## _cr05184

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---

### Executive Summary — Performance under the 2004 Staff‑Monitored Program
- Policy performance in the first half of 2004 was broadly in line with the program: all quantitative benchmarks and most structural benchmarks were met.
- Structural benchmarks not met:
  - Begin to transfer VAT collected by customs to the tax department on a daily basis — transfers occurring weekly; daily transfers expected in the near future.
  - Adopt a universal taxpayer identification number — not undertaken due to technical delays in harmonizing customs and tax administration codes.
- Payments to the Fund are on track.
- BOS monetary policy actions were taken to rein in monetary expansion.

### Executive Summary — Recent economic developments
- Growth, inflation, and exchange rate:
  - Economic growth estimated at an annual rate of about 7 percent, above the program projection of 6.6 percent, driven by strong non-oil sectors (manufacturing and services) despite a less-than-expected increase in oil production.
  - The 12-month inflation rate was 6.4 percent at end‑August compared with the 6.5 percent program target (year‑end).
  - Exchange rate largely unchanged; in Q3 the exchange rate appreciated by one percent.
- Balance of payments and reserves (first half 2004, cash-basis, millions of U.S. dollars):
  - Trade balance: 59
  - Exports (f.o.b.): 1,669
    - Oil: 1,292
    - Non-oil: 377
  - Imports (f.o.b.): -1,610
  - Private transfers (net): 520
  - Current account: -295
    - (In percent of GDP, annualized) -3.0
  - Capital and financial accounts: 519
    - (In percent of GDP, annualized) 5.3
  - Change in official reserves (increase, -): -278
- FDI inflows estimated at about $662 million during the period.
- Usable international reserves of the BOS rose to the equivalent of 2.2 months of imports, compared with 1.6 months at end-2003 and the program target of 1.8 months of imports.
- Fiscal performance (first half, in percent of GDP):
  - Overall fiscal surplus: 0.7 percent of GDP (actual) vs. programmed deficit of ½ percent of GDP.
  - Revenue: actual 9.7; program 8.3; 2003 actual 8.2
    - Tax: 3.8 (2004 actual)
    - Nontax: 5.9 (2004 actual)
    - Of which crude oil: 4.8 (2004 actual)
  - Expenditures: 9.0 (2004 actual and program)
    - Current: 6.4 (2004 actual)
    - Capital: 2.5 (2004 actual)
  - Of which: OSA accumulation 0.7 (2004 actual)
- Monetary developments:
  - Broad money growth rose to 37 percent by midyear (annualized); by end‑August broad money growth had declined to 32 percent after BOS actions.
  - Private sector credit rose by 63 percent (annualized) by end‑June 2004.
  - Monetary aggregates (June 2003 → Program → June 2004, in billions of Sudanese dinars; percent change from June 2003):
    - Reserve money: 286.8 → 380.1 → 389.9; Percent change 35.9
    - NFA (excluding valuation adjustment): 195.0 → 297.5 → 339.7; Percent change 74.2
    - NDA: 416.5 → 493.1 → 499.6; Percent change 20.0
    - Broad money: 611.5 → 790.6 → 839.3; Percent change 37.3
      - Credit to government: 97.7 → 103.2 → 57.7; Percent change -41.0
      - Credit to nongovernment: 233.7 → 316.9 → 381.6; Percent change 63.3
  - BOS measures: raise reserve requirement by 2 percentage points (from 12 to 14 percent), substantially reduce lending to banks, open market sales of government securities and foreign exchange.
- Structural reforms and technical work:
  - Most end‑June structural benchmarks met.
  - Monthly budget cash plan prepared; cash release committee approval and presentation to BOS implemented.
  - VAT transfer improved to weekly transfers; daily transfers expected when capacity constraints resolved.
  - Large taxpayer unit fully operational and yielding substantial revenue benefits.
  - Technical exercise to classify 2004 budget sectors into 2001 GFS classification; program prepared to fully adopt GFS by 2006.

### Macroeconomic outlook remainder of 2004 (summary)
- Growth and inflation:
  - Strong performance likely to continue; inflationary pressures rising.
- External sector:
  - Current account deficit (cash basis) will remain below program projections.
- Fiscal:
  - Strong revenue performance expected to continue; spending pressures will increase significantly—primarily for relief activities in Darfur—and will be covered partly by higher-than-expected oil prices.
- Monetary and exchange rate:
  - Monetary policy to be tightened further; increase exchange rate flexibility allowing appreciation.

### Staff appraisal — conclusions and risks
- Midyear performance satisfactory; outcomes better than program.
- Positives: improvement in non‑oil revenue; saving more than half of oil revenues windfall in the OSA; BOS readiness to tighten monetary policy; efforts to address FX market rigidities; appropriate use of additional oil revenues for Darfur emergency spending.
- Risks and recommendations:
  - High monetary expansion and increased government spending require maintaining macroeconomic stability while sustaining growth.
  - Costs of comprehensive peace with the south and rehabilitation in Darfur could exceed Sudan’s current financial capacity.
  - Important to identify in the 2005 budget sources of additional revenues and expenditure savings to complement donor efforts.

*Source: Executive Summary of the staff report (midyear review of the 2004 Staff‑Monitored Program).*

---

### Oil sector governance, customs reform, and monetary operations
- Oil sector governance and audits:
  - Auditor General completed audit of Sudan Petroleum Corporation’s 2003 account and is auditing four other oil sector companies; summary expected to parliament before year‑end.
  - Oil revenues windfall projected at about 1.3 percent of GDP, of which about 60 percent will be saved in the OSA.
  - Tax privileges of the four major oil distribution companies are set to expire at year‑end; no new ones planned.
- Customs and WTO accession:
  - Weighted average tariff rate declined from 10.9 percent in 2003 to 10.3 percent in the first seven months of 2004.
  - Proportion of imports exempted from customs declined from 50 percent to 35 percent over the same period.
  - Sudan applies a zero tariff rate on imports from 11 COMESA members and provides 80 percent reduction in tariffs on imports from four COMESA members.
  - Sudan submitted all documents required for WTO accession by August 2004.
  - High level committee developing a three‑year tariff reform program to reduce simple average tariff rate from current 23 percent to under 15 percent by 2007.
- Monetary operations and central bank capacity:
  - BOS strengthened monetary operations capacity with Fund TA; operationalizing Monetary Operations Unit (MOU).
  - BOS improving short‑term liquidity forecasts and weekly flash reporting.
  - Reforming FX market structure to increase bank competition, deepen FX market, relax FX transfer rules; review of two dominant “market makers” underway.

### Debt policy and management
- High‑level committee completed a draft of the new debt strategy and borrowing policy; another committee established to oversee implementation.
- Authorities finalizing formal policy on contracting and guaranteeing external debt; draft completed and cabinet approval expected by end of the year.

---

### Macroeconomic outlook (more detailed projections for 2004)
- Growth and inflation projections:
  - Real GDP likely to maintain 7 percent growth; annual average CPI inflation could reach about 8 percent (above 6.5 percent program target).
  - Rapid growth expected in construction and manufacturing; agricultural growth could be slowed by delayed rains.
- External current account (cash basis):
  - Expected to be limited to 2.8 percent of GDP in 2004 (vs. 4.9 percent in 2003 and 5.2 percent under the program).
  - Exports likely to exceed program projections by about 20 percent; imports will exceed program projection by 12 percent.
  - Usable international reserves expected to exceed $1 billion, above program target of $807 million.
- Fiscal outlook and expenditures:
  - Tax revenues could be 2 percentage points of GDP higher than in 2003 and 0.8 percent of GDP above program target.
  - Nontax revenues could be 2 percentage points of GDP higher than in 2003 (and more than 1½ percent of GDP above program) due to oil export revenue.
  - Food relief, resettlement, and security operations in Darfur could push government expenditures to more than 1.1 percent of GDP ($212 million)—more than twice as budgeted.
  - Social spending expected to rise to 2 percent of GDP in 2004, compared with 1.7 percent envisaged under the program.
  - Authorities plan to use SDD 30 billion, or 0.6 percent of GDP, of oil revenues to finance additional expenditures this year.
- Monetary policy, money growth, and targets:
  - Authorities implementing measures to slow broad money growth: reduce lending to banks; mop up liquidity via open market sales of securities and foreign exchange.
  - 2004 broad money target revised upward from 22 percent to 25 percent.
  - Staff urges additional measures as necessary to slow broad money growth and maintain macroeconomic stability; emphasize close fiscal‑monetary coordination.
- Exchange rate policy:
  - Steps to eliminate FX market rigidities intended to facilitate exchange rate flexibility; expected appreciation by end of year.
  - Staff concurs that a managed‑float regime remains appropriate.

### Structural reforms and priorities
- Most end‑December structural benchmarks likely to be met.
- Priorities:
  - Fully operationalize Monetary Operations and Cash Management Units at BOS and MOFNE.
  - Deepen market for Government Investment Certificates.
  - Further improve transparency of the oil sector.
  - Further TA needed for post‑conflict capacity building: budget classification, fiscal federalism, financial programming.

### Peace agreement and 2005 budget implications
- 2005 budget will assume peace agreement in the south; authorities in early stages of assessing fiscal impact.
- Peace‑related fiscal costs include:
  - South’s share in oil revenues (about half of net oil revenues generated in the south).
  - Cost of new post‑conflict federal arrangements.
  - Resettlement and reconstruction expenses.
- Staff concern: without international support, significant financing gap could emerge in 2005; recommends needs‑assessment mission (UN and World Bank with Fund participation) to identify financing gaps and mobilize donor support.
- Staff urges identification of additional revenues and expenditure savings for 2005 budget, including:
  - Further reductions in tax and customs exemptions.
  - Increase in the VAT rate.
  - Containing growth of the wage bill.
  - Ongoing tax system reforms to mobilize more revenue over the medium term.

*Source: IMF staff report (content unit: _cr05184).*

---

### Structural benchmarks and implementation status (selected)
- Primary measures (time‑bound deliverable: By end‑June 2004):
  - 1. Enforce a ban, through a ministerial decree distributed to all line ministers, on all discretionary tax exemptions. — Done
  - 2. Constitute the cash management unit (CMU), appoint a cash release committee, and draft an action plan to operationalize the CMU. — Done
  - 3. Adopt a two‑year program to align the budget classifications with the GFS. — Done
  - 4. Develop an action plan to reform the fiscal reporting system. — Done
  - 5. Establish a Debt Policy and Monitoring Committee to guide the formulation and implementation of a debt strategy and to evaluate all new loans. — Done
  - 6. Prepare a time bound action plan to audit and consolidate the accounts of all subsidiaries of Sudan Petroleum Corporation, and launch a program to align their accounting system with international standards. — Done
- Second‑half 2004 operational actions (monthly/near‑term):
  - 1. Prepare a fiscal budget cash plan on a monthly basis for the second half of 2004; cash plan to be approved by cash release committee and presented to BOS. — Done
  - 2. Begin to transfer VAT collected by customs to the taxation department on a daily basis. — Not Done (Currently on weekly basis)
  - 3. Activate the large tax payer unit. — Done
  - 4. Classify, as a technical exercise, the 2004 budget sectors into the GFS functions. — Done
  - 5. Adopt a universal taxpayer identification number. — Not Done
- End‑December 2004 actions (required for 2005 budget context):
  - 1. Complete review of all regulations and agreements which grant tax exemptions and develop action plan to streamline.
  - 2. Broaden the definition of large taxpayers to include individuals.
  - 3. Eliminate all tax privileges of the four major oil distribution companies.
  - 4. Develop a new three‑year tariff reform program within the context of the 2005 budget.

*Source: _cr05184 - 1. Enforce a ban, through a ministerial decree distributed to all line ministers,*

---

### External debt policy, macro indicators, and balance of payments (selected numeric indicators)
- Policy directive:
  - Formulate an external debt policy of the public sector and have it approved by the Cabinet of Ministers.
- Macroeconomic overview (selected, annual changes in percent and levels preserved):
  - Nominal GDP (billions of Sudanese dinars): 3,376 (2001); 3,876 (2002); 4,425 (2003); 5,090 (2004).
  - Population (in millions) 2/: 32 (2001).
  - GDP per capita (U.S. dollars): 412 (2001).
  - Real GDP growth: 6.1 (2001); 6.0 (2002); 6.0 (2003); 7.0 (2004).
  - Average CPI inflation: 4.9 (2001); 8.3 (2002); 7.7 (2003); 6.5 (2004).
- Investment, savings, external current account (percent of GDP):
  - Gross domestic investment: 18.3 (2001); 19.1 (2002); 19.1 (2003); 21.2 (2004).
  - Gross domestic savings: 10.3 (2001); 12.8 (2002); 14.6 (2003); 17.5 (2004).
  - External current account balance (cash basis): -918 (2002); -827 (2003); -1,000 (2004 prog.); -555 (2004).
  - External current account balance (percent of GDP): -9.9 (2001); -6.2 (2002); -4.9 (2003); -2.8 (2004).
- External sector (millions of U.S. dollars):
  - Exports, f.o.b.: 1,699 (2001); 1,949 (2002); 2,577 (2003); 3,615 (2004).
    - Oil: 1,377 (2001); 1,511 (2002); 2,082 (2003); 2,940 (2004).
  - Imports, f.o.b.: -2,031 (2001); -2,153 (2002); -2,536 (2003); -3,398 (2004).
  - Official exchange rate (end of period, SD/US$): 261.4 (2001); 261.7 (2002); 260.4 (2003); 254.0 (2004).
  - Crude oil export price (US$ per barrel): 22.0 (2001); 23.0 (2002); 27.0 (2003); 34.9 (2004).
- External debt and reserves:
  - External debt (billions of U.S. dollars): 20.9 (2001); 23.6 (2002); 24.1 (2003); 26.4 (2004).
  - Bank of Sudan gross usable reserves (millions of U.S. dollars): 44.9 (2001); 243.6 (2002); 526.9 (2003); 1,142.4 (2004).
    - In months of next year's imports: 0.2 (2001); 1.0 (2002); 1.8 (2003); 3.0 (2004).
- Balance of payments (2002–04, selected, millions of U.S. dollars):
  - Current account balance: -1,472 (2002); -1,457 (2003); -1,649 (2004 prog.); -1,199 (2004 projection).
  - Current account balance (cash basis): -918 (2002); -827 (2003); -1,000 (2004 prog.); -555 (2004 projection).
  - Financial account (net): 556 (2002); 1,072 (2003); 1,219 (2004 prog.); 1,141 (2004 projection).
  - Overall balance: -433 (2002); -296 (2003); -430 (2004 prog.); -51 (2004 projection).
  - Change in official reserves (increase -): -244 (2002); -434 (2003); -298 (2004 prog.); -674 (2004 projection).
- Central government operations (selected, in billions of Sudanese dinars):
  - Total revenue: 370 (2001); 471 (2002); 742 (2003); 493 (2004 prog.); 423 (Jan–Jun 2004).
  - Tax revenue: 189 (2001); 213 (2002); 270 (2003); 192 (2004 prog.); 171 (Jan–Jun 2004).
  - Nontax revenue: 181 (2001); 257 (2002); 472 (2003); 301 (2004 prog.); 252 (Jan–Jun 2004).
  - Total expenditure: 401 (2001); 503 (2002); 699 (2003); 456 (2004 prog.); 455 (Jan–Jun 2004).
  - Overall balance (cash basis, in billions): -31 (2001); -33 (2002); 43 (2003); 37 (2004 prog.); -32 (Jan–Jun 2004).
  - Nominal GDP (factor cost, in billions SDD): 3,376 (2001); 3,876 (2002); 4,425 (2003); 5,072 (2004); 5,090 (2004 projection).
- Selected fiscal ratios (percent of GDP):
  - Total revenues: 11.0 (2001); 12.1 (2002); 16.8 (2003); 21.1 (2004).
  - Total expenditure: 11.9 (2001); 13.0 (2002); 15.8 (2003); 20.0 (2004).
  - Overall balance (cash): -0.9 (2001); -0.8 (2002); 1.0 (2003); 1.1 (2004).

### Indicators of debt service capacity and external financing (selected)
- Total debt service paid: 160 (2001); 137 (2002); 247 (2003); 300 (2004 projection).
- Payments to the Fund: 55 (2001); 26 (2002); 28 (2003); 30 (2004 projection).
- Overdue obligations to the Fund: 1,371 (2001); 1,475 (2002); 1,595 (2003); 1,577 (2004 projection).
- External debt (including arrears): 20,948 (2001); 23,609 (2002); 25,709 (2003); 26,380 (2004 projection).
- GDP (millions of U.S. dollars): 13,049 (2001); 14,720 (2002); 16,957 (2003); 19,730 (2004 projection).
- Gross financing requirements: 2,213 (2001); 1,877 (2002); 2,001 (2003); 2,196 (2004 projection).
- Expected financing (selected, millions of U.S. dollars):
  - Official transfers and grants: 834 (2001); 104 (2002); 4 (2003); 4 (2004 projection).
  - Debt financing: 223 (2001); 0 (2002); 85 (2003); 255 (2004 projection).
  - FDI and errors and omissions: 1,286 (2001); 1,155 (2002); 1,203 (2003); 1,206 (2004 projection).
- Financing gap: 0 (2001–04).

*Sources: Fund staff estimates and projections based on information provided by the Sudanese authorities.*

---

### Exchange rate regime, FSAP, TA, and statistical issues
- Exchange rate regime and BoS intervention:
  - Initially a formal exchange rate band of 1.5 percent (later broadened to 2 percent); BOS auctioned FX within band.
  - In May 2003 BOS adopted a managed‑float regime: formal band abandoned; auction replaced with direct interbank transactions; BOS internal limit of +2 percent intraday fluctuations to trigger intervention.
  - In 2004 BOS changed permissible intraday fluctuation from +2 percentage points to +3 percentage points.
- Article IV and FSAP:
  - Sudan on a 12‑month consultation cycle; last Article IV discussion August 16–28, 2003; Staff Report (IMF Country Report No. 03/390, December 19, 2003) discussed October 31, 2003.
  - FSAP mission took place October 9–14, 2004; follow‑up mission expected November–December 2004.
- Technical assistance record (selected mission dates preserved exactly in source).
- Resident representative withdrawn in June 1990.
- Relations with the World Bank (as of October 2004):
  - World Bank has no active lending portfolio due to default and suspension of disbursements in April 1993.
  - “Good faith” payments: $1 million per month starting July 1999; $500,000 equivalent per month since October 2002.
  - Arrears about $315 million in September 2004 (from $145 million end‑1999); outstanding Bank debt approx. $1.3 billion.
  - $4.5 million LICUS Trust Fund grant approved September 2004; complements two Post Conflict Fund grants totaling $3.0 million.
- Statistical issues — key findings and needs:
  - Available data sufficient for program monitoring but many areas need improvement: national accounts, state budgetary data, external trade and financial statistics.
  - Real sector: monthly CPI for Khartoum available shortly after month end; CPI including other states with three‑month lag. National accounts lag and lack basic information for oil, livestock, horticulture, most services.
  - Fiscal sector: GFS reported to MCD adequate for central government; consolidated state data often not available.
  - Monetary sector: monetary accounts broadly acceptable but STA concerned about reemergence of problems (overestimation of international reserves, errors in net credit to government); divergence between reserve money in balance sheets and end‑of‑month flash reports noted.
  - External sector: discrepancies between customs and BOS import statistics; need clarification of usable reserves vs. earmarked active balances.
  - Total oil reserves available estimated between 10 to 15 billion barrels, which, at a production rate of 350 thousand barrels a day, would last about 100 years.
- Core statistical indicators as of September 30, 2004 (selected fields and dates preserved exactly as presented in source).
- Tentative work program, 2004 (dates preserved):
  - Assistance with peace negotiations (Kenya) October–November 2004
  - Article IV Consultation, Negotiations for the 2005 SMP and Joint Assessment Mission December 2004
  - FSAP (follow‑up mission) November–December 2004

*Source: _cr05184 - 1.5 percent (later broadened)*

### Executive Summary ......................................................................................................

### Executive Summary

### Performance Under the 2004 Staff-Monitored Program
- Policy performance in the first half of 2004 was broadly in line with the program: all quantitative benchmarks and most structural benchmarks were met.
- Two of the five structural benchmarks were not met:
  - Begin to transfer VAT collected by customs to the tax department on a daily basis (transfers occurring weekly; daily transfers expected in the near future).
  - Adopt a universal taxpayer identification number (not undertaken due to technical delays in harmonizing customs and tax administration codes).
- Payments to the Fund are on track.
- Monetary policy actions by the Bank of Sudan (BOS) were taken to rein in monetary expansion (see Monetary Developments).

### Recent Economic Developments
- Growth, inflation, and exchange rate:
  - Economic growth is estimated at an annual rate of about 7 percent, above the program projection of 6.6 percent, driven by strong non-oil sectors (manufacturing and services) despite a less-than-expected increase in oil production.
  - The 12-month inflation rate was 6.4 percent at end-August compared with the 6.5 percent program target (year-end).
  - The exchange rate was largely unchanged with small fluctuations; in the third quarter the exchange rate appreciated by one percent.
- Balance of payments and reserves:
  - The current account deficit (cash basis) was 1½ percent of GDP, better than programmed.
  - First half 2004 cash-basis balance of payments (millions of U.S. dollars):
    - Trade balance: 59
    - Exports (f.o.b.): 1,669
      - Oil: 1,292
      - Non-oil: 377
    - Imports (f.o.b.): -1,610
    - Private transfers (net): 520
    - Current account: -295
      - (In percent of GDP, annualized) -3.0
    - Capital and financial accounts: 519
      - (In percent of GDP, annualized) 5.3
    - Change in official reserves (increase, -): -278
  - High levels of FDI inflows, estimated at about $662 million during the period, more than compensated for shortfalls in project loan disbursements and short-term capital flows.
  - Usable international reserves of the BOS rose to the equivalent of 2.2 months of imports, compared with 1.6 months at end-2003 and the program target of 1.8 months of imports.
- Fiscal performance:
  - The fiscal outcome in the first half of 2004 was better than programmed: an overall fiscal surplus of 0.7 percent of GDP, compared to a programmed deficit of ½ percent of GDP.
  - Government operations (In percent of GDP), first half:
    - Revenue: actual 9.7 (2004 actual) versus program 8.3 (2004 program) and 8.2 (2003 actual)
      - Tax: 3.8 (2004 actual)
      - Nontax: 5.9 (2004 actual)
      - Of which crude oil: 4.8 (2004 actual)
    - Expenditures: 9.0 (2004 actual and program)
      - Current: 6.4 (2004 actual)
      - Capital: 2.5 (2004 actual)
    - Overall balance: 0.7 (2004 actual)
    - Of which: OSA accumulation 0.7 (2004 actual)
  - Tax revenues overperformed relative to the program by 0.4 percentage points of GDP, aided by the newly established large taxpayer unit.
  - Higher-than-projected oil prices and telecommunication license fee receipts (the latter about 0.4 percent of GDP) significantly improved nontax revenues.
  - No net domestic financing was provided to the budget compared with 0.8 percent of GDP under the program.
  - Social spending pace was higher than in the same period last year, but below the program level.
- Monetary developments:
  - Broad money growth rose to 37 percent by midyear (annualized), well above the program target of 22 percent; by end-August broad money growth had declined to 32 percent after BOS actions.
  - Private sector credit rose by 63 percent (annualized basis) by end-June 2004.
  - Monetary aggregates (June 2003 to June 2004, in billions of Sudanese dinars):
    - Reserve money: June 2003 286.8; Program 380.1; June 2004 389.9; Percent change (from June 2003) 35.9
    - NFA (excluding valuation adjustment): 195.0 → 297.5 → 339.7; Percent change 74.2
    - NDA: 416.5 → 493.1 → 499.6; Percent change 20.0
    - Broad money: 611.5 → 790.6 → 839.3; Percent change 37.3
      - Credit to government: 97.7 → 103.2 → 57.7; Percent change -41.0
      - Credit to nongovernment: 233.7 → 316.9 → 381.6; Percent change 63.3
  - BOS measures included raising the reserve requirement by 2 percentage points (from 12 to 14 percent), substantially reduced lending to banks, and open market sales of government securities and foreign exchange to mop up liquidity.
- Structural reforms and technical work:
  - Most end-June structural benchmarks were met.
  - Fiscal cash management improvements: preparation of a monthly budget cash plan, approval by a cash release committee, and presentation to the BOS.
  - VAT transfer process from customs to the tax department improved to weekly transfers; daily transfers expected when capacity constraints are resolved.
  - Large taxpayer unit fully operational and yielding substantial revenue collection benefits.
  - A technical exercise was undertaken to classify the 2004 budget sectors into a 2001 government finance statistics (GFS) classification and a program to fully adopt the GFS by 2006 has been prepared.

### Macroeconomic Outlook for the Remainder of 2004
- Growth and inflation:
  - The strong economic performance is likely to continue, although inflationary pressures are rising.
- External sector:
  - The current account deficit (cash basis) will remain below program projections.
- Fiscal outlook:
  - Strong revenue performance is expected to continue, though spending pressures will increase significantly—primarily for relief activities in Darfur—and will be covered by part of the revenues emanating from the higher-than-expected oil prices.
- Monetary and exchange rate policy:
  - Monetary policy will be tightened further this year, including by allowing an appreciation of the exchange rate to be made possible by increasing exchange rate flexibility.

### Staff Appraisal
- Overall performance through midyear was satisfactory; the economic outcome was better than anticipated under the program.
- Key positive elements:
  - Significant improvement in non-oil revenue.
  - Continued saving of more than half of the oil revenues windfall in the Oil Savings Account (OSA).
  - Authorities’ readiness to tighten monetary policy to address the high pace of monetary expansion.
  - Efforts to address foreign exchange market rigidities are welcome.
  - The use of additional oil revenues to cover emergency spending in Darfur is appropriate.
- Risks and policy recommendations:
  - Given the high current pace of monetary expansion and the expected increase in government spending, maintaining macroeconomic stability while sustaining growth is critical.
  - The costs associated with comprehensive peace with the south and with rehabilitation in Darfur could exceed Sudan’s current financial capacity.
  - It is important to identify in the 2005 budget sources of additional revenues and expenditure savings to complement donor efforts to fill any potential financing gap.
- Political context:
  - A final peace agreement between the government and the southern SPLM is expected in the coming months; negotiations between the government and Darfur rebels are taking place in Abuja, Nigeria, but the situation in Darfur remains critical.

*Source: Executive Summary of the staff report (midyear review of the 2004 Staff-Monitored Program).*

### 11.      Oil sector governance has improved. The Auditor General of Sudan has completed

### _cr05184 - 11.      Oil sector governance has improved. The Auditor General of Sudan has completed

### Oil sector governance and audits
- The Auditor General of Sudan has completed audit of the Sudan Petroleum Corporation’s 2003 account and is currently conducting account audits of four other oil sector companies.
- The Auditor General is expected to present a summary of these audits to parliament before year-end.
- The oil revenues windfall is projected at about 1.3 percent of GDP, of which, about 60 percent will be saved in the OSA.
- The OSA will still continue to provide adequate cushion against adverse shocks, including an oil price shock.
- Tax privileges of the four major oil distribution companies are set to expire at year-end; no new ones are planned.

### Customs reform and WTO accession
- Tariffs and customs exemptions were reduced during the first half of 2004:
  - Weighted average tariff rate declined from 10.9 percent in 2003 to 10.3 percent in the first seven months of 2004.
  - Proportion of imports exempted from customs declined from 50 percent to 35 percent over the same period.
- Currently, Sudan applies a zero tariff rate on imports from 11 Common Market for Eastern and Southern Africa (COMESA) member countries, and provides 80 percent reduction in tariffs on imports from four COMESA members.
- Sudan submitted all documents required for WTO accession by August 2004, including initial tariff offers on goods and services.
- A high level committee is developing a three-year tariff reform program with objective to reduce the simple average tariff rate from the current 23 percent to under 15 percent by 2007 and align the tariff structure with the COMESA customs union agreement.

### Monetary operations and central bank capacity
- The Bank of Sudan (BOS) has strengthened monetary operation capacity with Fund technical assistance.
- Significant progress in constituting and operationalizing the Monetary Operations Unit (MOU); the MOU will be responsible for carrying out monetary policy actions on market basis.
- BOS is striving to improve capacity to conduct short-term liquidity forecasts and improve its weekly flash reporting system.
- BOS is reforming the foreign exchange market structure to increase competition among banks, deepen the foreign exchange market, and relax rules on foreign exchange transfers; review of the role of the two dominant “market makers” group of banks is underway.

### Debt policy and management
- A committee of high-level representatives of the Ministry of Finance and National Economy (MOFNE) and the BOS (established in April) has completed a draft of the new debt strategy and borrowing policy.
- Another high level committee has been established to oversee the implementation of the new borrowing policy.
- To strengthen debt management, the authorities are finalizing a formal policy on contracting and guaranteeing external debt; a draft has been completed and cabinet approval is expected by end of the year.

### Macroeconomic outlook for the remainder of 2004
- Growth and inflation:
  - Real GDP will likely maintain its 7 percent growth, underpinned by the strong performance of the non-oil sectors, and notwithstanding the disruptions in Darfur.
  - Annual average CPI inflation could reach about 8 percent, higher than the 6.5 percent program target, reflecting rapid monetary expansion in the first half of the year.
  - Rapid growth is expected in construction and manufacturing; a delay in rains could slow agricultural growth.
- External current account:
  - External current account deficit (on a cash basis) is expected to be limited to 2.8 percent of GDP in 2004, compared with 4.9 percent in 2003 and 5.2 percent of GDP under the program.
  - Exports will likely exceed program projections by about 20 percent on account of continued recovery of non-oil exports and high oil prices.
  - Imports will exceed the program projection by 12 percent, partly from increased imports for the Darfur crisis and the Merowe power project.
  - Private capital inflows (mainly FDI) are expected to be in line with program projections, but project loan disbursements will fall short relative to projected trends.
  - Usable international reserves are expected to exceed $1 billion, well above the program target of $807 million.
  - Considerable uncertainty surrounds import volume, oil price projections, and private capital inflows.

### Fiscal outlook and expenditures
- Revenue performance:
  - Tax revenues could amount to 2 percentage points of GDP higher than in 2003, and 0.8 percent of GDP above program target, because of increases in customs and excise revenue.
  - Higher-than-expected oil export revenue could yield nontax revenues that are also 2 percentage points of GDP higher than in 2003 (and more than 1½ percent of GDP above program).
- Spending pressures and allocations:
  - Food relief, resettlement, and security operations in Darfur could push government expenditures to more than 1.1 percent of GDP ($212 million)—more than twice as budgeted.
  - Authorities plan to increase spending on social programs and accelerate key development and infrastructure projects.
  - Social spending is expected to rise to 2 percent of GDP in 2004, compared with 1.7 percent envisaged under the program.
  - Authorities intend to use higher tax revenues to fund additional spending on Darfur and social and development programs.
  - Staff and authorities agreed to use more oil revenues this year: SDD 30 billion, or 0.6 percent of GDP, to finance these expenditures.
  - New appropriations have been presented in a supplementary budget to parliament.
- Fiscal financing:
  - Despite pickup in spending, primary domestic non-oil balance is likely to be at about the program level.
  - The sizable overperformance in the first half will allow domestic financing of the fiscal deficit to be below the program.

### Monetary policy, money growth, and targets
- Authorities implementing measures to slow broad money growth:
  - Reducing lending to banks and mopping up liquidity through open market sales of securities and foreign exchange.
  - 2004 broad money target revised upward from 22 percent to 25 percent because this higher rate of growth would appear to be consistent with indications of an output growth-driven increase in money demand.
  - Given projected fiscal expansion in the second half, the new money target could result in a decline in growth of bank credit to the private sector.
- Staff view and recommendations:
  - Staff welcomes authorities’ readiness to tighten monetary policy and the measures implemented in June 2004 and planned for the remainder of the year.
  - Staff urges authorities to take additional measures, as necessary, to slow down broad money growth in order to contain inflationary pressures and maintain macroeconomic stability.
  - Emphasis on continued close coordination between fiscal and monetary policies to ensure rising government spending does not undermine monetary actions.

### Exchange rate policy and foreign exchange market reform
- Steps to eliminate rigidities in the foreign exchange market intended to facilitate further exchange rate flexibility and deepen the market.
- These steps are expected to increase sensitivity of the exchange rate to market pressures and likely lead to an appreciation by end of the year, which would help reduce monetary pressures.
- Staff concurs that the managed-float exchange rate regime remains appropriate given current market development and depth; near-term exchange rate adjustments should not have significant adverse impact on external competitiveness.

### Structural reforms and benchmarks
- Most end-December structural benchmarks are likely to be met.
- A review of all regulations and agreements that grant exemptions is likely to be completed.
- Capacity constraints will likely prevent broadening the definition of large taxpayers to include individuals, but authorities plan to include midsized companies under this group by end-2004.
- Important priorities:
  - Fully operationalize the Monetary Operations and Cash Management Units at the BOS and the MOF.
  - Deepen the market for Government Investment Certificates.
  - Further improve transparency of the oil sector.
- Further technical assistance will be needed for post-conflict capacity building, including budget classification, fiscal federalism, and financial programming.

### Peace agreement, 2005 budget implications, and staff concerns
- Authorities will prepare the 2005 budget assuming the peace agreement in the south will be in place; they are in early stages of assessing fiscal impact and awaiting implementation protocols.
- Fiscal costs associated with the south include:
  - The south’s share in oil revenues (about half of net oil revenues generated in the south).
  - Cost of new post-conflict federal arrangements (civil service and institutions).
  - Resettlement and reconstruction expenses.
- 2005 budget will include substantial allocations for stabilization and rehabilitation of Darfur.
- Authorities concerned that without international support, a significant financing gap could emerge in 2005 with potential adverse impact on economic stability and growth.
- Staff notes that peace-related costs could exceed Sudan’s capacity to finance them and that a needs-assessment mission (led by the UN and World Bank with Fund participation) should help identify financing gaps and mobilize donor support.
- Staff urges authorities to identify potential sources of additional revenues and expenditure savings for the 2005 budget, including:
  - Further reductions in tax and customs exemptions.
  - Increase in the VAT rate.
  - Containing the growth of the wage bill.
  - Ongoing tax system reforms to mobilize more revenue over the medium term.

### Staff appraisal: conclusions and policy recommendations
- Overall performance has been satisfactory and economic outcomes have been stronger than anticipated under the program, but implementation for the remainder of the year is challenging and necessary to ensure macroeconomic stability.
- Staff welcomes:
  - Strong fiscal performance in the first half, improvement in non-oil revenue, and continued saving of oil revenues in the OSA.
  - Authorities’ intention to spend projected higher revenues on Darfur relief and security operations, reduction in domestic arrears, additional social programs, and development projects.
- Staff emphasizes:
  - The need for tighter monetary policy to slow rapid monetary growth and mitigate impacts of rising government spending and possible deterioration in bank loan quality.
  - Continued reforms to increase foreign exchange market flexibility.
  - Cautious phasing of tariff reform given fiscal demands from peace agreement mandates and the importance of coordinating reforms with compensatory revenue measures.
  - The importance of moving faster to operationalize Monetary Operations and Cash Management Units, deepen the market for Government Investment Certificates, and improve transparency in the oil sector.
- The staff recognizes the risk that peace-related and Darfur stabilization costs could lead to a substantial financing gap and calls for identification of revenue and expenditure measures and mobilization of donor support.

*Source: IMF staff report (content unit: _cr05184).*

### 1. Enforce a ban, through a ministerial decree distributed to all line ministers,

### _cr05184 - 1. Enforce a ban, through a ministerial decree distributed to all line ministers,

### Key reform measures (primary list)
- 1. Enforce a ban, through a ministerial decree distributed to all line ministers, on all discretionary tax exemptions.
- 2. Constitute the cash management unit (CMU), appoint a cash release committee, and draft an action plan to operationalize the CMU.
- 3. Adopt a two-year program to align the budget classifications with the GFS.
- 4. Develop an action plan to reform the fiscal reporting system.
- 5. Establish a Debt Policy and Monitoring Committee to guide the formulation and implementation of a debt strategy and to evaluate all new loans.
- 6. Prepare a time bound action plan to audit and consolidate the accounts of all subsidiaries of Sudan Petroleum Corporation, and launch a program to align their accounting system with international standards.

### Implementation status for primary measures
- 1. Enforce a ban, through a ministerial decree distributed to all line ministers, on all discretionary tax exemptions. — Done
- 2. Constitute the cash management unit (CMU), appoint a cash release committee, and draft an action plan to operationalize the CMU. — Done
- 3. Adopt a two-year program to align the budget classifications with the GFS. — Done
- 4. Develop an action plan to reform the fiscal reporting system. — Done
- 5. Establish a Debt Policy and Monitoring Committee to guide the formulation and implementation of a debt strategy and to evaluate all new loans. — Done
- 6. Prepare a time bound action plan to audit and consolidate the accounts of all subsidiaries of Sudan Petroleum Corporation, and launch a program to align their accounting system with international standards. — Done

### Time-bound deliverable
- By end-June 2004

### Second-half 2004 operational actions (monthly/near-term)
- 1. Prepare a fiscal budget cash plan on a monthly basis for the second half of 2004. The cash plan must be approved by the cash release committee, and presented to the Bank of Sudan (BOS). — Done
- 2. Begin to transfer VAT collected by customs to the taxation department on a daily basis. — Not Done (Currently on weekly basis)
- 3. Activate the large tax payer unit. — Done
- 4. Classify, as a technical exercise, the 2004 budget sectors into the GFS functions. — Done
- 5. Adopt a universal taxpayer identification number. — Not Done

### End-December 2004 actions (required for 2005 budget context)
- 1. Complete a review of all regulations and agreements which grant tax exemptions and develop an action plan to streamline the regulations in the context of the 2005 budget.
- 2. Broaden the definition of large taxpayers to include individuals.
- 3. Eliminate all tax privileges of the four major oil distribution companies.
- 4. Develop a new three-year tariff reform program that will be implemented in the context of the 2005 budget.

*Source: _cr05184 - 1. Enforce a ban, through a ministerial decree distributed to all line ministers,*

### 5. Formulate an external debt policy of the public sector and have it approved

### 5. Formulate an external debt policy of the public sector and have it approved by the Cabinet of Ministers.

### Policy directive
- Formulate an external debt policy of the public sector and have it approved by the Cabinet of Ministers.

### Macroeconomic overview (selected indicators, annual changes in percent)
- Nominal GDP (in billions of Sudanese dinars): 3,376 (2001); 3,876 (2002); 4,425 (2003); 5,090 (2004).
- Population (in millions) 2/: 32 (2001).  
- GDP per capita (in U.S. dollars): 412 (2001).
- Real GDP growth: 6.1 (2001); 6.0 (2002); 6.0 (2003); 7.0 (2004).
- Real non-oil GDP growth: 4.8 (2001); 5.0 (2002); 5.5 (2003); 5.8 (2004).
- Average CPI inflation: 4.9 (2001); 8.3 (2002); 7.7 (2003); 6.5 (2004).
- 12-month CPI inflation (end of period): 7.4 (2001); 8.3 (2002); 8.3 (2003); 6.5 (2004).

### Investment, savings, and external current account (percent of GDP)
- Gross domestic investment: 18.3 (2001); 19.1 (2002); 19.1 (2003); 21.2 (2004).
  - Government sector: 2.3 (2001); 3.1 (2002); 3.1 (2003); 5.2 (2004).
  - Nongovernment sector: 16.0 (2001–04).
- Gross domestic savings: 10.3 (2001); 12.8 (2002); 14.6 (2003); 17.5 (2004).
  - Government sector: 2.2 (2001); 3.5 (2002); 5.7 (2003); 7.4 (2004).
  - Nongovernment sector: 8.1 (2001); 9.2 (2002); 8.9 (2003); 10.1 (2004).
- Net exports of goods and nonfactor services: -8.0 (2001); -6.3 (2002); -4.4 (2003); -3.7 (2004).
- External current account balance (cash basis): -918 (2002); -827 (2003); -1,000 (2003 projection); -555 (2004).
- External current account balance (in percent of GDP): -9.9 (2001); -6.2 (2002); -4.9 (2003); -2.8 (2004).

### External sector (values in millions of U.S. dollars unless indicated)
- Exports, f.o.b.: 1,699 (2001); 1,949 (2002); 2,577 (2003); 3,615 (2004).
  - of which oil: 1,377 (2001); 1,511 (2002); 2,082 (2003); 2,940 (2004).
- Imports, f.o.b.: -2,031 (2001); -2,153 (2002); -2,536 (2003); -3,398 (2004).
- Terms of trade (non-oil exports/non-oil imports): -3.0 (2001); -3.6 (2002); 13.7 (2003); 1.0 (2004).
- Official exchange rate (end of period, SD/US$): 261.4 (2001); 261.7 (2002); 260.4 (2003); 254.0 (2004).
- Crude oil export price (US$ per barrel): 22.0 (2001); 23.0 (2002); 27.0 (2003); 34.9 (2004).

### External debt and reserves (selected)
- External debt (in billions of U.S. dollars): 20.9 (2001); 23.6 (2002); 24.1 (2003); 26.4 (2004).
- Bank of Sudan gross usable reserves (in millions of U.S. dollars): 44.9 (2001); 243.6 (2002); 526.9 (2003); 1,142.4 (2004).
  - In months of next year's imports: 0.2 (2001); 1.0 (2002); 1.8 (2003); 3.0 (2004).
- Total external debt service (percent of current receipts): Commitment basis: 38.4 (2001); 24.1 (2002); 24.2 (2003); 19.1 (2004).
  - Actual payments: 5.1 (2001); 3.9 (2002); 6.1 (2003); 5.5 (2004).

### Balance of payments (2002–04, selected line items in millions of U.S. dollars)
- Current account balance: -1,472 (2002); -1,457 (2003); -1,649 (2004 prog.); -1,199 (2004 projection).
- Current account balance (on cash basis): -918 (2002); -827 (2003); -1,000 (2004 prog.); -555 (2004 projection).
- Trade balance: -204 (2002); 440 (2003); -31.2 (2004 prog.); 217 (2004 projection).
- Exports, f.o.b.: 1,949 (2002); 2,577 (2003); 3,001 (2004 prog.); 3,615 (2004 projection).
  - Crude oil: 1,397 (2002); 1,968 (2003); 2,339 (2004 prog.); 2,811 (2004 projection).
  - Non-oil products: 438 (2002); 494 (2003); 546 (2004 prog.); 674 (2004 projection).
- Imports, f.o.b.: -2,153 (2002); -2,536 (2003); -3,032 (2004 prog.); -3,398 (2004 projection).
- Services (net): -724 (2002); -794 (2003); -972 (2004 prog.); -933 (2004 projection).
- Income (net): -1,210 (2002); -1,422 (2003); -1,466 (2004 prog.); -1,541 (2004 projection).
  - Payments: -599 (2002); -691 (2003); -725 (2004 prog.); -716 (2004 projection).
  - Of which: public interest due 1/: -583 (2002); -690 (2003); -714 (2004 prog.); -714 (2004 projection).
  - Of which: interest cash payments: -29 (2002); -60 (2003); -65 (2004 prog.); -70 (2004 projection).
- Current transfers (net): 666 (2002); 718 (2003); 821 (2004 prog.); 1,058 (2004 projection).
  - Private transfers: 634 (2002); 708 (2003); 761 (2004 prog.); 1,014 (2004 projection).
- Financial account (net): 556 (2002); 1,072 (2003); 1,219 (2004 prog.); 1,141 (2004 projection).
  - Disbursements: 308 (2002); 537 (2003); 725 (2004 prog.); 255 (2004 projection).
  - Amortization: -166 (2002); -239 (2003); -280 (2004 prog.); -280 (2004 projection).
    - Of which: cash payments: -84 (2002); -161 (2003); -201 (2004 prog.); -200 (2004 projection).
  - FDI and portfolio (net): 633 (2002); 1,092 (2003); 1,136 (2004 prog.); 1,199 (2004 projection).
- Overall balance: -433 (2002); -296 (2003); -430 (2004 prog.); -51 (2004 projection).
- Overall balance (on cash basis): 203 (2002); 412 (2003); 298 (2004 prog.); 674 (2004 projection).
- Change in official reserves (increase -): -244 (2002); -434 (2003); -298 (2004 prog.); -674 (2004 projection).
- Usable foreign reserves (increase -): -199 (2002); -283 (2003); -280 (2004 prog.); -616 (2004 projection).
- Exceptional financing: 677 (2002); 730 (2003); 728 (2004 prog.); 724 (2004 projection).
  - Change in non-Fund arrears: 636 (2002); 708 (2003); 728 (2004 prog.); 724 (2004 projection).
  - Privatization receipts: 4 (2002); 12 (2003); 200 (2004 prog.); 0 (2004 projection).

### Central government operations (selected, in billions of Sudanese dinars and percent of GDP)
- Total revenue (in billions): 370 (2001); 471 (2002); 742 (2003); 493 (2004 prog.); 423 (Jan–Jun 2004).
- Tax revenue (in billions): 189 (2001); 213 (2002); 270 (2003); 192 (2004 prog.); 171 (Jan–Jun 2004).
- Nontax revenue (in billions): 181 (2001); 257 (2002); 472 (2003); 301 (2004 prog.); 252 (Jan–Jun 2004).
- Total expenditure (in billions): 401 (2001); 503 (2002); 699 (2003); 456 (2004 prog.); 455 (Jan–Jun 2004).
- Current expenditure (in billions): 322 (2001); 385 (2002); 564 (2003); 327 (2004 prog.); 330 (Jan–Jun 2004).
- Capital expenditure (in billions): 79 (2001); 119 (2002); 135 (2003); 129 (2004 prog.); 125 (Jan–Jun 2004).
- Overall balance (cash basis, in billions): -31 (2001); -33 (2002); 43 (2003); 37 (2004 prog.); -32 (Jan–Jun 2004).
- Nominal GDP (at factor cost, in billions of Sudanese dinars): 3,376 (2001); 3,876 (2002); 4,425 (2003); 5,072 (2004); 5,090 (2004 projection).

- Selected fiscal ratios (percent of GDP):
  - Total revenues: 11.0 (2001); 12.1 (2002); 16.8 (2003); 21.1 (2004).
  - Total expenditure: 11.9 (2001); 13.0 (2002); 15.8 (2003); 20.0 (2004).
  - Overall balance (cash): -0.9 (2001); -0.8 (2002); 1.0 (2003); 1.1 (2004).

### Monetary sector and monetary authorities (selected)
- Broad money (annual percentage change): 24.7 (2001); 30.3 (2002); 30.3 (2003); 25.0 (2004).
- Reserve money (change in percent): 3.7 (2001); 22.0 (2002); 26.6 (2003); 22.0 (2004).
- Net foreign assets (excluding valuation changes, change in percent of beginning broad money stock): -8.6 (2001); 23.2 (2002); 13.7 (2003); 25.3 (2004).
- Net domestic credit: 25.9 (2001); 8.7 (2002); 16.7 (2003); -2.1 (2004).
- Claims on nongovernment sectors (annual percentage change): 16.9 (2001); 10.2 (2002); 20.1 (2003); 8.4 (2004).
- Usable international reserves (in millions of U.S. dollars): 244 (2001); 342 (2002); 416 (2003); 1,062 (2004, memorandum item).
- Usable international reserves/broad money (in percent): 11.3 (2001); 15.1 (2002); 17.7 (2003); 29.4 (2004, memorandum item).

### Indicators of debt service capacity (2001–04, in millions of U.S. dollars unless indicated)
- Total debt service paid: 160 (2001); 137 (2002); 247 (2003); 300 (2004 projection).
- Payments to the Fund: 55 (2001); 26 (2002); 28 (2003); 30 (2004 projection).
- Overdue obligations to the Fund: 1,371 (2001); 1,475 (2002); 1,595 (2003); 1,577 (2004 projection).
- Overdue obligations to the Fund (in millions of SDRs): 1,091 (2001); 1,085 (2002); 1,074 (2003); 1,065 (2004 projection).
- Total debt service paid, in percent of exports of goods and nonfactor services: 9.3 (2001); 6.8 (2002); 9.5 (2003); 8.2 (2004 projection).
- Total debt service paid, in percent of net current receipts 1/: 13.0 (2001); 11.7 (2002); 15.6 (2003); 13.6 (2004 projection).
- Total debt service paid, in percent of gross official reserves: 35 (2001); 7 (2002); 24 (2003); 26 (2004 projection).
- External debt (including arrears): 20,948 (2001); 23,609 (2002); 25,709 (2003); 26,380 (2004 projection).
- GDP (in millions of U.S. dollars): 13,049 (2001); 14,720 (2002); 16,957 (2003); 19,730 (2004 projection).

### External financing requirements and sources (2001–04, in millions of U.S. dollars)
- Gross financing requirements: 2,213 (2001); 1,877 (2002); 2,001 (2003); 2,196 (2004 projection).
- External current account deficit (excluding official transfers): 2,122 (2001); 1,504 (2002); 1,467 (2003); 1,243 (2004 projection).
- Debt amortization: 157 (2001); 166 (2002); 239 (2003); 280 (2004 projection).
  - Medium- and long-term debt amortization: 157 (2001); 166 (2002); 239 (2003); 280 (2004 projection).
  - Public sector amortization: 106 (2001); 166 (2002); 239 (2003); 280 (2004 projection).
- Gross reserves accumulation: -90 (2001); 199 (2002); 92 (2003); 83 (2004 projection).
- Expected financing:
  - Official transfers and grants: 834 (2001); 104 (2002); 4 (2003); 4 (2004 projection).
  - Debt financing: 223 (2001); 0 (2002); 85 (2003); 255 (2004 projection).
  - Foreign direct investment, and errors and omissions: 1,286 (2001); 1,155 (2002); 1,203 (2003); 1,206 (2004 projection).
  - Accumulation of arrears (exceptional): 88 (2001); 163 (2002); 67 (2003); 87 (2004 projection).
- Financing gap: 0 (2001–04).

### IMF relations and Fund indicators (as of September 30, 2004; selected)
- Membership: Joined 09/05/57; Article VIII.
- Quota (SDR million): 169.70 (100.00 percent).
- Fund holdings of currency (SDR million): 498.81 (293.94 percent).
- Stand-by Arrangements (SDR million, approval/expiration): examples listed include Stand-by approved 06/25/1984 expiring 06/24/1985 approved 90.00 drawn 20.00.
- Projected obligations to the Fund (SDR million, forthcoming): Charges/Interest: 3.01 (2004); 11.87 (2005); 11.88 (2006); 11.88 (2007); 11.89 (2008). Total: 1,066.01 (overdue as of 09/30/04) and forthcoming schedule 3.01; 11.87; 11.88; 11.88; 11.89.
- Exchange rate arrangements: Legal tender is the Sudanese dinar; SDD 1 = LSd 10 in 1999. Since October 1998, the exchange rate system has been unified; in 2001 the foreign exchange market came under pressure and BOS introduced a formal band.

*Sources: Fund staff estimates and projections based on information provided by the Sudanese authorities.*

### 1.5 percent (later broadened

### _cr05184 - 1.5 percent (later broadened 

### Exchange rate regime and BoS intervention policy
- Initially maintained a formal exchange rate band of 1.5 percent (later broadened to 2 percent) around the official rate and auctioned foreign exchange within the band.
- In May 2003, BOS adopted formally a managed-float exchange rate regime:
  - Formal exchange rate band abandoned.
  - Auction system replaced with direct transactions in the interbank market.
  - BOS established an internal limit of +2 percent intraday fluctuations around the average daily market rate that will trigger its intervention.
- In 2004, BOS changed the permissible intraday exchange rate fluctuation from +2 percentage points to +3 percentage points.
- Sudan maintains one inoperative bilateral payments agreement with Egypt and an inoperative payment clearing account with the former Soviet Union.

### Article IV Consultation
- Sudan is on a 12-month consultation cycle.
- Last Article IV consultation discussion: August 16-28, 2003.
- Staff Report (IMF Country Report No. 03/390, December 19, 2003) was discussed by the Executive Board on October 31, 2003.
- Projection assumption note: The projection of charges and interest assumes that overdue principal at the report date (if any) will remain outstanding, but forthcoming obligations will be settled on time.

### FSAP participation
- An FSAP mission took place on October 9–14, 2004.
- A follow up mission was expected in November–December 2004.

### Technical assistance (TA) record
- Executive Board decision in January 1995 to resume Fund selective TA to Sudan.
- TA missions (selected list with dates exactly as in source):
  - Reform of indirect taxation: August 1995; March, May, and October 1997; May, October, and November 1998; October 1999; and November 2000.
  - Multi-sector technical assistance in statistics: September/October 1995.
  - Exchange system reform: April and November 1997; May and September 1998.
  - Monetary management and banking supervision: June and November 1997; May, September, and December 1998; May and October 1999; November 2000; and November 2002.
  - Government finance statistics: June 1997 and May 1998.
  - Monetary statistics: July 1997; February 2000; May 2000; February 2001; April 2001; and July 2003.
  - Balance of payments and monetary statistics: April 1999; and July 2003.
  - Expenditure control and management: September 1997; May 1998; May 2000; and November 2002.
  - Oil sector taxation: October 1999.
  - Introduction of the VAT since October 1999.
  - Reform of direct taxation and revenue administration: November 2002, December 2003.
  - Training course on financial programming and policies: April 2000.
  - GDP and CPI statistics: March and September 2002; and February 2003.
  - General Data Dissemination System (GDDS) technical assistance: July 2003.
  - Reform of Direct Taxes and Investment Incentives: March 2003.
  - Medium-Term Budgetary Framework: April 2003.
  - Monetary policy operations and introduction of a commodities futures/forward market in the agricultural sector: December 2003.
  - Islamic Compliant Monetary Instruments: October 2002.
  - An MFD long-term banking supervision resident advisor was assigned to the BOS from May 2001 to May 2003.
  - Fiscal Cash Management and budget classification: February 2004.
  - Fiscal cash management: May and September, 2004.
  - Monetary policy operations: September 2004.

### Resident representative
- The Fund's resident representative in Khartoum was withdrawn in June 1990.

### Relations with the World Bank (as of October 2004)
- The World Bank has no active lending portfolio in Sudan because of Sudan’s default and suspension of disbursements in April 1993.
- “Good faith” payments to the Bank:
  - $1 million per month starting in July 1999.
  - Monthly payments of an equivalent of $500,000 since October 2002.
- Arrears and outstanding debt:
  - Arrears stood at about $315 million in September 2004 (from $145 million at the end of 1999).
  - Sudan’s outstanding Bank debt, including arrears, is approximately $1.3 billion.
- World Bank recent activities and strategy:
  - Completed Country Economic Memorandum (CEM) — first economic report on Sudan in a decade.
  - Co-leading, with UNDP, a Joint Assessment Mission (JAM) covering 8 thematic sectors and cross-cutting issues; IMF staff contributing to the economic policy cluster.
  - JAM to produce a "Framework for Transition, Reconstruction and Poverty Eradication" outlining reconstruction needs for the next six years; to be presented at a Donors’ Pledging Conference in Oslo shortly after the Comprehensive Peace Agreement.
  - Organized a workshop with Government and SPLM to initiate a joint strategy for poverty eradication; developed a joint concept note for a Poverty Eradication Strategy for the new Government of National Unity.
- Trust funds and grants:
  - $4.5 million LICUS Trust Fund grant approved in September 2004 to focus on capacity building and institutional development of fiduciary and aid management systems in North and South.
  - Trust fund complements two ongoing Post Conflict Fund grants totaling $3.0 million.
- Bank readiness:
  - Working with IMF and other multilateral creditors on options for clearance of arrears and debt relief.
  - Once a peace agreement and comprehensive arrears clearance plan are agreed, the Bank is prepared to support Sudan with activities consistent with its framework for post conflict countries.
- Contact provided: Ms. Jill Armstrong, Country Program Coordinator for Sudan, tel. (202) 473-8471.

### Statistical issues — key findings and needs
- Overall: Available economic data are sufficient for program monitoring purposes, but many areas need improvement—national accounts, state budgetary data, and external trade and financial statistics highlighted.
- DFID and STA support:
  - Sudan participated in the DFID project for Anglophone African countries.
  - DFID financed three STA missions in June-July 2003 (monetary and financial statistics, balance of payments statistics, and GDDS metadata completion).
  - Sudan began participation in the General Data Dissemination System (GDDS) starting in August 2003.
  - Early 2004 assistance for initial stages of a CBS strategic plan.
- Real sector:
  - Monthly CPI for Khartoum provided shortly after month end; CPI including other states provided with a three-month lag.
  - National accounts lag and suffer from lack of basic information for oil, livestock, horticulture, most services.
  - On expenditure side: data lacking on final consumption by households, investment, and changes in stocks.
  - No national accounts or industrial production data at subannual frequencies; annual data reported with over three-year lag.
  - Urgent needs: rebuild CBS institutional capacity; introduce 1993 System of National Accounts; conduct census of agricultural production; improve coordination among MOFNE, MEM, ministry of agriculture and livestock, and CBS.
- Fiscal sector:
  - GFS reported to MCD are adequate: main revenue, expenditure, and financing items reported monthly with a lag of about one to two months; financing items consistent with monetary accounts.
  - Reported statistics are central government only; consolidated state budget data often not available.
  - Needs: improve accounting and reporting at MOFNE; introduce GFS classification; fully implement 1997 GFS TA mission recommendations.
- Monetary sector:
  - Significant TA resources; six STA missions between 1993 and 2003 following joint MCD/STA mission in October 1992.
  - Monetary accounts broadly acceptable for monitoring, but STA concerned about reemergence of problems (overestimation of international reserves, errors and omissions in net credit to government) if remedial action not taken.
  - Issues include large and variable unclassified assets/liabilities and frequent commercial bank classification errors (notably consortium financing).
  - Weekly flash reports commendable; key monetary indicators usually with a one-week lag; estimates of BOS’ usable reserves added January 2003.
  - Divergence exists between reserve money in balance sheets and end-of-month flash reports.
  - STA agreed to provide peripatetic assistance; July 2003 mission noted limited progress and suggested a working group to review BOS foreign assets and revision of guidelines related to consortium financing; second mission postponed due to lack of progress.
- External sector:
  - Daily exchange rate data reported to Fund with minimal lags.
  - Areas for improvement: FDI, trade, and oil statistics.
  - BOS active balances include unusable reserves earmarked for medicine, oil, and spare part imports; composition and potential usability unclear.
  - Need clarification on items qualifying as international reserves and implementation of reserves template.
  - Import statistics: significant discrepancies between customs and BOS reports; July 2003 STA mission attempted reconciliation and reported some progress.
  - Lack of survey data affects compilation of FDI and other BOP items.
  - Oil projections and amortization of private sector investment need substantial improvement; authorities reluctant to provide detailed phasing-in and expected production levels of new blocks and on amortization of investment in oil sector.
  - Total oil reserves available estimated between 10 to 15 billion barrels, which, at a production rate of 350 thousand barrels a day, would last about 100 years.

### Data quality and core statistical indicators (selected points preserved)
- Real sector / national accounts:
  - Historical data reported on time by the Central Statistics Office.
  - Broadly acceptable: real and nominal GDP by sector available with a 3-year lag.
  - 1968 System of National Accounts (SNA) still in use; oil sector value-added calculation not completed; no real GDP by expenditure; 4-year delay in nominal GDP by expenditure; private consumption derived as a residual; estimations rather than surveys used for most GDP components.
  - Steps to improve: rebuild CBS institutional capacity; introduce the 1993 SNA; conduct census of agricultural production; implement project prepared by STA’s peripatetic real sector expert.
- Prices:
  - Monthly CPI reported on time; CPI for Khartoum area available promptly; weekly CPI published in flash report.
  - CPI for Sudan as a whole is not available.
  - Step to improve: conduct new household income and expenditure survey; reduce timing discrepancies by individual states.
- Government finance:
  - Monthly reporting of main budgetary items generally on time; 1.5-month lag.
  - Only partial state budget data; incomplete functional classification; MOFNE allocations reported but not actual ministry expenditures.
  - Steps: introduce GFS classification; improve MOFNE accounting and reporting; implement 1997 GFS TA recommendations.
- Monetary accounts:
  - Monthly balance sheets generally on time; 1.5-month lag.
  - Large and variable other items (net); frequent misclassification by commercial banks for consortium financing.
  - Steps: establish working group to review BoS foreign assets; revise guidelines on consortium financing; implement 2001 TA mission recommendations on monetary statistics.
- Weekly flash reports:
  - 1-week lag; good; estimates of usable reserves added in January 2003.
  - Some divergence between reserve money in balance sheets and end-of-month flash reports.
  - Steps: include data on returns on investment deposits; aim at full reporting of BOS balance sheet.
- External sector and reserves:
  - Monthly reporting of BOS active balances generally on time; 0.5-month lag.
  - Gross usable reserves are part of BOS active balances; active balances also include unusable earmarked reserves; composition and usability unclear.
  - Steps: clarify items that qualify as international reserves and those included in earmarked reserves.
- Balance of payments and trade:
  - Quarterly full BOP data provided on time during missions; 3-month lag.
  - Incompleteness for services (oil transportation costs), investment income (oil-related expenses and interest payments due on external public debt), transfers (workers' remittances), financial account (amortization due on external public debt), and FDI; large positive errors and omissions.
  - Monthly trade data provided with a 2–3 month lag; discrepancies between BOS and customs.
  - Steps: introduce revised reports form for commercial banks; improve data collection; enforce residency criterion; implement 1999 and 2003 TA recommendations in BOP statistics.
- External debt:
  - Monthly payments to creditors on time; 1.5-month lag.
  - BOS cash flow table not available; does not exactly reflect actual payments made by MOFNE.
  - Steps: eliminate timing and recording discrepancies between BOS and MOFNE.
  - Other debt data: 10-month lag; coverage comprehensive though BOS records not reconciled with some creditors; ODA data not available; charges on interest in arrears not calculated.
  - Steps: reconcile data with creditors; further disaggregate data according to standard definitions; Debt Management Unit to send monthly statements on external debt to BOS Statistics Department.

### Sudan: Core Statistical Indicators as of September 30, 2004 (selected fields and dates exactly as presented)
- Exchange Rates: Date of latest observation 09/30/04; Date received 10/15/04; Frequency D; Source A (BOS); Mode C and BOS Website; Confidentiality B; Frequency of publication D.
- International Reserves: Date of latest observation 08/31/04; Date received 10/15/04; Frequency M; Source A (BOS); Mode C; Confidentiality B; Frequency of publication M.
- Central Bank Balance Sheet: Date of latest observation 08/31/04; Date received 10/15/04; Frequency M; Source A (BOS); Mode C/email; Confidentiality B; Frequency of publication M.
- Reserve/Base Money: Date of latest observation 08/31/04; Date received 10/15/04; Frequency M; Source A (BOS); Mode C/email; Confidentiality B; Frequency of publication M.
- Broad Money: Date of latest observation 08/31/04; Date received 10/15/04; Frequency W; Source A (BOS); Mode C/email; Confidentiality B; Frequency of publication M/W.
- Interest Rates (Rates of Charge): Date of latest observation 09/30/04; Date received 10/15/04; Frequency W; Source A (BOS); Mode C; Confidentiality B; Frequency of publication M.
- Consumer Price Index: Date of latest observation 09/2004; Date received 10/15/04; Frequency M/W; Source A (MOFNE); Mode C; Confidentiality B; Frequency of publication M.
- Exports/Imports: Date of latest observation Q2/2004; Date received 08/2004; Frequency M; Source A (BOS); Mode C; Confidentiality B; Frequency of publication M.
- Current Account Balance: Date of latest observation Q2/2004; Date received 08/2004; Frequency Q; Source A (BOS); Mode C; Confidentiality B; Frequency of publication Q.
- Overall Government Balance: Date of latest observation 08/2004; Date received 09/2004; Frequency M; Source A (MOFNE); Mode C/V; Confidentiality B; Frequency of publication M.
- GDP/GNP: Date of latest observation 2000; Date received 08/2004; Frequency A; Source A (MOFNE); Mode C; Confidentiality B; Frequency of publication A.
- External Debt/Debt Service: Date of latest observation Q2/2004; Date received 08/2004; Frequency A; Source A (BOS); Mode C/V; Confidentiality B; Frequency of publication A.
- Notes: Abbreviations and footnotes preserved in source: Frequency: D-daily, W-weekly, M-monthly, Q-quarterly, A-annual. Mode: A-direct reporting by authorities; C-reporting by fax; V-staff visits. Confidentiality: B-for use by the staff and the Executive Board. BOS-Bank of Sudan, MOFNE-Ministry of Finance and National Economy. 1/ (M) published monthly and (Q) quarterly in IFS; (W) weekly in BOS fact sheets. All data published annually in the BOS’s Annual Report.

### Tentative Work Program, 2004 (dates preserved)
- Assistance with peace negotiations (Kenya) October–November 2004
- Article IV Consultation, Negotiations for the 2005 SMP and Joint Assessment Mission December 2004
- FSAP Participation
- FSAP (follow-up mission) November–December 2004

*Source: _cr05184 - 1.5 percent (later broadened*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05184.pdf_