## EXECUTIVE SUMMARY

## Source details

**Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2021/english/1sdnea2021002.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2021/english/1sdnea2021002.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2021/english/1sdnea2021002.pdf.json)

---

### Context and reform commitments
- Transitional government launched a 12-month Staff-Monitored Program (SMP, July 2020 – June 2021) to address macroeconomic imbalances, lay groundwork for inclusive growth, and build a track record for eventual HIPC debt relief.
- Enabling developments and international support:
  - Removal of Sudan from the U.S. list of State Sponsors of Terrorism (SSTL).
  - Identification of bridge financiers for arrears clearance to IDA and the African Development Bank (AfDB).
  - World Bank signed a $400 million Development Policy Operation (DPO) to launch the Sudan Family Support Program (SFSP).
  - Comprehensive peace agreement and new cabinet sworn in February 8, 2021 reaffirmed commitment to the reform program.
- Structural measures advanced:
  - Exchange rate unification implemented February 21, 2021 (prior action).
  - Liberalization of retail prices of imported and domestically produced gasoline and diesel; diesel subsidies to the agricultural sector eliminated March 1, 2021.
  - Central Bank Act and The Anti-Corruption National Commission Law submitted for approval to the CBOS Board and Sovereign Council, respectively.
  - Partial SOE ownership list compiled; update pending clarification of security-sector SOE ownership.

### Recent developments and outlook
- Growth and output:
  - Staff estimate growth of -3.6 percent in 2020 (SMP projection was -8.4 percent).
  - Gold production rose by 37 percent in 2020.
  - Projected return to positive growth in 2021; medium-term growth expected to increase to 4½ percent.
- Inflation, exchange rate, and prices:
  - Inflation described as triple-digit in 2020; staff estimate inflation will fall back to double digits in 2022.
  - Official exchange rate unified at SDG55/USD to market rate of SDG375/USD on February 21, 2021.
  - Measures (exchange rate unification, removal of fuel subsidies, tax measures, electricity tariff increases) intended to reduce distortions, lower monetization, and help bring down inflation.
- External sector and reserves:
  - Staff estimate recorded current account deficit at 13.2 percent of GDP in 2020 (likely overstated due to informal remittances).
  - End-2020 surge in imports and weak net financial flows limited reserve accumulation; official outflows included payments to victims of terrorism.
- Financial sector:
  - NPLs to gross loans nearly doubled from 2.7 percent in March to 5.4 percent in August 2020.
  - Commercial banks’ capital adequacy remained above legal minimum of 12 percent; liquidity coverage ratio remained close to 100 percent.
  - Reserve money grew 97 percent in 2020 due to monetization and absence of monetary instruments.
  - CBOS exploring remedial plans with banks, introducing a dual banking system, and developing traditional monetary instruments.

### Fiscal position and social impact
- Fiscal implementation in 2020:
  - Revenue and grants were 2 percentage points lower than projected under the SMP; expenditure was nearly 3 percentage points lower than under the SMP.
  - Delayed launch of SFSP led to shortfalls in social spending.
  - Tax policy measures from the revised 2020 budget (increase in corporate income tax and VAT on telecoms) were not implemented; customs exchange rate reform not initiated.
- Social consequences:
  - Removal of subsidies, high inflation, and shortages inflicted significant hardship.
  - World Bank estimates over 50 percent of the population is experiencing severe food insecurity.
  - SFSP pilot reached 140,000 families; estimated SFSP funding gap is approximately $1 billion without arrears clearance and donor grants.
  - Sudan received over 60,000 refugees from Tigray.

### External financing needs and gaps
- Staff estimate external financing needs and gap:
  - Financing need on the order of $7¼ billion over the next two years to eliminate monetization and bring reserves to 3 months of imports.
  - Identified financing gap of $4.1 billion.
- External financing context:
  - Friends of Sudan pledges at June 2020 conference amounted to nearly $2 billion.
  - World Bank PACGs: $200 million approved, additional $200 million assumed in SMP planning.
  - Early clearance of IDA arrears would unlock IDA19 allocation and other grant windows helping SFSP financing.

### Performance under the SMP and conditionality
- Overall assessment and program trajectory:
  - Early program performance was weak; policy action strengthened since December 2020.
  - Staff consider macroeconomic and structural policies under the SMP (as revised for the first review) remain consistent with UCT quality; Directors’ endorsement sought at Board meeting tentatively planned for March 24, 2021.
  - Staff proposes introducing quarterly targets to support authorities’ strategy to secure debt relief and enable a six-month track record (end-March 2021 test date) or end-June if more time needed.
- Quantitative benchmarks and indicative targets (end-December):
  - Met: 1) ceiling on banking system net credit to government; 2) ceiling on contracting/guaranteeing long-term external loans.
  - Breached: CBOS Net Domestic Assets (NDA) and Net International Reserves (NIR) due to sale of monetary gold and purchase of FX to fund victims of terrorism payments.
  - All three indicative targets were missed, including social spending floor due to delayed SFSP start.
  - Indicative target on the non-oil primary deficit was missed after accounting for the USS Cole payment.
- Structural benchmarks:
  - One of six structural benchmarks met on time; significant progress on others (exchange rate unification implemented February 21, 2021 as a prior action).

### HIPC process and conditions for Decision Point
- Requirements to reach Decision Point under Enhanced HIPC Initiative:
  - Continue strong performance under the SMP, including improved quantitative performance to establish a satisfactory track record (six months minimum).
  - Reach out to creditors to reconcile end-2020 debt stock.
  - Clear arrears to IMF, IDA and AfDB and identify financing for IMF arrears clearance.
  - Adopt a poverty reduction strategy (PRS).
  - Receive financing assurances for HIPC debt relief from creditors.
- Decision Point can be reached only once all conditions have been met.

### Risks and vulnerabilities
- Financial risk: Program underfunded; monetization likely to continue without substantial external financing.
- Economic stability: High inflation, legacy of mismanagement, COVID-19 impacts, supply shortages.
- Social risk: High and rising food insecurity and public discontent linked to subsidy removal and price adjustments.
- Political risk: Deep ideological and regional divides; weak institutional capacity could impede reform implementation.

---

### Program performance at end-December: quantitative, indicative, and structural targets

### Quantitative and indicative targets (end-December outcomes)
- Met (2 of 4 quantitative targets):
  - Ceiling on the banking system’s net credit to the government — met.
  - Ceiling on contracting/guaranteeing long-term external loans — met.
- Missed:
  - CBOS Net Domestic Assets (NDA) — breached.
  - CBOS Net International Reserves (NIR) — breached.
  - All three indicative targets missed, including social spending floor due to delayed SFSP.
- Specific transaction affecting targets:
  - Sudan transferred $335 million in the second half of 2020 to pay victims of terrorism financed via sale of monetary gold and CBOS FX purchases.

### Structural benchmarks and prior actions (selected)
- Implemented or advanced:
  - Retail gasoline and diesel liberalized; Ministerial Decree 94 (12/3/2020); diesel subsidy to agriculture eliminated March 1, 2021 (implemented with delay).
  - Exchange rate unification and move to market exchange rate — implemented February 21, 2021 (prior action).
  - Publication of monthly budget execution reports — Met.
- Not met / in progress:
  - Customs exchange rate unification — Implemented with delay (February 21, 2021 for most rates; full customs unification under study).
  - Anti-corruption law and Central Bank Law — Submitted/Received; pending formal approval.
  - Publication of full SOE inventory — Partial list of 58 companies published; full upload pending ownership clarification.

### TMU and program monitoring adjustments
- TMU adjusted definition of NIR to be neutral to any deposit received by CBOS, incentivizing use of such resources to accumulate gross reserves.
- Staff proposes quarterly reviews to enable faster establishment of six-month track record.

---

### Outlook, fiscal and external projections, and key macro figures (selected)

### Growth and inflation outlook
- Growth:
  - After three years of contraction, growth expected to pick up gradually, increasing to 4½ percent over the medium term.
  - Real GDP (market prices) reported figures/projections:
    - 2018: -2.3
    - 2019: -2.5
    - 2020 (Act.): -8.4
    - 2021 (SMP proj.): -3.6
    - 2022 (Proj.): 0.4
    - 2023–26 (Proj.): 1.1, 2.6, 3.6, 4.3, 4.4
- Inflation (consumer prices, end of period):
  - 2019: 57.0
  - 2020 (Act.): 198.0
  - 2021 (SMP proj.): 269.3
  - 2022 (Proj.): 119.6
  - 2023–26 (Proj.): 28.8, 14.6, 11.5, 10.7, 10.2

### Fiscal projections (central government, percent of GDP)
- Revenue and grants:
  - 2018: 8.9
  - 2019: 7.8
  - 2020 (Act.): 6.8
  - 2021 (SMP proj.): 4.8
  - 2022 (Proj.): 11.1
- Overall balance:
  - 2018: -7.9
  - 2019: -10.8
  - 2020 (Act.): -6.9
  - 2021 (SMP proj.): -5.9
  - 2022–26 (Proj.): -3.1, -2.5, -2.4, -2.4, -2.4
- Public debt (percent of GDP):
  - 2018: 185.6
  - 2019: 200.3
  - 2020 (Act.): 259.4
  - 2021 (SMP proj.): 249.1
  - 2022 (Proj.): 208.6

### Monetary and external sector indicators (selected)
- Reserve money (annual change, percent):
  - 2018: 170.5
  - 2019: 77.5
  - 2020 (Act.): 97.5
  - 2021 (SMP proj.): 95.0
- Broad money (annual change, percent):
  - 2018: 111.8
  - 2019: 60.1
  - 2020 (Act.): 88.2
  - 2021 (SMP proj.): 80.0
- Current account (percent of GDP):
  - 2018: -13.0
  - 2019: -15.6
  - 2020 (Act.): -17.5
  - 2021 (Proj.): -11.2
  - 2022–26 (Proj.): -13.5; -11.4; -10.1; -9.4; -8.5
- Gross usable international reserves (millions of US$ and months of imports):
  - 2018: 178 (0.2 months)
  - 2019: 190 (0.2 months)
  - 2020 (Act.): 324 (0.4 months)
  - 2021 (Proj.): 223 (0.3 months)
  - 2022–26 (Proj., millions): 301, 480, 690, 920, 1,290, 1,860
  - Imports coverage (months): 2022–26: 0.3, 0.5, 0.7, 0.9, 1.2, 1.7

---

### Policy discussions — main priorities and recommended actions

### Main priorities
- Remove remaining distortions (exchange rate, subsidies).
- Implement 2021 budget and CBOS policies to stabilize macroeconomy while protecting vulnerable groups.
- Strengthen policy coordination between MOF and CBOS.
- Strengthen program performance to establish satisfactory track record for debt relief.

### Exchange rate reforms and related measures
- Rationale: Unification underpins UCT quality, bolsters competitiveness, transparency, and central bank independence; minimizes rent-seeking and corruption.
- Measures implemented and planned:
  - Exchange rate unified February 21, 2021 (SDG375/USD market rate).
  - Banks/forex bureaus allowed to set rates within ±5 percent daily band around the indicative rate; stocktake after end-March 2021.
  - Customs exchange rate unification targeted by end-June 2021 (structural benchmark) to boost revenue by about 1.5 percent of GDP in 2021.
  - CBOS raised reserve requirement ratio to 22 percent from 20 percent.
  - Short-term import restrictions on luxury cars; staff cautioned against undue restrictions on government finance or current account transactions.

### Fiscal policy, social protection and revenue mobilization
- 2021 budget aims to stabilize macroeconomy via fiscal consolidation while protecting vulnerable groups and increasing development and social spending outside Khartoum.
- Expected effects and measures:
  - Removal of most fuel subsidies to provide space for federal investment and social spending.
  - Wage bill unchanged at 2.9 percent of GDP.
  - World Bank rolling out SFSP end-February to help poor families cope with subsidy removal and inflation.
  - Revenue mobilization measures: progressive personal income tax, higher corporate income tax starting 2022 based on 2021 profits, VAT on telecoms raised from 25 to 40 percent, freeze of tax exemptions until end-2021, rationalizing tax exemptions in Investment Law.
  - 2021 budget projected to reduce fiscal deficit by 2.8 percent of GDP to 3.1 percent of GDP target.

### Monetary instruments and government securities market
- Lack of monetary instruments constrained policy; confidence weak due to forced rollover and negative real interest rates.
- Plan to progressively increase sales of government securities with IMF TA; convert CBOS claims on government (SDG 624 billion, about 12 percent of GDP in 2020) into government securities to increase available stock for monetary policy.

### Financial sector governance and supervision
- CBOS to divest ownership in state banks and commercial banks; move to dual banking system; complete by end-2021 (subject to delays).
- Strengthen supervision: modernize regulations in line with Islamic Financial Stability Board standards, conduct semi-annual stress tests (end-March structural benchmark), asset quality reviews of systemically important banks by June 2021, strengthen bank recovery and resolution framework by September 2021.

### AML/CFT and correspondent banking
- Urgent priorities: complete national ML/TF risk assessment, increase FIU capacity, implement risk-based AML/CFT supervision, improve freezing of terrorist assets.
- Thematic AML/CFT on-site inspections of ten highest-risk banks to be conducted by Mar. 2021 (subject to COVID-19 staffing constraints); banks required to implement electronic monitoring of suspicious transactions by end-June.

### Public financial management and SOE oversight
- Publish monthly budget execution reports (Met); operationalize Treasury Single Account (TSA); incorporate medium-term fiscal framework by 2022.
- SOE actions: complete inventory and clarify ownership, transfer SOE financial oversight to MOF, publish financial accounts, assess strategic objectives and privatization options.

---

### Debt relief outreach, arrears clearance, and program monitoring

### Debt relief outreach and HIPC sequencing
- Government will intensify outreach to creditors to secure debt relief via: fast-track debt relief process, minimizing non-concessional borrowing, and strengthening cooperation with IMF.
- Four HIPC Decision Point requirements reiterated:
  - Six-month satisfactory track record under a UCT-quality program.
  - Reconciling outstanding debt stock.
  - Clearing arrears to IMF, IDA, AfDB and obtaining financing assurances from creditors.
  - Adopting at least an interim PRS.
- Note: Early clearance of IDA arrears expected to unlock IDA19 and grant windows; World Bank planned early arrears clearance late-March; AfDB arrears clearance may occur in April; financing for IMF arrears clearance yet to be identified.

### Program monitoring, quantitative targets and TMU highlights
- SMP monitoring via quarterly quantitative benchmarks and indicative targets; TMU defines variables, valuation conventions (program exchange rate of 45 SDG per U.S. dollar; program monetary gold price of $70.73 per gram), and adjustors.
- Selected quantitative targets and indicative figures (table excerpts preserved as presented):
  - Banking system net credit to central government (ceiling: in SDG billion): 386 672 709 655 758 871
  - CBOS net domestic assets (ceiling: in SDG billion): 817 1,083 1,120 1,277 1,380 1,473
  - Net international reserves (floor: in millions of U.S. dollars): (728) (594) (594) (803) (6,552) (6,539)
  - Contracting or guaranteeing external long-term non-concessional debt (ceiling: in millions of U.S. dollars): 230 300 300 18 75 150
  - Indicative targets: Social spending (floor: in SDG billion) and reserve money (ceiling: in SDG million) with shown sequences.
  - Memorandum items (selected lines as presented) include figures for external non-project grants for Family Support Program, transfer payment to the US for victims of terrorism, government asset sales, external non-project loans (presented verbatim in tabular entries).
- Monitoring arrangements:
  - SMP Monitoring Committee comprising MOF, Petroleum and Mining, CBOS, Statistics Office and others to meet frequently and provide monthly progress reports.
  - Detailed data reporting framework agreed with specified reporting items, agencies, frequencies, and timing (e.g., CBOS balance sheet monthly within 30 days; CPI monthly within 2 weeks; central government operations monthly within 45 days).

### Payments to IMF and arrears strategy
- Authorities committed to cooperate with IMF on policies and payments.
- Staff assessment supports a reduced annual payment to the Fund starting in 2021; IMF Board decision to reduce payments to $2.5 million annually.
- Government made monthly payments of $210,000 in January and February 2021 (approximately one-twelfth of expected annual payment).
- Need to mobilize resources for IMF’s share of debt relief noted, as original HIPC financing did not include cost for Sudan.

---

### Key operational priorities and near-term actions (selected)
- Complete semi-annual stress tests and remedial measures for problem banks (completed for initial tests; action plans agreed).
- Maintain fiscal consolidation and avoid reversion to subsidies or multiple currency practices.
- Implement exchange rate unification (completed for market rate), and finalize customs exchange rate unification by end-June 2021.
- Advance Central Bank Act and Anti-Corruption National Commission Law approvals.
- Rollout SFSP and close SFSP funding gap through arrears clearance and donor grants.
- Intensify outreach to creditors and complete debt reconciliation to progress toward HIPC Decision Point.
- Strengthen AML/CFT implementation and regain correspondent banking relationships.

*Source: EXECUTIVE SUMMARY (1sdnea2021002).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and reform commitments
- Transitional government launched an IMF-supported Staff-Monitored Program (SMP) in 2020 (12-month SMP, July 2020 – June 2021) to address macroeconomic imbalances, lay groundwork for inclusive growth, and build a track record for eventual HIPC debt relief.
- International support and enabling developments:
  - Removal of Sudan from the U.S. list of State Sponsors of Terrorism (SSTL).
  - Identification of bridge financiers for arrears clearance to IDA and the African Development Bank (AfDB).
  - World Bank signed a $400 million Development Policy Operation (DPO) to launch the Sudan Family Support Program (SFSP).
  - A comprehensive peace agreement (signatories brought into a new cabinet on February 8, 2021) reaffirmed commitment to the economic reform program.
- Structural measures advanced:
  - Exchange rate unification (prior action; implemented February 21, 2021).
  - Liberalization of retail prices of imported and domestically produced gasoline and diesel; diesel subsidies to the agricultural sector eliminated as of March 1.
  - Central Bank Act and The Anti-Corruption National Commission Law submitted for approval to the CBOS Board and Sovereign Council, respectively.
  - Partial SOE ownership list to be updated once ownership clarifications are made for SOEs owned by the security industry.

### Recent developments and outlook
- Growth and output:
  - Economy contracted for the third straight year in 2020 but less than expected: staff estimate growth of -3.6 percent (SMP projection was -8.4 percent).
  - Gold production rose by 37 percent; rain-fed agriculture performed better than anticipated; services rebounded after lockdowns.
  - Projected return to positive growth in 2021.
- Inflation, exchange rate, and prices:
  - Inflation described as triple-digit in 2020; staff estimate inflation will fall back to double digits in 2022.
  - Exchange rate unification, removal of fuel subsidies, tax measures in the 2021 budget, and increases in electricity tariffs intended to reduce distortions, lower monetization, and help bring down inflation.
  - Parallel vs. official exchange rate gap contributed to use of informal remittance channels; on February 21, 2021 the official exchange rate (SDG55/USD) was unified at the market rate of SDG375/USD.
- External sector and reserves:
  - Recorded current account deficit widened notably in 2020; staff estimate the recorded current account deficit at 13.2 percent of GDP (noting likely overstatement due to informal remittances).
  - End-2020 surge in imports and weak net financial flows limited reserve accumulation; official outflows included payments to victims of terrorism.
- Financial sector:
  - Financial sector remains fragile: non-performing loans increased (NPLs to gross loans nearly doubled from 2.7 percent in March to 5.4 percent in August).
  - Commercial banks’ capital adequacy ratio declined but remained above the legal minimum of 12 percent; liquidity coverage ratio declined but remained close to 100 percent.
  - Reserve money grew 97 percent in 2020 due to monetization and absence of monetary instruments.
  - CBOS met with banks to develop remedial plans and is exploring introduction of a dual banking system and development of traditional monetary instruments.

### Fiscal position and social impact
- Fiscal implementation in 2020:
  - Fiscal consolidation broadly in line with the SMP but mixed implementation: revenue and grants were 2 percentage points lower than projected under the SMP; expenditure was nearly 3 percentage points lower than under the SMP.
  - Delayed launch of the social safety net led to shortfalls in social spending.
  - Tax policy measures from the revised 2020 budget (increase in corporate income tax and VAT on telecoms) were not implemented; customs exchange rate reform not initiated.
- Social consequences:
  - Removal of subsidies, high inflation, and shortages have inflicted significant hardship.
  - World Bank estimates over 50 percent of the population is experiencing severe food insecurity.
  - Off-budget humanitarian aid has increased; SFSP rollout began (pilot reached 140,000 families); funding gap for SFSP is approximately $1 billion without arrears clearance and donor grants.
  - Demonstrations have increased in response to economic pain; Sudan has received over 60,000 refugees from Tigray.

### External financing needs and gaps
- Staff estimate external financing needs and gap:
  - Financing need on the order of $7¼ billion over the next two years to eliminate monetization and bring reserves to 3 months of imports.
  - Identified financing gap of $4.1 billion.
- External financing context:
  - Friends of Sudan pledges at the June 2020 conference amounted to nearly $2 billion (humanitarian, project and financial support).
  - World Bank PACGs: $200 million approved, additional $200 million assumed in SMP planning.
  - Early clearance of IDA arrears would unlock IDA19 allocation and other funding windows (grants) that could help close SFSP financing shortfalls.

### Performance under the SMP and conditionality
- Overall assessment:
  - Early program performance was weak, but policy action strengthened since December; staff consider macroeconomic and structural policies under the SMP as revised for the first review remain consistent with UCT quality.
  - Staff will seek Directors’ endorsement of this view at a Board meeting tentatively planned for March 24, 2021.
- Quantitative benchmarks and targets:
  - Two of the four end-December quantitative benchmarks were met: the ceiling on the banking system’s net credit to the government and the ceiling on contracting or guaranteeing long-term external loans.
  - Benchmarks breached: CBOS Net Domestic Assets (NDA) and Net International Reserves (NIR) were breached due to sale of monetary gold and purchase of foreign exchange to fund payments to victims of terrorist attacks; these operations, in the absence of monetary instruments, contributed to significant money supply increase, inflation, and exchange rate depreciation.
  - All three indicative targets were missed (including delayed launch of the social safety net causing social spending shortfalls).
  - The indicative target on the non-oil primary deficit was missed after accounting for the USS Cole payment, which had not been previously included in the budget.
- Structural benchmarks:
  - One (1) of 6 structural benchmarks was met; significant progress was made on the remaining measures.
  - Exchange rate unification and move to a market exchange rate implemented February 21, 2021 (a prior action for the review).
- Program trajectory:
  - Staff considers the program continues to meet the UCT conditionality standard and proposes introducing quarterly targets to support authorities’ strategy to secure debt relief.

### HIPC process and conditions for Decision Point
- Requirements to reach Decision Point under the Enhanced HIPC Initiative:
  - Continue strong performance under the SMP, including improved quantitative performance to establish a satisfactory track record.
  - Reach out to creditors to reconcile the end-2020 debt stock.
  - Adopt a poverty reduction strategy.
  - Identify financing for IMF arrears clearance.
  - Receive financing assurances for HIPC debt relief from creditors.
- The Decision Point can be reached only once all conditions have been met.

### Risks and vulnerabilities
- Financial risk: Program remains underfunded; monetization likely to continue without substantial external financing.
- Economic stability: High inflation, legacy of three decades of mismanagement, COVID-19 impacts, and supply shortages.
- Social risk: High and rising food insecurity and public discontent linked to subsidy removal and price adjustments.
- Political risk: Deep ideological and regional divides; weak institutional capacity could impede reform implementation.

*Source: EXECUTIVE SUMMARY (1sdnea2021002).*

### 10. Program performance at end-December was mixed, but the authorities have taken

### 10. Program performance at end-December was mixed, but the authorities have taken corrective measures and are now on a path toward broadly satisfactory performance.

### Program performance: quantitative and indicative targets
- Two (2) of the four end-December quantitative targets were met:
  - Ceiling on the banking system’s net credit to the government — met.
  - Ceiling on the contracting or guaranteeing of long-term external loans — met.
- Missed targets:
  - All three indicative targets were missed.
  - Shortfalls in social spending resulted from the delayed start to the SFSP.
  - Breach in the indicative target on the non-oil primary deficit occurred due to payments to the victims of the USS Cole bombing; without this payment, the target would have been met.
  - Breaches of CBOS’ NDA and NIR targets broadly reflect the sale of monetary gold and purchase of foreign exchange to fund the payment to the victims of terrorism attacks, which, in the absence of monetary instruments, contributed to a significant increase in the money supply, inflation and exchange rate depreciation.
- Specific transaction noted:
  - In the second half of 2020, Sudan transferred $335 million to pay the victims of terrorism financed via the sale of monetary gold and the purchase of foreign exchange by the CBOS (on behalf of the government). Sudan was removed from the U.S. State Sponsors of Terrorism List (SSTL) in December 2020.

### Structural benchmarks and prior actions
- Structural benchmark performance:
  - One (1) of 6 structural benchmarks was met.
  - Retail prices of imported and domestically produced gasoline and diesel have been liberalized and a pricing mechanism put in place (Ministerial Decree 94), and diesel subsidies to the agricultural sector were eliminated March 1.
  - The Central Bank Act and The Anti-Corruption National Commission Law have been submitted to the CBOS Board and Sovereign Council, respectively, for approval.
  - Authorities pledged to update the partial list of SOEs published on their website once ownership of certain SOEs owned by the security sector is clarified.
  - Long-delayed exchange rate unification and the move to a market exchange rate was implemented February 21, 2021 as a prior action.
- Prior action rationale:
  - Exchange rate unification was set as a prior action because the widening gap between the official exchange rate and market rate led to economic distortions, inefficient and unsustainable subsidies, disincentives for capital flows through the official financial system, opportunities for corruption, and a large informal currency market. Donor funding—including for the SFSP—was held back because aid flows were converted at the official rate providing little funding for humanitarian and development programs.
- Structural benchmark implementation status (selected items from table):
  - Adopt an automatic fuel pricing mechanism; eliminate subsidies on retail gasoline and diesel — Not met; Implemented with delay. Ministerial Decree 94 (12/3/2020) and removal of diesel subsidy to agricultural sector March 1, 2021.
  - Unify all but the customs exchange rate — Not met; Implemented with delay February 21, 2021.
  - Gradually begin to adjust customs exchange rate (to begin in September, full unification end-June) — Authorities are studying unification modalities (gradual versus one-time adjustment).
  - Pass a new anti-corruption law which creates an independent anti-corruption commission — Not met; Received; Sent to Sovereign Council for consideration.
  - Publication of monthly budget execution reports — Met; 2020 budget and monthly data posted for central government relative to budget.
  - Publish an inventory of all State-Owned Enterprises including security sector — Not met; Partial list of 58 companies; staff was provided with full list; upload of full list pending clarification of ownership of certain security sector SOEs.
  - Finalize Central Bank Law in line with IMF recommendations — Not met; Received; submitted to CBOS Board of Directors.

### Program structure and test date
- Staff proposal:
  - Revise the program structure to have quarterly reviews in support of debt relief.
  - Setting an end-March 2021 test date would open the possibility of the authorities demonstrating a six-month track record at the earliest possible date.
  - If the authorities need longer than six-months to establish a satisfactory track record, the end-June test date remains appropriate.
- Technical note:
  - The definition of NIR was adjusted in the TMU to be neutral to any deposit received by the CBOS, and incentivize the authorities to use any such resources to accumulate gross reserves.

### Outlook and risks
- Growth and inflation projections and drivers:
  - After three years of contraction, growth is expected to pick up gradually, increasing to 4½ percent over the medium term as the business climate improves.
  - Reduction in subsidies and customs rate unification would provide fiscal space for social spending supported by donor grants in the near- to medium-term.
  - Monetization of the deficit would be significantly reduced, bringing inflation below 20 percent over the medium term.
  - Current account: Given sizable investment needs, the current account would remain in significant deficit financed by FDI and public and private investment flows; over time the external position is expected to strengthen somewhat with a decline in the (cash) current account deficit to around 5 percent of GDP.
- Fiscal projections:
  - Overall fiscal balance is expected to decline from –5.9 percent of GDP in 2020 to –3.1 percent in 2021.
- Risks:
  - Medium-term risks: broadly balanced.
  - Near-term risks: significant and tilted to the downside due to the very fragile situation.
  - Specific risk factors: failure to implement needed policy measures or reversion to past policies (subsidies, multiple currency practices, lack of transparency/governance), inability of the transitional government to reach consensus, sustained fiscal deficits and insufficient financing further fueling inflation/depreciation spiral.
  - Imperative for international community: both support the authorities and provide strong incentives to remain on track.

### Policy discussions — main priorities
- Focus areas:
  - Removing remaining distortions in the economy.
  - The 2021 budget and CBOS policies.
  - Strengthening policy coordination.
  - Strengthening program performance and other near-term priorities: (1) exchange rate unification and the move to a market exchange rate; (2) maintaining reform momentum and resisting calls to adopt administered prices and/or to resume fuel subsidies; (3) improving domestic revenue mobilization and MOF oversight over SOEs (PFM); and (4) strengthening the financial sector and regaining correspondent banking relationships, including by improving the implementation of the AML/CFT regime.

### Exchange rate reforms and enhancing exchange rate flexibility
- Rationale and expected benefits:
  - Exchange rate unification is crucial to the reform process and underpins the UCT quality of the program.
  - Move to a market rate will bolster competitiveness and transparency, boost central bank independence by reducing fiscal dominance, increase use of the financial system for foreign currency operations, and minimize rent-seeking activities and corruption, which contributes to restoring macro stability and kickstarting growth.
  - Unification of the customs exchange rate by end-June (structural benchmark) would boost revenue and strengthen competitiveness of domestically produced goods.
- Measures put in place:
  - Stress tests were conducted to assess banks’ vulnerability to exchange rate shocks; action plans submitted to CBOS by identified problem banks.
  - MOF and CBOS: budget targets a significant reduction in monetization.
  - CBOS plans: sell its shares in state-owned banks, commercial banks, micro-finance agencies; reduce lending to commercial banks to mop up excess liquidity; limit CBOS issuance of new letters of guarantee in 2021.
  - CBOS raised the reserve requirement ratio to 22 percent from 20 percent.
  - Short-term measures include restrictions on imports of luxury cars.
- Staff cautions and agreed practices:
  - Staff welcomed intention to reduce monetization but cautioned against undue restrictions on government finance and measures that limit current account transactions.
  - Market should determine exchange rate; interventions should be limited to addressing disorderly market conditions.
  - Authorities put in place regulations allowing banks and forex bureaus to set rates with a daily limit of ±5 percent of the indicative rate of the previous day; this cap could place a limit on daily changes but not prevent large cumulative movements.
  - Staff and authorities agreed to take stock of the daily limit after end-March 2021; authorities committed not to impose administrative restrictions on current account transactions as a means of constraining exchange rate movements.

### Policy coordination — the 2021 budget and CBOS policies
- Fiscal policy stance:
  - 2021 budget aims to stabilize the macroeconomy by continuing fiscal consolidation begun in 2020 while protecting vulnerable groups.
  - Budget targets a significant adjustment by increasing tax revenue and reducing subsidies to make space for higher development and social spending outside of Khartoum (state transfers) as part of the peace process.
  - Customs exchange rate unification is expected to boost tax revenue collection by about 1.5 percent of GDP in 2021 including by collecting at the port of entry (i.e., reducing evasion).
  - Removal of most fuel subsidies removes a distortion and provides space for federal investment and social spending.
  - Unchanged wage bill of 2.9 percent of GDP should help contain current spending.
  - World Bank began rolling out the SFSP at the end of February to help poor families cope with subsidy removal and inflation.
  - The 2021 budget is the first to have education spending that exceeds spending on security forces.
  - Given shortages of bread and other subsidized goods, authorities will seek in-kind donor support and intensify efforts to reduce tax evasion and avoidance.
- Central bank independence and instruments:
  - Reducing the need for central bank financing is critical to containing inflation and strengthening central bank independence.
  - Staff welcomed joint IMF-CBOS work on the revised Central Bank Act and encouraged CBOS Board approval to meet the end-June structural benchmark.
  - Strong communication between Central Bank and Ministry of Finance is needed to ensure data consistency and avoid uncoordinated actions undermining de-monetization.
  - Treasury committee has resumed regular meetings to enhance coordination between CBOS and MOF to improve liquidity management and forecasting.

### Monetary instruments and government securities market
- Lack of monetary instruments:
  - Confidence in existing securities is weak due to past forced rollover; negative real interest rates limit demand.
  - Authorities intend to progressively increase sales of government securities near- to medium-term, supported by IMF TA, to establish a government securities market with active participation of banks, nonbanks and the general public.
  - Plan to begin converting large long-term claims of the central bank on the government (SDG 624 billion, about 12 percent of GDP in 2020) into government securities, increasing available stock of securities for monetary policy with IMF TA support.

### Domestic revenue mobilization and oversight of SOEs
- Revenue mobilization measures:
  - Sudan has one of the lowest tax revenue-to-GDP ratios in the world, but domestic revenue mobilization has recently improved.
  - Reforms enacted in 2020 and early 2021: a more progressive income tax; VAT rate for the telecommunications sectors raised from 25 to 40 percent; tax exemptions frozen until end-2021.
  - Despite measures, tax revenue expected to remain in the single digits; measures passed as part of the 2020 revised budget should be enacted without delay.
  - Increase in corporate income tax to be applied starting in 2022 based on 2021 profits; authorities agreed further efforts are needed to strengthen collection and reduce tax avoidance.
  - Future focus: rationalizing tax exemptions (notably those embedded in the Investment Law) and applying a progressive personal income tax.
- SOE oversight:
  - SOE sector is large and opaque; many companies operate outside government control with limited appreciation for financial condition or contingent risks.
  - Significant progress compiling a list of all SOEs; work ongoing to clarify ownership.
  - Authorities have begun closing small SOEs no longer operating; consultants identified to help develop an SOE strategy.
  - Staff encouraged transfer of financial oversight responsibilities of all SOEs to the MOF as soon as possible and increased transparency by publishing financial accounts.

### Financial sector policies and supervision
- Divestment and system reforms:
  - Reforms to divest central bank ownership of state banks and develop a dual banking system will strengthen central bank independence.
  - CBOS should liquidate its positions in state-owned banks (originally planned February 2021) and commercial banks (December 2021) with TA support; work has begun but suffered delays; authorities committed to finishing by end-2021.
  - Preparations underway to move to a dual banking system pending initial surveys and information from local banks.
- Supervision and risk mitigation:
  - Increasing vulnerabilities in domestic banking system underscore need for timely supervisory and risk mitigation measures.
  - Need to modernize banking regulations in line with Islamic Financial Stability Board standards; boost supervisory vigilance to ensure compliance with prudential regulations (limits on net open foreign currency position and on-lending in foreign currency).
  - Importance of establishing regular communication between banking supervision and regulation departments and conducting semi-annual stress tests to identify and address vulnerabilities (end-March structural benchmark).
  - Move toward a fully risk-based supervisory regime over time.
  - Asset quality reviews of systemically important banks based on international standards are underway (June 2021).
  - Authorities encouraged to strengthen bank recovery and resolution framework based on international good practice by September 2021.

### AML/CFT and correspondent banking
- Urgent priorities:
  - Strengthen implementation of Sudan’s AML/CFT regime to support establishment and maintenance of correspondent banking relationships.
  - Authorities aim to complete a national ML/TF risk assessment, increase capacity of the Financial Intelligence Unit (FIU), fully implement risk-based AML/CFT supervision, and improve the process of freezing terrorist assets.
- Supervisory actions and constraints:
  - Staff noted low incidence of suspicious transaction reporting; stressed importance of completing thematic inspections of the 10 highest-risk banks and providing aggregate data to the Fund on violations found and sanctions levied by CBOS, in line with the existing legal framework (structural benchmark).
  - Authorities noted need for more time and reduction in number of inspections given their on-site inspection program is geared toward general, full scope inspections; program negatively impacted by COVID-19 mitigation measures (both government and banks working at 50 percent staffing).
  - Update to CBOS’ ML/TF risk ratings, due in 2020, was postponed and needs completion as a priority to guide selection of banks for thematic inspections.

### Heavily Indebted Poor Countries (HIPC)
- Relevance:
  - With reforms moving ahead, staff proposes program adjustments (quarterly reviews) to support debt relief and the HIPC process, with test dates (end-March 2021 or end-June) linked to demonstrating a satisfactory track record.

*International Monetary Fund — 1sdnea2021002*

### 26. Reaching the Decision Point under the Enhanced HIPC Initiative has four

### 26. Reaching the Decision Point under the Enhanced HIPC Initiative has four

### Decision Point requirements and sequencing
- Four requirements must be met to reach the HIPC Decision Point:
  - (i) establishing a six-month minimum track record of satisfactory performance under a UCT-quality program;
  - (ii) reconciling the outstanding debt stock;
  - (iii) clearing arrears to the IMF, IDA and AFDB and receiving financing assurances from creditors for HIPC debt relief; and
  - (iv) adopting at least an interim PRS.
- All actions are underway, but work remains on all fronts and the Decision Point will only be reached once all requirements have been met.
- Specific operational notes:
  - Further outreach to creditors is required to reconcile the end-2020 debt stock.
  - The authorities must continue to demonstrate strong performance under the SMP, including on quantitative targets, to establish the required track record.
  - The authorities need to finalize their PRS, with support from the World Bank and AfDB.
  - The World Bank and AfDB have financing available for arrears clearance, but financing of arrears to the IMF has yet to be determined and the process of obtaining financing assurances from creditors has yet to begin.
  - Sudan is expected to demonstrate cooperation on payments with the Fund while avoiding making selective payments to other creditors.

### Recent program implementation and overall assessment
- International efforts to support Sudan have gained momentum and implementation of reform measures under the SMP has accelerated after a slow start.
- The modified program remains consistent with the UCT-designation of the SMP.
- Sustained implementation of the authorities’ reform program would:
  - help Sudan exit the current difficult economic situation;
  - strengthen the credibility of the transitional government; and
  - advance requirements for eventual clearance of arrears, HIPC debt relief, and resumption of financing from IFIs.
- Substantial additional donor support will be needed in the months ahead to incentivize reform and address sizable financing needs.

### Exchange rate unification and macro implications
- Authorities unified the exchange rate at the end of February.
- Expected benefits:
  - bolster competitiveness and transparency;
  - reduce implicit subsidies;
  - boost central bank independence by reducing fiscal dominance;
  - incentivize financial flows through the financial system;
  - minimize rent-seeking activities that increase risks of corruption;
  - contribute to restoring macro stability and kickstarting growth.
- Policy imperative: It is vital to avoid backtracking on the move to a market rate.

### Fiscal policy, consolidation, and social spending
- The approved budget for 2021 contains measures supporting SMP goals and seeks to stabilize the macroeconomy by continuing fiscal consolidation begun in 2020.
- Targets under the SMP are set in line with the projected 3.1 percent of GDP deficit.
- Policy measures:
  - Reduction in fuel subsidies and customs rate unification are expected to provide fiscal space for social spending, to be supported by donor grants in the near- to medium-term.
  - Authorities must avoid returning to distortionary fiscal measures (multiple currency practices and subsidies).
  - Enhanced transparency and management of SOE operations is vital to mitigate fiscal risks and bring more revenue on-budget.

### Monetary policy, central bank independence, and market development
- Monetization of the fiscal deficit has led to loss of monetary control by the central bank and severely weakened its balance sheet.
- Needed steps beyond fiscal consolidation:
  - Swift adoption of the revised Central Bank Act.
  - Enhanced communication between the CBOS and MOF to avoid uncoordinated actions.
  - Development of a government securities market to increase financing and augment the stock of securities available for central bank monetary operations.

### Financial sector governance and correspondent banking
- With Sudan re-engaging internationally, priority areas include:
  - Strengthening governance in the domestic financial sector.
  - Reestablishing correspondent banking relationships.
- Specific recommendations:
  - CBOS should exit its equity positions in commercial and state-owned banks.
  - Address supervisory and AML/CFT weaknesses as a priority.
  - Strengthen the bank recovery and resolution framework.
  - Actively monitor and enforce new regulation requiring banks to employ electronic monitoring of transactions, including via thematic AML/CFT on-site inspections.
  - Establish regular communication procedures between banking supervision and regulation departments.
  - Conduct biannual stress tests to reduce vulnerabilities.

### Arrears clearance operational timing
- The World Bank plans to move forward with early arrears clearance in late-March.
- Arrears clearance to the AfDB may take place in April.
- Financing for clearing arrears to the IMF has yet to be identified.

*Source: SUDAN — INTERNATIONAL MONETARY FUND, STAFF APPRAISAL (content unit 26).*

### 33. Staff supports the proposed modifications to the phasing and conditionality of the

### 33. Staff supports the proposed modifications to the phasing and conditionality of the SMP

### Program assessment and policy stance
- Staff supports the proposed modifications to the phasing and conditionality of the SMP, and assesses that the program continues to meet the UCT standard.
- Successful implementation of the modified SMP would:
  - restore a viable external position, and
  - support sustainable inclusive growth over the medium term if combined with sufficient program financing and debt relief.
- Authorities demonstrate commitment and capacity to implement the proposed policies, illustrated by:
  - design of an ambitious adjustment program, and
  - adoption of a prior action in a critical area.
- Conditionality design remains consistent with applicable policies for a UCT program; thus the program continues to meet the UCT standard.

### Recent macroeconomic performance (selected indicators)
- Real GDP (market prices):
  - 2018: -2.3
  - 2019: -2.5
  - 2020 (Act.): -8.4
  - 2021 (SMP proj.): -3.6
  - 2022 (Proj.): 0.4
  - 2023–26 (Proj.): 1.1, 2.6, 3.6, 4.3, 4.4
- Consumer prices (end of period):
  - 2019: 57.0
  - 2020 (Act.): 198.0
  - 2021 (SMP proj.): 269.3
  - 2022 (Proj.): 119.6
  - 2023–26 (Proj.): 28.8, 14.6, 11.5, 10.7, 10.2
- Growth narrative from figures:
  - The economy suffered a third consecutive year of contraction in 2020.
  - Inflation continued to rise as administered prices were liberalized and fiscal deficits continued.

### Fiscal sector (central government, selected indicators, percent of GDP)
- Revenue and grants:
  - 2018: 8.9
  - 2019: 7.8
  - 2020 (Act.): 6.8
  - 2021 (SMP proj.): 4.8
  - 2022 (Proj.): 11.1
  - 2023–26 (Proj.): 9.8, 9.6, 9.2, 9.1, 8.9
- Revenue (excl. grants):
  - 2018: 8.7
  - 2019: 7.4
  - 2020 (Act.): 5.3
  - 2021 (SMP proj.): 4.7
- Expenditure (total, including implicit subsidies recorded on central bank's balance sheet):
  - 2018: 16.7
  - 2019: 18.7
  - 2020 (Act.): 13.7
  - 2021 (SMP proj.): 10.8
  - 2022 (Proj.): 14.2
- Overall balance:
  - 2018: -7.9
  - 2019: -10.8
  - 2020 (Act.): -6.9
  - 2021 (SMP proj.): -5.9
  - 2022–26 (Proj.): -3.1, -2.5, -2.4, -2.4, -2.4
- Public debt (percent of GDP):
  - 2018: 185.6
  - 2019: 200.3
  - 2020 (Act.): 259.4
  - 2021 (SMP proj.): 249.1
  - 2022 (Proj.): 208.6
  - 2023–26 (Proj.): 191.9, 184.0, 181.0, 178.1, 175.5
- Fiscal commentary from figures:
  - Revenue is low and declined further due to COVID-19.
  - Subsidies on retail gasoline and diesel were gradually removed.
  - The fiscal deficit narrowed in 2020 but remains large and continues to drive monetization.

### Monetary sector (selected indicators)
- Broad money (annual change, percent):
  - 2018: 111.8
  - 2019: 60.1
  - 2020 (Act.): 88.2
  - 2021 (SMP proj.): 80.0
  - 2022–26 (Proj.): 53.8, 48.6, 23.0, 16.8, 19.0, 14.9 (table spans years)
- Reserve money (annual change, percent):
  - 2018: 170.5
  - 2019: 77.5
  - 2020 (Act.): 97.5
  - 2021 (SMP proj.): 95.0
  - 2022–26 (Proj.): 97.0, 112.6, 31.1, 20.5, 18.2, 16.3
- Credit to the private sector (percent of GDP):
  - 2018: 6.2
  - 2019: 3.7
  - 2020 (Act.): 4.3
  - 2021 (Proj.): 5.3
  - 2022–26 (Proj.): 6.3, 8.2, 10.7
- Monetary commentary from figures:
  - Money growth remained high in 2020, driven by lending to government (monetization).
  - Real credit growth was negative in 2020.
  - Financial intermediation remains relatively low as indicated by a lower credit-to-GDP ratio than peers.
  - While deposit growth picked up in 2020, monetization continued.

### External sector (selected indicators)
- Exports of goods (f.o.b., in millions of US$):
  - 2018: 3,485
  - 2019: 3,741
  - 2020 (Act.): 3,802
  - 2021 (Proj.): 4,307
  - 2022–26 (Proj.): 5,045; 5,685; 6,109; 6,571; 6,942
- Imports of goods (f.o.b., in millions of US$):
  - 2018: 7,065
  - 2019: 8,393
  - 2020 (Act.): 8,894
  - 2021 (Proj.): 9,079
  - 2022–26 (Proj.): 9,443; 9,726; 10,052; 10,470; 10,899
- Trade balance (millions of US$):
  - 2018: -3,242
  - 2019: -4,708
  - 2020 (Act.): -5,068
  - 2021 (Proj.): -4,718
- Current account balance (millions of US$):
  - 2018: -4,679
  - 2019: -5,244
  - 2020 (Act.): -6,004
  - 2021 (Proj.): -4,003
  - 2022–26 (Proj.): -4,847; -4,191; -3,845; -3,736; -3,518
- Current account (percent of GDP):
  - 2018: -13.0
  - 2019: -15.6
  - 2020 (Act.): -17.5
  - 2021 (Proj.): -11.2
  - 2022–26 (Proj.): -13.5; -11.4; -10.1; -9.4; -8.5
- Gross usable international reserves (in millions of US$ and months of imports):
  - 2018: 178
  - 2019: 190
  - 2020 (Act.): 324
  - 2021 (Proj.): 223
  - 2022–26 (Proj., millions): 301, 480, 690, 920, 1,290, 1,860
  - Imports coverage (in months): 2018: 0.2; 2019: 0.2; 2020: 0.4; 2021: 0.3; 2022–26: 0.3, 0.5, 0.7, 0.9, 1.2, 1.7
- External debt (millions of US$ and percent of GDP):
  - External debt (in millions of US$):
    - 2018: 55,084
    - 2019: 56,309
    - 2020 (Act.): 57,544
    - 2021 (Proj.): 58,772
    - 2022–26 (Proj.): 58,473; 59,047; 60,329; 61,621; 62,924
  - External debt (percent of GDP):
    - 2018: 176.0
    - 2019: 167.8
    - 2020 (Act.): 167.4
    - 2021 (Proj.): 164.0
    - 2022–26 (Proj.): 162.8; 160.7; 158.9; 155.8; 152.6
- External sector commentary from figures:
  - Terms of trade improved slightly in 2020, but both import and export volumes fell.
  - Sudan became a net oil importer shortly after the secession of South Sudan.
  - Capital inflows decreased and reserve coverage remained very low.

### Balance of payments and financing (selected values, millions of US$)
- Current account balance (millions of US$):
  - 2018: -4,679
  - 2019: -5,244
  - 2020: -6,004
- Current account balance (cash basis, millions of US$):
  - 2018: -3,118
  - 2019: -3,841
  - 2020: -4,531
- Financial account (net, millions of US$):
  - 2018: -2,981
  - 2019: -3,550
  - 2020: -2,554
- Overall balance (millions of US$):
  - 2018: -1,534
  - 2019: -1,515
  - 2020: -3,307

### Fiscal and program risks / implementation considerations
- The program’s success is conditional on:
  - sufficient program financing, and
  - debt relief.
- Notwithstanding constraints, available evidence points to authorities’ commitment and capacity to implement the policies required under the SMP.

*Source: IMF staff report (Sudan) — figures and tables as presented in the chapter.*

### 1. Complete the stress testing of individual bank resilience to exchange rate

### 1. Complete the stress testing of individual bank resilience to exchange rate movements and prepare appropriate measures to mitigate risks in each problem bank ahead of exchange rate reform, in consultation with the IMF.

### Prior actions and structural benchmarks (selected)
- Complete the stress testing of individual bank resilience to exchange rate movements and prepare appropriate measures to mitigate risks in each problem bank ahead of exchange rate reform, in consultation with the IMF. — Completed
- Legislative council to pass 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. — Completed
- Announce the unification of the official exchange rate (excluding the customs valuation exchange rate) with the market rate at the prevailing market rate and issue regulations to banks and forex bureaus indicating that trading can take place in a +/-5 percent band around the indicative rate announced by the central bank prior to the opening of trading which is calculated as the weighted average of the previous day’s trading excluding CBOS sales/purchases from government. — Completed, February 21, 2021
- 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. — Not met (Prior Action for Second Review)
- Gradually adjust customs exchange rate towards market exchange rate and fully unify by June 2021. — Jun. 2021
- 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. — Mar. 2021
- (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. — Mar. 2021

### Status of related structural measures (selected)
- MOFEP to publish on its website monthly budget execution reports consistent with the GFSM2001. — Dec. 2020 — Met
- Adopt automatic fuel pricing mechanism to ensure that retail diesel and gasoline prices reflect all costs, thus eliminating subsidization. — Sept. 2020 — Not Met
- Prepare and publish an inventory of all state-owned enterprises including those supervised by ministry of finance, line ministries and security sector. — Dec. 2020 — Not met
- Pass a new anti-corruption law ... and create an independent anti-corruption commission. — Oct. 2020 — Not Met
- Establish an independent anti-corruption commission, consistent with the provisions of the new anti-corruption law. — March. 2021
- 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 ...; (iii) improve its decision-making structure ...; and (iv) enhance transparency and accountability provisions. — Dec. 2020 — Not Met
- Enact a new Central Bank Law in consultation with IMF staff ... — Jun. 2021

### Intended macroeconomic rationale (selected)
- Strengthen financial sector soundness
- Reduce vulnerabilities to corruption and related money laundering
- Remove distortions and raise revenue
- Enhance central bank independence and improve governance
- Strengthen competitiveness and reduce distortions
- Eliminate distortion in the exchange rate market

### Key operational instruction
- Conduct semi-annual stress tests to identify and address vulnerabilities of individual banks to exchange rate movements; prepare appropriate mitigation measures for problem banks in consultation with the IMF.

### Related completion note
- In August the CBOS agreed with banks identified through stress tests on action plans to reduce vulnerabilities.

### Source
*Attachment and program text as provided in the Staff-Monitored Program documentation.*

***  
*Source: 1sdnea2021002 - 1. Complete the stress testing of individual bank resilience to exchange rate movements and prepare appropriate measures to mitigate risks in each problem bank ahead of exchange rate reform, in consultation with the IMF.*

### 9.      Policy adjustment and reforms, and external financing and debt relief, are critical to

### 9.      Policy adjustment and reforms, and external financing and debt relief, are critical to 

### Macroeconomic adjustment and growth outlook
- Target to reduce the fiscal deficit by a cumulative 7.5 percent of GDP over 2020-21, with a further reduction in 2022 following the planned exit from the SFSP to a targeted social safety net.
- Exchange rate and structural reforms expected to:
  - Strengthen competitiveness.
  - Significantly narrow the external current account deficit.
  - Increase GDP growth to 4½ percent over the medium term.
- Inflation is currently high; expected to fall as the impact of fuel subsidy and exchange rate reforms are fully passed through.

### External financing needs and strategy
- Estimated overall external financing need of $7¼ billion over 2021–22 to:
  - Eliminate fiscal deficit monetization.
  - Finance the SFSP.
  - Support accumulation of international reserves.
- New donor pledges to date are well short of financing needs:
  - About $3.1 billion for fiscal financing.
  - No pledges for augmenting international reserves.
- Measures to fill financing gap:
  - Aggressively pursue recovery of domestic assets illegally amassed by the previous regime.
  - Progressively expand sales of government securities to banks and nonbanks within program limits (QB #1), minimizing deficit monetization by the CBOS (QB #2) as market conditions permit and consistent with debt sustainability.
  - Implementation of a dual banking system in late-2021 to assist market sales of securities.

### Exchange rate, monetary, and financial sector policies
- Exchange rate reform actions:
  - On February 21, 2021 unified all exchange rates (excluding the customs valuation exchange rate) at the prevailing market rate of SDG375/USD (prior action).
  - Regulations require commercial banks and FX bureaus to set exchange rates in line with market conditions; CBOS to set the daily official exchange rate as the weighted average market exchange rate of the previous day.
  - A ±5 percent band was established initially on exchange rates set by commercial banks and FX bureaus to manage potential high volatility; the band may be adjusted over time.
  - Joint stocktaking with IMF staff after end-March 2021 to reassess the necessity of the band.
  - Commitment to unify the customs exchange rate by end-June (SB #9); plan to reduce the average import tariff rate from 20 percent to 10 percent to limit price impact.
  - Refrain from imposing administrative restrictions on current account transactions as a means of constraining exchange rate movements.
- Financial sector and monetary measures:
  - Completed bank-by-bank stress tests (March and June 2020) to exchange rate shocks and developed remedial measures (recapitalization and temporary regulatory forbearance) prior to exchange rate reform (SB #8, prior action first review).
  - Anchored monetary policy framework to adhere to reserve money targets under the SMP to help contain inflation; missed end-December IT on reserve money (IT #3) in part due to FX purchases to fund victims of terrorism payments.
  - Monetization will be significantly reduced going forward (QB #2) given completed transactions and commitment to reduce fiscal deficit.
- Reserve-money targeting and instruments:
  - Active treasury committee established in 2018; activities resumed in January 2021.
  - Main short-run tool to reduce reserve money growth is fiscal consolidation.
  - Stand ready to use reserve requirements and limited stock of central bank securities to tighten monetary policy; announced increase in required reserve ratios from 20 percent to 22 percent.
  - Liquidity mop-up measures: sell CBOS’s shares in state-owned banks, commercial banks, micro-finance agencies and other companies by December 2021; suspended extension of CBOS’s investment deposits in commercial banks falling due.
  - Medium-term plan to progressively build a strong and liquid government securities market with active participation of banks, nonbanks, and the general public, supported by IMF TA.
  - Convert substantial CBOS claims on the government (SDG 624 billion, 12 percent of GDP) into Musharaka and other Sharia compliant securities to increase available stock of securities for liquidity management.
  - Groundwork for a dual banking system (Islamic and conventional) expected to be completed by end 2021 to facilitate sale of government securities.
- Central bank governance and supervision:
  - Revised Central Bank Law (following IMF and other stakeholder comments) is with the CBOS Board for approval (SB #6); will be sent to the Ministry of Justice and implemented before June 2021 (SB #7). The law strengthens mandate on price and financial stability, limits monetary financing, and strengthens governance.
  - Commit to modernize banking regulations in line with Islamic Financial Stability Board standards, strengthen coordination between regulation and supervision, and boost supervisory vigilance on limits (net open foreign currency position and lending in foreign currency).
  - Establish regular communication procedures between banking supervision and regulation departments by end-March 2021 and conduct semi-annual stress tests (SB #10); move toward a risk-based supervisory regime over time with TA support.
  - Strengthen bank recovery and resolution framework: adopt legal amendments to introduce recovery and resolution processes in line with good practices by September 2021 for banks classified as systemic; include guidance on loan restructuring and risk management.
  - Complete asset quality reviews of systemically important banks by June 2021 based on international standards.
  - Strengthen corporate governance in the banking sector in line with Basel Committee principles; CBOS to exit positions in state-owned banks, commercial banks, microfinance institutions, and other companies by December 2021.

### Anti-money laundering and countering financing of terrorism (AML/CFT)
- Priorities and actions:
  - Complete a national ML/TF risk assessment.
  - Increase capacity of the Financial Intelligence Unit (FIU).
  - Fully implement risk-based AML/CFT supervision and improve process of freezing terrorist assets.
  - Begin thematic AML/CFT on-site inspections of the 10 highest-risk banks by end-March 2021 and provide aggregate data on violations and sanctions to the Fund (SB #11); completion may require more time due to 50 percent staffing amid COVID-19.
  - New regulation requires all banks to implement electronic monitoring of suspicious transactions by end-June; risk ratings being updated (delayed due to COVID-19).

### Fiscal policy measures and public financial management
- Fiscal consolidation focus for 2021:
  - Prevent recurrence of fuel subsidies on retail gasoline and diesel via timely fuel price adjustment to create space for the SFSP and higher health and education expenditure and transfers to states.
  - Fiscal revenue mobilization through customs exchange rate reform and measures to expand the tax base.
- 2021 budget and targets:
  - 2021 budget contains measures assessed to reduce the deficit by 2.8 percent of GDP to achieve a target of 3.1 percent of GDP and meet program targets including significantly reducing need for monetization (IT #3).
  - Note: The approved 2021 budget was constructed using the then-applicable official rate of SDG55/$; the fiscal numbers reported in this MEFP represent assessment using the market exchange rate.
- Subsidies and adjustments:
  - Fossil fuel subsidies accounted for 79 percent of total subsidies in 2020.
  - Removal of all retail diesel and gasoline subsidies on imported fuel completed as of September 23, 2020 and on domestically produced retail gasoline and diesel when one of the refineries was closed for maintenance in late-December.
  - Residential electricity rates on large consumers increased by around 500 percent on January 1, 2021 as part of a four-year program to stabilize electricity subsidies.
- Social spending and transfers:
  - Cost of the SFSP and additional health expenditure, including COVID-19 measures, estimated at about 3½ percent of GDP in 2021 (IT #1).
  - Transfers to the states expected to increase by 0.9 percent of GDP in 2021 to help fund development expenditure under the peace agreement.
- Revenue mobilization and donor support:
  - Expect tax revenue to be 4.5 percent of GDP in 2021, up from 3 percent of GDP in 2020, driven by unification of the exchange rate.
  - Based on donor pledges at the Sudan Partnership Conference on June 25, 2020, and prior assistance, anticipate donor support of $1.5 billion in 2021, including 2.9 percent of GDP in grants for the SFSP in 2021.
  - Project grants expected to increase by one percent of GDP in 2021 after COVID-19 impact on implementation dissipates.
  - 2021 revenue measures include:
    - Introduction of a progressive personal income tax.
    - Advancement of the base year for calculating capital gains and profit taxes to 2020.
    - A higher rate of VAT on telecommunications.
    - Liberalization of the exchange rate on oil revenue and grants leading to improved revenue via valuation effects.
    - Removal of income tax exemptions for all companies currently benefiting from exemptions.
    - Improvements in tax administration to widen the tax base and curb tax evasion.
- Budget financing and domestic financing:
  - Budget financing need estimated at SDG 476 billion (3.1 percent of GDP) in 2021.
  - In 2021, expected net external financing projected at about SDG 7.5 billion ($18 million or 0.2 percent of GDP), with remaining balance SDG 469 billion (3 percent of GDP) covered by domestic bank financing.
  - If external financing exceeds programmed amounts, government borrowing from the banking system will be reduced by the excess.
- Public financial management reforms:
  - Strengthen budget planning, fiscal reporting, fiscal risk management, and the treasury single account (TSA).
  - Incorporate a medium-term fiscal framework into budget planning by 2022 and strengthen the macro-fiscal unit.
  - Progress made establishing the TSA; consolidate all ministry bank accounts at CBOS into a single treasury account.
  - Government began publishing monthly budget execution reports consistent with the GFSM2001 in late-2020 (SB #1).
  - Strengthen public procurement system with World Bank TA; develop a PFM Roadmap as follow-up to PEFA.

### Other structural reforms and governance
- Private sector development:
  - IFC and World Bank, with donors, supporting efforts to improve investment climate, foster Public-Private Dialogue, strengthen PPP legal/institutional framework, and support MSME development (access to finance, business entry and taxation, innovation, entrepreneurship).
  - IFC to prepare a private sector diagnostic; a new Ministry of Investment established and supported by IFC.
- Anti-corruption and governance measures:
  - Anti-Corruption National Commission Law drafted with broad consultation (including IMF) and is with the Sovereign Council for approval (SB #4); establishes an independent Anti-Corruption Commission (SB #5).
  - Full implementation of law passed in December 2019 to dismantle corrupted institutions, recover looted assets, and bring to justice individuals associated with former regime; oversight of these assets to be transferred to MFEP with transparent disposal procedures.
  - Enhanced oversight over SOEs: inventory of all SOEs completed; revised list to be published once ownership of certain military SOEs is clarified (SB #3). Consultants identified to prepare an SOE strategy to assess which SOEs to remain public or be privatized.
  - Improve macroeconomic statistics quality and frequency (national accounts, BOP, labor market) with TA from IMF, other IFIs, and bilateral donors.

### External debt and relief prospects
- Sudan is in debt distress:
  - Preliminary debt reconciliation: end-2019 external public and publicly-guaranteed debt stock estimated at about $59 billion, or 201 percent of GDP.
  - About 85 percent of the external debt was in arrears in 2019.
  - Bulk owed to bilateral creditors roughly equally divided between Paris Club and non-Paris Club creditors.
  - Sudan continues to accumulate arrears.
- Debt strategy:
  - Limit payments only to creditors who provide net positive flows to Sudan.
  - Seek financing on the most concessional terms possible; recognize any new borrowing will be part of a comprehensive debt relief workout.
  - Commit to limit new non-concessional borrowing in line with program targets (QB #4) and use proceeds to finance critical public services in physical infrastructure and social programs.
  - Regular reporting to IMF staff on debt service payments to creditors—including inflows and outflows, credit outstanding and arrears, and debt falling due each year—starting with data from January 2020.

*Source: 1sdnea2021002 — https://www.imf.org/-/media/files/publications/cr/2021/english/1sdnea2021002.pdf*

### 29.      We will continue to intensify outreach to international partners to secure debt relief.

### 1sdnea2021002 - 29.      We will continue to intensify outreach to international partners to secure debt relief.

### Debt relief outreach and related policy commitments
- The government will intensify outreach to international partners to secure debt relief through:
  - (i) reaching out to creditors with a view to seek a fast-track debt relief process;
  - (ii) minimizing non-concessional borrowing; and
  - (iii) strengthening cooperation with the IMF.
- Conditions and actions tied to reaching the HIPC Decisions Point:
  - Build a track record of performance (one of four conditions).
  - Work with the IMF and World Bank to complete the joint debt reconciliation exercise.
  - Consult with multilateral institutions, including the IMF, World Bank, and African Development Bank on modalities for eliminating arrears with those institutions.
  - Reach out to creditors for the needed financing assurances for eventual comprehensive debt relief through the HIPC process.
  - Adopt a full poverty reduction strategy (PRS), which is about to be finalized.
- Historical and contingent arrangements:
  - Prior to secession, Sudan and South Sudan agreed on a “zero option” clause under which Sudan would shoulder the entire external debt provided the international community provides firm commitments to delivery of debt relief within two years; this agreement has been extended on several occasions since 2014.
  - Absent timely progress in debt relief, Sudan’s external debt will need to be apportioned with South Sudan based on a formula to be determined, which could undermine recent progress in peace building in the region.
- Note on debt stock reporting:
  - "The size of external debt will be revised upon conclusion of the debt reconciliation excise."

### Program modalities, monitoring, and cooperation with the IMF
- Program monitoring and governance:
  - Performance under the program will be monitored through quarterly reviews.
  - The first review under the SMP has one prior action (completed February 21, 2021), four quantitative benchmarks, and three indicative targets; six of eleven structural benchmarks were to be completed on or before the December 31 test date.
  - New quantitative targets set for the second (end-March) and third (end-June) reviews under the SMP.
  - The Technical Memorandum of Understanding (TMU) contains definitions of the quantitative benchmarks, indicative targets and structural benchmarks and specifies data the government must provide to Fund staff on a timely basis.
- Institutional framework for monitoring and data:
  - In September 2020 an institutional framework was set up comprising key decision makers: the Finance Minister, the Petroleum and Mining Minister and the Governor of CBOS.
  - The SMP Monitoring Committee includes senior officials from the Finance and Mining and Petroleum Ministries, the Central Bank of Sudan, the Statistics Office, and other relevant institutions.
  - The government will strive to ensure the SMP Monitoring Committee meets in a frequent and timely manner.
- Commitment on payments and IMF cooperation:
  - The government reaffirms commitment to cooperate with the IMF on policies and payments.
  - Staff assessment supports a reduced annual payment to the Fund starting in 2021, and the IMF Board decision to reduce payments to $2.5 million annually.
  - The government is committed to make regular monthly payments at least sufficient to cover obligations falling due, and to increase them as capacity to repay improves; monthly payments have been made to the IMF in January and February 2021 in the amount of $210,000 amounting to approximately one-twelfth of the expected annual payment.
  - There is a 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.

### Key quantitative targets and indicative figures (as presented)
- Table 1 excerpt — Quantitative Benchmarks and Indicative Targets (selected lines shown exactly as presented):
  - Banking system net credit to the central government (ceiling: in SDG billion) 2/  
    386        672                      709                   655           758         871
  - CBOS net domestic assets (ceiling: in SDG billion) 2/  
    817         1,083                   1,120                 1,277        1,380      1,473
  - Net international reserves (floor: in millions of U.S. dollars) 2/  
    (728)        (594)                     (594)                  (803)          (6,552)     (6,539)
  - 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         300                    300                 18           75           150
  - Indicative Targets:
    - Social spending (floor: in SDG billion)  
      15           99                        99                     39             53           112
    - Nonoil primary deficit (ceiling: in SDG billion) 2/  
      242         367                      355                   370           312         510
    - Reserve money (ceiling: in SDG million) 2/  
      516         766                      766                   1,000        1,094      1,204
  - Memorandum items (selected lines as presented):  
    - External non-project grants for Family Support Program (in millions of U.S. dolla     0 328092274  
    - Other external non-project grants (in millions of U.S. dollars) 3/ 0 2121612550  
    - Transfer payment to the US for victims of terrorism (in millions of US dollars)3/ 0 071356356  
    - Government asset sales ( in SGD billion) 3/0 35000  
    - External non-project loans (in millions of U.S. dollars) 3/91 1271800
  - Notes and conventions:
    - 1/ The variables are defined according to the TMU.
    - 2/ Evaluated using program exchange rate of 45 SDG per U.S. dollar. For March and June targets the definition of net international reserves is updated to include all external liabilities denominated in foreign currency. See TMU paragraph 7 for the updated definition.
    - 3/ Continuous benchmark; flow from the beginning of the year.
    - 4/ Targets are adjusted according to the relevant adjustors as defined in TMU, paragraph 6, 8 and 9.

### Structural benchmarks, prior actions, and reform timetable (selected items)
- Prior Actions (selected and status as presented):
  - Complete the stress testing of individual bank resilience to exchange rate movements and prepare appropriate measures — Completed (PA for SMP request).
  - Legislative council to pass a revised 2020 budget consistent with program objectives — Completed (PA for SMP request).
  - Announce the unification of the official exchange rate (excluding customs valuation exchange rate) with the market rate and issue regulations to banks and forex bureaus (Completed February 21, 2021) — Remove distortions and raise revenue.
- Structural Measures and target dates (selected, with status as presented):
  - MOFEP to publish monthly budget execution reports consistent with GFSM2001 — Dec. 2020 — Met.
  - Adopt automatic fuel pricing mechanism to ensure retail diesel and gasoline prices reflect all costs — Sept. 2020 — Not Met.
  - Prepare and publish an inventory of all state-owned enterprises — Dec. 2020 — Not met.
  - Pass a new anti-corruption law in line with international best practices as agreed in consultation with the IMF — Oct. 2020 — Not Met.
  - Establish an independent anti-corruption commission — March. 2021.
  - Finalize an amended Central Bank Law in consultation with IMF staff — Dec. 2020 — Not Met.
  - Enact a new Central Bank Law in consultation with IMF staff — Jun. 2021.
  - Unify all but the customs exchange rate and allow commercial banks and FX bureaus to set exchange rates in line with market conditions — Not met (Prior Action for Second Review).
  - Gradually adjust customs exchange rate towards market exchange rate and fully unify by June 2021.
  - Establish regular procedures for communication between banking supervision and regulation departments; conduct semi-annual stress tests — Mar. 2021.
  - (i) Conduct thematic AML/CFT on-site inspections of the ten highest-risk banks; (ii) provide aggregate data to the Fund on related violations and sanctions — Mar. 2021.

### Technical Memorandum of Understanding (TMU) — monitoring framework highlights
- Monitoring scope:
  - The TMU sets the framework for monitoring the 2020–21 Staff-Monitored Program (SMP) and specifies the quantitative benchmarks, indicative targets, and structural benchmarks.
  - The SMP will be monitored based on four quarterly quantitative benchmarks and three indicative targets for end-December 2020, end-March and end-June 2021.
- Quantitative benchmarks (as defined in TMU, numbered):
  - (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; and
  - (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; and
  - (iii) ceiling on non-oil primary deficit.
- Valuation conventions for program monitoring:
  - Local currency equivalent values of foreign exchange denominated items in CBOS balance sheet will be calculated at program exchange rates of SDG 45.0 per U.S. dollar and SDG 62.2 per SDR, and the program monetary gold price of $70.73 per gram.
- Definitions and adjustors (selected precisions preserved verbatim as in TMU):
  - Net domestic assets (NDA) of the 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.
  - Net international reserves (NIR) of the CBOS are the stock of gross official usable international reserves minus external liabilities denominated in foreign currencies.
  - 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.
  - Non-oil primary balance of the central government (NOPB) is defined as non-oil revenues minus expenditures excluding interest payments cumulatively since the beginning of the calendar year.
  - Adjustors described in TMU paragraphs cover how ceilings/floors on NDA, NIR, net credit, and NOPB are adjusted pro tanto by excesses or shortfalls in external grants, loans, government asset sales, SSTL repayments, project external loans, and other items as specified.

*Source: 1sdnea2021002 - 29.      We will continue to intensify outreach to international partners to secure debt relief.*

### 10.      Debt is defined for program purposes in accordance with Executive Board Decision

### 10.      Debt is defined for program purposes in accordance with Executive Board Decision

### Definition of Debt (program purposes)
- Debt is understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract.
- Primary forms of debt:
  - (i) loans: advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);
  - (ii) suppliers’ credits: contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided;
  - (iii) leases: arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessee or retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.
- Under the definition, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is 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 the 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 applies to 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 a 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
  - any implicit legal or contractual obligation of the public sector to finance partially or in full any shortfall incurred by the debtor.

### Concessionality of debt
- For program purposes, a debt is concessional if it includes a grant element of at least 35 percent.
- Grant element calculation:
  - The grant element of a debt is 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 the time of its 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.

### Monetary aggregates and priority social spending
- Reserve money: 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.
- The List of Social Benefits (as provided):
  - National fund for sponsorship for students
  - Support social activities
  - Support for medical treatment abroad
  - Support medical treatment domestic
  - Support for life saving medicine
  - Support for hospital surgery
  - Support for treatment of accident
  - Food for prisoners
  - Medical treatment of prisoners
  - Health insurance for poor families
  - Special support for cardio hospital
  - Salaries of island Al Jazeera
  - Salary of social insurance
  - Removing wage gaps
  - Family Support Program

### Program monitoring arrangements
- 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 the performance of the program,
  - recommending policy responses,
  - informing the IMF regularly about the progress of the program,
  - transmitting the supporting materials necessary for the evaluation of benchmarks.
- Reporting cadence:
  - The committee should 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 (agreed)
- General requirement: data submissions should begin with January 2020, with revision of previous months identified. Data to be submitted in printed and electronic form to the IMF local office and uploaded to the IMF’s Integrated Monetary Database and Balance of Payment database.
- Selected reporting items, agencies, frequencies, and timing (within period specified):
  - Central Bank of Sudan (CBOS)
    - 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; and compliance with prudential norms — Monthly — 30 days after the end of each month
    - Exchange Rates: Official Exchange Rate (bid/ask) — Daily — 2 days after the end of each week; Average of exchange rates used to calculate the bid and ask rates of official exchange rate — Daily — 2 days after the end of each week; Market Exchange Rate (bid/ask) — 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, (i) scheduled, and (ii) 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
  - Ministry of Finance and Economic Planning
    - Central government operations: Revenues, expenditures, and financing as in GFSM 2001 format — Monthly — 45 days after the end of each month
    - Privatization receipts: Detailed figures for each transaction and nature of the transaction — Monthly — 30 days after the end of each month
    - Central government domestic debt: End-month stocks, and monthly issuances and repayments, of all domestic debt instruments: GMCs, GICs, loans and advances from the banking system, sanadat, letters of guarantee, standing orders, accounts payable (including arrears) and amortization schedule — 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
    - External support: Disbursement of grants, disbursement and repayment (principal and interest) of loans by donor, breakdown of foreign budget and project grants — Monthly — 30 days after the end of each month
  - Central Bureau of Statistics
    - CPI: Including detailed data and inflation for imported products — Monthly — 2 weeks after the end of each month
  - Ministry of Finance and Economic Planning / Ministry of Minerals, Oil and Gas
    - 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
    - Sales to refineries: Sales listing by refineries specifying date, quantity, prices, and values in US$ and in guinea — Monthly — 30 days after the end of each month
    - Refineries: Volumes and prices of production, cost of crude oil, consumption and imports of gasoline, gasoil, fuel oil, jet oil, kerosene, and LPG — Monthly — 30 days after the end of each month
    - Fuel prices: Gasoline and diesel prices at the domestic market, and automatic pricing formula — Monthly — 30 days after the end of each month

### Templates and indicators (high level)
- Templates provided for:
  - Claims on Central Government (comprehensive concept) in SDG Thousand and (US$ M) with itemized entries such as Temporary Advances, Government Musharka Certificates (GMCs), Government Investment Certificates (GICs), Accumulated interest arrears, Sundry Debtors, etc.
  - Central Bank of Sudan Foreign Exchange Monthly Cash Flow template listing RESOURCES (e.g., Balance in the beginning period, Oil Proceeds, Dealing Room Purchases broken down by Purchase from military; Purchase from commercial banks; Purchase from others; Gold Proceeds; Loans or deposits from foreign residents; Cotton Revenues; etc.) and USES (e.g., Sales to Government for petroleum, Sales to Government for electricity, Sales to public entities, CBOS Operations, Repayment of short-term liabilities, Others).
- Financial Soundness Indicators for the Banking Sector (2020 monthly series headings shown) covering:
  - Capital Adequacy: Regulatory capital to risk-weighted assets; Regulatory Tier I capital to risk-weighted assets
  - Asset composition and quality: Gross NPLs to gross loans; NPLs net of provisions to core capital; NPLs net of provisions to gross loans; loans' provision to NPLs; Gross NPLs to assets; Finance to total assets; Off-balance sheet to capital; Foreign currency loans to total loans; Deposits and investment accounts to total assets; Foreign currency deposits to total deposits; Off-balance sheet commitments to assets; Foreign finance to foreign deposits
  - Earnings and Profitability: ROA (before tax); ROE (before tax)
  - Liquidity: BOS deposits to total assets; Required reserves to total assets; Required reserves to total reserves; Cash in vault to total assets; Liquid assets to total assets; Liquid assets to total short-term liabilities

### Statement by Ms. Mannathoko and Mr. Ismail — Introduction and program review
- Date: March 24, 2021
- Key points:
  - Authorities thank staff for engagement during virtual mission on the First Review under the Staff Monitored Program (SMP) and broadly agree with staff’s appraisal and key policy recommendations.
  - New Cabinet took office on February 8, 2021, reaffirmed commitment to the SMP aligned with homegrown economic reform agenda.
  - Authorities request Directors’ support to complete the first review under the SMP, arguing overall satisfactory performance and seeking IMF Executive Board endorsement that revised policies and conditionality under the SMP continue to meet Upper Credit Tranche (UCT) standards.
  - Authorities propose adjusting program structure to enable quarterly reviews to help establish a six-month track record quickly to unlock IDA19 resources and finance the Sudan Family Support Program (SFSP) and development expenditures in line with the three-year Poverty Reduction Strategy.
  - Authorities are engaging creditors and development partners and note that removal from the US State Sponsors of Terrorism list (SSTL) is expected to catalyze donor support and aid arrears clearance and HIPC Decision Point progress.
- Program performance summary:
  - Authorities met 2 end-December quantitative targets (QTs) out of 4.
  - Slippage on QTs for central bank net domestic assets (NDA) and net international reserves (NIR) resulted from selling gold reserves to fund settlement payments to victims of terrorism attacks.
  - Indicative target (IT) on social spending was missed due to delayed start of SFSP owing to delayed disbursement of donor financing, with donors disbursing only after exchange rate unification.
  - Structural benchmarks (SBs): one SB met on time; a second (removal of fuel subsidies) implemented with delay; remaining SBs in-train with progress (Central Bank Act and Anti-Corruption National Commission Law submitted for approval after staff comments; partial list of 58 SOEs published; full SOE list provided to staff and to be updated/published once ownership of specific SOEs in the security sector is clarified).

### Economic developments, outlook, and macroeconomic policy stance
- Growth and output:
  - Output estimated to have declined further with -3.6 percent GDP growth in 2020 compared to -2.5 percent in 2019, due to pandemic containment measures and legacy challenges.
  - Service sector rebound and better than expected exports in 2020 helped prevent a deeper recession.
  - Economic growth is expected to turn positive in 2021, supported by domestic policy actions and positive global developments.
- Inflation and monetary developments:
  - Inflation rose from 57 percent in December 2019 to 269 percent in December 2020, driven by substantial exchange rate depreciation, monetization of the fiscal deficit, and a surge in administered prices for fuel following fuel price reforms.
  - Inflation is expected to return to double digits in 2022, benefiting from authorities’ efforts to restore macroeconomic stability.
- External sector:
  - Current account deficit widened from -11.4 percent of GDP in 2019 to -13.2 percent of GDP in 2020, reflecting imported inflation and increased informal remittances amid a wide parallel market premium in 2020.
  - Going forward, current account deficit is expected to narrow on the back of exchange rate unification and improved export performance.
- Fiscal policy and debt management:
  - Authorities committed to sustaining fiscal consolidation initiated in 2020 to restore macroeconomic stability, eliminate economic distortions, and create fiscal space for priority social and development spending.
  - 2021 budget targets a reduction in the fiscal deficit of 2.8 percent of GDP through a combination of revenue and expenditure measures.
  - Revenue measures include comprehensive tax reforms: introducing a progressive personal income tax; increasing VAT on telecommunication; eliminating income tax exemptions for businesses; updating the base year for calculating capital gains and profit taxes; and anticipated positive revaluation effects on revenues from exchange rate unification.
  - Expenditure measures include freezing the wage bill in 2021, increasing residential electricity rates on large consumers by around 500 percent, and preventing recurrence of fuel subsidies through a price adjustment mechanism.
  - To mitigate adverse impacts on vulnerable households from subsidy and exchange rate reforms, authorities will increase social spending significantly in line with SMP objectives, including expanding SFSP coverage once World Bank disbursement is secured after the review, and augmenting health and education expenditures.

*Source: 1sdnea2021002 - 10.      Debt is defined for program purposes in accordance with Executive Board Decision*

### 12.         The authorities intend to step up reform efforts aimed at improving public financial

### 12.         The authorities intend to step up reform efforts aimed at improving public financial

### Public financial management and fiscal governance
- Continue to publish monthly budget execution reports on the MOFEP website while improving fiscal data over time.
- Consolidated all bank accounts of ministries held at the central bank into one account and plan to fully operationalize the Treasury Single Account (TSA) by all government entities.
- Technical work to incorporate a medium-term fiscal framework into budget planning is expected to be finalized by 2022.
- TA from the World Bank is expected to help strengthen the public procurement system.

### Debt strategy and external financing
- As debt is unsustainable, the authorities will rely mostly on grants, committing to limit new non-concessional borrowing as agreed under the SMP.
- Resources will finance critical infrastructure and social projects.
- A prudent debt strategy will be pursued, centered around critical development projects, and limiting payments only to creditors who provide net positive flows.
- The authorities commit to providing regular reports to staff on debt service payments.
- Continue working with the IMF and World Bank to complete the joint debt reconciliation exercise that has been progressing well.

### Monetary and exchange rate policies
- Exchange rate unification (on February 21) has started to shift foreign exchange from the parallel to the official market.
- Adoption of a market clearing rate alongside reduced monetization of the deficit is expected to help restore macroeconomic stability and strengthen central bank independence.
- Since the exchange rate unification on February 21, the market-determined exchange rate has been broadly stable well within the established band limits.
- Started a gradual unification of the customs valuation exchange rate.
- Plan to reduce the average import tariff from 20 percent to 10 percent to minimize associated inflationary effects.
- Will refrain from imposing administrative restrictions on current account transactions to support free exchange rate movements.
- Adopted a tightened monetary policy stance with adherence to reserve money targets under the SMP to help contain high inflation.
- The central bank increased reserve requirements to 22 percent.
- Plans to mop-up liquidity in the financial system by selling CBOS’s shares in the state-owned banks, commercial banks, micro-finance agencies and other companies.
- The central bank has suspended the extension of CBOS’s investment deposits in commercial banks falling due.
- The CBOS is exploring the introduction of a dual banking system to facilitate development of conventional monetary policy instruments.
- With TA from the Fund, plans to gradually develop a strong and liquid government securities market with active participation of banks, non-banks, and the general public to support the shift from monetization to non-inflationary deficit financing.
- Recent agreement between the MOFEP and CBOS to convert long-term claims of the central bank on the government into government securities to help deepen the government securities market and augment the stock of securities available for the central bank’s monetary operations.

### Financial system policies
- New Central Bank Law aims to strengthen the central bank’s mandate on price stability by limiting the financing of fiscal deficits; submitted to the relevant authorities for approval after incorporating comments from Fund staff.
- Continue efforts to enhance central bank efficiency and supervisory capacity by modernizing banking regulations and strengthening coordination between banking regulation and supervision departments.
- Plan to move towards a risk-based supervisory regime to strengthen banking supervision and preserve financial stability.
- CBOS plans to complete asset quality reviews of systemically important banks in line with international standards by June 2021.
- Intend to introduce processes for the recovery and resolution of weak banks including guidance on loan restructuring and risk management policies.
- To address AML/CFT deficiencies, plan to conduct thematic AML/CFT inspections of the 10 highest-risk banks, and complete a national ML/TF risk assessment.
- Plan to enhance the capacity of the Financial Intelligence Unit, fully implement risk-based AML/CFT supervision, and strengthen the process of freezing terrorist assets.

### Structural reforms
- Prioritize improving governance and combating corruption in line with the Constitutional Declaration and program objectives.
- Finalized the Anti-Corruption National Commission Law after broad consultation with stakeholders, including the IMF; the new law establishes an independent Anti-Corruption Commission and has been submitted to the legislative body for approval.
- Pressing ahead with efforts to recover illegally obtained assets under the former regime and bring justice to individuals who corruptly acquired these assets; recovered assets are being transparently transferred to the MOFEP.
- Completed a stock-taking exercise of all SOEs and will publish a revised full list of all SOEs, including those supervised by the MOFEP, line ministries, and the security sector.
- Over the medium term, strategic objectives of all SOEs and the role of government will be assessed to identify viable SOEs that should remain public and those to be privatized.
- Accelerating efforts to improve the business environment with support from the International Finance Corporation and the World Bank.
- Fostering public-private dialogue, strengthening the legal and institutional framework for public private partnerships (PPPs), improving access to finance, and supporting MSME development.
- Work underway to improve data quality and availability to better inform policymaking and strengthen governance.

### Overdue financial obligations
- Authorities made monthly token payment of US$210,000 to the Fund in January and February 2021 despite significant resource constraints.
- Authorities remain committed to continue making these monthly payments and to increase payments to the Fund as capacity to repay improves.

### Conclusion
- Sudanese authorities reaffirm commitment to implementing reforms under the SMP to lay the foundation for macroeconomic stability and debt relief under the HIPC initiative.
- They appeal to the IMF Executive Board and the international community to support their reform efforts to address adverse social and economic legacies and to meet the aspirations of the Sudanese people to build a peaceful, prosperous and democratic society.
- Authorities appreciate the Fund’s policy advice and technical assistance and look forward to additional support in implementing the ongoing reform agenda.

*Source: 1sdnea2021002 - 12.         The authorities intend to step up reform efforts aimed at improving public financial*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1sdnea2021002.pdf_