## EXECUTIVE SUMMARY

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**Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2021/english/1sdnea2021004.pdf)

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---

### Context
- Transitional government embarked on a Staff‑Monitored Program (SMP) in 2020 to address major macroeconomic imbalances, lay the groundwork for inclusive growth, and establish a track record required for eventual HIPC debt relief.
- Recent re‑engagement with multilaterals:
  - Cleared arrears to the World Bank and African Development Bank (AfDB), regaining access to multilateral grant funding.
  - A financing package for clearance of arrears to the IMF has been identified and formal pledges are being sought.
  - A development partner conference was held in Paris on May 17, 2021 with a side event to promote investment in Sudan.

### Recent developments and outlook
- Macroeconomic situation:
  - Growth: GDP is estimated to have contracted by 3.6 percent in 2020; growth is expected to recover to about 0.4 percent in 2021.
  - Inflation: 342 percent y-o-y in March; month-on-month inflation was 7.2 percent in March (13.1 percent in February 2021).
  - Exchange rate: Official unification on February 21, 2021 at SDG375/USD with a ±5 percent daily band; most transactions within ±3 percent of the CBOS indicative rate; post‑unification exchange rate has been stable but further depreciation is expected given very high inflation.
  - Banking sector: Fragile with several banks undercapitalized and/or vulnerable to exchange rate depreciation.
- External sector:
  - Exports increased by 54 percent in Q1 2021 (year-on-year); imports contracted by 17 percent in Q1 2021 (year-on-year).
  - Recorded remittances have increased nearly five-fold.
  - Current account (cash basis) registered a surplus of 1 percent of GDP in Q1 2021.
  - Gross usable international reserves: $327 million at end‑March 2021 (equivalent of 0.4 months of imports).

### Program performance under the SMP
- Quantitative targets:
  - Met: net credit to the central government; floor on net international reserves (NIR); ceiling on contracting or guaranteeing external long‑term non‑concessional debt.
  - Missed: ceiling on net domestic assets (NDA), mainly due to an increase in credit to the banking sector (pandemic relief measures) relative to programmed decline and valuation effects.
- Indicative targets (ITs):
  - Missed: IT floor on social spending (slow rollout of the Sudan Family Support Program, SFSP).
  - Met by a wide margin: IT on the Non‑Oil Primary Deficit (NOPD) due to spending shortfalls and better tax revenue mobilization; NOPD target was adjusted to reflect deviations related to SFSP and grant inflows.
  - Reserve money IT ceiling missed due to unsterilized reserve accumulation and increase in credit to banks.
- Structural benchmarks (SBs):
  - Met: bank stress tests (Phase 1 of the Asset Quality Review complete; Phase 2 underway; bank-by-bank stress tests completed in February).
  - Missed: establishment of the Anti‑Corruption Commission (delayed passage of Anti‑Corruption Law and staffing challenges) and implementation of 10 on‑site AML/CFT inspections (8 of 10 inspections completed by mid‑May).
  - Authorities are taking remedial actions to address missed conditionality.

### HIPC status and proposed program extension
- Financing the IMF’s participation in HIPC requires formal pledges by member countries; obtaining pledges may delay the HIPC Decision Point past SMP expiry at end‑June 2021.
- Authorities requested a 6‑month extension of the SMP to end‑December 2021 as a precaution to maintain a continuous track record under an UCT‑quality program.
- The SMP will be cancelled at Decision Point when a new Extended Credit Facility (ECF) arrangement is approved.
- Staff supports resetting existing SBs and establishing new ones for the extension:
  - Shift the SB on establishment of the Anti‑Corruption Commission from end‑March 2021 to end‑September 2021 to allow time for appointment of commissioners.
  - In lieu of the delayed automatic fuel price mechanism (end‑September 2020 SB), set an end‑December 2021 SB on removal of controls on retail gasoline and diesel prices.
  - New proposed SBs during extension: adoption of a PFM roadmap; issuance of implementing regulations for the Investment Law; elimination of VAT and personal income tax exemptions; adoption of an SOE strategy; enactment of a revised Banking Regulation Act.

### Outlook and risks
- Medium‑term outlook:
  - Growth expected to pick up gradually to 4½ percent over the medium term as the business climate improves.
  - Policy reforms (exchange rate unification, reduction of subsidies, elimination of customs exchange rate regime) expected to create fiscal space for social spending and attract private investment.
- Near‑term risks (significant and tilted to the downside):
  - Failure to implement needed policy measures or reversion to past policies (fiscal subsidies, multiple currency practices, lack of transparency/governance) could undermine stabilization and growth, fueling inflation/depreciation spirals.
  - Political risks: inability of the transitional government to reach consensus or social backlash could delay reforms needed for HIPC debt relief and prolong economic hardship.

### Policy discussions and recommendations
- Reform momentum: Maintain reforms and avoid reversion to distortionary exchange rate and fiscal policies.
- Key policy areas and recommended actions:
  1. Exchange rate and monetary policy:
     - Solidify transition to a flexible exchange rate and enhance a monetary policy framework adhering to reserve money targets.
     - Short‑run tools: fiscal consolidation, required reserve ratios, limited central bank securities.
     - Medium‑term tools: sale of CBOS claims in commercial and state‑owned banks; conversion of claims on government into monetary instruments; FX auctions to allow sterilization of accumulated FX reserves (CBOS to begin FX auctions in coming weeks with IMF TA).
     - CBOS intends to request TA to develop conventional and Islamic monetary tools.
     - Legislation re‑introducing conventional banking approved; updated regulations expected by end‑2021 to support a dual banking system.
  2. Financial sector stability and supervision:
     - Strengthen central bank independence (revised Central Bank Act approved by CBOS Board on May 1 and sent to Justice Department for final review).
     - Modernize banking regulations in line with Islamic Financial Stability Board and international standards; move to risk‑based supervision.
     - Enact a revised Banking Regulation Act (end‑December SB) including a comprehensive resolution regime to enable bank restructuring, resolution, and liquidation.
  3. Fiscal policy and social protection:
     - Reduce distortionary and costly fuel subsidies while strengthening social safety nets (SFSP rollout to accelerate; SFSP provided support to 160,000 households since February 24).
     - Improve domestic revenue mobilization and MOF oversight over SOEs (PFM reforms).
  4. Governance and private sector:
     - Strengthen governance, enact Anti‑Corruption measures, and improve the environment for private sector growth.
- Specific implementation notes:
  - Careful approach required on CBOS divestment of equity positions in Islamic banks to avoid negative spillovers while addressing problem banks.
  - Transition to reserve money targeting is expected to help contain inflation and prevent recurrence of missed NDA and reserve money targets.

*Source: EXECUTIVE SUMMARY, 1sdnea2021004*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- The transitional government embarked on a Staff‑Monitored Program (SMP) in 2020 to address major macroeconomic imbalances, lay the groundwork for inclusive growth, and establish a track record required for eventual HIPC debt relief.
- Recent re‑engagement with multilaterals:
  - Cleared arrears to the World Bank and African Development Bank (AfDB), regaining access to multilateral grant funding.
  - A financing package for clearance of arrears to the IMF has been identified and formal pledges are being sought.
  - A development partner conference was held in Paris on May 17, 2021 with a side event to promote investment in Sudan.

### Recent developments and outlook
- Macroeconomic situation:
  - Growth: GDP is estimated to have contracted by 3.6 percent in 2020; growth is expected to recover to about 0.4 percent in 2021.
  - Inflation: 342 percent y-o-y in March; month-on-month inflation was 7.2 percent in March (13.1 percent in February 2021).
  - Exchange rate: Official unification on February 21, 2021 at SDG375/USD with a ±5 percent daily band; most transactions within ±3 percent of the CBOS indicative rate; post‑unification exchange rate has been stable but further depreciation is expected given very high inflation.
  - Banking sector: Fragile with several banks undercapitalized and/or vulnerable to exchange rate depreciation.
- External sector:
  - Exports increased by 54 percent in Q1 2021 (year-on-year); imports contracted by 17 percent in Q1 2021 (year-on-year).
  - Recorded remittances have increased nearly five-fold.
  - Current account (cash basis) registered a surplus of 1 percent of GDP in Q1 2021.
  - Gross usable international reserves: $327 million at end‑March 2021 (equivalent of 0.4 months of imports).

### Program performance under the SMP
- Quantitative targets:
  - Met: net credit to the central government; floor on net international reserves (NIR); ceiling on contracting or guaranteeing external long‑term non‑concessional debt.
  - Missed: ceiling on net domestic assets (NDA), mainly due to an increase in credit to the banking sector (pandemic relief measures) relative to programmed decline and valuation effects.
- Indicative targets (ITs):
  - Missed: IT floor on social spending (slow rollout of the Sudan Family Support Program, SFSP).
  - Met by a wide margin: IT on the Non‑Oil Primary Deficit (NOPD) due to spending shortfalls and better tax revenue mobilization; NOPD target was adjusted to reflect deviations related to SFSP and grant inflows.
  - Reserve money IT ceiling missed due to unsterilized reserve accumulation and increase in credit to banks.
- Structural benchmarks (SBs):
  - Met: bank stress tests (Phase 1 of the Asset Quality Review complete; Phase 2 underway; bank-by-bank stress tests completed in February).
  - Missed: establishment of the Anti‑Corruption Commission (delayed passage of Anti‑Corruption Law and staffing challenges) and implementation of 10 on‑site AML/CFT inspections (8 of 10 inspections completed by mid‑May).
  - Authorities are taking remedial actions to address missed conditionality.

### HIPC status and proposed program extension
- Financing the IMF’s participation in HIPC requires formal pledges by member countries; obtaining pledges may delay the HIPC Decision Point past SMP expiry at end‑June 2021.
- Authorities requested a 6‑month extension of the SMP to end‑December 2021 as a precaution to maintain a continuous track record under an UCT‑quality program.
- The SMP will be cancelled at Decision Point when a new Extended Credit Facility (ECF) arrangement is approved.
- Staff supports resetting existing SBs and establishing new ones for the extension:
  - Shift the SB on establishment of the Anti‑Corruption Commission from end‑March 2021 to end‑September 2021 to allow time for appointment of commissioners.
  - In lieu of the delayed automatic fuel price mechanism (end‑September 2020 SB), set an end‑December 2021 SB on removal of controls on retail gasoline and diesel prices.
  - New proposed SBs during extension: adoption of a PFM roadmap; issuance of implementing regulations for the Investment Law; elimination of VAT and personal income tax exemptions; adoption of an SOE strategy; enactment of a revised Banking Regulation Act.

### Outlook and risks
- Medium‑term outlook:
  - Growth expected to pick up gradually to 4½ percent over the medium term as the business climate improves.
  - Policy reforms (exchange rate unification, reduction of subsidies, elimination of customs exchange rate regime) expected to create fiscal space for social spending and attract private investment.
- Near‑term risks (significant and tilted to the downside):
  - Failure to implement needed policy measures or reversion to past policies (fiscal subsidies, multiple currency practices, lack of transparency/governance) could undermine stabilization and growth, fueling inflation/depreciation spirals.
  - Political risks: inability of the transitional government to reach consensus or social backlash could delay reforms needed for HIPC debt relief and prolong economic hardship.

### Policy discussions and recommendations
- Reform momentum: Maintain reforms and avoid reversion to distortionary exchange rate and fiscal policies.
- Key policy areas discussed:
  1. Exchange rate and monetary policy:
     - Solidify transition to a flexible exchange rate and enhance a monetary policy framework adhering to reserve money targets.
     - Short‑run tools: fiscal consolidation, required reserve ratios, limited central bank securities.
     - Medium‑term tools: sale of CBOS claims in commercial and state‑owned banks; conversion of claims on government into monetary instruments; FX auctions to allow sterilization of accumulated FX reserves (CBOS to begin FX auctions in coming weeks with IMF TA).
     - CBOS intends to request TA to develop conventional and Islamic monetary tools.
     - Legislation re‑introducing conventional banking approved; updated regulations expected by end‑2021 to support a dual banking system.
  2. Financial sector stability and supervision:
     - Strengthen central bank independence (revised Central Bank Act approved by CBOS Board on May 1 and sent to Justice Department for final review).
     - Modernize banking regulations in line with Islamic Financial Stability Board and international standards; move to risk‑based supervision.
     - Enact a revised Banking Regulation Act (end‑December SB) including a comprehensive resolution regime to enable bank restructuring, resolution, and liquidation.
  3. Fiscal policy and social protection:
     - Reduce distortionary and costly fuel subsidies while strengthening social safety nets (SFSP rollout to accelerate; SFSP provided support to 160,000 households since February 24).
     - Improve domestic revenue mobilization and MOF oversight over SOEs (PFM reforms).
  4. Governance and private sector:
     - Strengthen governance, enact Anti‑Corruption measures, and improve the environment for private sector growth.
- Specific implementation notes:
  - Careful approach required on CBOS divestment of equity positions in Islamic banks to avoid negative spillovers while addressing problem banks.
  - Transition to reserve money targeting is expected to help contain inflation and prevent recurrence of missed NDA and reserve money targets.

*Source: EXECUTIVE SUMMARY, 1sdnea2021004*

### 14.      Addressing AML/CFT deficiencies must remain a priority. As of mid-May, the

### 14.      Addressing AML/CFT deficiencies must remain a priority.

### AML/CFT status and priorities
- Completed eight out of 10 planned AML/CFT on-site inspections of the highest-risk banks (end-March 2021 structural benchmark); the remaining two are pending.
- Sudan will soon undergo an AML/CFT mutual evaluation; authorities should prioritize:
  - Completion of a National Risk Assessment (NRA).
  - Development of a strategy to mitigate the identified risks.

### Fiscal reforms: objectives and targets
- Fiscal consolidation requires:
  - Enhanced domestic revenue mobilization to create fiscal space for social and infrastructure spending.
  - Continued energy sector reforms to reduce fuel subsidies and lay groundwork for lower electricity subsidies.
- The authorities’ 2021 budget aims to reduce the deficit by 3 percent of GDP to achieve a fiscal deficit of 2.9 percent of GDP.

### Fuel and electricity subsidy measures
- Gasoline and diesel subsidies were eliminated at the end of 2020, but retail prices have recently failed to keep pace with rising international prices, causing subsidization to reemerge.
- Structural benchmark (end-December): remove controls on retail gasoline and diesel fuel prices and allow gasoline and diesel fuel suppliers to contract at negotiated market prices.
- Electricity sector reforms (with World Bank assistance) should include:
  - Development of a more rational tariff regime, including increased electricity tariff rates on high-end consumers.
  - Improved efficiency in power generation.
  - A revised Electricity Act to create a more effective regulatory framework, facilitate private sector investment, and encourage switching to renewable energy (solar and wind).

### Social spending and Sudan Family Support Program (SFSP)
- Actual Q1 social spending underperformed the relevant IT floor due to delay in exchange rate unification and coordination/administrative challenges in SFSP rollout.
- Corrective actions to speed up SFSP implementation:
  - Convene a Coordination Committee of key government agencies and international partners.
  - Appoint a director to lead the Project Implementation Unit.
- Local staff recruitment pace has accelerated; target is reaching two million households by the end of the year with a pickup in disbursements through the Summer.

### Tax measures and revenue mobilization
- Measures pledged:
  - Alignment of the customs exchange rate with the CBOS indicative rate (end-June SB).
  - Eliminate all exemptions on VAT except those related to food, and eliminate the personal income tax (PIT) exemption on people over 50 years of age in the context of a progressive PIT structure (end-December SB).
  - Strengthen the Large Taxpayer Office by increasing the percentage of taxpayers processed electronically from 70 percent to 75 percent through the Tax Administration Core System (TACS) database by the end of 2021.
- Revenue projection:
  - Tax revenue is expected to increase to 4.9 percent of GDP in 2021, up from 3.4 percent of GDP in 2020, driven by elimination of the customs exchange rate.

### Public financial management (PFM)
- Authorities will develop a Public Financial Management Roadmap based on the recent PEFA (end-September 2021 SB).
- Building on TSA improvements, further actions include:
  - Improve cash forecasting and extend cash ceilings for ministries, departments, and agencies from one to three months.
  - Gradually expand TSA coverage to extrabudgetary funds and improve expenditure control.

### Business climate, PPPs, and investment laws
- New Investment and PPP laws aim to improve the investment climate and support MSME development, but carry potential fiscal risks if not structured correctly.
- Recommended mitigations:
  - 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 SB).
  - Similar stipulation for the PPP Law; define limits on government total exposure to PPPs and procedures to ensure affordability of PPP projects.

### Governance, SOEs, and anti-corruption
- New Anti-Corruption Law establishes an independent Anti-Corruption Commission with a strong mandate; appointment of commissioners is a structural benchmark reprogrammed to end-September.
- Oversight of ill-gotten assets from the previous regime will be transferred to a government holding company.
- Authorities will develop an SOE ownership policy setting strategic purpose, oversight, and management principles, and a framework for which SOEs should remain public, be liquidated, or be privatized.
  - Strategy should be endorsed by the Cabinet and financial oversight of all SOEs transferred to the MOFEP by the end of December 2021 (structural benchmark).
- Governance diagnostic exercise must be completed to build a roadmap for strengthening governance.
- Corruption vulnerabilities will be reduced by AML/CFT reforms, increased electronic processing of taxpayers, and exchange rate unification.

### Statistical capacity and data
- Statistical capacity remains very weak despite extensive TA, undermining macroeconomic management and program monitoring.
- Critical actions include:
  - Update the System of National Accounts from SNA1968 to SNA 2008 and update the base year from 1981 to one within the last 5 years.
  - Improve data accuracy and collection; expand fiscal accounts to include General Government statistics.
  - Address large Errors and Omissions in the BOP through better data collection and reporting.
  - Implement e-GDDS to improve data collection, dissemination and reporting across all sectors. The IMF stands ready to provide TA.

### HIPC status and SMP extension request
- IMF Executive Board agreed to a financing package for clearance of Sudan’s arrears to the Fund and IMF participation in HIPC on May 10.
  - Package involves full distribution of the SCA-1 (SDR 1.066 billion), deferred charges (SDR 611 million), plus additional grant financing.
  - Letters have been sent to capitals requesting formal pledges of their shares of the SCA-1 and deferred charges distributions.
- Given time required for formal pledges, the HIPC Decision Point may occur after the June 30 expiry of the SMP; authorities requested an extension of the SMP through end-December to mitigate risk.
- Staff supports resetting existing structural benchmarks and establishing new ones for the extended SMP period, including:
  - Shift Anti-Corruption Commission establishment to end-September 2021.
  - End-December 2021 benchmark on removal of controls on retail gasoline and diesel prices.
  - New benchmarks on adoption of a PFM roadmap; issuance of implementing regulations for the Investment Law; elimination of VAT and PIT exemptions; adoption of an SOE strategy; enactment of a revised Banking Regulation Act.

### Staff appraisal: key assessments and recommendations
- International support has gained momentum; Sudan cleared arrears to the World Bank and AfDB and regained access to multilateral grant funding.
- Macroeconomic situation remains challenging: growth expected to turn positive in 2021 but inflation remains very high; external position is weak.
- To support macroeconomic stability, needed: donor financing, strong domestic revenue mobilization, and avoidance of re-emergence of fuel subsidies.
- Monetary and banking sector recommendations:
  - Continue strengthening reserve money targeting framework after move to market-determined exchange rate.
  - Sale of CBOS claims in commercial and state-owned banks and conversion of claims on the government into monetary instruments over the medium term to strengthen monetary policy toolkit.
  - Proceed cautiously on exiting equity positions in banks given banking sector weaknesses; develop an effective bank resolution framework and strengthen capital adequacy.
- Central bank governance and supervision:
  - Enact a revised Banking Regulation Act including a comprehensive resolution regime aligned with international best practice.
  - Enhance capacity to supervise the dual banking system, including through technical assistance.
- Fiscal and subsidy policy:
  - Remove controls on retail gasoline and diesel fuel prices and allow negotiation at market prices to address reemergence of fuel subsidy.
  - Put in place a plan to reduce electricity subsidies, increase tariffs on high-end consumers, and improve power generation efficiency.
  - Subsidy reduction will free fiscal space for social spending, but better coordination and administration needed to accelerate SFSP rollout.
- Tax and PFM priorities reiterated: eliminate VAT and PIT exemptions (except food-related VAT), strengthen Large Taxpayer Office, and develop a Public Financial Management Roadmap.
- Private sector and governance: establish independent Anti-Corruption Commission and adopt an SOE strategy; carefully monitor implementation of PPP and Investment Laws by MOFEP to prevent contingent liabilities and proliferation of tax exemptions.

*Source: IMF staff report content unit 1sdnea2021004.*

### 32.      Staff supports the proposed extension of the program and establishment of new

### 1sdnea2021004 - 32.      Staff supports the proposed extension of the program and establishment of new

### Program endorsement and conditionality
- Staff supports the proposed extension of the program and establishment of new test dates and conditionality.
- Successful implementation of the extended SMP would improve the external position and support sustainable inclusive growth.
- Authorities have the commitment and capacity to implement the proposed policies, as illustrated by their performance to date and forward commitment to an ambitious adjustment program.
- Conditionality design remains consistent with applicable policies for a UCT program, and thus the program continues to meet the UCT standard.

### Macroeconomic performance and outlook
- Real GDP (market prices):
  - 2018: -2.3
  - 2019: -2.5
  - 2020: -8.4
  - 2021: -3.6
  - 2022: 0.4
  - 2023: 1.1
  - 2024: 2.6
  - 2025: 3.6
  - 2026: 4.3
  - (Table: Real GDP (market prices) row preserves these values)
- Inflation (Consumer prices, end of period):
  - 2018: 72.9
  - 2019: 57.0
  - 2020: 198.0
  - 2021: 269.3
  - 2022: 121.9
  - 2023: 54.9
  - 2024: 44.0
  - 2025: 36.2
  - 2026: 29.7
  - (Consumer prices (period average) row also shows 63.3, 51.0, 141.6, 163.3, 198.8, 61.2, 48.5, 39.5, 32.4, 27.7)
- Key narrative points from figures:
  - "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 imports also grew rapidly."

### Fiscal sector — recent dynamics and projections
- Central government revenue and grants (percent of GDP or levels as presented):
  - Revenue and grants: 2018: 8.9; 2019: 7.8; 2020: 6.8; 2021: 4.8; 2022: 5.8; 2023: 10.6; 2024: 10.2; 2025: 10.0; 2026: 9.9; (Table 1/2 rows)
  - Revenue: 2018: 8.8; 2019: 7.4; 2020: 5.3; 2021: 4.7; 2022: 6.3; 2023: 8.1; 2024: 8.0; 2025: 8.0; 2026: 8.1
  - Tax revenue: 2018: 6.8; 2019: 5.4; 2020: 3.5; 2021: 3.0; 2022: 4.5; 2023: 6.1; 2024: 6.1; 2025: 6.1; 2026: 6.1
- Expenditure and balance:
  - Total expenditure (percent of GDP): 2018: 16.8; 2019: 18.7; 2020: 13.7; 2021: 10.9; 2022: 11.2; 2023: 13.3; 2024: 12.9; 2025: 12.7; 2026: 12.7
  - Subsidies (percent of GDP): 2018: 9.6; 2019: 11.8; 2020: 3.8; 2021: 4.9; 2022: 3.7; 2023: 3.5; 2024: 3.4; 2025: 3.3; 2026: 3.2
  - Overall balance (percent of GDP): 2018: -7.9; 2019: -10.8; 2020: -6.9; 2021: -6.0; 2022: -2.9; 2023: -2.7; 2024: -2.6; 2025: -2.7; 2026: -2.7
  - Budget overall balance (levels and percent of GDP appear in Tables 4a/4b; Table 4b shows budget overall balance row: -2.9, -2.0, -6.1, -4.6, -1.4, -2.9, -2.3, -1.7, -1.2, -1.0, -0.9 across years)
- Public debt:
  - Public debt (percent of GDP): 2018: 186.7; 2019: 200.3; 2020: 259.4; 2021: 249.2; 2022: 210.6; 2023: 206.2; 2024: 199.3; 2025: 192.0; 2026: 184.8; 2027: 180.2 (as presented in Table 1/2)

### Monetary sector — developments
- Broad money (annual change or percent of GDP as shown):
  - Broad money (annual change, percent): 2018: 111.8; 2019: 60.1; 2020: 88.2; 2021: 88.0; 2022: 118.9; 2023: 43.3; 2024: 41.1; 2025: 34.9; 2026: 33.0; 2027: 31.2
  - Reserve money (annual change, percent): 2018: 170.5; 2019: 77.5; 2020: 94.5; 2021: 97.0; 2022: 124.4; 2023: 42.0; 2024: 39.7; 2025: 36.9; 2026: 31.7; 2027: 30.1
- Key narrative points:
  - "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."
  - Deposit growth picked up in 2020 (figures show deposit and currency composition across years).

### External sector — recent developments and projections
- Terms of trade, exports and imports:
  - Terms of trade improved slightly in 2020, but both import and export volumes fell.
  - Sudan became a net oil importer shortly after the secession of South Sudan.
  - The current account deficit remained high and capital inflows decreased; reserve coverage remained very low.
- Key balance of payments figures (Table 3a, in millions of US$):
  - Current account balance (levels): 2018: -4,679; 2019: -5,244; 2020: -6,004; 2021: -4,114; 2022: -4,236; 2023: -4,307; 2024: -4,340; 2025: -4,263; 2026: -4,380
  - Current account balance (cash basis): 2018: -3,118; 2019: -3,841; 2020: -4,531; 2021: -2,608; 2022: -2,730; 2023: -2,800; 2024: -2,834; 2025: -2,757; 2026: -2,874
  - Exports, f.o.b. (levels): 2018: 3,485; 2019: 3,741; 2020: 3,802; 2021: 4,674; 2022: 4,834; 2023: 5,037; 2024: 5,295; 2025: 5,879; 2026: 6,155
  - Imports, f.o.b. (levels): 2018: 7,065; 2019: 8,393; 2020: 8,894; 2021: 8,942; 2022: 9,352; 2023: 9,777; 2024: 9,997; 2025: 10,525; 2026: 10,974
- Gross usable international reserves (in millions of US$), sequence as presented:
  - 178, 190, 324, 223, 379, 452, 557, 754, 955, 1,269
- Current account and trade deficits (percent of GDP) — selected values from Table 3b:
  - Current account balance: 2018: -14.0; 2019: -15.6; 2020: -17.5; 2021: -11.6; 2022: -11.9; 2023: -11.8; 2024: -11.5; 2025: -10.8; 2026: -10.7

### Financial sector indicators
- Financial intermediation metrics and banking sector:
  - Credit to the private sector (percent of GDP): 2018: 9.0; 2019: 8.8; 2020: 6.2; 2021: 3.7; 2022: 3.9; 2023: 3.8; 2024: 3.7; 2025: 4.0; 2026: 4.5 (Table 2)
  - Broad money (percent of GDP): 2018: 31.6; 2019: 34.0; 2020: 25.1; 2021: 18.2; 2022: 16.0; 2023: 14.8; 2024: 13.9; 2025: 13.4; 2026: 13.2
- Financial soundness indicators (Table 8, selected):
  - Regulatory capital to risk-weighted assets: 2016: 18.7; 2017: 16.2; 2018: 9.9; 2019: 15.4; 2020: n.a.
  - Gross NPLs to gross loans: 2016: 5.2; 2017: 3.3; 2018: 3.2; 2019: 3.5; 2020: 5.1
  - ROA (before tax): 2016: 4.7; 2017: 3.8; 2018: 4.9; 2019: 3.4; 2020: 2.5

### Program quantitative targets and structural benchmarks (selected)
- Quantitative benchmarks and targets (Table 9, selected line items and values as presented):
  - Banking system net credit to the central government (ceiling: in SDG billion) — sequence includes: 386, 672, 655, 758, 683, 807, 909, 1,092 (Dec-19 to Dec-21 targets/actuals as presented).
  - CBOS net domestic assets (ceiling: in SDG billion) — sequence includes: 817, 1,083, 1,289, 1,380, 1,502, 1,786, 1,897, 2,099.
  - Net international reserves (floor: in millions of U.S. dollars) — sequence includes: -728, -594, -6,511, -6,552, -6,336, -6,284, -6,226, -6,175.
  - Reserve money (ceiling: in SDG million) — sequence includes: 0, 766, 1,000, 1,094, 1,208, 1,451, 1,565, 1,770.
- Indicative targets:
  - Social spending (floor: in SDG billion) and Nonoil primary deficit (ceiling: in SDG billion) shown with exact values in Table 9.

*Source: Central Bank of Sudan; Ministry of Finance and Economic Planning; Sudanese authorities; and IMF staff estimates and projections (contents extracted from the provided IMF PDF content).*

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

### 1sdnea2021004 - 1. Complete the stress testing of individual bank resilience to exchange rate

### Prior actions, structural benchmarks, and completion status
- Prior Action: "Complete the stress testing of individual bank resilience to exchange rate movements and prepare appropriate measures to mitigate risks in each problem bank ahead of exchange rate reform, in consultation with the IMF." — Completed (PA for SMP request; Prepare for the exchange rate reform).
- Prior Action: "Legislative council to pass a revised 2020 budget consistent with program objectives, including incorporating a substantial expansion of the social safety net under the Sudan Family Support Program, increased health expenditure to address COVID-19 needs, and revenue mobilization through customs exchange rate reform and expansion of the tax base." — Completed (PA for SMP request; Fiscal consolidation).
- Prior Action: "Announce the unification of the official exchange rate (excluding the customs valuation exchange rate) with the market rate at the prevailing market rate and issue regulations to banks and forex bureaus indicating that trading can take place in a +/-5 percent band around the indicative rate announced by the central bank prior to the opening of trading which is calculated as the weighted average of the previous day’s trading excluding CBOS sales/purchases from government." — Completed (February 21, 2021; Remove distortions and raise revenue).

### Structural measures and benchmarks (selected items with status and target dates)
- Public financial management
  - "The MOFEP to publish on its website monthly budget execution reports that show actual revenue and expenditure for budgetary central government in comparison with original and revised budget, consistent with the GFSM2001." — Dec. 2020; Met. (Improve budget classification and fiscal reporting)
  - "Develop and adopt a PFM Roadmap based on the 2020 PEFA." — End-Sept 2021. (Strengthen PFM Governance)
  - "Establish an independent anti-corruption commission through appointment of the Commissioners in accordance with the provisions of the Anti-Corruption National Commission Law." — End-Sept 2021. (Strengthen governance)
- Expenditure policy
  - "Adopt automatic fuel pricing mechanism to ensure that retail diesel and gasoline prices reflect all costs, thus eliminating subsidization." — Sept. 2020; Not Met; see #5. (Support fiscal consolidation)
  - "Eliminate government price controls on retail gasoline and diesel fuel prices and allow gasoline and diesel fuel suppliers to contract at negotiated market prices." — End-December 2021. (Remove price controls and eliminate subsidies)
- Tax policy and customs
  - "Customs valuation exchange rate unification: Publish decree indicating imports to be valued at indicative exchange rate published by CBOS and rationalize multiple ad hoc fees and other related charges." — End-June 2021. (Eliminate distortions and strengthen revenue collection)
  - "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-December 2021. (Broaden tax base)
  - "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. (Strengthen fiscal control; support revenue)
- Governance and SOEs
  - "Prepare and publish an inventory of all state-owned enterprises including those supervised by ministry of finance, line ministries and security sector." — Dec. 2020; Not met; full list published on April 5, 2021 with the exception of those owned by the intelligence sector due to ongoing work to clarify ownership. (Improve fiscal transparency)
  - "Pass a new anti-corruption law, in line with international best practices as agreed in consultation with the IMF, that clearly defines what actions constitute corrupt practices and creates an independent anti-corruption commission." — Oct. 2020; Not Met; approved April 25, 2021. (Fight corruption and improve governance)
  - "Establish an independent anti-corruption commission, consistent with the provisions of the new anti-corruption law." — Mar. 2021; Not met due to delay in approving law. Reprogrammed #3 above. (Fight corruption and improve governance)
  - "Transfer financial oversight of all SOEs to the MOFEP and adopt an ownership strategy ... including guiding principles for the review of the existing stock of SOEs." — End-December 2021. (Improve governance and transparency of the SOEs; mitigate contingent fiscal risks.)
- Monetary and financial sector
  - "Finalize an amended Central Bank Law in consultation with IMF staff to, inter alia, (i) establish a central bank mandate focusing on price stability; (ii) strengthen the Central Bank institutional, functional, personal, and financial autonomy, including by limiting monetary financing of the Government and prohibiting the central bank to conduct quasi-fiscal operations; (iii) improve its decision-making structure, by ensuring collegial decision-making, providing for effective oversight over executive; and (iv) enhance transparency and accountability provisions." — Dec. 2020; Not Met; draft sent to CBOS Board in February; approved May 1, 2021. (Enhance central bank independence and improve governance)
  - "Enact a new Central Bank Law in consultation with IMF staff ..." — June 2021. (Enhance central bank independence and improve governance)
  - "Unify all but the customs exchange rate and allow commercial banks and FX bureaus to set exchange rates in line with market conditions, but subject to an adjustable band around the daily official exchange rate. Central Bank sets daily official exchange rate based on market average exchange rate." — Sept. 2020. Not met. See Prior Action (#3) for First Review (above). (Strengthen competitiveness and reduce distortions)
  - "Gradually adjust customs exchange rate towards market exchange rate and fully unify by June 2021." — Jun. 2021; Reprogrammed above #6. (Eliminate distortion in the exchange rate market)
  - "Establish regular procedures for communication between banking supervision and regulation departments; and conduct semi-annual stress tests to identify and address vulnerabilities of individual banks to exchange rate movements." — Mar. 2021; Met. (Strengthen financial sector soundness)
  - "(i) Conduct thematic AML/CFT on-site inspections of the ten highest-risk banks ...; and (ii) provide aggregate data to the Fund on any related violations found and sanctions levied by the CBOS." — Mar. 2021; Not met; five were completed as of end-March and eight as of mid-May with the remaining two pending. (Reduce vulnerabilities to corruption and related money laundering)
  - "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. (Strengthen the banking sector)

### Letter of Intent — key commitments and requests
- Request: Completion of the Second Review and, as a precaution, an extension of the SMP through end-December (requesting an extension for 6 months to December 2021).
- Rationale: Concern about a possible delay in the HIPC Decision Point beyond the June 30 expiration of the SMP; want to maintain an uninterrupted track record of satisfactory performance under a UCT-quality SMP.
- Recent developments and milestones:
  - Cleared arrears to the World Bank on March 26, 2021.
  - Clearance of arrears to the African Development Bank (AfDB) completed on May 12.
  - Passage in April of the Anti-corruption National Commission Law, Investment Law and the Public and Private Partnership Law.
  - Re-establishment of conventional banking within a dual banking system (conventional and Islamic).
  - CBOS Board approved the revised Central Bank Act on May 1, 2021.
  - Move to a market-determined exchange rate on February 21, 2021 led to lower volatility and near five-fold increase in recorded remittances.
- Planned near-term actions:
  - "Eliminate the customs valuation exchange rate and use the market exchange rate to value imports while removing ad hoc import fees and charges."
  - "Eliminate price controls on retail gasoline and diesel prices to eliminate retail fuel subsidies."
  - "Phase out some important VAT and personal income tax exemptions."
  - Continue improvements in public financial management and fiscal planning, including strengthening management and transparency of SOEs.
- Requests for program adjustments:
  - Modify quantitative targets for end-June and reset the structural benchmark related to establishment of the Anti-Corruption Commission as an end-September 2021 SB.
  - In lieu of the delayed adoption of an automatic fuel price mechanism (end-September 2020 SB), set an end-December 2021 SB on the removal of controls on retail gasoline and diesel prices.
  - Addition of new structural benchmarks for H2 2021 on: adoption of a PFM roadmap; issuance of implementing regulations for the Investment Law; elimination of VAT and personal income tax exemptions; adoption of an SOE strategy; enactment of a revised Banking Regulation Act.

### Memorandum of Economic and Financial Policies — objectives and policy measures
- Program coverage: Policies and objectives for July 1, 2020–December 31, 2021 under the Staff Monitored Program (SMP) to restore macroeconomic stability and support higher and inclusive growth.
- Borrowing constraint:
  - "We will continue to limit the contracting of such borrowing to an annual amount of $300 million (quantitative benchmark, QB #4) for specific, high return and well-identified projects."
- Reform priorities:
  - (a) reform subsidies;
  - (b) substantially raise non-oil revenues;
  - (c) strengthen and expand the social safety net;
  - (d) enhance the oversight and accountability of state enterprises;
  - (e) strengthen governance.
- Monetary and financial policy priorities:
  - Reform the exchange rate system;
  - Tighten monetary policy;
  - Boost the resilience of the financial sector;
  - Strengthen the central bank’s independence;
  - Develop instruments of monetary policy.
- Social mitigation:
  - Sudan Family Support Program (SFSP): "a quasi-universal basic income scheme, which was piloted in June 2020, and launched on February 24, 2021 and has already provided support to 160,000 households; rollout of the program will accelerate through the remainder of the year."
  - Note: Social spending target in Q1 2021 was missed (indicative target, IT #1) due to delays in unification of the exchange rate and administrative challenges.
- COVID-19 context:
  - "We are experiencing a third wave of the COVID-19 pandemic and to this day, government offices and businesses continue to work at 50 percent capacity with limited availability of vaccine."
- Recent macroeconomic outlook and indicators:
  - "GDP is estimated to have contracted by -3.6 percent" in 2020.
  - "GDP growth is expected to recover modestly to about 0.4 percent in 2021."
  - Fiscal developments: "Tax revenues in Q1 2021 outperformed our budgetary targets due to improved administration, including efforts to combat smuggling." However, "social spending was below target" and "spending on fuel and wheat rose due to an increase in international prices and insufficient adjustment in fuel prices at the pump." Result: "we met the end-March IT on the non-oil primary balance, the IT floor on social spending was missed."

*Source: 1sdnea2021004 - 1. Complete the stress testing of individual bank resilience to exchange rate (IMF PDF).*

### 8.      Inflation remained high but is on a declining path. As the parallel market exchange rate

### 1sdnea2021004 - 8.      Inflation remained high but is on a declining path. As the parallel market exchange rate

### Inflation and domestic price developments
- Inflation remained high but showed signs of slowing:
  - Inflation reached 342 percent y-o-y in March 2021.
  - Month-on-month inflation slowed to 7.2 percent in March 2021 compared to 13.1 percent in February 2021.
- Drivers of elevated inflation in Q1 2021:
  - Base effect from fuel price hikes and their second-round impact.
  - Shortages of food and fuel.
- Unification of the official exchange rate had a minimal impact on inflation because the parallel market exchange rate was already widely used in FX transactions.

### External sector and reserves
- External performance strengthened:
  - Exports increased 54 percent (Q1 year-on-year).
  - Imports contracted by 17 percent (Q1 year-on-year).
- Remittances:
  - Recorded remittances have increased nearly five times.
- Current account:
  - Current account on a cash basis registered a surplus of 1 percent of GDP in Q1 2021.
- International reserves:
  - Gross usable international reserves improved to $327 million at end-March 2021 (the equivalent of 0.4 months of imports).

### Banking sector and financial stability
- The banking sector remains fragile with several banks undercapitalized and/or vulnerable to exchange rate depreciation.
- CBOS actions and assessments:
  - Bank-by-bank stress tests to exchange rate shocks completed (SB #17).
  - Problem banks identified and engaged with for recapitalization and temporary regulatory forbearance.
  - Issued a 2021 regulation forbidding banks from having a short net FX open position and limiting long position to 1-5 percent of regulatory capital.
  - Asset Quality Review: phase 1 (8 banks), phase 2 (additional 9 banks), potential phase 3 by end-2021 pending funding.
  - Plan to adopt an action plan for strengthening the banking system, including resolution framework application and divestiture of the CBOS from commercial banks.
- Regulatory and supervisory reforms:
  - Modernize banking regulations in line with Islamic Financial Stability Board standards and international standards.
  - Move toward a risk-based supervisory regime and strengthen corporate governance consistent with Basel Committee on Banking Supervision Corporate Governance Principles.
  - Strengthen bank recovery and resolution framework; pass amended Banking Business Act (SB# 19).

### Program performance since last review
- Quantitative targets:
  - Met: net credit to the central government, ceiling on contracting or guaranteeing external long-term nonconcessional debt, and the NIR floor.
  - Missed: ceiling on NDA, mainly due to increase in credit to the banking sector and valuation effects.
- Indicative targets:
  - Missed: IT floor on social spending (delays in SFSP rollout).
  - Met: IT on the Non-Oil Primary Deficit by a wide margin.
  - Missed: reserve money ceiling (increase in unsterilized foreign assets and credit to the banking sector).
- Structural benchmarks:
  - Met: SB on bank stress tests.
  - Missed (but progress): full implementation of 10 on-site thematic AML/CFT inspections — 8 of 10 completed as of mid-May.
  - Anti-Corruption Commission establishment delayed due to delayed passage of Anti-Corruption National Commission Law; Sovereign Council approved law on April 25 (end-October 2020 SB). Authorities have made progress identifying commissioners.

### Economic program (April 2021–December 2021) — objectives and targets
- Core objectives:
  - Eliminate the customs exchange rate while reducing ad hoc fees and charges (SB #6).
  - Reduce fiscal imbalances and reorient spending to critical social services.
  - Strengthen monetary policy framework and banking system resilience.
  - Implement structural reforms in public financial management, governance, anti-corruption, and business environment.
- Fiscal targets and expectations:
  - Target to reduce the fiscal deficit by about 3 percent of GDP in 2021, with further reduction in 2022.
  - 2021 budget measures assessed to reduce the deficit by about 3 percent of GDP to achieve a target of 2.9 percent of GDP and significantly reduce need for monetization.
  - Exchange rate and structural reforms expected to increase GDP growth to 4.4 percent over the medium term.
  - Inflation expected to decrease over time as fuel subsidy and exchange rate reforms are fully passed through.

### Exchange rate, monetary, and FX policy
- Exchange rate reform actions:
  - On February 21, 2021, unified all exchange rates (excluding the customs valuation exchange rate) at the prevailing market rate of SDG375/USD (prior action).
  - Regulations issued for commercial banks and FX bureaus to set rates in line with market conditions.
  - ±5 percent band set on exchange rates by banks and FX bureaus; most FX transactions have taken place within ±3 percent of CBOS’s indicative rate.
  - Commitment: not to introduce new exchange restrictions or multiple currency practices (MCPs); limit intervention to addressing disorderly market conditions.
  - Commit to align the customs valuation exchange rate with the CBOS indicative rate by end-June (SB #6) and remove additional taxes/fees on imports subject to the top tariff rate of 40 percent to limit price impact.
- Monetary policy framework and instruments:
  - Transition to a reserve money target regime to help contain inflation.
  - Missed end-March IT on reserve money (IT #3) due to increased credit to commercial banks and delay in setting up an FX auction to sterilize FX reserve accumulation.
  - Auctions to begin in the coming weeks, supported by IMF TA on auction regulation and design.
  - Establish regular treasury committee meetings to enhance CBOS–MFEP coordination for liquidity management and FX management.
  - Short-run tool: fiscal consolidation to reduce monetization.
  - Use existing instruments (reserve requirements and limited central bank securities) to tighten policy as needed; announced increase in required reserve ratios from 20 percent to 22 percent.
  - CBOS to exit positions in commercial banks and mop up liquidity by selling CBOS’s shares in state-owned banks, commercial banks, micro-finance agencies and other companies guided by an action plan to resolve problem banks; suspended extension of CBOS’s investment deposits in commercial banks falling due.
- Monetary market development:
  - Build a strong and liquid government securities market, introduce conventional instruments and IMF TA.
  - Convert net claims of the central bank on the general government (about SDG 700 billion in 2020, or 13.6 percent of GDP) into government securities over the remainder of the program.
  - Update regulations to fully implement dual banking system (Islamic and conventional) by end-2021 to facilitate sale of government securities.

### Central bank governance and capacity
- Central Bank Act:
  - Revised Act amended after IMF and stakeholder comments; approved by CBOS Board on May 1.
  - Review by Ministry of Justice expected to be completed by end-June (SB #14).
  - Law strengthens mandate on price and financial stability, limits monetary financing of the government, and strengthens governance.
- Capacity building:
  - Upgrade CBOS capacity for supervision and financial stability risk mitigation.
  - Request TA to strengthen supervision of both Islamic and conventional banking systems.

### AML/CFT and risk assessment
- AML/CFT priority actions:
  - Complete thematic on-site inspections of the remaining two highest-risk banks, focusing on PEPs, suspicious transaction reporting, and higher-risk customers/transactions in real estate.
  - Provide aggregate data to the IMF on violations and sanctions levied by CBOS.
  - Work toward completing a National Risk Assessment (NRA).

### Fiscal policy, subsidies, and social spending
- Fiscal consolidation focus:
  - Enhance domestic revenue mobilization and continued reforms in the energy sector to reverse reemergence of retail fuel subsidies and facilitate gradual removal of electricity subsidies.
- Fuel and electricity reforms:
  - Reduce fossil fuel subsidies (79 percent of total subsidies in 2020) — eliminate government controls on retail gasoline and diesel prices by end-2021 and allow suppliers to contract at negotiated market prices (SB# 4).
  - Gradually reduce electricity subsidies by increasing tariffs on high-end consumers and improving power generation efficiency.
  - Conduct cost of service study in electricity sector with World Bank assistance and adopt revised Electricity Act.
- Social spending and SFSP:
  - Q1 social spending underperformed IT floor due to delay in exchange rate unification and SFSP rollout challenges.
  - Remedial actions: convene Coordination Committee, appoint director to lead Project Implementation Unit, accelerate local staff recruitment.
  - Goal: reach two million households by end-2021.
  - Estimated spending on SFSP and additional health expenditure at about 1 ¼ percent of GDP in 2021 (IT #1).

### Revenue, donor financing, and tax administration
- Domestic revenue:
  - Expect tax revenue to increase to 4.9 percent of GDP in 2021 (driven by exchange rate unification), up from 3.4 percent of GDP in 2020.
- Donor financing:
  - Anticipate donor support of $770 million in 2021, including 0.7 percent of GDP in grants for the SFSP.
  - Project grants expected to increase by one percent of GDP in 2021 as COVID-19 impacts abate.
- Revenue measures and tax administration reforms:
  - Eliminate all exemptions on VAT except those related to food.
  - Eliminate the personal income tax (PIT) exemption on people over 50 years of age in the context of a progressive PIT structure (SB #7).
  - Strengthen the Large Taxpayer Office by increasing percentage of taxpayers processed electronically from 70 percent to 75 percent through the Tax Administration Core System (TACS) database by end-2021.

### Public financial management and transparency
- PFM reforms and Treasury Single Account (TSA):
  - Develop Public Financial Management Roadmap based on PEFA (SB #2).
  - Continue establishing TSA, improve cash forecasting, extend cash ceilings for ministries from one to three months, gradually extend TSA coverage to extrabudgetary funds.
  - Improve expenditure control via commitment control system at commitment stage.
- Fiscal reporting and transparency:
  - Consolidate financial statements between central and state governments annually within three months of end of reporting period.
  - Publish financial statement and audit report of top 10 SOEs starting in 2022.
  - Provide transparent reporting of spending on subsidies.
  - Coordinate with Supreme Audit Institution to enhance audits in line with international best practice.

### Other structural reforms and private sector
- Private sector and investment climate:
  - IFC and World Bank support to improve investment climate, Public-Private Dialogue, PPP framework, and MSME development.
  - New Ministry of Investment established and supported by the IFC.
  - New Investment and PPP Laws enacted; intend to issue implementing regulations to require prior approval and costing of tax exemptions by Ministry of Finance and define limits on government exposure on PPPs and affordability procedures.

*International Monetary Fund — MEFP content (section provided).*

### 29.      Combating corruption and improving governance are key priorities of the transitional

### Combating corruption and improving governance are key priorities of the transitional government

### Anti-corruption and governance reforms
- Passage of the new Anti-Corruption Law completed on April 25, and establishment of an independent Anti-Corruption Commission targeted by end-September 2021 with a strong mandate to prevent, detect, and investigate corruption. The establishment of the Commission was a structural benchmark for October 2020 but would be reprogrammed given delays in passing the law.
- The law aims to strengthen the role of civil society and journalism in combating corruption.
- Full implementation of 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 who obtained assets through corrupt practices.
  - Oversight of recovered assets will be transferred to a holding company under the financial oversight of the MOFEP, and their disposal and use of related resources will adhere to fully transparent procedures.
- Development and endorsement by the Cabinet of an SOE ownership strategy that:
  - Sets forth the strategic purposes, oversight and management principles of the SOE sector;
  - Provides a framework for determining which SOEs should remain public, be liquidated, or be privatized.
  - Financial oversight of all SOEs to be transferred to the MOFEP by the end of December 2021 (SB #12).
- Commitment to improve macroeconomic data quality and frequency (national accounts, fiscal, BOP, labor market) with technical assistance from the IMF, other IFIs, and bilateral donors.
- Completion of a delayed governance diagnostic exercise to build a roadmap for strengthening governance across government sectors.
- AML/CFT reforms, increased electronic processing of taxpayers, and maintenance of a market-based exchange rate to enhance transparency and reduce opportunities for corruption.

### External debt and relief prospects
- Sudan is in debt distress.
  - Total public and publicly guaranteed (PPG) external debt estimated at around USD 56 billion at end-2020 (163 percent of GDP), with the bulk in arrears (87 percent of the external debt stock).
  - Debt composition: 41 percent owed to Paris Club creditors, 36 percent to Non-Paris Club creditors, 11 percent to multilateral institutions, 12 percent to commercial creditors.
  - As of end-March 2021, Sudan’s outstanding arrears to the IMF stood at SDR 964 million (about USD 1,367 million).
  - Sudan’s arrears to the World Bank Group and African Development Bank were cleared on March 26 and May 12, respectively.
  - Final reconciliation of end-2020 PPG debt is still in progress.
- Debt strategy objectives under the SMP:
  - Limit payments only to creditors who provide net positive flows to Sudan.
  - Secure financing at the most concessional terms possible, recognizing any new borrowing will need to be treated as part of comprehensive debt relief.
  - Commit to limit new non-concessional borrowing in line with program targets (QB #4) and use proceeds for critical public services in physical infrastructure and social programs.
  - Regularly report debt service payments to IMF staff, including inflows, outflows, outstanding credit, arrears, and amounts of debt falling due each year.
- Outreach to international partners to secure debt relief will entail:
  - (i) reaching out to creditors to seek a fast-track debt relief process;
  - (ii) minimizing non-concessional borrowing;
  - (iii) strengthening cooperation with the IMF.
- HIPC process considerations:
  - Building a track record of performance is one of four conditions to reach the HIPC Decisions Point.
  - Government will work with IMF and World Bank to complete joint debt reconciliation and reach out to creditors for financing assurances for comprehensive debt relief through HIPC.
  - Prior “zero option” clause with South Sudan: Sudan agreed to shoulder the entire external debt provided the international community provides firm commitments to delivery of debt relief within two years; absent timely progress, external debt may be apportioned with South Sudan based on a formula to be determined.

### Proposed extension of the program, modalities, and monitoring
- Request to extend the SMP through end-December 2021 in light of the possibility that the HIPC Decision Point will slip past end-June.
- Extension would establish two additional test dates: end-September 2021 and end-December 2021, with corresponding quantitative and indicative targets and structural benchmarks.
- Proposed modifications to structural benchmarks:
  - Structural benchmark related to establishment of the Anti-Corruption Commission originally for end-March 2021 shifted to end-September 2021 to allow time for appointment and vetting of commissioners.
  - In lieu of delayed adoption of an automatic fuel price mechanism (end-September 2020 SB), set an end-December 2021 benchmark on removal of controls on retail gasoline and diesel prices.
  - New structural benchmarks during the extended SMP to include: adoption of a PFM roadmap; issuance of implementing regulations for the Investment Law; elimination of VAT and personal income tax exemptions; adoption of an SOE strategy; enactment of a revised Banking Regulation Act.
- The Technical Memorandum of Understanding (TMU) contains definitions of quantitative benchmarks, indicative targets, and structural benchmarks, and specifies data required to monitor the program.
- Institutional framework for program monitoring (set up September 2020) comprises key decision makers: Finance Minister, Petroleum and Mining Minister, Governor of CBOS, assisted by SMP Monitoring Committee with senior officials from the Finance and Mining and Petroleum Ministries, Central Bank of Sudan, Statistics Office, and other key institutions.
- Commitment to cooperate with the IMF on policies and payments:
  - IMF Board decision supports a reduction of payments to $2.5 million annually starting in 2021.
  - Government committed to make regular monthly payments at least sufficient to cover obligations falling due, and to increase them as capacity improves.
  - Monthly payments were made to the IMF in January, February, March and April 2021 totaling $880,000, amounting to approximately 35 percent of the expected annual payment.

### Key quantitative targets and indicative benchmarks (as summarized in the text)
- Banking system net credit to the central government (ceiling: in SDG billion): 386; 672; 655; 758; 683; 807; 909; 1,092.
- CBOS net domestic assets (ceiling: in SDG billion): 817; 1,083; 1,289; 1,380; 1,502; 1,786; 1,897; 2,099.
- Net international reserves (floor: in millions of U.S. dollars): -728; -594; -6,511; -6,552; -6,336; -6,284; -6,226; -6,175.
- Contracting or guaranteeing of external long term non-concessional debt by the government or the central bank (ceiling: in millions of U.S. dollars): 230; 3000; 751; 2150; 225; 300.
- Indicative targets:
  - Social spending (floor: in SDG billion): 159; 93; 95; 315; 43; 90; 186.
  - Nonoil primary deficit (ceiling: in SDG billion) 4/: 242; 367; 375; 219; 104; 266; 306; 348.
  - Reserve money (ceiling: in SDG million): 0; 766; 1,000; 1,094; 1,208; 1,451; 1,565; 1,770.
- Memorandum items:
  - External grants for Family Support Program (in millions of U.S. dollars): 328; 092; 85; 212; 62; 45.
  - Other external non-project grants (in millions of U.S. dollars): 0; 21; 216; 1250; 250; 100.
  - MOFEP repayments to CBOS for advances related to victims of terrorism (in millions of US dollars): 3560; 3367; 107.
  - Government asset sales (in SGD billion): 3500; 000.
  - External non-project loans (in millions of U.S. dollars): 9; 1127; 0; 0000.
- Notes in the TMU and tables:
  - The variables are defined according to the TMU.
  - Contracting or guaranteeing of external long term non-concessional debt is a continuous benchmark; flow from the beginning of the year.
  - The unadjusted NOPD target for end March is 312. Adjustments were made per the TMU to account for fluctuations with respect to SSTL, SFSP and non-project grants.
  - Evaluated using program exchange rate of 45 SDG per U.S. dollar. The definition of net international reserves is updated to include all external liabilities denominated in foreign currency for March and June target, instead of short-term external liabilities. The actual performance for NIR in Dec-2020 based on the previous definition is $-803 million.

### Structural benchmarks, prior actions, and sequencing (high-level)
- Prior actions completed include:
  - Stress testing of individual bank resilience to exchange rate movements and preparation of appropriate mitigating measures ahead of exchange rate reform (Completed).
  - Legislative council passed a revised 2020 budget consistent with program objectives, expanding the Sudan Family Support Program and increasing health expenditure (Completed).
  - Announcement of unification of the official exchange rate (excluding customs valuation rate) with the market rate and issuance of related regulations (Completed February 21, 2021).
- Structural benchmarks across PFM, expenditure policy, tax policy, governance, and monetary and financial sectors include specific actions with target dates such as:
  - Publish monthly budget execution reports consistent with GFSM2001 (Dec. 2020 — Met).
  - Develop and adopt a PFM Roadmap based on the 2020 PEFA (End-Sept 2021).
  - Establish independent anti-corruption commission through appointment of Commissioners in accordance with the Anti-Corruption National Commission Law (End-Sept 2021).
  - Eliminate government price controls on retail gasoline and diesel fuel prices and allow suppliers to contract at negotiated market prices (End-December 2021).
  - Customs valuation exchange rate unification: Publish decree indicating imports to be valued at indicative exchange rate published by CBOS (End-June 2021).
  - 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).
  - Issue implementing regulations for the Investment Law requiring prior approval and costing of tax exemptions (End-December 2021).
  - Prepare and publish an inventory of all state-owned enterprises (Dec. 2020 — Not met; full list published on April 5, 2021 with the exception of those owned by the intelligence sector).
  - Pass a new anti-corruption law (Oct. 2020 — Not met; approved April 25, 2021).
  - Establish an independent anti-corruption commission (Mar. 2021 — Not met due to delay in approving law; reprogrammed to End-Sept 2021).
  - Transfer financial oversight of all SOEs to the MOFEP and adopt an ownership strategy (End-December 2021).
  - Finalize and enact amended Central Bank Law with provisions to focus on price stability and strengthen CBOS autonomy (Dec. 2020 — Not met; draft sent to CBOS Board in February; approved May 1, 2021; June 2021 enactment targeted).
  - Unify all but the customs exchange rate and allow commercial banks and FX bureaus to set exchange rates in line with market conditions (Sept. 2020 — Not met; see Prior Action #3).
  - Establish regular procedures between banking supervision and regulation departments and conduct semi-annual stress tests (Mar. 2021 — Met).
  - Conduct thematic AML/CFT on-site inspections of the ten highest-risk banks (Mar. 2021 — Not met; five completed as of end-March and eight as of mid-May with the remaining two pending).
  - Enact a revised Banking Regulation Act including a comprehensive resolution regime for the banking sector (End-December 2021).

*Source: 1sdnea2021004 - 29. Combating corruption and improving governance are key priorities of the transitional government*

### 2.      The SMP will be monitored based on four quarterly quantitative benchmarks and three

### 1sdnea2021004 - 2.      The SMP will be monitored based on four quarterly quantitative benchmarks and three

### Monitoring framework
- Monitoring period: end-June, end-September and end-December 2021 (quarterly evaluation).
- Four quantitative benchmarks:
  - ceiling on net credit to the central government by the banking system;
  - ceiling on the net domestic assets of the Central Bank of Sudan (CBOS);
  - floor on the stock of net international reserves of the CBOS;
  - ceiling on new non-concessional external loans contracted or guaranteed by the government or the central bank.
- Three indicative targets:
  - floor on social spending;
  - ceiling on reserve money;
  - ceiling on non-oil primary deficit.
- Local currency conversions of foreign-currency items on the CBOS balance sheet use program exchange rates and prices:
  - SDG 45.0 per U.S. dollar;
  - SDG 62.2 per SDR;
  - program monetary gold price of $70.73 per gram.

### Definitions and measurement
- Net domestic assets (NDA) of CBOS = Net Domestic Credit of CBOS (excluding claims on government corresponding to overdue IMF obligations “IMF on-lent”) + claims on public enterprises + claims on commercial banks + other items net.
- CBOS net credit to the central government (NCG) = CBOS credit to the central government minus total central government deposits (all accounts of line ministries and agencies controlled by the government).
- Components of CBOS credit to the central government include (explicit items preserved exactly as listed):
  - temporary advance, CBOS’s holdings of Government Musharaka Certificates (GMCs) and Government Investment Certificates (GICs), CBOS long-term claims on the central government;
  - central bank losses on gold purchases (devaluation in gold dealings), loan resulted from separation of South Sudan, accumulated interest arrears, sundry debtors, payments to meet government obligations, advances to cover foreign currency obligations, Sudan Cotton Comp. Facility, other long term assets, accrued revenue Shahama Certificates, Ministry of Finance -sugar, stock of CBOS credit to government arising from the financing of wheat subsidies (difference in wheat price), Ministry of Finance debts-ONB shares, and Sudanese Petroleum Corp. overdues and settlement of petroleum shipments value.
- CBOS claims on public enterprises = CBOS credit to public enterprises.
- CBOS claims on commercial banks = CBOS credit to commercial banks.
- Other items net = other assets minus other liabilities as reported in CBOS balance sheet as reported by the IMF’s Statistics Department, adjusted for exchange rate revaluations arising from the difference between current and program exchange rate(s).
- Central government definition for these benchmarks = all accounts of line ministries and agencies controlled by the government (corresponding to Group no. 11, Group no. 12, and some accounts of the Group no. 19 in the CBOS general ledger), and margin deposits placed with the CBOS by the central government against letters of credit issued by the CBOS.

### Adjustors (explicit pro tanto adjustments)
- NDA ceiling adjustments:
  - Downward by the amount of any excess of non-project external grants and loans relative to program projections;
  - Upward by the amount of any shortfall in non-project external grants and loans (excluding those for the Sudan Family Support Program (SFSP)) relative to program projections.
  - Downward by the amount of receipts from government asset sales in excess of program projections; upward by the amount of any shortfall in receipts from government asset sales.
  - Downward by the amount of receipts from the Central Government for SSTL repayment to the central bank.
- NIR (Net international reserves) adjustments:
  - NIR defined = gross official usable international reserves minus external liabilities denominated in foreign currencies; gross official usable international reserves comprise foreign exchange banknotes in central bank vaults, monetary gold, and SDR holdings. External liabilities include short-term foreign liabilities, other deposits from non-residents in foreign currencies, long-term loans from non-residents in foreign currency, accounts payable from nonresidents in foreign currency and any SDR allocation.
  - Floor on NIR adjusted upward by receipts from the Government for SSTL repayment to the CBOS in foreign currency or monetary gold that increase gross official usable reserves.
  - Floor on NIR adjusted upward by any excess of non-project external grants and loans relative to program projections needed to eliminate monetization.
- Net credit to central government by the banking system adjustments:
  - Ceiling adjusted downward by any excess of non-project external grants and loans (excluding SFSP) relative to program projections; upward by any shortfall in such grants and loans.
  - Ceiling adjusted downward by excess receipts from government asset sales; upward by shortfalls in such receipts.
  - Ceiling adjusted downward by receipts from the Government for SSTL repayment.
- Non-oil primary balance (NOPB) adjustments:
  - NOPB defined = non-oil revenues minus expenditures excluding interest payments cumulatively since the beginning of the calendar year.
  - Ceiling on the NOPB deficit adjusted downward (upward) by any excess (shortfall) of project external loans relative to program projections.
  - Ceiling on the NOPB deficit adjusted upward (downward) by any excess (shortfall) of non-project grants (excluding those earmarked for the SFSP) relative to program projections.
  - Ceiling on the NOPB deficit adjusted downward by any shortfall in external non-project grants earmarked for the SFSP.
  - Ceiling on the NOPB deficit adjusted downward (upward) pro tanto by any excess (shortfall) amount of SSTL payment.

### Debt and concessionality rules
- Debt for program purposes follows Executive Board Decision No. 12274 (revised by Decision No. 14416-(09/91)).
- “Debt” defined as current contractual liabilities requiring future payments in assets or services; includes loans, suppliers’ credits, leases (present value at inception excluding operation/repair/maintenance), arrears, penalties, and judicially awarded damages arising from contractual debt.
- Non-concessional external debt ceiling applies to contracting or guaranteeing new non-concessional borrowing with nonresidents with original maturities of one year or more (applies to debt and commitments for which value has not yet been received, including private debt with official guarantees).
- Guarantees include explicit legal obligations or implicit legal/contractual obligations to finance debtor shortfalls.
- Concessional debt definition: grant element of at least 35 percent. Grant element calculated as (PV of debt difference from nominal) divided by nominal value. PV at contracting discounted using a 5 percent discount rate.

### Reserve money and priority social spending
- Reserve money = local currency circulating outside banks + total reserves (required and excess) of banks + deposits of local and state governments and non-financial public corporations at the CBOS.
- Priority social spending (central government) includes spending on cash transfers, health insurance, primary health care, student support, unemployment benefits, and other social programs to cope with COVID-19.
- Listed social benefits (as provided verbatim):
  - National fund for sponsorship for students
  - Support social activities
  - Support for medical treatment abroad
  - Support medical treatment domestic
  - Support for life saving medicine
  - Support for hospital surgery
  - Support for treatment of accident
  - Food for prisoners
  - Medical treatment of prisoners
  - Health insurance for poor families
  - Special support for cardio hospital
  - Salaries of island Al Jazeera
  - Salary of social insurance
  - Removing wage gaps
  - Family Support Program

### Program monitoring arrangements
- A program-monitoring committee to be maintained by the Sudanese authorities composed of senior officials from:
  - Ministry of Finance, Ministry of Minerals, Oil and Gas, CBOS, Ministry of Labor and Administrative Reforms, and other relevant agencies.
  - IMF Resident Representative will have observer status.
- Committee responsibilities:
  - monitor program performance;
  - recommend policy responses;
  - inform the IMF regularly about program progress;
  - transmit supporting materials necessary for evaluation of benchmarks.
- Reporting cadence: monthly progress report to the IMF within four weeks of the end of each month, using the latest available data.

### Data reporting framework (selected key items and timing)
- Submit data in printed and electronic form to IMF local office and upload to IMF Integrated Monetary Database and Balance of Payment database; submissions should begin with January 2020 and identify revisions.
- Central Bank of Sudan required submissions (examples):
  - CBOS balance sheet and CB-1SR: monthly, 30 days after month end.
  - Monetary survey and ODC_2SR: monthly, 30 days after month end.
  - Comprehensive lending to central government by CBOS: monthly, 30 days after month end.
  - Cash flow of foreign exchange (dealing room): monthly, 2 weeks after month end.
  - Banking indicators (capital adequacy; asset composition and quality including nonperforming loans; profitability; liquidity; open FX positions; prudential norms): monthly, 30 days after month end.
  - Exchange rates (official and market bid/ask; averages): daily, 2 days after end of each week.
  - Balance of payments: quarterly, 2 months after quarter end.
  - External debt contracting/guaranteeing: quarterly, 1 month after quarter end.
  - Disbursements and repayments of debt (scheduled and actual): monthly, 30 days after month end.
- Ministry of Finance and Economic Planning submissions (examples):
  - Central government operations (GFSM 2001 format): monthly, 45 days after month end.
  - Privatization receipts: monthly, 30 days after month end.
  - Central government domestic debt (end-month stocks; monthly issuances and repayments across instruments): monthly, 30 days after month end.
  - Social spending (direct cash transfer, education, health, training): monthly, 45 days after month end.
  - External support (disbursements and repayments by donor; breakdown of foreign budget and project grants): monthly, 30 days after month end.
- Central Bureau of Statistics:
  - CPI including detailed data and inflation for imported products: monthly, 2 weeks after month end.
- Ministry of Finance / Ministry of Minerals, Oil and Gas (oil sector submissions):
  - Oil transit fees/TFA from South Sudan: monthly, 30 days after month end (shipment data, listing by blend specifying date, quantity, prices, and values in US$ and in guinea).
  - Crude oil production by block, partner shares, prices and values ($ million), investment and production costs by block: monthly, 30 days after month end.
  - Sales to refineries, refineries data, fuel prices: monthly, 30 days after month end.

### Templates and indicators included
- Templates provided for:
  - Claims on Central Government (comprehensive concept), presented in SDG Thousand with itemized components and monthly columns.
  - Central Bank of Sudan Foreign Exchange Monthly Cash Flow template (RESOURCES and USES with monthly columns).
  - Financial Soundness Indicators for the Banking Sector (Capital Adequacy, Asset composition and quality, Earnings and Profitability, Liquidity) with monthly series for 2020 (e.g., 2020M1 through 2020M12).
- Specific data fields in templates include items such as Temporary Advances, Government Musharka Certificates (GMCs), Government Investment Certificates (GICs), Devaluation in Gold Dealings, Accumulated interest arrears, Sudanese Petroleum Corp-overdues, Oil Proceeds, Dealing Room Purchases (including purchase from military, commercial banks, others), Gold Proceeds, Cotton Revenues, CBOS Operations, and many others as laid out verbatim.

### Program-level decisions and contextual notes (excerpt)
- Board meeting statement dated June 28, 2021: highlights re-engagement after 36 years of financial isolation; broad-based support from 101 member countries to clear Sudan’s IMF arrears and reach the HIPC Decision point.
- Authorities’ requests summarized:
  - 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.
  - Sudan’s qualification for assistance under the HIPC Initiative and approval of the HIPC Decision Point document, including approval for IMF interim assistance to reduce NPV of the debt to exports ratio to 150 percent.
- Concessionality and debt assessment rules (see “Debt and concessionality rules” above) apply to program monitoring and new borrowing.

*Source: 1sdnea2021004 - 2. The SMP will be monitored based on four quarterly quantitative benchmarks and three (IMF staff-provided SMP text).*

### 1.      Our Sudanese authorities thank the Fund Board and membership for their support in making

### 1sdnea2021004 - 1.      Our Sudanese authorities thank the Fund Board and membership for their support in making

### Gratitude, context, and objectives
- Authorities thank the Fund Board, membership, Fund management, and staff for support in making the HIPC Decision Point possible and for mobilizing financial assurances required for arrears clearance and debt relief.
- Clearance of Sudan’s arrears to the General Department of the Fund will eliminate its non-observance of financial obligations that led to ineligibility to use Fund resources; Directors’ support is sought for termination of Sudan’s ineligibility to use the General Resources of the Fund.
- Authorities request Executive Directors’ endorsement of the SMP track record and support for a 39-month arrangement under the ECF to anchor medium-term policies and reforms between the HIPC Decision Point and the HIPC Completion Point.
- Authorities seek Directors’ confirmation of Sudan’s qualification for assistance under the Enhanced HIPC Initiative and for Interim Assistance between the HIPC Decision and Completion Points.

### The pandemic and recent economic developments
- COVID-19 status and health support:
  - Sudan is experiencing its third COVID-19 wave with acceleration in infection rates since early March.
  - Vaccination target: about 20 percent of the targeted populations in the first stage.
  - Vaccine receipts: 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.
  - Grant: agreement signed with the Arab Bank for Economic Development for a grant of US$10 million to support health services.
  - Authorities note the need for vaccines remains urgent and dire.
- Macroeconomic outcomes and near-term outlook:
  - GDP growth contracted by 3.6 percent in 2020.
  - GDP growth expected to recover to about 0.9 percent in 2021, supported by grant resources unlocked by arrears clearance to the IFIs and normalization of economic policies including exchange rate unification.
  - Inflation reached 363 percent in April 2021 compared to 269 percent in December 2020, driven mainly by fuel price increases, second-round effects after subsidy removal, and some food and fuel shortages.
  - Inflation expectations: expected to decline to double digits next year as monetization is reduced and pass-through effects from the unification of the customs rate dissipate; expected to stabilize at around 8 percent over the medium-to-long-term.
  - Current account: shifted from a deficit of 13.2 percent in 2020 to a surplus of 0.1 percent of GDP in the first quarter 2021 following exchange rate unification.
  - Recorded remittances through formal channels have increased nearly five-fold on the back of exchange rate unification.

### Track record under the Staff Monitored Program (SMP)
- Overall assessment:
  - Performance under the SMP through the current period has been satisfactory and meets standards of upper credit tranche conditionality; Directors’ endorsement sought for SMP track record for HIPC Decision Point purposes.
- Quantitative benchmark (QB) performance:
  - Met: QB on net credit to the central government; ceiling on contracting or guaranteeing external long-term non-concessional debt; net international reserves (NIR) floor.
  - Missed: ceiling on net domestic assets (NDA) — missed mainly due to exchange rate valuation effects and an increase in credit to the banking sector related to pandemic relief measures.
  - Missed: target for the ceiling on reserve money — reflecting unsterilized reserve accumulation and increased credit to banks amidst the pandemic.
  - Indicative target (IT) on the non-oil primary deficit was met by a wide margin.
  - IT floor on social spending was missed due to delayed World Bank funding for the Sudan Family Support Program (SFSP) and logistical challenges slowing SFSP rollout.
- Structural benchmarks (SB) and financial sector:
  - SB on bank stress tests was met.
  - AML/CFT on-site inspections: eight out of 10 inspections completed by mid-May; SB missed because not all 10 inspections were completed by the target date.
  - Anti-Corruption National Commission Law approved by the Sovereign Council on April 25, delaying establishment of the Anti-Corruption Commission (SB); progress made in identifying commissioners.
  - Authorities are taking remedial actions to avoid missed targets.

### Request for an Extended Credit Facility (ECF) program — objectives and policies
- Repayment capacity and risks:
  - Sudan’s capacity to repay the Fund is assessed as adequate once HIPC debt relief is effective.
  - Risks mitigated by continued access to concessional financing and improved debt management capacity under the program.
- ECF program aims:
  - Cement SMP progress; advance reforms to strengthen governance; reduce distortionary policies; lay groundwork for economic stability and sustained, inclusive, poverty-reducing, private-sector-led growth.
  - Program duration requested: 39-month arrangement under the ECF.
- Fiscal policy and social protection:
  - Fiscal deficit targets:
    - Target fiscal deficit of 1.5 percent of GDP in 2022 (compared to 2.9 percent in 2021 and 6 percent in 2020).
    - Further reduction 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 containment: continue eliminating fossil fuel subsidies; abolish government price controls on retail gasoline and diesel fuel; allow suppliers to contract at market prices; gradual reduction in electricity subsidies and higher tariffs for high-end consumers.
  - Sudan Family Support Program (SFSP):
    - Launched February 24, 2021.
    - Provided support to 160,000 households through April.
    - Expected to cover two million households by the end of the year.
    - Under ECF, cash transfers will be deployed in tandem with energy subsidy reductions to protect vulnerable populations and sustain public support.
  - Strengthen public financial management (PFM), revamp public procurement, reform SOE sector, and improve fiscal transparency.
- Debt management and transparency:
  - Focus on concessional financing for the foreseeable future and strengthening debt management and transparency.
  - Plan to enact a Debt Management Law specifying objectives, authority, responsibilities, procedures, and reporting and auditing requirements.
  - Intend to publish quarterly external public debt reports covering outstanding debt stock, debt flows, and new borrowing, 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 and will limit FX interventions to mitigating disorderly market conditions.
  - Customs exchange rate unified on June 22, 2021.
  - Measures to strengthen central bank independence and transition to a reserve money targeting regime expected to reduce deficit monetization and help contain high inflation.
  - Existing monetary policy tools (reserve requirements, central bank securities) to help tighten monetary policy as authorities pursue reserve money targets under the ECF.
- Financial sector and structural reforms:
  - Goal: deepen government securities market facilitated by dual banking system and IMF TA.
  - Revising the Banking Regulation Act to align with best international practices to improve banking soundness and governance.
  - Strengthen AML/CFT implementation.
  - Intensify anti-corruption efforts: Anti-Corruption National Commission Law enacted April 2021 to establish an independent Anti-Corruption Commission.
  - Continue asset recovery measures in line with the December 2019 law.
  - Improve business environment with World Bank and IFC support: strengthen PPP framework, enhance access to finance for financial inclusion and MSME development, and foster public-private dialogue to support private sector growth and jobs.

### HIPC Decision Point and debt-relief status
- Preconditions met for HIPC Decision Point:
  - Satisfactory SMP track record under the UCT-quality SMP.
  - Adoption of a comprehensive and widely consulted Poverty Reduction Strategy Paper (PRSP) in May 2021.
  - Cleared arrears to the World Bank and the African Development Bank.
  - Secured adequate financing assurances to clear arrears to the IMF.
  - Agreed Completion Point triggers with IDA and IMF staffs focused on public financial and debt management, governance, and social protection reforms reflected in the ECF program.
  - Removal from the US State Sponsors of Terrorism List (SSTL) in December 2020 facilitated reintegration with the international financial system.
- Creditor commitments and debt reconciliation:
  - 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 fully reconciled their debt to multilateral creditors.
  - Overall reconciled 80 percent of Sudan’s total debt (adding bilateral debt covered so far), with support from the World Bank and the Fund.
  - Authorities are beginning outreach to non-Paris Club creditors and intend to reach out to official non-Paris Club and commercial creditors to seek negotiations on equivalent terms once reconciliation is complete.
- Requests to Executive Board:
  - Support for the proposed HIPC Decision, confirmation that Sudan qualifies for assistance under the Enhanced HIPC Initiative, approval of the provision of interim assistance between the HIPC Decision and Completion Points, and full provision of expected HIPC Initiative debt relief on eligible debt to reduce NPV of debt to exports to 150 percent.

### Conclusion
- Change in government, re-engagement with the IMF and other donors, and implementation of an ambitious reform program have placed Sudan on a path towards normalization, peace, and recovery.
- Authorities thank international community members and development partners for pledges and contributions from the SCA-1 and Deferred Charge Accounts and for additional cash grants that facilitated clearing of arrears to the Fund.
- Authorities remain mindful of challenges ahead and are determined to stay on track with implementing reforms under the ECF program and associated floating triggers to reach the HIPC Completion Point.

*Source: 1sdnea2021004 - 1.      Our Sudanese authorities thank the Fund Board and membership for their support in making*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1sdnea2021004.pdf_