessional borrowing; limit contracting of new non-concessional borrowing to an annual amount of $300 million for specific, high rewarding and well-identified projects (as stated earlier in the MEFP text).
  - Regular reporting to IMF staff on debt service payments, inflows/outflows, credit outstanding and arrears, and debt falling due each year starting January 2020 data.
  - Intensify outreach to creditors to seek fast-track debt relief process, minimize non-concessional borrowing, and strengthen cooperation with IMF, World Bank, and African Development Bank with the aim of seeking comprehensive debt relief through the HIPC process.
  - Discussions ongoing with U.S. government on removal of Sudan from the SSTL.
  - Full poverty reduction strategy expected by end-December 2020.
- Historical agreement reference: prior “zero option” clause agreement with South Sudan to shoulder entire external debt provided international community commits to deliver debt relief within two years; agreement has been extended on several occasions.

*Source: Appendix I. Letter of Intent and Attachment I. Memorandum of Economic and Financial Policies for 2020–21 (SMP), September 2, 2020.*

### 2014. Absent timely progress in debt relief, Sudan’s external debt will need to be apportioned wi

### 1sdnea2020003 - 2014. Absent timely progress in debt relief, Sudan’s external debt will need to be apportioned wi

### Program modalities and monitoring
- Program monitored through semi-annual reviews.
- The program comprises:
  - Two prior actions.
  - Four quantitative benchmarks.
  - Three indicative targets.
  - Eleven structural benchmarks.
- The Technical Memorandum of Understanding (TMU):
  - Contains definitions of the quantitative benchmarks, indicative targets and structural benchmarks.
  - Specifies data the government must provide to Fund staff on a timely basis.
- Institutional framework to monitor execution and improve data collection:
  - Key decision makers: the Finance Minister, the Petroleum and Mining Minister, and the Governor of CBOS.
  - A Technical Committee (TC) will monitor execution of the SMP and report regularly.
  - TC composition: senior officials from the Finance and Mining and Petroleum Ministries, the Central Bank of Sudan, the Statistics Office, and other key institutions.
- Government commitments on cooperation and payments:
  - Reaffirmed commitment to cooperate with the IMF on policies and payments.
  - Acknowledges COVID-19 pandemic’s detrimental impact on capacity to pay.
  - Welcomes staff’s assessment supporting a reduced annual payment to the Fund starting in 2021.
  - Committed to make regular quarterly payments at least sufficient to cover obligations falling due, and to increase them as capacity to repay improves.
  - Notes need to mobilize resources for the IMF’s share of debt relief given original HIPC financing did not include the cost of debt relief to Sudan.

### Quantitative targets and key statistics (Table 1)
- Coverage period: 2019 December; 2020 December; 2021 June.
- Quantitative Benchmarks:
  - Banking system net credit to the central government (ceiling: in SDG billion): 386 (2019 Dec) ; 672 (2020 Dec) ; 819 (2021 Jun).
  - CBOS net domestic assets (ceiling: in SDG billion) 2/: 830 (2019 Dec) ; 1,083 (2020 Dec) ; 1,203 (2021 Jun).
  - Net international reserves (floor: in millions of U.S. dollars) 2/: (728) (2019 Dec) ; (594) (2020 Dec) ; (511) (2021 Jun).
  - Contracting or guaranteeing of external long term non-concessional debt by the government or the central bank (ceiling: in millions of U.S. dollars) 3/: 230 (2019 Dec) ; 300150 (2020 Dec) ; [value for 2021 Jun appears omitted in table].
- Indicative Targets:
  - Social spending (floor: in SDG billion): 15 (2019 Dec) ; 99 (2020 Dec) ; 201 (2021 Jun).
  - Nonoil primary deficit (ceiling: in SDG billion): 242 (2019 Dec) ; 367 (2020 Dec) ; 274 (2021 Jun).
  - Reserve money (ceiling: in SDG million) 2/: 516 (2019 Dec) ; 766 (2020 Dec) ; 890 (2021 Jun).
- Memorandum items:
  - External non-project grants for Family Support Program (in millions of U.S. dollars): 328 (2019) ; 600 (2020).
  - Other external non-project grants (in millions of U.S. dollars): - (2019) ; 212 (2020) ; - (2021).
  - Government asset sales (in SGD billion): 35 (2019) ; 41 (2020).
  - External non-project loans (in millions of U.S. dollars): 91 (2019) ; 127 (2020) ; 60 (2021).
- Notes:
  - 1/ The variables are defined according to the TMU.
  - 2/ Evaluated using program exchange rate of 45 SDG per U.S. dollar.
  - 3/ Continuous benchmark; flow from the beginning of the year.

### Prior actions and structural benchmarks (Table 2)
- Prior Actions:
  1. Complete stress testing of individual bank resilience to exchange rate movements and prepare measures to mitigate risks in each problem bank ahead of exchange rate reform, in consultation with the IMF. (Prepare for the exchange rate reform)
  2. Legislative council to pass a revised 2020 budget consistent with program objectives, including: substantial expansion of the social safety net under the Sudan Family Support Program, increased health expenditure to address COVID-19 needs, and revenue mobilization through customs exchange rate reform and expansion of the tax base. (Fiscal consolidation)
- Structural Measures (selected, with target dates and macro rationale):
  - Public financial management:
    1. The MOFEP to publish on its website monthly budget execution reports showing actual revenue and expenditure for budgetary central government compared with original and revised budget, consistent with the GFSM2001. Target: Dec. 2020. Rationale: Improve budget classification and fiscal reporting.
  - Expenditure policy:
    2. Adopt automatic fuel pricing mechanism to ensure retail diesel and gasoline prices reflect all costs, eliminating subsidization. Target: Sept. 2020. Rationale: Support fiscal consolidation.
  - Governance:
    3. Prepare and publish an inventory of all state-owned enterprises including those supervised by ministry of finance, line ministries and security sector. Target: Dec. 2020. Rationale: Improve fiscal transparency.
    4. Pass a new anti-corruption law, in line with international best practices as agreed in consultation with the IMF, that clearly defines corrupt practices and creates an independent anti-corruption commission. Target: Oct. 2020. Rationale: Fight corruption and improve governance.
    5. Establish an independent anti-corruption commission, consistent with the provisions of the new anti-corruption law. Target: March. 2021. Rationale: Fight corruption and improve governance.
  - Monetary and Financial Sector:
    6. Finalize an amended Central Bank Law in consultation with IMF staff to, inter alia, (i) establish a central bank mandate focusing on price stability; (ii) strengthen the Central Bank institutional, functional, personal, and financial autonomy, including by limiting monetary financing of the Government and prohibiting the central bank to conduct quasi-fiscal operations; (iii) improve its decision-making structure, by ensuring collegial decision-making, providing for effective oversight over executive; and (iv) enhance transparency and accountability provisions. Target: Dec. 2020. Rationale: Enhance central bank independence and improve governance.
    7. Enact a new Central Bank Law in consultation with IMF staff with the same key provisions as item 6. Target: Jun. 2021. Rationale: Enhance central bank independence and improve governance.
    8. Unify all but the customs exchange rate and allow commercial banks and FX bureaus to set exchange rates in line with market conditions, subject to an adjustable band around the daily official exchange rate. Central Bank sets daily official exchange rate based on market average exchange rate. Target: Sept. 2020. Rationale: Strengthen competitiveness and reduce distortions.
    9. Gradually adjust customs exchange rate towards market exchange rate and fully unify by June 2021. Target: Jun. 2021. Rationale: Eliminate distortion in the exchange rate market.
    10. Establish regular procedures for communication between banking supervision and regulation departments; and conduct semi-annual stress tests to identify and address vulnerabilities of individual banks to exchange rate movements. Target: Mar. 2021. Rationale: Strengthen financial sector soundness.
    11. (i) Conduct thematic AML/CFT on-site inspections of the ten highest-risk banks as determined by the CBOS off-site tool, focusing on politically exposed persons (PEPs), suspicious transaction reporting, and higher-risk customers and transactions in the real estate sector; and (ii) provide aggregate data to the Fund on any related violations found and sanctions levied by the CBOS, in line with the existing legal framework. Target: Mar. 2021. Rationale: Reduce vulnerabilities to corruption and related money laundering.

### TMU framework, definitions, and adjustors (Attachment II)
- Monitoring framework:
  - SMP monitored based on four semi-annual quantitative benchmarks and three indicative targets for end-December 2020 and end-June 2021.
- Quantitative benchmarks (explicitly listed):
  (i) ceiling on net credit to the central government by the banking system;
  (ii) ceiling on the net domestic assets of the Central Bank of Sudan (CBOS);
  (iii) floor on the stock of net international reserves of the CBOS;
  (iv) ceiling on new non-concessional external loans contracted or guaranteed by the government or the central bank.
- Indicative targets:
  (i) floor on social spending;
  (ii) ceiling on reserve money;
  (iii) ceiling on non-oil primary deficit.
- Valuation assumptions to evaluate program targets:
  - Program exchange rates: SDG 45.0 per U.S. dollar and SDG 62.2 per SDR.
  - Program monetary gold price: $3,890 per gram.
- Definitions (selected, verbatim):
  - Net domestic assets (NDA) of the Central Bank of Sudan (CBOS) are defined as the sum of the stock of Net Domestic Credit of the CBOS, excluding claims on the government corresponding to its overdue obligations to the IMF (“IMF on-lent”), plus claims on public enterprises, claims on commercial banks, and plus other items net.
  - CBOS net credit to the central government (NCG) is defined as CBOS credit to the central government minus total central government deposits. Central government deposits include all accounts of line ministries and agencies controlled by the government;
  - CBOS credit to the central government includes temporary advance, CBOS’s holdings of Government Musharaka Certificates (GMCs) and Government Investment Certificates (GICs), CBOS long-term claims on the central government; central bank losses on gold purchase (devaluation in gold dealings), loan resulted from separation of South Sudan, accumulated interest arrears, sundry debtors, payments to meet government obligations, advances to cover foreign currency obligations, Sudan Cotton Comp. Facility, other long term assets, accrued revenue Shahama Certificates, Ministry of Finance (due to commercial banks)-sugar, stock of CBOS credit to government arising from the financing of wheat subsidies (difference in wheat price), Ministry of Finance debts-ONB shares, and Sudanese Petroleum Corp. overdues and settlement of petroleum shipments value.
  - CBOS claims on public enterprises are defined as CBOS credit to public enterprises.
  - CBOS claims on commercial banks are defined as CBOS credit to commercial banks.
  - Other items net is the difference between other assets and other liabilities as reported in [CBOS balance sheet as reported by the IMF’s Statistics Department], adjusted for exchange rate revaluations arising from the difference between current and program exchange rate(s);
  - The central government comprises all accounts of line ministries and agencies controlled by the government (corresponding to Group no. 11, Group no. 12, and some accounts of the Group no. 19 in the CBOS general ledger), and margin deposits placed with the CBOS by the central government against letters of credit issued by the CBOS.
- Adjustors (selected, verbatim):
  - The ceiling on net domestic assets of the CBOS set in Table 1 will be lowered pro tanto of any excess of non-project external grants and loans relative to program projections. It will be increased pro tanto of any shortfall in non-project external grants and loans (excluding those for the Sudan Family Support Program (SFSP)) relative to program projections. The ceiling on net domestic assets of the CBOS will be lowered pro tanto of any excess of receipts from government asset sales. It will be increased pro tanto of any shortfall in receipts from government asset sales.
  - Net international reserves (NIR) are the stock of gross official usable international reserves minus short-term liabilities. The gross official usable international reserves comprise foreign exchange banknotes in the vaults of the central bank, monetary gold, and SDR holdings. Short-term liabilities comprise short-term liabilities as reported in the balance sheet of the CBOS.
  - Net credit to the central government by the banking system is defined as the stock of net credit to the central government by the CBOS plus net credit to the central government by commercial banks.
  - Adjustors for the ceiling on the net credit to government by the banking system: The ceiling on the net credit to government by the banking system set in Table 1 will be lowered pro tanto of any excess of non-project external grants and loans (excluding that for the SFSP) relative to program projections. It will be increased pro tanto of any shortfall in non-project external grants and loans relative to program projections. The ceiling on net credit to government by the banking system will be lowered pro tanto of any excess in receipts from government asset sales. It will be increased pro tanto of any shortfall in receipts from government asset sales.

*International Monetary Fund — Sudan: 2020–21 Staff‑Monitored Program (excerpts provided).*

### 9. Non-oil primary balance of the central government (NOPB) is defined as non-oil

### 9. Non-oil primary balance of the central government (NOPB) is defined as non-oil

### Definition of NOPB and Adjustors
- NOPB is defined as non-oil revenues minus expenditures excluding interest payments cumulatively since the beginning of the calendar year.
- Adjustors to the NOPB floor set in Table 1:
  - The floor will be lowered (raised) pro tanto for any excess (shortfall) of project external loans relative to program projections.
  - The floor will be raised (lowered) pro tanto for any excess (shortfall) of non-project grants and loans (excluding those earmarked for the SFSP) relative to program projections.
  - The floor will be lowered pro tanto for any shortfall in external non-project grants earmarked for the SFSP.

### Definition of Debt for Program Purposes
- Debt is defined in accordance with Executive Board Decision No. 12274, Point 9, as revised on August 31, 2009 (Decision No. 14416-(09/91)).
- Operational definition: a current (not contingent) liability created under a contractual arrangement through provision of value (including currency) or services, requiring the obligor to make one or more payments in assets (including currency) or services at some future point(s); payments discharge principal and/or interest liabilities.
- Primary forms of debt:
  - (i) loans: advances of money (including deposits, bonds, debentures, commercial loans, buyers’ credits), and temporary exchanges of assets equivalent to fully collateralized loans (repurchase agreements, official swap arrangements);
  - (ii) suppliers’ credits: contracts permitting the obligor to defer payments until after delivery of goods or services;
  - (iii) leases: property use arrangements; for guideline purposes, debt equals the present value (at lease inception) of all lease payments expected during the agreement excluding payments that cover operation, repair or maintenance of the property.
- Under this definition, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

### Non-concessional External Debt Ceiling and Guarantees
- A non-concessional external debt ceiling applies to contracting and guaranteeing by the central government or central bank of new non-concessional borrowing debt with nonresidents with original maturities of one year or more.
- The ceiling applies to debt and commitments contracted or guaranteed for which value has not yet been received. This includes private debt for which official guarantees have been extended and which therefore constitute a contingent liability of the central government or central bank.
- For program purposes, a guarantee of debt arises from any explicit legal obligation of the public sector to service a debt in the event of nonpayment by the debtor (involving payments in cash or in kind), or from any implicit legal or contractual obligation of the public sector to finance partially or in full any shortfall incurred by the debtor.

### Concessionality Threshold
- For program purposes, a debt is concessional if it includes a grant element of at least 35 percent.
- Grant element calculation: the difference between the present value (PV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt.
- The PV of debt at contracting is calculated by discounting the future stream of payments of debt service due on this debt.
- The degree of concessionality of debt will be calculated using a 5 percent discount rate.

### Reserve Money and Priority Social Spending
- Reserve money is defined as the sum of local currency circulating outside of the banks, total reserves (required and excess) of banks, and deposits of local and state governments and non-financial public corporations at the CBOS.
- Priority social spending of the central government is defined as the central government’s spending on social benefits program that includes cash transfer, spending on health insurance, on primary health care, students support, unemployment benefits and other social programs to cope with COVID-19 in 2020.

### Program Monitoring Committee
- The Sudanese authorities shall maintain a program-monitoring committee composed of senior officials from:
  - the Ministry of Finance, the Ministry of Minerals, Oil and Gas, the CBOS, Ministry of Labor and Administrative Reforms, and other relevant agencies.
- The IMF Resident Representative will have observer status on this committee.
- Committee responsibilities:
  - monitoring program performance;
  - recommending policy responses;
  - informing the IMF regularly about program progress;
  - transmitting supporting materials necessary for evaluation of benchmarks.
- Reporting requirement: provide the IMF with a progress report on the program on a monthly basis within four weeks of the end of each month, using the latest available data.

### Data Reporting Framework (high-level requirements)
- Data submissions should begin with January 2020, with revisions of previous months identified.
- General submission formats: printed and electronic to IMF local office and upload to IMF Integrated Monetary Database and Balance of Payment database.
- Selected reporting items and timing requirements:
  - CBOS balance sheet and CB-1SR: Detailed CBOS balance sheet — Monthly — 30 days after the end of each month.
  - Monetary survey and ODC_2SR: Banking system balance sheet and consolidated balance sheet of commercial banks — Monthly — 30 days after the end of each month.
  - Comprehensive lending to central government by CBOS: Details of CBOS claims on the Central Government — Monthly — 30 days after the end of each month.
  - Cash flow of foreign exchange: Cash flow data of foreign exchange, including sales and purchases by the dealing room at the CBOS — Monthly — 2 weeks after the end of each month.
  - Banking indicators: Capital adequacy; asset composition and quality including nonperforming loans; profitability; liquidity; open FX positions; compliance with prudential norms — Monthly — 30 days after the end of each month.
  - Exchange Rates: Official Exchange Rate (bid/ask) and Average of exchange rates used to calculate the bid and ask rates — Daily — 2 days after the end of each week.
  - Balance of payments: Detailed composition (exports, imports volume and values, invisible transactions, quarterly BOP tables) — Quarterly — 2 months after the end of each quarter.
  - External debt: Contracting or guaranteeing of medium-and long-term external debt of the government, the CBOS, and state-owned companies — Quarterly — 1 month after the end of each quarter.
  - Disbursements and repayments (scheduled and actual interest and principal) on debt of the government, the CBOS, and state-owned companies, by creditor — Monthly — 30 days after the end of each month.
  - Central government operations (GFSM 2001 format): Revenues, expenditures, and financing — Monthly — 45 days after the end of each month.
  - Central government domestic debt: End-month stocks, and monthly issuances and repayments, of all domestic debt instruments — Monthly — 30 days after the end of each month.
  - Social spending: Spending on direct cash transfer, education, health and training — Monthly — 45 days after the end of each month.
  - CPI (Central Bureau of Statistics): Including detailed data and inflation for imported products — Monthly — 2 weeks after the end of each month.
  - Oil transit fees/TFA, from South Sudan: Shipment data, listing by blend specifying date, quantity, prices, and values in US$ and in guinea — Monthly — 30 days after the end of each month.
  - Crude oil: Production by block; share of Sudan and foreign partners; prices and values ($ million), investment and production costs by block — Monthly — 30 days after the end of each month.
  - Refineries, sales to refineries, fuel prices: Monthly — 30 days after the end of each month.

### Templates and Financial Soundness Indicators
- Provided templates include detailed line items (e.g., Temporary Advances, Government Musharka Certificates (GMCs), Government Investment Certificates (GICs), Accumulated interest arrears, Sundry Debtors, Claims on Central Government, etc.) with monthly columns JAN–DEC and values in "In SDG Thousand (US$ M)".
- Financial Soundness Indicators for the Banking Sector template includes items such as:
  - Regulatory capital to risk-weighted assets;
  - Regulatory Tier I capital to risk-weighted assets;
  - Gross NPLs to gross loans;
  - NPLs net of provisions to core capital;
  - Loans' provision to NPLs;
  - ROA (before tax);
  - ROE (before tax);
  - Liquid assets to total assets;
  - Liquid assets to total short-term liabilities;
  - Capital Adequacy by month (2020M1 … 2020M12).

### Debt Sustainability Analysis (DSA) — Key Findings
- The DSA confirms that Sudan continues to be in debt distress.
- Both public and external debt ratios remain high, and the bulk of external debt is in arrears.
- Sudan’s external debt is assessed to be unsustainable.
- All external debt indicators breach their indicative thresholds under the baseline scenario and debt solvency indicators stay above the thresholds throughout the time horizon of the analysis.
- Restoring debt sustainability will require Sudan to implement needed reforms, undertake sound economic policies, and build a strong track record of policy implementation to remove obstacles as the country moves towards HIPC debt relief.
- Risk of external debt distress: In debt distress.
- Overall risk of debt distress: In debt distress.
- Granularity in the risk rating: Debt is unsustainable.
- Application of judgment: No.
- DSA approval date: September 10, 2020.

### Background and Recent Developments — Key Figures
- After secession of South Sudan in 2011, Sudan lost about 75 percent of oil production, 66 percent of exports, and half of fiscal revenues.
- Economic performance:
  - The economy contracted by 2.5 percent in 2019 after contracting by 2.3 percent in 2018.
  - Inflation rose significantly after currency devaluation and reached 73 percent in end-2018.
  - Following a reduction in January 2019 due to base effects, inflation continued to rise to 57 percent in December 2019 reflecting loose fiscal and monetary policies, as well as exchange rate depreciation.
- Other contextual points:
  - Despite the U.S. revocation of commercial sanctions in October 2017, Sudan remains on the U.S. list of state sponsors of terrorism, (SSTL), which hinders external investment and presents challenges for clearance of large arrears and progress toward HIPC debt relief.
  - The economy is shrinking, fiscal and external imbalances are large, inflation is high, the currency is overvalued, and competitiveness is weak.
  - The humanitarian situation is dire with large numbers of internally displaced people and refugees.
  - The new civilian-led government has undertaken efforts to reform and stabilize the shrinking economy and re-engage Sudan with the international community, but the social situation remains fragile.

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

### 10.8 percent of GDP, mainly financed through monetization.

### 1sdnea2020003 - 10.8 percent of GDP, mainly financed through monetization.

### Current account, reserves, and financing
- The current account deficit (cash basis) widened to 10.9 percent of GDP in 2019, mainly due to rising imports and currency depreciation.
- Gross usable reserves remained very low in 2019, coming in at $190 million.
- The difference between the on-budget and true fiscal deficits is the implicit subsidies not reported in the budget but financed through monetization by the central bank (note referring to 10.8 percent of GDP, mainly financed through monetization).

### Prospects for debt relief and external engagement
- Debt relief prospects are predicated on:
  - obtaining assurances of support from key creditors,
  - normalizing relations with international financial institutions,
  - establishing a track record of cooperation with the IMF and the World Bank on policies.
- Outreach to the donors’ community to raise the needed funds has intensified, and dialogue with creditors to garner support for debt relief has intensified.

### Structure and coverage of debt
- Debt data quality and coverage remain limited; external debt reports are not always verified with actual cash flows and are not consistent with other related fiscal reports.
- Debt data coverage:
  - mainly central government; state and local governments are not allowed to borrow according to the Constitution;
  - other public entities in general government are still not captured.
- Letter of guarantees (LG) are issued by the central bank on request of the Ministry of Finance and Economic Development (MOFEP) as a hybrid financing instrument used mainly to fund development projects; reporting issues were identified where the central government budget recorded the full amount of LG as debt when they were issued only as commitment.
- External debt is defined based on currency.

### Magnitude and composition of external and public debt
- Sudan’s external debt is estimated at about $56.3 billion, or 199 percent of GDP at end-2019, rising from 182 percent of GDP in 2018 due to large currency depreciation from SDG 45/$ to SDG 72/$ on a weighted average basis.
- About 85 percent of the external debt was in arrears in 2019.
- The bulk of PPG (public and publicly guaranteed) debt ($54.6 billion, of which 85 percent are in arrears) is mainly owed to bilateral creditors and is roughly equally divided between Paris Club and non-Paris Club creditors.
- About $1.8 billion is private debt owed to suppliers.
- Domestic debt only accounts for 8 percent of GDP.
- Sudan’s total public debt reached 201.6 percent of GDP by end-2019.
- Despite limited access to new external financing, the estimated debt burden continues to grow due to continued depreciation of the SDG and rising outstanding interest and fee payments and charges on existing debt in arrears.

### Debt carrying capacity and threshold changes
- Sudan’s Composite Indicator (CI) index is 1.882 based on October 2019 WEO and World Bank’s 2018 CPIA, indicating weak debt-carrying capacity in the revised LIC-DSA framework.
- Changes in thresholds (current versus previous DSF vintage):
  - PV of debt-to-exports threshold increased from 100 to 140 percent.
  - Debt service-to-exports threshold lowered from 15 to 10 percent.
  - Debt service-to-revenue threshold lowered from 18 to 14 percent.
  - Total public debt benchmark reduced from 38 percent to 35 percent of GDP.

### Macroeconomic assumptions (2020–40)
- Natural resources:
  - Oil production at 72 thousand barrels/day in 2019.
  - Price of Sudan’s crude oil projected to average $42/barrel in the medium term.
- Real sector:
  - Real GDP expected to contract by 8.4 percent in 2020.
  - Real growth expected to recover to 0.8 percent in 2021 and 1.4 percent in 2022.
  - Real GDP growth expected to rebound to 4.5 percent in 2025 and grow at potential in the longer term.
  - Inflation projected to increase from about 51 percent in 2019 to approximately 142 percent in 2020, then decline to around 17 percent in 2025.
  - Nominal exchange rate to continue to depreciate; real exchange rate relatively constant.
- Fiscal sector:
  - Fiscal deficit projected to reduce significantly to 1.3 percent of GDP in 2025.
  - Removal of fuel subsidies reduced fuel subsidies by 8.4 percent of GDP in 2020.
  - Public wage bill increased by 2.2 percent of GDP in 2020.
  - Family Support Program aims to provide direct cash transfers to 80 percent of the Sudanese population for 12 months through donor-funded support; monthly benefit per person would be SDG 500 in 2020 with an inflation adjustment in 2021.
  - Primary deficit expected to stabilize at about 2 percent of GDP over the longer run through 2040.
- External sector:
  - Current account deficit expected to decline to about 3 percent of GDP on a cash basis by end-2025.
  - Current account deficit financed mainly by foreign direct investment in the medium term.
- External debt and financing:
  - New loan disbursements expected to remain limited at about 0.12 percent of GDP during 2020–40.
  - Share of new concessional loans assumed at around one-third.
  - Sudan assumed to continue not to service obligations arising from stock of arrears; effective interest rate declines over time as interest payments decrease while stock of debt grows.
  - Under the SMP, external donors and IFIs will provide about $1.5 billion financing to support reforms in 2020–2021.
  - Central bank monetization expected to be reduced with development of government securities market; staff applied latest available market interest rate (negative in real terms) on government bonds in projections.

### External debt sustainability (baseline and vulnerabilities)
- PV of PPG external debt is about 164.6 percent of GDP at end-2019—well above the 30 percent threshold for weak policy performers—and is projected to stay above the threshold through the 20-year projection period.
- PV of debt-to-exports is about 1,028 percent in 2019, well above the respective threshold.
- Debt service to exports and to revenue will gradually decline under the SMP scenario but debt remains unsustainable without debt relief.
- Debt service will increase in 2022 and 2023 due to scheduled repayment of deposits of Saudi Arabia and U.A.E in the Central Bank of Sudan.
- Vulnerabilities:
  - PV of debt-to-GDP and debt-to-revenue are most vulnerable if key variables remain at their historical average.
  - PV of external debt-to-exports is most vulnerable to an export shock.

### Public debt dynamics and risk of distress
- Public debt remains unsustainable and mirrors external DSA trends.
- PV of public debt is about 262 percent of GDP at end of 2020 and projected to decline to 155 percent of GDP by 2040 under baseline assumptions.
- PV of public debt-to-revenue projected to decline from 3,850 percent at end-2020 to about 1,016 percent by 2040.
- Bound tests show public debt path is most vulnerable to real GDP growth shocks and a one-time 180 percent depreciation.
- The DSA projections differ from the previous DSA mainly due to planned exchange rate and fuel subsidy reforms that reduce macroeconomic imbalances.
- The realism tool indicates the required fiscal adjustment is large: the 3-year fiscal adjustment in Sudan is above 8 percent of GDP, with the bulk coming from removal of fuel subsidies (10.5 percent of GDP in 2019).
- Without reform, continued monetization of implicit fuel subsidies by the central bank will lead to a severe decline in growth.

### Policy implications and measures highlighted
- Implement significant reforms under the Staff Monitored Program (SMP), including:
  - exchange rate liberalization and unification,
  - fiscal consolidation,
  - structural reforms to improve governance and business environment.
- Reduce monetization of the fiscal deficit by developing the government securities market and limiting central bank financing.
- Remove fuel subsidies and implement compensatory social measures (Family Support Program) to shield vulnerable populations.
- Broaden the tax base and improve tax administration to achieve fiscal consolidation.
- Intensify outreach to donors and creditors to obtain assurances and financing support to enable debt relief and normalization with international financial institutions.

*Italic: International Monetary Fund — Source document content as provided.*

### CONCLUSIONS

### CONCLUSIONS

### Debt sustainability and DSA findings
- Sudan’s external debt remains in distress and unsustainable.
- The results of this DSA are significantly improved from previous DSAs, reflecting that the authorities have initiated unprecedented reforms even in the absence of debt relief.
- It is still impossible for Sudan to service its high debt without debt relief: 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.
- About 85 percent of external debt is in arrears.

Key DSA indicators (selected, as presented in the source):
- External debt (nominal) (in percent of GDP): 2020: 253.1; 2021: 245.6; 2022: 210.0; 2023: 196.4; 2024: 191.5; 2025: 187.3; 2026: 184.1; 2027: 181.0; 2028: 177.9; 2029: 175.0; 2030: 172.0; 2040: 97.6.  
- Public and publicly guaranteed (PPG) external debt (in percent of GDP): 2020: 247.6; 2021: 240.0; 2022: 204.2; 2023: 190.6; 2024: 185.7; 2025: 181.6; 2026: 178.6; 2027: 175.5; 2028: 172.5; 2029: 169.5; 2030: 166.6; 2040: 92.0.
- PV of PPG external debt-to-GDP ratio (selected years): 2022: 164.6; 2023: 172.9; 2024: 177.7; 2025: 179.3; 2026: 176.1; 2027: 173.9; 2028: 170.2; 2029: 167.5; 2030: 164.6; 2040: 130.6.
- Gross external financing need (Million of U.S. dollars) (selected years): 2020: 6010.1; 2021: 6164.0; 2022: 6329.1; 2023: 5306.5; 2024: 4590.1; 2025: 6576.6; 2026: 5440.2.
- Nominal GDP (Million of US dollars) (selected years): 2017: 45,944; 2018: 35,680; 2019: 33,359; 2020: 32,576; 2021: 32,476; 2022: 31,868; 2023: 32,706; 2024: 33,857; 2025: 35,354.
- PV of external debt (memorandum): 2024: 169.9; 2025: 178.4; 2026: 183.3; 2027: 185.1; 2028: 181.9; 2029: 179.7; 2030: 175.9; 2040: 136.0.

(Note: Above figures are drawn verbatim from the DSA tables and projections included in the source.)

### Macroeconomic context and recent developments
- Real GDP growth: GDP contracted from -2.3 percent in 2018 to -2.5 percent in 2019; GDP is expected to further contract by 8.5 percent in 2020 due to COVID-19 and related impacts.
- Inflation: After declining from 63.3 percent in 2018 to 51 percent in 2019, inflation surged to 166.8 percent in August 2020, driven by exchange rate depreciation and a surge in money supply owing to recurrent fiscal deficit.
- External sector: The current account deficit widened from 8.7 percent of GDP in 2018 to 10.9 percent of GDP in 2019.

### Policy recommendations and authorities’ commitments
- Immediate priorities for Sudan to obtain debt relief and regain external financing:
  - Continue to step up outreach efforts to creditors to garner broad support for debt relief.
  - Continue to cooperate with the IMF and the World Bank on economic policies to establish a track record of sound macro policies.
  - Renew the commitment to develop a full-fledged PRSP.
- Given the dire debt situation, the authorities should limit new borrowing on non-concessional terms since it further increases the future debt burden.
- Address major shortcomings in macroeconomic data (quality and timeliness) as they impair economic analysis and increase uncertainty about reform outcomes.

Authorities’ stated commitments and actions:
- The authorities concur that absent reforms, debt restructuring and access to debt relief, the economic outlook is bleak and debt will remain unsustainable.
- Determined to conduct significant reform under the Staff Monitored Program (SMP) to reestablish macroeconomic stability and create conditions for stronger, broad-based growth.
- Intensifying outreach to donors and creditors and petitioning the US government to exclude Sudan from the SSTL (state sponsors of terrorism list).
- Preparing a full PRSP with support from the African Development Bank and the World Bank; completing debt reconciliation.

### Fiscal policy actions and targets
- Fiscal policy aims to ensure medium-term fiscal sustainability through comprehensive fiscal reforms.
- Fuel subsidies have been steadily reduced since February 2020; plan to fully eliminate subsidies on gasoline and diesel.
- Social mitigation: increased public wages and expansion of the Sudan Family Support Program (SFSP), piloted in June 2020.
- Revenue measures: broaden the tax base through rationalization of tax exemptions and improved tax administration; gradually adjust the customs exchange rate; reform the import tariff structure with IMF TA.
- Fiscal deficit reduction: fiscal measures and donor support are expected to reduce the fiscal deficit by 4 percent of GDP in 2020 and 3.3 percent of GDP in 2021. Beyond 2021, acceleration of fiscal consolidation is planned.
- Public financial management reforms: establishing a treasury single account (TSA), improving cash management and forecasting, incorporating a medium-term fiscal framework, publishing monthly budget execution reports in line with the GFS Manual 2001, and strengthening public procurement with World Bank support.

### Monetary, exchange rate, and financial sector reforms
- Monetary framework: adopted a reserve money targeting framework to anchor inflation expectations; plan to eliminate deficit monetization and build a strong, liquid government securities market with Fund TA.
- Central bank governance: revamping central bank law to strengthen independence and aim to submit new central bank law to the legislature by end 2020.
- Exchange rate: preparatory activities toward unification of all exchange rates (except customs rate) to enable market determination by commercial banks and FX bureaus; central bank to maintain a band on daily exchange rates during initial reform period; authorities will refrain from imposing administrative restrictions on current account transactions.
- Banking sector: modernize banking regulation, strengthen supervisory capacity, enhance compliance with prudential regulations (including limits on foreign exchange exposure and lending in foreign currency), conduct semi-annual stress tests, finalize asset quality reviews of systemically important banks by June 2021, and strengthen bank recovery and resolution framework.
- Governance and ownership: independent directors to replace central bank officials on commercial bank boards by end 2020; central bank will phase out its stake in state-owned banks and commercial banks by December 2021.
- AML/CFT: address remaining deficiencies through thematic on-site inspections of high-risk banks, strengthening the FIU, and full implementation of risk-based AML/CFT supervision.

### Structural and governance reforms
- Anti-corruption: finalizing a new Anti-Corruption Law to be passed by October 2020; establishment of an independent Anti-Corruption Commission by March 2021.
- SOE reforms: comprehensive reforms to strengthen SOE oversight, transferring oversight responsibilities of all SOEs to MOFEP.
- Business environment: work with IFC and World Bank to foster public-private dialogue, improve PPP legal/institutional frameworks, improve access to finance, simplify business entry and taxation, and prioritize efforts to improve data quality, frequency, and availability.

### Overdue obligations and engagement with the Fund
- Authorities welcome staff proposals on Sudan’s annual token payments to the Fund and seek Board approval of the proposed decisions.
- Authorities view reduction in annual token payments as critical given the deterioration in payment capacity and commit to make payments regularly and increase payments as capacity improves.

### Timing and implementation milestones (selected)
- SFSP piloted in June 2020 (to be expanded).
- Bank-by-bank stress tests completed; remedial measures developed.
- New central bank law to be submitted to legislature by end 2020.
- Anti-Corruption Law to be passed by October 2020; Anti-Corruption Commission by March 2021.
- Asset quality reviews finalized by June 2021.
- Phase out of central bank stakes in state-owned/commercial banks by December 2021.

_Italic source: CONCLUSIONS (1sdnea2020003) — IMF staff and Sudan authorities, as presented in the supplied document._

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1sdnea2020003.pdf_