## EXECUTIVE SUMMARY — 1sdnea2021003 ## Source details **Canonical URL:** [EXECUTIVE SUMMARY — 1sdnea2021003](https://www.imf.org/-/media/files/publications/cr/2021/english/1sdnea2021003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1sdnea2021003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1sdnea2021003.pdf.json) --- ### Context and political-economic milestones - Since the 2019 popular revolution, transitional authorities took steps to right decades of economic mismanagement and fulfilled conditions to reach the HIPC Decision Point (assumed staff baseline timing: June 2021). - Key reintegration and clearance steps: - Removed from U.S. list of State Sponsors of Terrorism in December 2020. - Cleared arrears to the World Bank and African Development Bank in March and May (respectively). - HIPC Decision Point reached (assumed staff baseline scenario timing: June 2021). - Humanitarian and social measures: - Sudan Family Support Program (SFSP) rolled out on February 24; provided support to 160,000 households through April with aim of reaching two million by the end of the year. - COVID-19 and social conditions: - Official confirmed COVID cases: 34,889 with 2,446 deaths as of May 14. - Government suspended studies in all universities and schools for one month from May 18 and banned certain mass gatherings. - Large refugee and displaced person population of over 1 million. - Institutional constraints: weak institutional capacity and data collection; need to establish functional legislative cooperation. ### Recent economic developments and indicators - Growth and activity: - GDP estimated to have contracted by 3.6 percent in 2020. - GDP expected to recover to about 0.9 percent in 2021. - Fiscal developments: - Fiscal balance improved in Q1 2021; tax revenues outperformed targets due to improved administration and a lower-than-anticipated wage bill. - Social expenditure fell below target due to slow SFSP rollout; spending on fuel and wheat subsidies increased relative to budget. - Inflation and exchange rate: - Inflation accelerated to 363 percent in April. - Official exchange rate unified on February 21; post-unification exchange rate remained relatively stable with daily movements within the ±5 percent band around the indicative rate. - Speculative attacks in late May caused parallel rate depreciation; CBoS conducted two FX auctions and reports convergence back to the official rate. - Multiple currency practices persist. - External sector: - Trade Q1 2021: exports increased 54 percent (yoy); imports contracted by 17 percent (yoy). - Recorded remittances increased nearly five-fold as transactions shifted to formal channels. - Current account on a cash basis registered a surplus of 0.1 percent of GDP in Q1 2021. - Gross usable international reserves: $327 million at end-March 2021 (the equivalent of 0.4 months of imports). - Banking sector: remains fragile with several banks undercapitalized and/or vulnerable to exchange rate depreciation. ### Staff-Monitored Program (SMP) performance and ECF request - SMP performance: - Program implementation under the SMP has been satisfactory; Management approved completion of the second review. - IMF Executive Board endorsed the SMP as consistent with the Upper Credit Tranche (UCT) standard; sustained satisfactory performance for at least six months can fulfil the track record requirement to reach HIPC Decision Point. - ECF request and modalities: - Authorities requested cancellation of the SMP and a 39-month Extended Credit Facility (ECF) arrangement in the total amount of US$2.5 billion (SDR1.733 billion or 275 percent of quota). - Initial disbursement: SDR 991.55 million; authorities intend to use SDR 964 million (or 153 percent of quota) of the initial disbursement to repay the intraday bridge loan required to clear arrears to the IMF; remaining access backloaded and expected to be used for significant reserve accumulation. - Sudan will qualify for IMF interim HIPC Initiative assistance to cover debt service obligations on pre-arrears clearance debt falling due after the Decision Point. ### Program policy priorities (ECF and HIPC complementarities) - Fiscal sustainability: - Reduce distortionary and costly energy subsidies and continue rollout of the social safety net (SFSP). - Improve domestic revenue mobilization and increase MOFEP oversight over SOEs. - Monetary and exchange rate framework: - Solidify transition to a more flexible exchange rate and adopt a reserve money targeting regime. - Financial sector reforms: - Strengthen the financial sector by developing a dual banking system and reforming/improving bank resolution procedures. - Governance and private sector enabling environment: - Strengthen governance and transparency, especially in the SOE sector. - Reduce the role of government in the economy, fight corruption, and create a more enabling environment for private sector development including SMEs. - Coordination: - Reform priorities in the ECF are closely coordinated with other donors and complement the proposed HIPC floating Completion Point triggers. ### Macroeconomic outlook and staff baseline projections - Growth trajectory: - Growth expected to peak at 6.8 percent in 2025, driven by strong grant financing and FDI. - Growth expected to gradually settle at around 4½ percent over the long-term. - Inflation path: - Inflation would decline to double digits next year as monetization is reduced and transitory effects pass through, before stabilizing at 8 percent over the medium-to-long-term. - Baseline assumption: - Reaching the HIPC Decision Point in June 2021 (staff baseline). ### Risks and policy challenges - Near-term downside risks: - Failure to implement energy tariff reforms or reversion to energy subsidies, continuation of multiple currency practices, and lack of transparency/governance could undermine stabilization. - Insufficient cash transfers could raise poverty and weaken public support for reforms. - Political gridlock could sustain fiscal deficits, monetization, and delays in external financing, reigniting an inflation-depreciation spiral. - Medium-term risks (balanced under HIPC debt relief): - Sustained policy implementation, avoidance of non-concessional and collateralized debt, and stronger business climate would foster lower inflation and higher investment. - Persistence of political gridlock and policy backsliding could lead to prolonged macroeconomic instability and suboptimal growth. - Sudan’s undiversified economy remains vulnerable to climate and commodity-related shocks. ### Key numeric facts and program figures (preserved exactly) - Inflation: 363 percent in April. - GDP: contracted by 3.6 percent in 2020; expected to recover to about 0.9 percent in 2021. - SFSP coverage: 160,000 households through April; aim of reaching two million by the end of the year. - COVID-19: 34,889 confirmed cases and 2,446 deaths as of May 14. - Gross usable international reserves: $327 million at end-March 2021 (0.4 months of imports). - Trade Q1 2021: exports increased 54 percent; imports contracted by 17 percent (yoy). - ECF request: 39-month arrangement for US$2.5 billion (SDR1.733 billion or 275 percent of quota). - Initial ECF disbursement: SDR 991.55 million; intended use of SDR 964 million (153 percent of quota) to repay intraday bridge loan. - Growth projection peak: 6.8 percent in 2025; long-term growth around 4½ percent. - Medium-to-long-term inflation stabilizes at 8 percent. ### Box 1 — Triggers for the Floating Completion Point (selected triggers) - Poverty reduction strategy implementation: - Trigger: Satisfactory implementation for at least one year of Sudan’s full poverty reduction strategy, evidenced by an Annual Progress Report. - Macroeconomic stability: - Trigger: Maintain macroeconomic stability as evidenced by satisfactory implementation of the 39-month ECF-supported program. - Public financial and expenditure management: - Trigger: Enact revised Financial and Accounting Procedure Law of 2007 (budget system law) with specified institutional coverage, guiding principles, fiscal risk management, SOE oversight, and budget calendar (Reference: End-June 2022 structural benchmark #9). - Trigger: Publish the General Government consolidated financial statement based on GFS for 2021 and annually thereafter within three months of end of reporting period (Reference: MEFP policy intentions). - Trigger: Publish complete list of SOEs and audited final accounts for an increasing number of SOEs beginning with 10 identified SOEs (Reference: End-June 2022 structural benchmark #6 and #10). - Domestic revenue mobilization: - Trigger: Strengthen the Large Taxpayer Office (LTO) including digital encoding of paper returns from 2017 onwards and revise large taxpayer criteria to ensure at least 60 percent of total domestic tax revenues are managed through LTO. - Procurement: - Trigger: Pass and enact revised Public Procurement Bill and improve transparency of public procurement for top spending units. - Debt management and transparency: - Trigger: Publish at least four consecutive quarterly external public debt reports and at least one annual public debt report covering external and domestic public and publicly guaranteed debt (Reference: End-June 2022 structural benchmark #11). - Trigger: Enact a Debt Management Law establishing authority, objectives, procedures, reporting and auditing requirements (Reference: MEFP). - Social protection: - Trigger: Establish a national social registry and reach over 50 percent of cash transfer beneficiaries via digital means. - Growth and business climate: - Electricity sector triggers: adopt roadmap to full operational cost recovery; achieve at least 75 percent operational cost recovery for all electricity users except residential below 200 kWh/month; amend Electricity Act to strengthen institutional framework. - Business climate triggers: streamline commercial registration at One-Stop Shop; enact Secured Lending Act or operational equivalent and establish modern collateral registry. - AML/CFT: - Trigger: Complete ML/TF national risk assessment (NRA) and adopt national AML/CFT strategy. - Statistics: - Trigger: Produce and publish revised and rebased annual GDP time series based on updated supply and use tables (SUT) from 2020/21 comprehensive industrial survey (CIS). ### Box 3 — Sudan Family Support Program (SFSP) (selected features) - Design and objectives: - Quasi-universal basic income scheme supported by donor community and World Bank. - Objectives: alleviate short-term effects of subsidy removal and exchange rate reform; create political/economic space for comprehensive reform; serve as platform for future targeted social safety net via national unified digital IDs. - Targeting and benefit design: - Core principle: provide cash transfers to all but the top 20 percent of the population. - Initial government intention: unconditional cash transfers of US$5 per person per month to approximately 80 percent of the population for twelve months. - Recipients validated/tracked via the National Civil Registry. - Phased implementation and delivery: - Implemented in phases on a geographic basis. - Grants duration initially six months, scaling to twelve months subject to resources. - Rollout timeline and scale-up: - Pilot by WFP initiated July 2020. - Phase 1 began on February 24, 2021. - Targeting support to one million households by July (2021); aim of reaching two million households by end-2021; expected to reach 80 percent of eligible population by end-2022. ### Financing, IMF access, and external financing - Authorities requested a 39-month ECF arrangement in the amount of US$2.5 billion (SDR1,733.051 million or 275 percent of quota). - Staff proposes access in line with Sudan’s protracted BOP needs and medium-term reforms. - Intended use of initial disbursement: - Initial disbursement: SDR 991.55 million. - SDR 964 million (153 percent of quota) intended to repay intraday bridge loan for IMF arrears clearance; remaining access backloaded for reserve accumulation. - 2021 expected IFI support: - US$248 million in IDA grants earmarked for SFSP. - Additional US$223 million expected for investment grant projects. - US$300 million anticipated in in-kind grant assistance. - Program reported fully financed for next 12 months with firm commitments from World Bank and other donors plus arrears clearance operations. - Paris Club creditors provided official financing assurances for interim debt relief contingent on meeting DP requirements; Paris Club negotiations scheduled for July 15, 2021. ### Program conditionality, monitoring, and linkage to HIPC - Program conditionality adapted to fragile humanitarian, security, and political environment: - Limited number of well-targeted structural benchmarks per review; monitoring focused on macroeconomic criticality. - Semi-annual reviews with quantitative performance criteria (QPCs), indicative targets (ITs) and structural benchmarks initially for first 12 months. - At first review, a QPC on a measure of the central government balance will be introduced, subject to data reporting resolution. - Effective implementation of the ECF-supported program is a pre-requisite for HIPC Completion Point, which also requires: - Implementing for at least one year a full Poverty Reduction Strategy. - Implementing the floating CP triggers. ### Debt sustainability, exposure, and risks - Post-HIPC delivery projections: - Credit outstanding would peak at SDR 1.362 billion (216 percent of quota) in 2023 and then decline sharply at Completion Point as HIPC and beyond-HIPC debt relief is delivered. - Obligations to the Fund would peak at 5 percent of GDP and 135 percent of reserves in 2023. - Assessment: - Sudan remains in debt distress, but debt is assessed to be sustainable in a forward-looking sense contingent on full delivery of debt relief under HIPC, MDRI, and beyond-HIPC at Completion Point. - Sudan is assessed at moderate risk of debt distress at post-Completion Point. - Risk mitigation: - HIPC debt relief; continued access to concessional financing; improved debt management capacity under program. ### Central bank safeguards and institutional commitments - Authorities committed to IMF safeguards policy: - Undergo a safeguards assessment of the Central Bank of Sudan (CBoS) to be completed before the first review. - Provide IMF staff access to CBoS’s most recently completed external audit reports and authorize external auditors to hold discussions with staff. - Establish a framework agreement between CBoS and MOFEP on responsibilities for servicing IMF obligations. ### Fiscal strategy and major policy measures - Fiscal anchor and targets: - Program targets a medium-term overall fiscal deficit of 1 percent of GDP; adopt a 2022 budget with an overall deficit of around 1½ percent of GDP. - Revenue mobilization measures (selected): - Eliminate the customs exchange rate. - Remove all VAT exemptions except those related to food. - Remove personal income tax exemption for people over 50 years of age; unify personal income tax rates across public and private sectors. - Harmonize corporate income taxes; implement sectoral CIT simplification including a 15 percent rate for industrial sector. - Strengthen the Large Taxpayer Office; implement PFM reforms and Public Financial Management Roadmap. - Raise fees and improve collection from the gold sector. - Expenditure and subsidy reforms: - Remove controls on retail gasoline and diesel fuel prices and allow suppliers to contract at negotiated market prices (end-December 2021 structural benchmark). - Electricity sector plan to eliminate all electricity subsidies by 2024 while improving sector viability; adopt revised Electricity Act. - Accelerate rollout of SFSP and transition to targeted social safety net. - Public financial management and transparency: - Established Treasury Single Account; consolidate ministries’ bank accounts at CBOS. - Develop and adopt PFM Roadmap based on PEFA (end-September 2021 structural benchmark). - Submit revised Financial and Accounting Procedure Law of 2007 (end-June 2022 structural benchmark). - Publish end-2021 financial statement and audit reports for 10 SOEs (end-June 2022 structural benchmark). ### Monetary policy, banking sector, and AML/CFT - Exchange rate and monetary framework: - Continue market-determined exchange rate and widen the band over time. - Commit to not introduce any new multiple currency practices (MCPs) or exchange restrictions. - Strengthen policy foundation for reserve money targeting following move to market-determined exchange rate. - Banking sector reforms: - Enact revised Banking Regulation Act including comprehensive resolution regime (end-December 2021 structural benchmark). - Completed phase one of Asset Quality Review (AQR); phase two underway. - Operationalize dual system of conventional and Islamic banking; transition to reserve-money targeting regime. - Reduce central bank stock of claims on government; divest CBoS shares in banks (subject to effective bank resolution framework). - AML/CFT: - Complete a money laundering and terrorist financing National Risk Assessment (NRA) and adopt national AML/CFT strategy. - Completed on-site inspections of ten highest-risk banks focusing on PEPs, suspicious transactions, and higher-risk sectors. ### TMU, performance criteria, and program monitoring (selected) - TMU monitoring framework: - Three semi-annual QPCs (floor on NIR of CBOS; ceiling on NDA of CBOS; ceiling on net credit to central government by banking system). - Four continuous performance criteria including zero ceiling on contracting/guaranteeing external long-term non-concessional debt, ceiling on concessional external debt, zero ceiling on accumulation of external debt payment arrears, and prohibition on introduction/imposition of exchange rate restrictions and MCPs. - Indicative targets include ceilings/floors on reserve money, primary balance, tax revenue, social spending, and zero accumulation of central government wage arrears. - Program exchange rates (03/31/2021): - Sudanese Pound to the US dollar: 382.7156 - Sudanese Pound to Euro: 448.0681 - Sudanese Pound to Saudi Riyal: 102.0928 - Sudanese Pound to U.A.E Dirham: 104.2169 - SDR per US dollar: 0.705613 - Monetary gold evaluated at USD55.53 per gram for program purposes. - Prior actions and structural benchmarks (selected): - Prior action: Implement customs exchange rate unification (prior to ECF approval). - Structural benchmarks include establishing Anti-Corruption Commission (end-September 2021), PFM Roadmap (end-September 2021), eliminating VAT exemptions and PIT exemption >50 years (end-December 2021), issuing Investment Law implementing regulations (end-December 2021), eliminating retail fuel price controls (end-December 2021), enacting revised Banking Regulation Act (end-December 2021), and adopting 2022 budget consistent with program (end-December 2021). ### Governance diagnostic and preliminary findings - Purpose: identify macro-critical corruption vulnerabilities and input into roadmap on governance reforms covering fiscal governance, anti-corruption framework, enforcement of contract and property rights, AML/CFT, financial sector oversight, and central bank governance. - Preliminary findings (selected): - Fiscal transparency limited; serious flaws in data on revenues, spending, and financing; limited transparency in SOEs and subsidies. - SOE governance weak; defense-sector SOEs lack transparency and oversight by MoFEP. - Public procurement lacks independence and legal framework obstacles to transparency persist. - Natural resource management opaque; mining and petroleum contracts considered confidential. - Wide use of tax exemptions/incentives granted at ministerial discretion; MoFEP conducting stocktaking exercise. - CBoS faces autonomy and governance vulnerabilities; negative financial position and compromised autonomy due to sizable monetary financing and quasi-fiscal activities. - Contract enforcement framework ineffective; rule of law undermined by lack of judicial independence. - Anti-corruption legal and organizational framework opaque and not meeting international standards. - Footnote: Governance diagnostic initiated March 2021 is taking longer than planned and expected to be completed in the coming months due to delays and remote mission constraints. ### Letter of Intent and government commitments (Khartoum, June 10, 2021) - Request: IMF arrangement under the ECF to support structural reform program to reach HIPC Completion Point and provide framework for inclusive growth aligned with PRSP over 2021–2024. - Government reform plan five pillars: - i) promote economic stability through improving domestic revenue and reallocating resources away from subsidies toward social spending and infrastructure; - ii) foster inclusive and sustainable growth by improving business environment and infrastructure; - iii) boost human and social development through investing in education and health and reducing inequality; - iv) promote peace and equal opportunities; - v) strengthen governance and institutional capacity through effective PFM, decentralization, fighting corruption and improving justice. - Policy priorities (selected): - Mobilize domestic tax revenue, unify reference exchange rate for customs duties, eliminate non-food tax exemptions. - Phaseout controls on retail fuel prices; put electricity sector on a path to cost recovery and use savings to strengthen social safety net. - End monetization by CBoS and adopt reserve money targeting regime; strengthen central bank independence and market-determined exchange rate; accelerate banking sector assessment and resolution including AML/CFT implementation. - ECF specifics reiterated: - Request a 39-month ECF with access equal to SDR 1,733.051 million (275 percent of quota), of which SDR964 million (153 percent of quota) will repay intra-day bridge loan for IMF arrears clearance. - Expect monetization under ECF; portion of first disbursement SDR 991.55 million will go towards budget support. - MOFEP and CBoS to sign memorandum of understanding on responsibilities associated with IMF support. - CBoS safeguards assessment to be completed before first review. *International Monetary Fund — EXECUTIVE SUMMARY (1sdnea2021003)* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and recent political-economic milestones - Since the 2019 popular revolution, Sudan’s transitional government has taken difficult steps to right decades of economic mismanagement and has fulfilled the necessary conditions to reach the HIPC Decision Point (DP). - Key reintegration and clearance steps noted: - Removed from U.S. list of State Sponsors of Terrorism in December 2020. - Cleared arrears to the World Bank and African Development Bank in March and May (respectively). - HIPC Decision Point reached (assumed staff baseline scenario timing: June 2021). - Humanitarian and social measures: - Sudan Family Support Program (SFSP) rolled out on February 24; provided support to 160,000 households through April with the aim of reaching two million by the end of the year. - COVID-19 and social conditions: - Official confirmed COVID cases: 34,889 with 2,446 deaths as of May 14. - Government suspended studies in all universities and schools for one month from May 18 and banned certain mass gatherings. - Large refugee and displaced person population of over 1 million. - Institutional constraints: weak institutional capacity and data collection, and the need to establish functional legislative cooperation. ### Recent economic developments and indicators - Growth and activity: - GDP estimated to have contracted by 3.6 percent in 2020. - GDP expected to recover to about 0.9 percent in 2021. - Fiscal developments: - Fiscal balance improved in Q1 2021, with tax revenues outperforming targets due to improved administration and a lower-than-anticipated wage bill. - Social expenditure fell below target due to slow SFSP rollout; spending on fuel and wheat subsidies increased relative to budget. - Inflation and exchange rate: - Inflation accelerated, with inflation at 363 percent in April. - Official exchange rate unified on February 21; post-unification exchange rate remained relatively stable with daily movements within the ±5 percent band around the indicative rate. - Speculative attacks in late May caused parallel rate depreciation; CBoS conducted two FX auctions and reports convergence back to the official rate. - Multiple currency practices persist. - External sector: - Trade performance in Q1 2021: exports increased 54 percent (yoy); imports contracted by 17 percent (yoy). - Recorded remittances increased nearly five-fold as transactions shifted to formal channels. - Current account on a cash basis registered a surplus of 0.1 percent of GDP in Q1 2021. - Gross usable international reserves: $327 million at end-March 2021 (the equivalent of 0.4 months of imports). - Banking sector: remains fragile with several banks undercapitalized and/or vulnerable to exchange rate depreciation. ### Staff-Monitored Program (SMP) and ECF request - SMP performance: - Program implementation under the SMP has been satisfactory; Management approved completion of the second review. - IMF Executive Board endorsed the SMP as containing policies and conditionality consistent with the Upper Credit Tranche (UCT) standard; sustained satisfactory performance for at least six months can fulfil the track record requirement to reach HIPC Decision Point. - ECF request and modalities: - Authorities requested cancellation of the SMP and a 39-month Extended Credit Facility (ECF) arrangement in the total amount of US$2.5 billion (SDR1.733 billion or 275 percent of quota). - The ECF is a core element of Sudan’s path toward the HIPC Decision Point and will anchor policies between Decision Point and Completion Point. - Initial disbursement: SDR 991.55 million; authorities intend to use SDR 964 million (or 153 percent of quota) of the initial disbursement to repay the intraday bridge loan required to clear arrears to the IMF, with remaining access backloaded and expected to be used for significant reserve accumulation. - Sudan will qualify for IMF interim HIPC Initiative assistance to cover debt service obligations on pre-arrears clearance debt falling due after the Decision Point. ### Program policy priorities (ECF and HIPC complementarities) - Fiscal sustainability: - Reduce distortionary and costly energy subsidies and continue the rollout of the social safety net (SFSP). - Improve domestic revenue mobilization and increase Ministry of Finance oversight over SOEs. - Monetary and exchange rate framework: - Solidify transition to a more flexible exchange rate and adopt a reserve money targeting regime. - Financial sector reforms: - Strengthen the financial sector by developing a dual banking system and reforming/improving bank resolution procedures. - Governance and private sector enabling environment: - Strengthen governance and transparency, especially in the SOE sector. - Reduce the role of government in the economy, fight corruption, and create a more enabling environment for private sector development including SMEs. - Coordination: Reform priorities in the ECF have been closely coordinated with other donors and complement the proposed HIPC floating Completion Point (CP) triggers. ### Macroeconomic outlook and projections (staff baseline assumptions) - Growth trajectory: - Growth expected to peak at 6.8 percent in 2025, driven by strong grant financing and FDI. - Growth expected to gradually settle at around 4½ percent over the long-term. - Inflation path: - Inflation would decline to double digits next year as monetization is reduced and transitory effects pass through, before stabilizing at 8 percent over the medium-to-long-term. - Assumptions include reaching the HIPC Decision Point in June 2021 (staff baseline). ### Risks and policy challenges - Near-term risks (tilted to the downside): - Failure to implement energy tariff reforms or reversion to energy subsidies, continuation of multiple currency practices, and lack of transparency/governance could undermine stabilization. - Insufficient cash transfers could raise poverty and weaken public support for reforms. - Political gridlock could sustain fiscal deficits, monetization, and delays in external financing, reigniting an inflation-depreciation spiral. - Medium-term risks (balanced under HIPC debt relief): - Sustained policy implementation, avoidance of non-concessional and collateralized debt, and stronger business climate would foster a virtuous cycle of lower inflation and higher investment. - Persistence of political gridlock and policy backsliding could lead to prolonged macroeconomic instability and suboptimal growth, requiring more aggressive revenue and expenditure measures. - Sudan’s undiversified economy remains vulnerable to climate and commodity-related shocks. ### Key numeric facts and program figures (preserved exactly as in source) - Inflation: 363 percent in April. - GDP: contracted by 3.6 percent in 2020; expected to recover to about 0.9 percent in 2021. - SFSP coverage: 160,000 households through April; aim of reaching two million by the end of the year. - COVID-19: 34,889 confirmed cases and 2,446 deaths as of May 14. - Gross usable international reserves: $327 million at end-March 2021 (0.4 months of imports). - Trade Q1 2021: exports increased 54 percent; imports contracted by 17 percent (yoy). - ECF request: 39-month arrangement for US$2.5 billion (SDR1.733 billion or 275 percent of quota). - Initial ECF disbursement: SDR 991.55 million; intended use of SDR 964 million (153 percent of quota) to repay intraday bridge loan. - Growth projection peak: 6.8 percent in 2025; long-term growth around 4½ percent. - Medium-to-long-term inflation stabilizes at 8 percent. _International Monetary Fund — EXECUTIVE SUMMARY (1sdnea2021003)_ ### Box 1. Triggers for the Floating Completion Point ### Box 1. Triggers for the Floating Completion Point ### Poverty reduction strategy implementation - Trigger: Satisfactory implementation for at least one year of Sudan’s full poverty reduction strategy, as evidenced by an Annual Progress Report on the implementation of the poverty reduction strategy submitted by the government to IDA and the IMF. - Reference: Monitoring framework included in PRSP; IDA. ### Macroeconomic stability - Trigger: Maintain macroeconomic stability as evidenced by satisfactory implementation of the 39-month ECF-supported program. - Reference: ECF request and successive reviews documentation. - Planned technical assistance: - UK planned TA to CBOS for the analysis and interpretation of economic data. - ICD Developing Macroframework— training and TA. - MCM (planned) TA Monetary Policy Implementation and Operations. ### Public financial and expenditure management - Trigger: Enact a revised Financial and Accounting Procedure Law of 2007 (budget system law) to: - (i) specify the institutional coverage of the budget in line with the GFSM2014; - (ii) incorporate the guiding principles for resource allocations horizontally and vertically, medium term framework, fiscal disclosure and transparency, fiscal accountability and responsibility, fiscal stability and sustainability, and accounting and reporting standards; - (iii) establish a fiscal risk management function, an oversight function on SOEs, and financial oversight rules for states governments; and - (iv) include the budget calendar. - Reference: End-June 2022 structural benchmark #9 and MEFP policy intentions. - Planned/supporting TA: USAID PFM TA; METAC/FAD TA on cash management; FAD TA on PFM law. - Trigger: Publish the General Government consolidated financial statement based on the GFS definition for 2021 (using available data) and annually thereafter within three months of end of the reporting period, and audited accounts within six months in accordance with international good practices. - Reference: MEFP policy intentions. - Planned/supporting TA: FAD (planned) TA on fiscal reporting (GFS); METAC support macro fiscal planning/MTFF; METAC support budget planning practices; METAC (planned) LTX macro fiscal planning. - Trigger: Publish the complete list of SOEs, including in the intelligence sector. Also, beginning with 2020, publish on an annual basis the external audited final accounts of an increasing number of SOEs, beginning with the 10 SOEs identified and agreed with the IMF and World Bank staff and monitored under the ECF-arrangement. Publish the SOE governance strategy, medium term action plan, and annual performance report. - Reference: End-June 2022 structural benchmark #6 and #10 and MEFP policy intentions. - Planned/supporting TA: METAC TA on fiscal risk management for SOEs; METAC - publication of information SOEs. ### Domestic revenue mobilization - Trigger: Strengthen the Large Taxpayer Office (LTO) by: - (i) ensuring digital encoding into the Tax Administration Core System (TACS) database of all paper-based tax returns filed by large taxpayers (from tax year 2017 onwards); - (ii) revising large taxpayer criteria to include indicators sourced directly from tax returns data captured in the TACS database; - (iii) compiling an analysis based on the new large taxpayer criteria and revising the large taxpayer registry to ensure that a minimum of 60 percent of total domestic tax revenues are managed through taxpayers assigned to the LTO; and - (iv) introducing on-demand reports for staff to monitor the near real-time status of large taxpayer filing and payment activities. - Reference: MEFP policy intentions. - Planned/supporting TA: METAC - TA on risk management and post-clearance audit capacity; METAC TA to Customs Authority on the integration of risk management into the excise duty function; FAD Import Tariffs Reform and Tax Policy Reform Support TA. ### Procurement - Trigger: Strengthen the public procurement system by: - (i) passing and enacting the revised Public Procurement Bill; and - (ii) improving transparency of public procurement through the publication on a continuous and ongoing basis by at least the 10 highest spending Procurement and Contracting Units at the federal level of: - (a) all notices of public procurement opportunities following open tender proceedings; and - (b) all notices for contracts awarded following open tendering, restricted tendering and single-sourcing methods. - Reference: IDA; IDA 2021 TA 2021 tax administration diagnostic; Policy intentions in the MEFP. ### Debt management and transparency - Trigger: Enhance debt transparency by publishing: - (i) at least four consecutive quarterly external public debt reports outlining the outstanding debt stock, debt flows, and comprehensive information on new borrowing (volumes, terms and possible special clauses); and - (ii) at least one annual public debt report covering all external and domestic public and publicly guaranteed debt providing comprehensive information on the outstanding debt stock, debt flows and new borrowing, as well as debt ratios and indicators and risk measures of the debt portfolio. - Additional coverage requirement: Reports’ coverage should include General Government and SOEs which are part of the general government reporting framework, including information on guaranteed loans. Publication should take place within 3 months of the end of the reporting period. - Reference: IMF - End-June 2022 structural benchmark #11 and MEFP policy intentions. - Planned/supporting TA: UK - (planned) TA to CBOS for the analysis and interpretation of economic data; METAC TA on implementation of eGDDS. - Trigger: Enact a Debt Management Law that: - (i) clearly defines the authority to borrow and issue guarantees and on-lending and delegates debt management responsibilities; - (ii) sets debt management objectives; - (iii) establishes core purposes of government borrowing; - (iv) mandates the adoption of documented procedures for debt management activities; - (v) defines responsibilities for the formulation of a medium term debt management strategy and for the frameworks to issue guarantees and on-lending; and - (vi) establishes clear reporting and auditing requirements, as well as requirements for publication of the debt data. - Reference: IMF - MEFP - Policy intentions. IMF TA (planned). ### Social protection - Trigger: Strengthen the social protection system by: - (i) establishing a national social registry as the primary directory of poor and vulnerable households eligible for social protection support; and - (ii) reaching over 50 percent of cash transfer beneficiaries via digital means. - Reference: IDA Social Protection Project. ### Growth and business climate - Trigger (electricity sector): Improve the electricity sector’s economic viability and growth prospects by: - (i) adopting a roadmap/trajectory for achieving full operational cost recovery in the medium-longer term based on officially adopted methodology to define the revenue requirement of the sector; - (ii) achieving at least 75 percent operational cost recovery for all electricity users except for residential uses with monthly consumption below 200 kWh; and - (iii) amending the Electricity Act to strengthen the institutional framework to inter alia facilitate future private investment including in renewable energy and energy efficiency. - Reference: IDA TA and Energy Project Under Preparation; MEFP policy intentions. - Trigger (business and investment climate): Improve the business and investment climate in Sudan by: - (i) streamlining commercial registration through consolidating business registration, registration for Labor and Social Insurance Fund into a single form at the One-Stop Shop with a consolidated fee and granting the Tax Chamber at One-Stop Shop the power to issue the tax identification number (TIN) and register the company for VAT, and - (ii) facilitating access to finance for SMEs by enacting a Secured Lending Act or its operational equivalent and establishing a modern collateral registry. - Reference: IDA and IFC TA; MEFP Policy intentions. - Trigger (AML/CFT): Strengthen the AML/CFT regime by: - (i) completing a money laundering and terrorist financing (ML/TF) national risk assessment (NRA) and disseminating its results, in appropriate forms, to financial institutions, designated non-financial businesses and professions, and the general public; and - (ii) government endorsement and adoption of a national AML/CFT strategy to mitigate the identified risks. - Reference: IMF - LEG TA on AML/CFT Handbook. ### Statistics - Trigger: Produce and publish revised and rebased annual GDP time series based on updated supply and use tables (SUT) resulting from the 2020/21 comprehensive industrial survey (CIS). - Planned/supporting TA: METAC providing TA on CPI and national accounts; Joint IMF-World Bank Initiative; EU funding LTX. *Source: Box 1. Triggers for the Floating Completion Point from the provided IMF document.* ### Box 3. Sudan Family Support Program ### Box 3. Sudan Family Support Program ### Program design and objectives - The Sudan Family Support Program (SFSP) is a quasi-universal basic income scheme for Sudan supported by the donor community and World Bank. - Objectives: - Alleviate the short-term effects of subsidy removal and exchange rate reform on the majority of the population. - Help generate the political and economic space for a comprehensive program of economic reform. - Serve as a platform for the development of a future targeted social safety net system via the provision of national unified digital identity documents (IDs). ### Targeting and benefit design - Core targeting principle: - Provide cash transfers to all but the top 20 percent of the population. - Initial government intention: - Provide unconditional cash transfers of US$5 per person per month to approximately 80 percent of the population for twelve months. - Beneficiary validation and tracking: - Recipients would be validated and tracked via the National Civil Registry to allow coordination with other social protection programs and minimize overlap. ### Phased implementation and delivery arrangements - Implementation adjustments due to funding and operational constraints: - Implemented in phases on a geographic basis (starting with a few states). - Duration of grants delivered to beneficiaries initially set at six months, with scaling up to twelve months subject to availability of resources. - Expected system benefits: - Investments in delivery systems for SFSP cash transfers anticipated to contribute to the development of a sustainable and well-targeted long-term social safety net system and serve as a future platform for referral and expansion of social services. ### Rollout timeline, delays, and scale-up - Pilot and initial delays: - A pilot managed by the World Food Program was initiated in July 2020. - Full program initially delayed by slow delivery of pledges to the STARS trust fund and administrative challenges. - Exchange rate linkage: - As the parallel market rate continued to depreciate, donor resources’ value was undermined by use of the official exchange rate; rollout was linked to the unification of the exchange rate (February 21, 2021). - Launch dates and phases: - Phase 1 began on February 24, 2021 after months of an inflation-depreciation spiral and reform. - Coverage targets and timeline: - Targeting support to one million households by July (2021). - Aim of reaching two million households, or about one-third of the eligible population, by the end of the year (2021). - Program expected to reach 80 percent of the eligible population by the end of 2022. *Source: Box 3. Sudan Family Support Program (extracted from the provided IMF content).* ### 29. To support the HIPC process as well as their policy and development efforts, the ### 1sdnea2021003 - 29. To support the HIPC process as well as their policy and development efforts, the ### Financing and IMF access - Authorities requested a 39-month ECF arrangement in the amount of US$2.5 billion (SDR1,733.051 million or 275 percent of quota). - Staff proposes access under the ECF in line with Sudan’s balance of payments needs, noting BOP needs are protracted and underlying reforms are medium-term. - Intended use of initial disbursement: - Initial disbursement: SDR 991.55 million. - A large portion (SDR 964 million, or 153 percent of quota) intended to repay the intraday bridge loan required to clear arrears to the IMF. - Remaining access is backloaded and expected to be used for reserve accumulation. - Given monetization of the budget in initial stages, a portion of ECF disbursements will constitute budget support. ### External financing and catalytic role of IMF - IMF financing is catalytic for support by other IFIs (Table 11). - 2021 expected IFI support: - US$248 million in IDA grants earmarked for SFSP. - Additional US$223 million expected for investment grant projects. - US$300 million anticipated in in-kind grant assistance. - 2022: bulk of IFI support reported in financing table represented by IDA grants for SFSP and investment projects. - Program is fully financed (Table 11) with firm commitments for the next 12 months: - Financing needs over that period met through expected grants from the World Bank and other donors, plus recent World Bank and AfDB arrears clearance operations. - Paris Club creditors provided official financing assurances for interim debt relief contingent on Sudan meeting DP requirements. - Some non-Paris Club official bilateral creditors may attend Paris Club negotiations scheduled for July 15, 2021. - Paris Club agreement, once concluded, can be considered adequately representative; arrears to non-Paris Club bilateral creditors can be deemed away under the Fund’s policy on Non-Toleration of Arrears to Official Creditors. - Expected continued engagement of international donors indicates good prospects for financing over the Fund-supported program’s duration. ### Program conditionality, monitoring, and linkage to HIPC - Program conditionality adapted to Sudan’s fragile humanitarian, security, and political environment. - Program design: - Limited number of well-targeted structural benchmarks per review. - Takes account of reforms committed under programs with World Bank, AfDB, EU and UNDP. - Monitoring is parsimonious and focused on macroeconomic criticality. - Semi-annual reviews with quantitative performance criteria (QPCs), indicative targets (ITs) and structural benchmarks initially established for the first 12 months (MEFP, Tables 1 and 2). - Note: At the first review, a QPC on a measure of the central government balance will be introduced, subject to adequate resolution of data reporting issues. - Effective implementation of the ECF-supported program is a pre-requisite for HIPC Completion Point, which also requires: - Implementing for at least one year a full Poverty Reduction Strategy. - Implementing the floating CP triggers. - Conditionality aligned with CP floating triggers per the HIPC Decision Point document and focuses on: - Domestic revenue mobilization. - Strengthening governance, public financial and debt management. - Reducing the role of the state in the economy to support private sector growth. - Reforms to reduce poverty and improve social conditions. ### Debt sustainability, exposure, and risks - Post-HIPC delivery projections: - Credit outstanding would peak at SDR 1.362 billion (216 percent of quota) in 2023 and then decline sharply at Completion Point as HIPC and beyond-HIPC debt relief is delivered. - Obligations to the Fund would peak at 5 percent of GDP and 135 percent of reserves in 2023. - With these indicators Sudan is an outlier compared to a PRGT control group, indicating risks to repayment capacity. - Risk mitigation: - HIPC debt relief. - Continued access to concessional financing. - Improved debt management capacity under the program. - Debt distress assessment: - Sudan remains in debt distress, but debt is assessed to be sustainable in a forward-looking sense (See DSA). - Contingent on full delivery of debt relief under HIPC, MDRI, and beyond-HIPC at Completion Point, Sudan’s debt improves dramatically to manageable levels at below relevant benchmark thresholds during the forecast horizon. - Under this scenario, Sudan’s debt is judged as sustainable. - Sudan is assessed to be at moderate risk of debt distress at post-Completion Point. - Debt sustainability also dependent on strong fiscal performance, structural reforms, access to concessional finance and grants. ### Central bank safeguards and institutional arrangements - Authorities committed to abide by IMF safeguards policy. - Commitments include: - Undergo a safeguards assessment of the Central Bank of Sudan (CBoS) to be completed before the first review. - Provide IMF staff access to the CBoS’s most recently completed external audit reports and authorize external auditors to hold discussions with staff. - Establish a framework agreement between the CBoS and the Ministry of Finance and Economic Planning on respective responsibilities for servicing financial obligations to the IMF, given part of IMF financing will facilitate budgetary financing. ### Macro outlook and fiscal strategy - Recent developments and outlook: - Removal from U.S. list of State Sponsors of Terrorism in December 2020, clearance of arrears to World Bank and AfDB in March and May 2021 respectively, and adoption of poverty reduction strategy created momentum for HIPC Decision Point. - Unification of exchange rate, reduction of fuel subsidies and improved tax revenue yield opened path to stabilization. - Growth expected to turn positive in 2021 and gain momentum through 2022; exchange rate broadly stable following unification; inflation remains very high and could lead to depreciation. - Fiscal targets and priorities: - Program targets a medium-term overall fiscal deficit of 1 percent of GDP achieved through enhanced domestic revenue mobilization to create fiscal space for social and infrastructure spending, and continued energy sector reforms. - Authorities committed to adopting a 2022 budget that maintains the fiscal path toward the medium-term goal. - Energy subsidies and social spending: - Reduction of energy subsidies central to reducing the deficit and creating space for social spending. - Critical measures: - Remove controls on retail gasoline and diesel fuel prices and allow suppliers to contract at negotiated market prices. - Electricity sector plan to reduce electricity subsidies and eliminate all electricity subsidies by 2024 while improving sector viability. - Subsidy reduction should be accompanied by improved coordination and administration to accelerate rollout of Sudan Family Support Program and transition to a targeted social safety net system. - Revenue mobilization measures: - Eliminate the customs exchange rate. - Remove all VAT exemptions except those related to food. - Remove personal income tax exemption for people over 50 years of age. - Unify personal income tax rates in public and private sectors. - Harmonize corporate income taxes. - Raise fees and improve collection from the gold sector. - Strengthen the Large Taxpayer Office and implement PFM reforms, including development of a Public Financial Management Roadmap. - Improved debt management to avoid re-accumulation of unsustainable debt. - Monetary and banking sector recommendations: - Strengthen policy foundation for reserve money targeting following move to market-determined exchange rate. - Re-introduction of conventional banking to facilitate effective monetary instruments. - Medium-term measures: sale of CBoS equity in commercial and state-owned banks and conversion of claims on the government into monetary instruments to strengthen CBoS monetary policy toolkit and mop up liquidity. - Proceed cautiously on exiting equity positions contingent on effective bank resolution framework and strengthened capital adequacy. - Strengthen central bank independence and supervisory capacity: - Enact revised Banking Regulation Act including a comprehensive resolution regime in line with international best practice. - Follow with an Action Plan to operationalize the resolution regime and divest CBoS shares in banks. - Enhance capacity to supervise the dual system, including through technical assistance. - Governance and private sector reforms: - Establish an independent Anti-Corruption Commission to prevent, detect, and investigate corruption. - Develop a strategy for the SOE sector to set oversight and management principles and framework for which SOEs remain public, be liquidated, or be privatized. - Publish audited statements for the largest SOEs to enhance transparency. - Monitor implementation of new PPP and Investment Laws carefully by MOFEP to prevent contingent liabilities and proliferation of tax exemptions. *Source: STAFF APPRAISAL (excerpt from content unit 1sdnea2021003).* ### 45. Staff supports the authorities’ request for a new 39-month arrangement under the ### 1sdnea2021003 - 45. Staff supports the authorities’ request for a new 39-month arrangement under the ### Program support and rationale - Staff supports the authorities’ request for a new 39-month arrangement under the ECF with frontloaded access. - While there are risks, the authorities’ demonstrated commitment to reform and significant donor support are key considerations in staff’s support for the program. ### Recent economic performance (selected findings) - The economy suffered a third consecutive year of contraction in 2020. - Inflation surged due to monetary expansion, shortages of food and fuel, and adjustment of administered prices. - The fiscal deficit narrowed in 2020, but large monetary expansion continued due to monetization and purchases of foreign exchange. - The terms of trade increased while import volumes grew rapidly. - Imports and exports volumes fell in 2020 despite a slight improvement in terms of trade. - Sudan became a net oil importer shortly after the secession of South Sudan. - The current account deficit remained high; capital inflows decreased and reserve coverage remained very low. ### Fiscal sector (key observations and figures) - Revenue is low and declined further due to COVID-19. - Subsidies on retail gasoline and diesel were gradually removed. - The fiscal deficit came down but remained large and continued to drive monetization. - From Table 1 / Table 2 (selected values): - Revenue and grants: 8.9 (2018), 7.8 (2019), 4.8 (2020), 9.1 (2021), 12.6 (2022), 12.3 (2023), 12.3 (2024), 11.8 (2025), 11.7 (2026) [In percent of GDP]. - Revenue: 8.8 (2018), 7.4 (2019), 4.7 (2020), 6.2 (2021), 9.0 (2022), 9.2 (2023), 9.5 (2024), 9.6 (2025), 9.7 (2026) [In percent of GDP]. - Tax revenue: 6.8 (2018), 5.4 (2019), 3.0 (2020), 4.4 (2021), 6.8 (2022), 7.3 (2023), 7.5 (2024), 7.7 (2025), 8.0 (2026) [In percent of GDP]. - Expenditure (total): 16.8 (2018), 18.7 (2019), 10.8 (2020), 12.0 (2021), 14.1 (2022), 13.4 (2023), 13.4 (2024), 12.8 (2025), 12.6 (2026) [In percent of GDP]. - Subsidies: 9.6 (2018), 11.8 (2019), 4.8 (2020), 3.7 (2021), 2.0 (2022), 1.5 (2023), 1.1 (2024), 1.0 (2025), 1.0 (2026) [In percent of GDP]. - Overall balance (IMF staff metric): -7.9 (2018), -10.8 (2019), -5.9 (2020), -2.9 (2021), -1.5 (2022), -1.0 (2023), -1.1 (2024), -1.0 (2025), -1.0 (2026) [In percent of GDP]. - From Table 4a (selected levels, in billions of Sudanese pounds): - Revenue and grants: 121.4 (2018), 159.2 (2019), 249.3 (2020), 1,407.8 (2021), 2,859.1 (2022), 3,452.9 (2023), 4,013.0 (2024), 4,431.0 (2025), 5,026.7 (2026). - Total expenditure: 229.3 (2018), 378.8 (2019), 556.0 (2020), 1,855.1 (2021), 3,190.5 (2022), 3,745.3 (2023), 4,362.4 (2024), 4,789.9 (2025), 5,448.7 (2026). - Grants: 2.1 (2018), 9.4 (2019), 8.1 (2020), 454.7 (2021), 825.5 (2022), 877.3 (2023), 935.9 (2024), 833.9 (2025), 828.5 (2026). - Budget overall balance (bn SDG): -39.2 (2018), -41.3 (2019), -239.9 (2020), -455.7 (2021), -588.9 (2022), -647.9 (2023), -689.6 (2024), -741.7 (2025), -900.5 (2026). ### Monetary sector (key observations and 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 in Sudan as indicated by a lower credit-to-GDP ratio than peers. - While deposit growth picked up in 2020, large monetary expansion persisted. - From Table 1 / Table 2 (selected values): - Broad money (annual change, percent): 111.8 (2018), 60.1 (2019), 90.6 (2020), 116.8 (2021), 33.3 (2022), 16.2 (2023), 17.0 (2024), 13.0 (2025), 9.5 (2026). - Reserve money (annual change, percent): 170.5 (2018), 77.5 (2019), 119.4 (2020), 304.2 (2021), 23.1 (2022), 12.5 (2023), 12.2 (2024), 8.0 (2025), 8.0 (2026). - Credit to the private sector (percent of GDP): 9.0 (2018), 8.8 (2019), 6.2 (2020), 3.7 (2021), 4.3 (2022), 5.3 (2023), 6.3 (2024), 8.2 (2025), 10.8 (2026). - Net claims on government (percent of GDP): 20.4 (2018), 23.2 (2019), 13.6 (2020), 16.6 (2021), 13.1 (2022), 13.9 (2023), 11.7 (2024), 10.3 (2025), 9.3 (2026). ### External sector (key observations and figures) - Gross usable international reserves (in millions of US$): 178 (2018), 190 (2019), 223 (2020), 472 (2021), 881 (2022), 1,476 (2023), 2,197 (2024), 2,601 (2025), 2,956 (2026). - Imports of goods (percent of GDP): 21.1 (2018), 25.0 (2019), 25.9 (2020), 25.1 (2021), 26.3 (2022), 26.7 (2023), 27.0 (2024), 26.8 (2025), 26.9 (2026). - Exports of goods (percent of GDP): 10.4 (2018), 11.1 (2019), 11.1 (2020), 14.1 (2021), 14.7 (2022), 15.4 (2023), 15.9 (2024), 16.5 (2025), 16.6 (2026). - Trade balance (percent of GDP): -9.7 (2018), -14.0 (2019), -14.7 (2020), -10.2 (2021), -11.0 (2022), -10.6 (2023), -10.3 (2024), -9.4 (2025), -9.3 (2026). - Current account balance (percent of GDP): -14.0 (2018), -15.6 (2019), -17.5 (2020), -10.0 (2021), -9.5 (2022), -9.0 (2023), -8.6 (2024), -8.1 (2025), -8.1 (2026). - From Table 3a (selected levels, US$ millions): - Current account balance: -4,679 (2018), -5,244 (2019), -6,004 (2020), -3,572 (2021), -3,541 (2022), -3,592 (2023), -3,746 (2024), -3,811 (2025), -4,134 (2026). - Current account balance (cash basis): -3,118 (2018), -3,841 (2019), -4,531 (2020), -2,090 (2021), -2,045 (2022), -2,097 (2023), -2,273 (2024), -2,368 (2025), -2,691 (2026). - Exports, f.o.b.: 3,485 (2018), 3,741 (2019), 3,802 (2020), 5,031 (2021), 5,507 (2022), 6,157 (2023), 6,894 (2024), 7,782 (2025), 8,486 (2026). - Imports, f.o.b.: 7,065 (2018), 8,393 (2019), 8,894 (2020), 8,956 (2021), 9,853 (2022), 10,668 (2023), 11,704 (2024), 12,652 (2025), 13,742 (2026). ### Projections and medium-term outlook (selected projections) - Output and prices (Table 2): - Real GDP (market prices): -2.7 (2018), -2.2 (2019), -3.6 (2020), 0.9 (2021), 3.5 (2022), 5.0 (2023), 6.5 (2024), 6.8 (2025), 6.5 (2026) [Annual percent change]. - Consumer prices (end of period): 72.9 (2018), 57.0 (2019), 69.3 (2020), 115.7 (2021), 27.1 (2022), 10.5 (2023), 8.3 (2024), 8.0 (2025), 8.0 (2026) [Percent, end of period]. - GDP deflator: 70.3 (2018), 45.7 (2019), 164.2 (2020), 197.1 (2021), 41.5 (2022), 17.4 (2023), 9.2 (2024), 8.0 (2025), 7.9 (2026) [Annual percent change]. - Balance of payments (Table 3a and 3b): - Gross international reserves (in months of next year's imports): 0.2 (2018), 0.2 (2019), 0.3 (2020), 0.5 (2021), 0.8 (2022), 1.3 (2023), 1.8 (2024), 1.9 (2025), 2.0 (2026). - External debt (in billions of US$): 55.1 (2018), 56.3 (2019), 56.6 (2020), 30.5 (2021), 28.3 (2022), 29.0 (2023), 6.2 (2024), 6.3 (2025), 6.4 (2026). ### Financial sector indicators (key figures) - From Table 8 (Financial Soundness Indicators, percent): - Regulatory capital to risk-weighted assets: 18.7 (2016), 16.2 (2017), 9.9 (2018), 15.4 (2019), 11.0 (2020). - Gross NPLs to gross loans: 5.2 (2016), 3.3 (2017), 3.2 (2018), 3.5 (2019), 3.3 (2020). - ROA (before tax): 4.7 (2016), 3.8 (2017), 4.9 (2018), 3.4 (2019), 3.3 (2020). - Liquid assets to total assets: 35.1 (2016), 37.3 (2017), 51.6 (2018), 49.5 (2019), 53.7 (2020). ### IMF financing and program disbursements (proposed schedule) - Table 9: Proposed Schedule of Reviews and Disbursements Under ECF Arrangements (selected lines): - Date of approval of ECF Arrangement: Amount of Disbursements 991.55 Millions of SDR; Percent of quota 157.3. - Approval of arrangement (March 30, 2022): 61.79 Millions of SDR; 29.8 percent of quota. - First review and end-December 2021 performance criteria (September 30, 2022): 61.79 Millions of SDR; 9.8 percent of quota. - Second review and end-June 2022 performance criteria (March 30, 2023): 123.58 Millions of SDR; 19.61 percent of quota. - Third review and end-December 2022 performance criteria (September 30, 2023): 123.58 Millions of SDR; 19.61 percent of quota. - Fourth review and end-June 2023 performance criteria (March 30, 2024): 185.37 Millions of SDR; 29.4 percent of quota. - Fifth review and end-December 2023 performance criteria (August 30, 2024): 185.37 Millions of SDR; 29.4 percent of quota. - Total: 1,733.05 Millions of SDR; 275.0 percent of quota. - Note: New quota of SDR630.2 million. *International Monetary Fund (source material as provided in the content unit)* ### 1. Princial ### 1. Princial ### Repurchases, Charges, Total Obligations, and Outstanding Fund Credit - Repurchases: 0.0 0.0 0.0 0.0 0.0 0.06.237.192.7148.3148.3142.1111.255.6741.5 - Charges and interest 2/: - Charges: 0.4 0.0 0.0 0.0 0.0 0.0 - SDR related charges: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 - Total obligations: 0.4 0.0 0.0 0.0 0.0 6.237.192.7148.3148.3142.2111.355.6742.3 - Outstanding Fund credit, end of period: 991.6 1115.11362.3741.5741.5741.5735.3698.3605.6457.3309.0166.855.60.0... Memorandum items: - Total obligations, in percent of: - Gross international reserves 0.10.00.00.00.00.00.21.22.63.53.22.82.00.9... - Goods and services 0.00.00.00.00.00.00.10.41.01.51.41.20.90.4... - GDP 0.0 0.00.0 0.00.0 0.0 0.00.10.20.30.30.30.20.1... - Quota 0.10.00.00.00.00.0 1.05.914.723.523.522.617.78.8... - Outstanding Fund credit, in percent of: - International reserves 303.5184.5135.249.642.034.2 27.822.416.910.96.63.21.00.0... - Goods and services 20.821.824.011.710.49.68.87.86.34.52.91.40.50.0... - GDP 4.04.35.02.52.32.1 2.01.71.41.00.60.30.10.0... - Quota 157.3177.0 216.2117.7117.7117.7 116.7110.896.172.649.026.58.80.0... - Quota (millions of SDR): 630630630630630 630 630630630630630630630630630... - Source: Fund staff estimates. - Notes: 1/ Assumes HIPC CP in mid-2024 (gray shading). Based on the proposed level and phasing of access, and subject to the approval of the IMF's Executive Board 2/ Projections are based on current IMF charges ### Table 11 — Sudan: External Financing Needs and Resources, 2021–2024 (Millions of U.S. dollars) - Rows and key figures by year (2021 2022 2023 2024): - 1 External financing needs: 310724607489228309 - Trade deficit: 3640412142224468 - Interim debt service (net of grants): 1017775109 - Traditional Debt Relief operations: 25690000 - IMF arrears clearance: 1392000 - HIPC Debt Relief operations: 00023011 - of which: IMF 0001044 - Change in reserves (increase=+): 249409595721 - 2 Available financing 1/: 3951442945354762 - External grants and private remittance (net): 1734225422822389 - Foreign direct investment (net): 1288144816291936 - Official medium-and long-term loans: 7565100150 - Other private flows (net): 855662524288 - 3 Financing gap (1-2): 2712117835723547 - 4 Exceptional Financing: 256900023011 - Traditional Debt Relief: 25690000 - HIPC Debt Relief: 00023011 - of which: IMF 0001044 - 5 Remaining gap (3-4): 1431178357536 - Identified financing: 1431178357536 - of which: IMF 1/ 2/ 1431178357536 - percent of new IMF Quota: 157.319.639.258.9 - Source: Sudanese authorities, and Fund staff estimates and projections. - Notes: 1/ IMF disbursements in 2021-2024 are conditional on the board approval of ECF reviews. 2/ The IMF is expected to provide HIPC interim assistance for the 12-month period after the HIPC Decision Point date, to cover Trust Fund Interest and GRA charges on pre-arrears clearance debt, falling due after the HIPC Decision Point. Paris Club would provide HIPC interim assistance in Cologne flow terms to its outstanding debt falling due between Decision and Completion Points. The IDA is also expected to provide HIPC interim assistance. ### Annex I — Ongoing Governance Diagnostic Exercise for Sudan and Preliminary Findings - Purpose: Take stock of macro-critical corruption vulnerabilities and identify key reform measures as inputs into a roadmap on governance reforms. Diagnostic covers: - (i) fiscal governance; - (ii) the anti-corruption framework; - (iii) enforcement of contract and property rights; - (iv) anti-money laundering and combating the financing of terrorism (AML/CFT); - (v) financial sector oversight; - (vi) central bank governance. - Overall: Preliminary findings suggest governance vulnerabilities permeate across multiple areas, calling for stepped up efforts for governance reforms based on the forthcoming roadmap. - Key preliminary findings: - Fiscal transparency is limited. Serious flaws in data on revenues, spending, and financing; transparency in SOEs, states’ operations and subsidies (electricity, wheat, and fuel) is limited. The 2018 audit report identified multiple irregularities (on both revenue and spending items) but was not published. - SOE sector governance weak. Auditor-General reports highlight concerns. SOEs in the defense sector (including those involved in the production and export of gold, oil, gum Arabic, sesame) lack transparency and are not overseen by the MoFEP. - Procurement system lacks independence in regulation, monitoring and complaints management; legal framework obstacles to effective transparency remain. - Natural resource management is opaque; mining and petroleum contracts cover fiscal arrangements but are considered confidential. - Tax exemptions and incentives are widely used; income tax has a plethora of exemptions and incentives granted at ministerial discretion. MoFEP is conducting a stocktaking exercise to determine which exemptions can be eliminated. - Tax and Customs Administrations have multiple gaps: absence of a reliable taxpayer registration database, lack of a dedicated Code of Conduct and appropriate governance framework to deal with corruption issues, limited monitoring of tax compliance by large taxpayers and SOEs. - Central Bank of Sudan (CBoS) faces autonomy and governance vulnerabilities: governance arrangements lack oversight and allow government influence on the CBoS’ Board; transparency and accountability mechanisms are undermined by weaknesses in financial reporting and external audit practices. CBoS is in a negative financial position and its autonomy is compromised by sizable monetary financing, as well as quasi-fiscal activities. - Financial sector oversight: reforms have recently begun, but governance weaknesses in CBoS’s supervisory function have contributed to vulnerabilities in the Sudanese banking sector. - Contract enforcement framework is ineffective, inefficient and not easily accessible to businesspersons outside urban areas; governance weaknesses in land administration. - Anticorruption legal and organizational framework is opaque and does not meet international standards regarding definition, criminalization, investigation, sanctioning or prevention of corruption. Responsibility and authority for anticorruption actions is uncertain, as are mechanisms for distinguishing between corruption under the old regime and present acts of corruption. - Rule of Law undermined by lack of judicial independence, opaque and uncertain legal framework, limited capacity, and issues of integrity and corruption among legal personnel; credit provision and willingness to undertake capital investments are diminished due to lack of trust in enforcement of contracts and protection of property rights. - Footnote: This governance diagnostic, initiated in March 2021, is taking longer than planned and is now expected to be completed in the coming months, owing to unforeseen delays and the constraints associated with a remote mission. As such, progress in data collection and technical discussions has been limited in some areas (e.g., anti-corruption framework, AML/CFT). ### Appendix I — Letter of Intent (Khartoum, June 10, 2021) - Request: IMF arrangement under the Extended Credit Facility (ECF) to support structural reform program to reach the HIPC Completion Point and provide framework for inclusive growth aligned with the Poverty Reduction Strategy Paper (PRSP) over 2021–2024. - Government reform plan five pillars: - i) promote economic stability through improving domestic revenue and reallocating public resources away from subsidies towards social spending and key infrastructure investments; - ii) foster inclusive and sustainable economic growth by improving the business environment and strengthening energy, transport, and infrastructure services; - iii) boost human and social development through investing in education and health and reducing inequality between states and regions and gender; - iv) promote peace and provide equal opportunities for all Sudanese; - v) strengthen governance and institutional capacity through effective public financial management and decentralization, fighting corruption and improving justice. - Policy priorities: - Mobilize domestic tax revenue, including unifying the reference exchange rate for customs duties, and eliminating non-food tax exemptions. - Phaseout controls on retail fuel prices that lead to shortages and subsidization; put the electricity sector on a path to cost recovery; use savings to reorient spending toward strengthening the social safety net. - End monetization by the Central Bank of Sudan and adopt a reserve money targeting regime; strengthen central bank independence and a market-determined exchange rate; accelerate assessment and resolution of banking sector vulnerabilities including AML/CFT implementation. - ECF request specifics: - Request a 39-month ECF arrangement with access equal to SDR 1,733.051 million (275 percent of quota). - Of which SDR964 million (153 percent of quota) will be used to repay the intra-day bridge loan used to clear IMF arrears. - Expect monetization under the ECF arrangement; a portion of the first disbursement of SDR 991.55 million will go towards budget support. - MOFEP and CBoS will sign a memorandum of understanding detailing responsibilities associated with IMF support under the ECF arrangement. - CBoS safeguards assessment to be completed before the first review; CBoS to provide access to most recent external audit reports and authorize external auditors to hold discussions with IMF staff. - Commitment: - Government believes policies in the attached Memorandum of Economic and Financial Policies (MEFP) are adequate to achieve program objectives; reflects understandings with IMF staff during April 14 – May 5, 2021 mission and continuity with SMP policies. - Government stands ready to take additional measures if necessary; will consult Fund in advance of revisions to MEFP policies; will share data described in Technical Memorandum of Understanding (TMU) and relevant information required to complete program reviews and monitor performance. - Government intends to publish this letter on MOFEP and CBoS websites and authorizes the Fund to publish the letter, Staff Report and attachments. - Signatories: - /s/ Gibril Ibrahim Mohamed, Minister, Ministry of Finance and Economic Planning - /s/ Mohamed Elfatih Zeinelabdin Mohamed, Governor, Central Bank of Sudan ### Attachment I — Memorandum of Economic and Financial Policies (MEFP) — Background and Context (extract) - Transitional government actions and reforms: - Removed distortions and large unaffordable subsidies; steps to reduce unaffordable and distortionary fuel subsidies. - Passed laws and regulations: Investment Act, PPP Act, Central Bank Act, Anti-Corruption National Commission Act, re-instatement of conventional banking. - On February 21, unified the official exchange rate (SDG55/USD) with the prevailing parallel market rate at SDG375/USD and issued regulations to establish a band of ±5 percent around the indicative rate equivalent to the weighted average of the previous day’s transactions. - Since change in exchange rate regime, volatility has declined, rate remained broadly stable, and banks report increased foreign exchange inflows through official channels. - Launched Sudan Family Support Program (SFSP) on February 24: by end-March provided support to 80,000 households; aim of reaching half of targeted families by end-2021. - Re-engagement with international community: - December 2020: U.S. removed Sudan from list of State Sponsors of Terrorism (SSTL). - March 26, 2021: cleared arrears to World Bank, regaining access to IDA. - May 12: cleared arrears to AfDB. - Financing package for IMF arrears clearance identified; work ongoing to secure formal pledges for IMF’s participation in HIPC. - May 17, 2021: Paris investment conference hosted by President Macron. - Met minimum requirements for HIPC Decision Point (track record under SMP, adoption of a poverty reduction strategy, financing assurances for clearance of arrears to IFIs). - Macroeconomic situation: - Fragile. Violence on borders increased internally displaced people and refugees (>1 million). COVID-19 infections increasing with limited vaccination doses received to date. - Shortages of necessities (medicine, food, fuel) add to inflation pressures and exacerbate weak external position. - Tax revenue very low and development needs high. - Without sufficient grant financing during first two years, deficits expected to be financed mainly by CBoS, which would fuel inflation and threaten exchange rate stabilization. - Banking sector remains fragile with a few banks undercapitalized. - Progress on initiatives: - Unified official and parallel exchange rates. - Joint Committee passed laws on investment, public-private partnerships, and anti-corruption. - CBoS Board approved amended Central Bank Bill to: - establish central bank mandate focusing on price stability; - strengthen institutional, functional, personal, and financial autonomy, limit monetary financing of Government and prohibit quasi-fiscal operations; - improve decision-making structure, ensure collegial decision-making, provide effective oversight over executive; - enhance transparency and accountability provisions. - Central Bank Bill submitted to Ministry of Justice for review; Government will endeavor to accelerate approval in consultation with IMF staff. - Outlook expectations: - Positive external developments and policy actions support improved outlook if reform momentum maintained and international community provides sufficient support. - Expect growth to peak at around 7 percent in 2025 before gradually settling at around 4½ percent over the long-term. - Inflation expected to decline to the double digits in 2022 as monetization is reduced and transitory effects of customs exchange rate unification and tariff reform pass through, before settling in the single digits in the medium term. *Source: Fund staff estimates; Sudanese authorities; letter and MEFP materials included in the attached chapter.* ### 6. We are committed to stabilizing the economy and creating conditions for robust and ### 6. We are committed to stabilizing the economy and creating conditions for robust and inclusive growth ### Commitment and overall strategy - Focus on structural reforms to strengthen governance and avoid re-emergence of distortionary economic policies while bringing about sustained and inclusive private-sector-led growth. - Macroeconomic stabilization will be supported by measures to increase domestic revenue mobilization and to reduce wasteful and distortionary spending on fuel and electricity subsidies. - Accelerate implementation of the SFSP to mitigate the impact of adjustment, transform social development expenditure into a well-targeted social safety net, and substantially expand other social expenditure. - Continue extensive consultation and communication campaign to strengthen public buy-in for the reform process. ### A. Fiscal Policies - Target a medium-term overall fiscal deficit of 1 percent of GDP. - Adopt a 2022 budget with an overall deficit of around 1½ percent of GDP (end-December 2021 structural benchmark). - Will revisit the anchor with IMF staff if there is a significant change in the financing envelope or other changes to maintain sustainable debt-to -GDP trajectory. Revenue mobilization measures and expected outcomes - Revenue is expected to increase by about 1½ percent of GDP in 2021 due to: more progressive income tax rates, higher VAT rates on tobacco and telecom companies, and expected customs exchange rate reform. - Recognize revenue-to -GDP will remain well below other countries that have reached the HIPC Decision Point and will be largely consumed by subsidies and wage bills, leaving insufficient space for development needs. - Need for larger and more sustained grant financing from international partners before full effect of revenue measures materialize. Specific revenue measures to be implemented - Implement the customs exchange rate unification (eliminate the “customs dollar”): publish a decree indicating that all imports to be henceforth valued at the indicative exchange rate published by the CBOS (end-June 2021 prior action). - Eliminate (i) all exemptions on VAT except those related to food and (ii) the personal income tax exemption on people over 50 years of age in the context of a progressive PIT structure (end-June 2021 structural benchmark). - Unify PIT rates on public and private sector wages to improve equity and revenue yield. - In the 2022 budget: simplify the corporate income tax (CIT) rates; implement a 15 percent rate on profits for the industrial sector; bring tax rates of trading, service, and insurance sectors in line with those levied on banking, tobacco, telecommunications and exploration/extraction companies; maintain the 2 percent tax rate on revenues in the agricultural sector. - Strengthen the Large Taxpayer Office by increasing the percentage of taxpayers processed electronically to 75 percent through the Tax Administration Core System (TACS) database. - Increase transparency of the gold sector: require publication of audited financial statements by related state-owned enterprises and request technical assistance to design and implement a “final tax” on artisanal gold producers at the time of payment. - Raise administrative fees and charges to the cost of service delivered by government entities. Expenditure and subsidy reform - Reduce current expenditure by continuing reforms in the energy sector to avoid re-emergence of fuel subsidies and facilitate gradual removal of electricity subsidies. - Eliminate government price controls on retail gasoline and diesel fuel prices and allow gasoline and diesel fuel suppliers to contract at market prices (end-December 2021 structural benchmark). - Gradually reduce electricity subsidies by increasing electricity tariff rates on high-end consumers and by improving efficiency in power generation. - Conduct a cost of service study in the electricity sector to formalize a new tariff adjustment methodology and new tariff structure while protecting vulnerable groups through continued strengthening of the social safety net. - Adopt a revised Electricity Act to create a more effective regulatory framework, facilitate private sector investment in power generation, and encourage switching to renewable energy such as solar and wind. Social protection and SAFSP transition - Prepare to transfer the current quasi-universal basic income scheme (SFSP) to a well-targeted cash transfer scheme. - Use SFSP implementation to widen citizen registration coverage and establish digital payments systems. - Conduct household and poverty surveys and seek to implement Public Expenditure Tracking Surveys (PETS) in education and health at federal and state levels. - Sustained technical assistance from development partners is essential to strengthen the social safety net. Public financial management reforms - Established a Treasury Single Account and consolidated all ministries' bank accounts held at the CBOS into the TSA; will continue improving cash forecasting and extend cash ceilings from one to three months. - Develop and adopt a Public Financial Management Roadmap based on the recent PEFA (end-September 2021 structural benchmark); implement the roadmap in 2022. - Submit for approval a revised Financial and Accounting Procedure Law of 2007 covering the entire budget cycle (end-June 2022 structural benchmark). - Continue technical work to incorporate a medium-term fiscal framework into budget planning by strengthening the macro-fiscal unit. - MOFEP will continue publishing monthly budget execution reports consistent with GFSM2001. - Strengthen public procurement rules with technical assistance from the World Bank. Fiscal reporting transparency - Publish the end-2021 financial statement and the financial audit reports by the National Audit Chamber for 10 SOEs and a calendar for their annual publication thereafter (end-June 2022 structural benchmark). - Request technical assistance to provide transparent reporting of spending on subsidies. - Coordinate with the Supreme Audit Institution to enhance audits of SOEs in line with international best practice. Debt management and transparency - Request technical assistance to strengthen debt management capacity and regulatory framework. - Enact a Debt Management Law that: (i) clearly defines authority to borrow and issue guarantees and on-lending and delegates debt management responsibilities; (ii) sets debt management objectives; (iii) establishes core purposes of government borrowing; (iv) mandates adoption of documented procedures for debt management activities; (v) defines responsibilities for formulation of a medium term debt management strategy and frameworks to issue guarantees and on-lending; and (vi) establishes clear reporting and auditing requirements and requirements for publication of debt data. - Start publishing quarterly external public debt reports covering outstanding debt stock, debt flows, and comprehensive information on new borrowing, and annual public debt reports covering external and domestic public and publicly guaranteed debt (end-June 2022 structural benchmark). List of SOEs for which end-2021 financial statements and audits to be published - Zadna International Investment Co. Ltd - Giad holding + all related companies - Sudatel Telecom Group, Ltd - SUDAPET Co. Ltd - Sudan Gold Refinery. Co. Ltd. - Sudan Khartoum Refinery Company (KRC) - Multiple Directions Company - Sudan Sea Ports Corporation - Sudan Financial Services Company Ltd. - Sudan Electricity Holding Company ### B. Monetary Policy and Exchange Rate Policies - Continue to adhere to a market-determined exchange rate and widen the band over time with the goal of eventual elimination. - Recent unification of the official exchange rate at the market exchange rate reduced distortions and facilitated fiscal consolidation and increased financial flows through formal channels. - Limit interventions only to mitigate disorderly market conditions while avoiding market fragmentation or re-emergence of a parallel market. - Commit to not introduce any new multiple currency practices (MCPs) or exchange restrictions. - Introduced FX auctions in 2021 and will work with the IMF to review existing regulations, infrastructure and CBOS policies for the FX market. Central bank independence and reforms - Revised Central Bank Act to strengthen Central Bank independence was approved by the CBOS Board on May 1 and has been sent to the Justice Department; amendments are subject to IMF staff review. - The new Central Bank Act will: focus the central bank’s mandate on price stability; strengthen institutional, functional, personal and financial autonomy, including by limiting monetary financing of the government and prohibiting quasi-fiscal operations; improve decision making by ensuring collegial decision-making; and provide for effective oversight over executive functions and enhance transparency and accountability. Banking sector soundness and governance - Enact a revised Banking Regulation Act including a comprehensive resolution regime for the banking sector (end-December 2021 structural benchmark). - Completed the second phase of bank-by-bank stress tests to assess impact of exchange rate shocks and recommended remedial measures, including recapitalization and restraining dividends payout. - Issued new regulations to reduce net foreign exchange long positions to 1–5 percent of regulatory capital. - Ensure banks comply with corporate governance standards in line with the Basel Committee on Banking Supervision Corporate Governance Principles. Asset Quality Review and resolution framework - Completed phase one of the Asset Quality Review (AQR); phase two comprising nine banks is underway with potential phase three on remaining banks by end-2021 pending available funding. - Bank resolution framework in the new Banking Regulation Act will allow restructuring through bank resolution, liquidation and/or merger & acquisition. - With completion of the AQR, adopt an action plan for strengthening the banking sector including operationalizing the resolution regime and divesting CBOS shares in banks (end-June 2022 structural benchmark). Banking system development - Operationalize a dual system of conventional and Islamic banking to expand access to credit; adopted in April and will update relevant regulations. - Transit to a reserve-money targeting regime facilitated by the dual banking system. - Treasury committee will establish a regular meeting mechanism to enhance coordination between CBOS and MOFEP to improve liquidity management and forecasting. - Main short-run policy tool for reducing reserve money growth is fiscal consolidation to reduce monetization. - Stand ready to use reserve requirements and the limited stock of central bank securities to tighten monetary policy as needed under the ECF. - Strive to progressively build a strong and liquid government securities market, supported by IMF technical assistance. - MOFEP and CBOS will adopt a plan to reduce central bank’s stock of claims on the central government. - Technical assistance needed to train CBOS staff in conventional banking regulation and supervision, and monetary policy operations. AML/CFT and correspondent banking - Completed AML/CFT on-site inspections of the ten highest-risk banks focusing on PEPs, suspicious transaction reporting, and higher-risk customers and transactions in the real estate sector. - Will provide aggregate data to the IMF by July on violations found and sanctions levied by the CBOS. - Work toward completing a money laundering and terrorist financing National Risk Assessment (NRA). - Improved AML/CFT implementation and return of conventional banking should support return of correspondent banks. ### C. Other Structural Reforms - Unlocking Sudan’s private sector potential is key to robust and inclusive growth; IFC and World Bank support efforts to improve the investment climate, foster Public-Private Dialogue, strengthen legal and institutional framework for PPPs, and support MSME development. - IFC intends to scale up advisory services to support establishment of the new Investment and Private Sector Development Authority and assess investment projects. - Investment Law and PPP Law have been recently enacted. - Establish a PPP unit within MOFEP and issue implementing regulations for the PPP Law to define overall limits on government’s total exposure on PPPs and procedures to ensure affordability; require prior approval from the Ministry of Finance for all PPP contracts. - Issue implementing regulations for the Investment Law stipulating that all tax exemptions must have prior approval from the Ministry of Finance and must be costed (end-December 2021 structural benchmark). Governance and anti-corruption measures - Establish an independent Anti-Corruption Commission and appoint the Commissioners in accordance with the Anti-Corruption Commission Law (end-September 2021 structural benchmark) with a strong mandate to prevent, detect, and investigate corruption; law aims to strengthen civil society and journalism roles. - Implement the law—passed in December 2019—to dismantle corrupted institutions of the former regime, recover looted assets, and bring to justice individuals associated with the former regime; MOFEP will control these assets under the appropriate legal structure and adopt a plan for their disposal with fully transparent procedures. - Enhance oversight over SOEs by updating on a regular basis the inventory of all SOEs published on MOFEP website including those supervised by MOFEP, line ministries and security sector. - Cabinet will endorse an ownership strategy setting forth strategic purposes, oversight and management principles of SOEs including guiding principles for review of the existing stock of SOEs (end-December 2021 structural benchmark). - Transfer financial oversight responsibilities of all SOEs to the SOE unit in MOFEP. Macroeconomic statistics and governance diagnostics - Prioritize efforts to improve macroeconomic data quality, including national accounts, fiscal, BOP, and labor market data with technical assistance from the IMF, other IFIs, and bilateral donors. - Complete the delayed governance diagnostic exercise and promote its publication to build a roadmap for strengthening governance across various sectors of government. *Source: Extracted from the provided IMF chapter/section content.* ### Introduction/imposition of exchange rate restrictions and MCPs ### Introduction/imposition of exchange rate restrictions and MCPs ### Overview - This content is from the Technical Memorandum of Understanding (TMU) that sets the framework for monitoring Sudan under the Extended Credit Facility (ECF) arrangement. - The ECF monitoring framework includes three semi-annual quantitative performance criteria (QPC), four continuous performance criteria, and five indicative targets (IT). - Continuous compliance is assessed based on information provided by the authorities to staff. ### Indicative Targets (as presented) - Ceiling on reserve money (stock, SDG billion) 2/: - 2663 - 3697 - 3858 - 4197 - Floor on primary balance (cumulative, SDG billion): - -33-476-159 - -296 - Floor on tax revenue (cumulative, SDG billion): - 956107291544 - Floor on social spending (cumulative, SDG billion): - 15162389778 - Zero ceiling on accumulation of central government wage arrears (SDG billion): - 00 - 00 Memorandum Items (selected numbers as presented) - External budget support cash grants for Family Support Program (cumulative, USD million): - 8248351663 - Other external budget support cash grants (cumulative, USD million) /5: - 030079150 - Government assets sales (cumulative, SGD billion): - 00 - 4483 - External budget support loans (cumulative, USD million): - 0 - 000 - CBOS LT FC liabilities to non-residents (actual stock, USD million) 2/ 7/: - 7761......... Notes excerpted from the table: - 1/ The variables are defined according to the TMU. - 3/ Flow from the beginning of the year. - 4/ Excluding arrears that are subject to rescheduling. - 5/ Non SFSP. - 6/ Monetary data reclassified as per IMF TA. - 7/ Excluding SDR allocations and use of Fund credit. - 2/ Evaluated using program exchange rate definet in the TMU. ### Quantitative Performance Criteria (QPC) - Test dates: end-June and end-December of each calendar year. - The three QPCs are: - (i) Floor on net international reserves (NIR) of the CBOS. - (ii) Ceiling on net domestic assets (NDA) of the Central Bank of Sudan (CBOS). - (iii) Ceiling on net credit to the budgetary central government (CG) by the banking system. - Definitions and adjustors: - NIR: difference between gross official usable international reserves and external liabilities denominated in foreign currencies; gross official usable international reserves = monetary gold, foreign currency in official reserve assets, and SDR holdings; all items valued at program exchange rates. - Adjustors: - The floor on the NIR of the CBOS will be adjusted upward/downward by an amount equal to excess/shortfall repayments by the CG in foreign currency or monetary gold to the CBOS for the SSTL advances. - This target will be adjusted upward/downward by the amount of any excess/shortfall of budgetary support external FX cash grants and loans relative to program projections. - NDA of the CBOS: sum 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 other items net; measured as reserve money minus net foreign assets (NFA) of the CBOS with foreign exchange items evaluated at program exchange rates. - Adjustors: - Adjusted downward/upward by amount of any excess/shortfall of budget support FX cash grants and loans relative to program projections. - Adjusted downward/upward by amount of any excess/shortfall of receipts from government asset sales relative to program projections. - Adjusted downward/upward by amount of any excess/shortfall repayments by the CG in foreign currency or monetary gold to the CBOS for the SSTL advances. - Net credit to the central government by the banking system: stock of net credit to the CG by the CBOS excluding the use of Fund credit and its overdue obligations to the IMF on-lent, plus net credit to the CG by commercial banks. - Adjustors: - Adjusted downward/upward by amount of any excess/shortfall of budget support FX cash grants and loans relative to program projections. - Adjusted downward/upward by amount of any excess/shortfall in receipts from government asset sales. - Adjusted downward/upward by amount of any excess/shortfall repayments by the CG in foreign currency or monetary gold to the CBOS for the SSTL advances. ### Continuous Performance Criteria (including exchange rate restrictions and MCPs) - The four continuous performance criteria are: - (i) Zero ceiling on contracting or guaranteeing of external long-term non-concessional debt by the CG or the CBOS. - (ii) Ceiling on contracting or guaranteeing of external long-term concessional debt by the CG or the CBOS. - (iii) Zero ceiling on accumulation of external debt payment arrears incurred by the CG. - (iv) Introduction/imposition of exchange rate restrictions and MCPs. - Concessionality rule: - A debt is concessional if it includes a grant element of at least 35 percent; the PV of debt is calculated using a 5 percent discount rate. - Zero ceiling on external debt arrears: - External debt payment arrears defined as external debt obligations (principal and interest) of the Central Government not paid, considering contractual grace periods; arrears subject to rescheduling under HIPC are excluded. - Introduction/imposition of exchange rate restrictions and MCPs (performance criterion text): - The performance criteria on the introduction/imposition of exchange rate restrictions and MCPs prohibits: - (i) imposing or intensifying restrictions on the new making of payments and transfers for current international transactions; - (ii) introducing or modifying multiple currency practices; - (iii) concluding bilateral payments agreements that are inconsistent with Article VIII; - (iv) imposing or intensifying import restrictions for balance of payments reasons. - Continuous compliance is assessed based on information provided by the authorities to staff with respect to such measures. ### Indicative Targets: Definitions and Adjustors - 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; foreign currency items evaluated at program exchange rates. - Primary balance (PB) of the central government: revenues minus expenditures excluding interest payments cumulatively since the beginning of the calendar year. - Adjustors for the PB floor: - Adjusted upward (downward) pro tanto by the amount of any excess (shortfall) of project external loans relative to program projections. - Adjusted upward (downward) pro tanto by the amount of any excess (shortfall) of budget support cash grants and loans (excluding those earmarked for the SFSP) relative to program projections. - Adjusted downward pro tanto by the amount of any shortfall in external budget support cash grants earmarked for the SFSP. - Adjusted downward pro tanto by the amount of repayment of SSTL by the Government to the CBOS. - Central government expenditure arrears: - Data measured as cumulative over the fiscal year. - The MOEFP will report relevant data on a monthly basis, with a lag of no more than four weeks from the end-of-period. ### Program Exchange Rates (03/31/2021) - Sudanese Pound to the US dollar: 382.7156 - Sudanese Pound to Euro: 448.0681 - Sudanese Pound to Saudi Riyal: 102.0928 - Sudanese Pound to U.A.E Dirham: 104.2169 - SDR per US dollar: 0.705613 - Notes: - 1/ Average daily selling rates as reported by the CBOS. - 2/ Reported by the IMF. - Monetary gold is evaluated at USD55.53 per gram for program purposes. ### Prior Action and Structural Benchmarks (selected items and dates) - Prior Action: - Implement customs exchange rate unification, through publication of a decree indicating that all imports will henceforth be valued at the indicative exchange rate published by CBOS. - Target Date: Prior to the approval of the ECF arrangement. - Area: Tax Policy. Rationale: Eliminate distortions and strengthen revenue collection. - Structural Benchmarks for the First Review: - 1) Establish an independent anti-corruption commission and appoint the Commissioners in accordance with the provisions of the Anti-Corruption Commission Law. - End-September 2021. Area: Governance. Strengthen governance. - 2) Develop and adopt a PFM Roadmap based on the 2020 PEFA and 2021 governance diagnostic. - End-September 2021. Area: PFM. Strengthen PFM. - 3) Eliminate (i) all exemptions on VAT except those related to food, and (ii) the personal income tax exemption on people over 50 years of age. - End-December 2021. Area: Tax Policy. Broaden the tax base. - 4) Issue implementing regulations for the Investment Law which stipulate that all tax exemptions must have prior approval from the Ministry of Finance and must be costed. - End-December 2021. Area: Tax Policy. Strengthen fiscal control; support revenue. - 5) Eliminate government price controls on retail gasoline and diesel fuel prices and allow gasoline and diesel fuel suppliers to contract at market prices. - End-December 2021. Area: Tax Policy. Remove price controls and eliminate subsidies. - 6) Cabinet to endorse an ownership strategy setting forth the strategic purposes, oversight, and management principles of SOEs including guiding principles for the review of the existing stock of SOEs. - End-December 2021. Area: Governance. Improve governance and transparency of the SOEs; mitigate contingent fiscal risks. - 7) Enact a revised Banking Regulation Act which includes a comprehensive resolution regime for the banking sector, in line with international best practice. - End-December 2021. Area: Monetary and financial policy. Strengthen the banking sector. - 8) Adopt a 2022 budget consistent with program priorities and with an overall deficit of around 1½ percent of GDP including the program fiscal anchor. - End-December 2021. Area: PFM. Strengthen PFM. - Structural Benchmarks for Future Reviews (selected): - 9) Submit for approval by Parliament a revised Financial and Accounting Procedure (budget system) Law of 2007 covering the entire budget cycle. - End-June 2022. Area: PFM. Facilitate fiscal sustainability via better budget planning and transparency. - 10) Publish the end-2021 financial statement and financial audit report of the National Audit Chamber for 10 SOEs agreed with IMF and WB staff and a calendar for their annual publication thereafter. - End-June 2022. Area: PFM. Governance and transparency of SOEs; mitigate fiscal risks. - 11) Start publishing quarterly external public debt reports and annual public debt reports covering external and domestic public and publicly guaranteed debt. - End-June 2022. Area: Debt management. Improve debt transparency. - 12) Adopt an Action Plan for strengthening the banking sector including operationalizing the resolution regime and divesting CBOS shares in banks. - End-June 2022. Area: Monetary and financial policy. Strengthen the banking sector. *Source: Attachment II. Technical Memorandum of Understanding (TMU) — Sudan ECF monitoring framework, as presented in the provided PDF content.* ### 21. A floor on tax revenue will be applied to the central government. The tax revenue is ### 21. A floor on tax revenue will be applied to the central government. The tax revenue is ### Program conditions and definitions - Tax revenue is defined as the sum of revenue from personal income tax, corporate income tax, value-added tax, property tax, import tariff, excise tax, and royalties on the mining sector. - A floor on social spending of the central government is defined as the central government’s spending on social benefits programs as listed in the text table. - A zero ceiling on accumulation of wage arrears by the central government: wage arrears for program monitoring purposes are defined as wage obligation of the CG towards CG civil servants that have not been paid, beyond three months after their contractual obligation. ### Program monitoring - A program-monitoring committee shall be maintained composed of senior officials from the Ministry of Finance, the Ministry of Minerals, Energy, the CBOS, the Ministry of Labor and Administrative Reforms, and other relevant agencies. - The IMF Resident Representative will have observer status on this committee. - The committee responsibilities: - monitoring the performance of the program; - recommending policy responses; - informing the IMF regularly about program progress; and - transmitting supporting materials necessary for the evaluation of benchmarks. - The committee shall 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. ### Agreed data reporting framework (selected items) - Every data submission should begin with January 2020, with revision of previous months identified. - Central Bank of Sudan (CBOS) reporting (frequency and timing): - Detailed CBOS balance sheet (CB-1SR): Monthly, 30 days after the end of each month. - Banking system balance sheet and consolidated balance sheet of commercial banks (Monetary survey and ODC_2SR): Monthly, 30 days after the end of each month. - Details of CBOS claims on the Central Government (Comprehensive lending to central government by CBOS): Monthly, 30 days after the end of each month. - 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. - CBOS Indicative Exchange Rate (bid/ask): Daily, 2 days after the end of each week. - Black Market Exchange Rate (bid/ask): Daily, 2 days after the end of each week. - Balance of payments (detailed composition): Quarterly, 2 months after the end of each quarter. - External debt (contracting or guaranteeing of medium-and long-term external debt of the government and the CBOS): Monthly, 30 days after the end of each month. - Ministry of Finance and Economic Planning reporting (frequency and timing): - Central government operations (Revenues including tax revenues, expenditures, and financing as in GFSM 2001 format): 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): Monthly, 30 days after the end of each month. - Wage arrears (end-month stocks): Monthly, 30 days after the end of each month. - Social spending (spending on direct cash transfer, education, health and training): Monthly, 30 days after the end of each month. - External support (disbursement of grants, disbursement and repayment of loans by donor): 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 / Ministry of Minerals, Oil and Gas reporting on oil and fuel (selected): - 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 (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; 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. ### Recent macroeconomic developments and SMP performance - COVID-19 and public health: - Sudan experienced its third COVID-19 wave with acceleration in infection rates since early March. - Authorities targeted about 20 percent of the targeted populations in the first vaccination stage. - Authorities have received about 1.1 million vaccine doses from the COVAX facility and China, which translates to two doses for less than 1.3 percent of the population. - The government signed an agreement for a grant of US$10 million to support health services. - Growth and inflation: - GDP growth is estimated to have contracted by 3.6 percent in 2020. - GDP growth is expected to recover to about 0.9 percent in 2021. - Inflation reached 363 percent in April 2021 compared to 269 percent in December 2020. - Inflation is expected to decline to double digits next year and stabilize at around 8 percent over the medium-to-long-term. - External sector: - Current account balance shifted from a deficit of 13.2 percent of GDP in 2020 to a surplus of 0.1 percent of GDP in Q1 2021. - Recorded remittances through formal channels have increased nearly five-fold following exchange rate unification. - SMP performance: - Program performance under the SMP was satisfactory overall. - Quantitative benchmarks met: net credit to the central government, the ceiling on contracting or guaranteeing external long-term non-concessional debt, and the net international reserves (NIR) floor. - Missed targets: ceiling on net domestic assets (NDA) and the target for the ceiling on reserve money (misses due to exchange rate valuation effects, increased credit to the banking sector related to pandemic relief measures, and unsterilized reserve accumulation). - Indicative target on non-oil primary deficit was met by a wide margin. - Indicative target floor on social spending was missed due to delayed World Bank funding for the Sudan Family Support Program (SFSP) and logistical challenges. - Structural benchmark on bank stress tests was met; SB on completion of all 10 on-site thematic AML/CFT inspections was missed (8 out of 10 completed by mid-May). - Anti-Corruption National Commission Law approved by the Sovereign Council on April 25 (delayed establishment of the Anti-Corruption Commission SB), with progress in identifying commissioners. ### Request for Extended Credit Facility (ECF) and policy agenda - Requests and program design: - Authorities request: termination of ineligibility to use the General Resources of the Fund; a 39-month financial arrangement under the Extended Credit Facility (ECF) at 275 percent of quota; and Sudan’s qualification for assistance under the HIPC Initiative and approval of the HIPC Decision Point document, including IMF interim assistance to reduce the NPV of debt to exports ratio to 150 percent. - Creditors representing 76 percent of the net present value (NPV) of eligible debt have committed to provide their share of debt relief under the HIPC Initiative. - Authorities have reconciled 80 percent of Sudan’s total debt (including bilateral debt covered so far). - Fiscal targets and measures: - Fiscal deficit targets: 1.5 percent of GDP in 2022 (compared to 2.9 percent in 2021 and 6 percent in 2020), further reduced to 1 percent over the medium-term. - Revenue measures: eliminating all VAT exemptions except those related to food; reforming personal income tax (PIT); strengthening the Large Taxpayer Office. - Expenditure and subsidy reform: eliminate fossil fuel subsidies; abolish government price controls on retail gasoline and diesel; allow suppliers to contract at market prices; gradual reduction in electricity subsidies with higher tariff rates for high-end consumers. - Safety nets: rollout of the Sudan Family Support Program (SFSP) on February 24, 2021; provided support to 160,000 households through April and expected to cover two million households by the end of the year; deployment of cash transfers in tandem with energy subsidy reductions. - Public financial management and governance: strengthen PFM; revamp public procurement; reform SOE sector; improve fiscal transparency. - Debt management and transparency: - Focus on concessional financing for the foreseeable future. - Enact a Debt Management Law specifying objectives, authority, responsibilities, procedures, and reporting and auditing requirements. - Start publishing quarterly external public debt reports and annual public debt reports covering external and domestic public and publicly guaranteed debt. - Monetary and exchange rate policy: - Transitioned to a market-determined exchange rate in February 2021; customs exchange rate unified on June 22, 2021. - Limit FX interventions to mitigation of disorderly market conditions. - Strengthen central bank independence and transition to a reserve money targeting regime to reduce deficit monetization and contain high inflation. - Use reserve requirements and central bank securities to tighten monetary policy as authorities pursue reserve money targets under the ECF. - Financial sector and structural reforms: - Deepen government securities market facilitated by the recently adopted dual banking system and TA from the Fund. - Revise the Banking Regulation Act in line with best international practices. - Strengthen implementation of the AML/CFT framework. - Intensify fight against corruption: Anti-Corruption National Commission Law enacted in April 2021 to establish an independent Anti-Corruption Commission. - Continue asset recovery measures in line with the law passed in December 2019. - Improve business environment with World Bank and IFC support, strengthen PPP framework, enhance access to finance for MSMEs, and foster public-private dialogue. ### HIPC Decision Point and outlook - Authorities have met the necessary conditions to reach the HIPC Decision Point: - Established a satisfactory track record under the UCT quality SMP. - Adopted a comprehensive PRSP in May 2021. - Cleared arrears to the World Bank and the African Development Bank and secured financing assurances to clear IMF arrears. - Agreed Completion Point triggers with IDA and IMF staffs. - Removal from the US State Sponsors of Terrorism List in December 2020 aided reintegration. - Authorities request Board support for: - Endorsement that Sudan qualifies for assistance under the Enhanced HIPC Initiative. - Approval of interim assistance between the HIPC Decision and Completion Points aimed at reducing the NPV of debt to exports to 150 percent. - Conclusion highlights: - Re-engagement with the IMF and donors places Sudan on a path toward normalization, peace, and recovery. - Authorities remain committed to implementing reforms under the ECF program and achieving HIPC Completion Point triggers. *Source: 1sdnea2021003 - 21. A floor on tax revenue will be applied to the central government.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1sdnea2021003.pdf_