## _cr05430

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### Executive Summary — visit and program assessment
- Staff team visited Khartoum from August 30 through September 8, 2005; discussions concluded on September 25.
- Executive Directors commended authorities for prudent fiscal and monetary policies and wide‑ranging reforms; emphasized keeping inflation low, prioritizing expenditures, strengthening public expenditure management, increasing transparency in the state‑owned oil company, and containing nonconcessional borrowing.
- Macroeconomic performance and outcomes:
  - Real GDP growth for the year is projected at 8.2 percent.
  - 12‑month inflation: rose from 7.3 percent in December 2004 to 13.9 percent in July 2005; fell to an estimated 8 percent in October after policy tightening and customs improvements.
  - Nominal and real effective exchange rates appreciated by 8 and 17 percent, respectively, in first eight months of 2005.
  - International reserves: equivalent of 2.4 months of imports of goods and services at end‑June 2005.
- Balance of payments (cash basis, Jan.–Jun. 2005):
  - Exports (f.o.b.) US$2,029 million.
  - Oil exports (million barrels) 47.0.
  - Current account Jan.–Jun. 2005 -$663 million (annualized -5.2 percent of GDP).
  - Capital and financial accounts Jan.–Jun. 2005 $638 million (annualized 5.0 percent of GDP).
  - Change in official reserves (increase, -) -$180 million.
- Program performance:
  - Two of four quantitative targets for end‑June 2005 were missed.
  - External nonconcessional financing contracted Jan.–Jun. 2005: US$803 million vs. annual program target of US$150 million.
  - All end‑June structural benchmarks were met, including auction system for government certificates, program to introduce commercial accounting standards in state‑owned oil company, and creation of a medium‑size taxpayers’ unit.
  - Authorities committed to removing two exchange restrictions subject to Fund jurisdiction.

### Policy discussions and near‑term outlook (remainder of 2005)
- Inflation and macro targets:
  - Revised financial program aims to contain inflation.
  - Average inflation target for 2005: 10.5 percent (original program target 7.5 percent).
  - 12‑month inflation projected at 8–9 percent; authorities estimate 12‑month inflation could reach between 15 and 20 percent by year‑end absent corrective actions.
- Corrective fiscal and monetary measures:
  - Imposed strict controls on nonpriority spending, tightened monetary policy, committed to stop nonconcessional borrowing.
  - Authorities set aside plans for additional nonconcessional borrowing in H2 2005 and indicated limiting drawdown of recently contracted facilities.
  - Intend to limit outlays in wages and salaries and in goods and services while keeping social and capital expenditures at budgeted levels; Darfur‑related spending likely to remain higher than programmed in general reserve category.
- Oil revenues and fuel pricing:
  - Oil price projection (2005): US$52 per barrel (revised) vs. US$34 in original program; implies oil revenues for 2005 expected 22 percent higher than in original program.
  - Implicit domestic fuel subsidies emerged because domestic fuel prices were left unchanged; staff advised classifying these subsidies as a budget expenditure item.
  - Authorities likely to start gradual domestic fuel price increases toward end‑2005 or early 2006 and will prepare, with Fund staff, a medium‑term strategy including more automatic adjustment of fuel prices.
- Monetary stance:
  - Policy to focus on controlling reserve money growth and allow flexibility in pricing securities and foreign exchange.
  - Reserve money growth (12‑month) fell from 40 percent in June to estimated 32 percent in September and projected to reach 30 percent in December.
  - Central bank mopped up liquidity through open market sales of government securities and foreign exchange and limited lending to commercial banks.

### Fiscal outlook and financing composition
- Projected fiscal deficit for 2005 similar to original program, but financing composition different.
- Offsetting factors:
  - Lower‑than‑programmed oil output and external financing will be offset by use of deposits from the old oil stabilization account and a higher benchmark price of oil.
- Benchmark price change:
  - Increased from US$30 per barrel in first half to US$45 per barrel in second half; difference between this price and oil export price determines accumulation in oil savings account.
- Oil savings account:
  - Balances of old oil savings account used to finance additional spending, mainly capital expenditures.
  - New oil savings account projected to accumulate equivalent of 2 percent of GDP in 2005.
- Social spending:
  - Budgeted at about 1.2 percent of GDP; authorities’ definition of social spending is narrow; discussions with World Bank underway to develop a more comprehensive definition of pro‑poor spending.

### Transfers, decentralization, and peace agreement implications
- New oil savings account set up in January 2005 shared between central government and government of Southern Sudan.
- Peace agreement stipulates about 40 percent of oil revenues transferred to the south and war‑affected areas.
- Fiscal decentralization plan implemented late 2004 entails rapid increase in transfers to remaining states to empower states and increase pro‑poor spending.
- Central government fiscal space in 2005 not increased despite higher revenues because of large transfers to Government of Southern Sudan and other states.
- Between January and June 2005 government transferred US$80 million to the SPLM.

### Balance of payments and external flows (near term)
- Balance of payments to continue benefiting from higher oil export revenues and strong capital inflows.
- Observed trends expected to persist: higher export revenue from high oil prices, higher import demand, strong private capital inflows (mainly FDI), and further reserve build up to about 2.9 months of imports of goods and services.

### Structural measures, reforms, and benchmarks
- End‑June structural benchmarks met:
  - Introduce auction system for General Musharaka Certificates (GMC) and General Investment Certificates (GIC) — Met.
  - Set up a single treasury account for all Ministry of Finance operations — Met.
  - Establish a medium‑size taxpayers’ unit — Met.
  - Develop program/timetable for aligning SPC and subsidiaries’ accounting with commercial standards by end‑2006 — Met.
- End‑December 2005 benchmarks (status as of end‑October 2005):
  - Formulate 2006 budget based on GFS classification — In progress.
  - Prepare a three‑year import‑tariff reform program and incorporate in 2006 budget — In progress.
  - Establish a new financing window for liquidity‑constrained banks to sell securities to the central bank at a penalty rate — (status not indicated).
- Other near‑term priorities:
  - Convert 2006 budget into Government Finance Statistics format.
  - Prepare ambitious import‑tariff reform, especially reducing top tariff rate of 45 percent.
  - Review tax incentives to boost non‑oil revenue and distribute tax burden more evenly.
  - Public expenditure review and capacity building in central government and states.
  - Improve oil sector governance; National Petroleum Commission to design governance and transparency strategy.
  - Banking system restructuring, introduction of new currency, dual banking system (Islamic in north, conventional in south), commercial bank mergers and privatization.

### Financial sector reforms and currency timetable
- Financial sector reform program prepared in light of FSAP recommendations (end‑December benchmark) — recommendation status: Met.
- Authorities requested technical assistance to be coordinated by the Fund and World Bank.
- Plan to restructure and decentralize Bank of Sudan; legislation submitted including setting up a branch in south Sudan.
- Target date for introduction of the new currency changed from October 2005 to June 2006 because of technical delays and uncertainty about financing sources.

### Debt, donor engagement, and poverty reduction
- External public debt and arrears (end‑2004):
  - End‑2004 stock of external public debt estimated at US$26 billion in nominal terms.
  - External public debt is 904 percent of exports of goods and services in net present value terms.
  - About 86 percent of the end‑2004 external public debt is in arrears.
- Restoring external viability would require exceptional debt relief, including under HIPC Initiative and Multilateral Debt Relief Initiative.
- Donor coordination:
  - UN leading donor coordination efforts.
  - World Bank established two multi‑donor trust funds (MDTFs) for national and southern governments.
  - Interim poverty reduction strategy expected by mid‑2006.
  - Semiannual consultative group meetings (Sudan Consortium) scheduled between government and donors to monitor progress.
- World Bank relations (as of October 15, 2005):
  - No active lending portfolio because of Sudan’s default; disbursements suspended since April 1993.
  - Good faith payments: US$1 million per month starting July 1999; US$500,000 per month since October 2002.
  - Arrears about US$357 million as of September 30, 2005; outstanding Bank debt approx. US$1.3 billion.
  - MDTFs: approximately US$500 million pledged in Oslo; MDTFs effective and first projects being prepared.
  - Donors’ Conference in Oslo raised US$2.0 billion in pledges for 2005–2007.

### Staff appraisal and policy recommendations
- Staff view: peace agreement implementation progresses despite political challenges; non‑oil economy expanding rapidly but budget and monetary policy strained and inflation edged up.
- Key causes of instability: expanding fuel subsidy, higher‑than‑budgeted spending in certain categories, deviations from end‑June quantitative targets, reluctance to sterilize government spending and external inflows.
- Staff welcomes corrective actions: renewed fiscal restraint and central bank steps to control reserve money growth and allow further flexibility in pricing of securities and foreign exchange.
- Staff urges authorities to:
  - Stop further nonconcessional borrowing in second half of the year.
  - Design 2006 budget to preserve macroeconomic stability, avoid excessive crowding out of private sector, meet expenditure priorities, and carry out an appropriate reduction in fuel subsidies that minimizes impact on poor.
  - Build up balances in the oil saving account to self‑insure against oil price shocks.
  - Maintain prudent monetary policy to ensure inflation objectives are achieved.
- Additional notes:
  - Lack of household survey data prevents poverty and social impact analysis.
  - Discussions on 2006 budget and fuel price adjustment to take place in November; authorities intend to discuss a staff monitored program for 2006 with completion at next Article IV consultation planned for February 2006.

### Structural reform assessment and medium‑term scenario (highlights)
- Staff view: structural reforms have yielded positive benefits but much more remains to be done; oil sector boom plus expansionary fiscal policy may constrain profitability in non‑oil tradable sectors via real exchange rate appreciation and higher borrowing costs.
- Recommended priorities:
  - Remove transportation and other bottlenecks.
  - Further rationalize tax incentives.
  - Implement ambitious import‑tariff reform.
  - Invest in infrastructure.
  - Restructure financial sector and reduce barriers to private sector development.
  - Improve transparency in oil sector and adopt modern accounting standards in state‑owned oil company.
- Medium‑Term Macroeconomic Scenario (selected projections, 2004–10):
  - Nominal GDP (in millions of U.S. dollars): 21,463; 28,050; 37,261; 42,549; 47,347; 52,184; 57,176.
  - Real GDP (change in percent): 5.2; 8.2; 13.4; 8.8; 8.7; 8.1; 7.5.
  - Inflation (period average): 8.4; 10.5; 7.0; 5.0; 4.0; 3.0; 3.0.
  - Gross official reserves (in months of imports): 2.5; 2.9; 4.1; 4.4; 4.8; 4.9; 5.0.
  - Memorandum: Crude oil export price (U.S. dollars per barrel): 36.45; 51.85; 54.75; 53.35; 53.35; 52.75; 51.9.
  - Note: Projections based on August 2005 WEO oil prices.

### Key historical and recent quantitative indicators (selected)
- Real GDP (annual change in percent, selected years): 6.4; 6.1; 5.1; 5.2; 8.3; 8.2; 13.4.
- Oil sector real GDP (annual change in percent): 21.6; 24.7; 13.0; 9.9; 35.6; 8.2; 63.6.
- Non‑oil sector real GDP (annual change in percent): 5.3; 4.6; 4.4; 4.8; 5.6; 8.2; 7.8.
- Consumer prices (average): 4.9; 8.3; 7.7; 8.4; 7.5; 10.5; 7.0.
- Exports, f.o.b. (in millions of U.S. dollars): 1,699; 1,949; 2,577; 3,778; 4,975; 5,619; 9,550.
  - Of which: Oil: 1,377; 1,511; 2,082; 3,101; 4,220; 4,915; 8,776.
- Usable international reserves (in millions of U.S. dollars): 452; 495; 271; 1,338; 1,754; 2,005; 3,392.
- Current account balance on cash basis (in millions of U.S. dollars): -827; -816; -663; -841; -1,409; -1,404.
- External public debt (in billions of U.S. dollars, selected): 20.9; 23.6; 25.7; 26.0; 26.5; 27.0; 28.6.
- External public debt (percent of GDP): 156.8; 156.8; 146.5; 121.1; 110.9; 96.1; 71.5.
- Reserve money (annual percentage change, selected): 26.6; 27.8; 32.9; 40.0; 32.0; 29.1; 29.9.
- Broad money (annual percentage change, selected): 30.3; 30.8; 29.7; 40.6; 38.0; 28.0; 33.0.
- Contracting or guaranteeing of external nonconcessional debt by the government or the central bank (in millions of U.S. dollars): 310; ......; 803; 150; 803.
- Memorandum: Oil savings account (end‑2004 and 2005 midyear): 129.0; 32.7; ...; 76.6; 72.6; 135.0.

### Relations with the Fund and TA, Article IV, FSAP
- Relations with the Fund (as of September 30, 2005):
  - Membership: Joined 09/05/57; Article VIII.
  - Quota (SDR Million, %): 169.70; 100.00.
  - Stand‑by Arrangements outstanding (SDR Million, % of Quota): 179.62; 105.85.
- Article IV consultation: 12‑month consultation cycle; last Article IV discussion completed April 29, 2005.
- FSAP: FSAP mission conducted December 1–20, 2004; Financial System Stability Assessment report discussed April 29, 2005.
- Resident representative office in Khartoum reopened in October 2005.
- Technical assistance (2002–2005) provided across Fiscal Affairs, Monetary and Financial Department, and Statistics Department on expenditure management, tax reform, monetary management, banking supervision, national accounts, CPI, balance of payments, GFS, and related topics.

### Data quality, statistical issues, and sectoral recommendations (appendix)
- Real sector:
  - CPI compilation for Khartoum timely; CPI for other states available with three‑month lag.
  - National accounts reported with lag over three years; lack of basic information for many sectors; no sub‑annual national accounts.
  - Priorities: increase funding to CBS; introduce 1993 SNA; census of agricultural production; household survey; produce poverty statistics; improve coordination among CBS, MOFNE, Ministry of Energy and Mining, and Ministry of Agriculture and Livestock.
- Fiscal sector:
  - Government finance statistics broadly adequate for monitoring; reported monthly with about one month lag; do not cover states and publicly owned corporations.
  - Recommendations: improve accounting/reporting at MOFNE; introduce GFS classifications per GFSM 2001; implement TA recommendations.
- Monetary sector:
  - Monetary statistics broadly acceptable for monitoring but harmonization of BOS accounts incomplete and frequent misclassification errors in banks’ reporting.
  - Actions planned: STA follow‑up mission Nov. 28–Dec. 9, 2005; establish working group to review BOS foreign assets; revise guidelines on consortium financing; implement 2001 TA recommendations.
- External sector:
  - Improvements needed in FDI, trade, and oil statistics; BOS foreign exchange balances include earmarked reserves (medicine, oil, spare parts) with unclear usability.
  - Recommendations: clarify items qualifying as international reserves and earmarked reserves; compile data template on international reserves and foreign currency liquidity; reconcile customs and BOS trade data; improve survey data collection for FDI and BOP components.
  - Total oil reserves estimated between 10 to 15 billion barrels; at production rate of 350 thousand barrels a day would last about 100 years.
- Data quality: summary of issues and steps to improve integrity across real sector, prices, government finance, monetary accounts, external sector, and external debt with concrete steps listed for each.

### Common indicators and reporting frequencies (as of October 20, 2005)
- Exchange Rates: latest obs. 10/10/05; frequency D; reporting D; publication D.
- International Reserve Assets and Reserve Liabilities: latest obs. 8/31/05; frequency M; reporting M; publication M.
- Reserve/Base Money, Broad Money, Central Bank Balance Sheet, Consolidated Banking System Balance Sheet: latest obs. 8/31/05; various reporting frequencies M or W as indicated.
- Interest Rates: latest obs. 9/29/05; frequency W; reporting M; publication M/W.
- Consumer Price Index: latest obs. August 2005; received 9/3/05; frequency M/W; reporting M.
- Revenue, Expenditure, Balance and Composition of Financing – General Government: latest obs. August 2005; received 10/3/05; frequency M.
- Stocks of Central Government and Central Government‑Guaranteed Debt: latest obs. June 2005; received Sept. 2005; frequency A.
- External Current Account Balance: latest obs. 2005: Q2; received Sept. 2005; frequency Q.
- Exports and Imports of Goods and Services: latest obs. June 2005; received Sept. 2005; frequency M.
- GDP/GNP: latest obs. 2004; received Sept. 2005; frequency A.
- Gross External Debt: latest obs. 2004:Q4; received Feb. 2005; frequency A.

*Source: IMF staff report (midyear review of the Staff‑Monitored Program), Khartoum visit August 30–September 8, 2005; discussions concluded September 25, 2005; content unit _cr05430.*

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

### Executive Summary

### I. Introduction
- Staff team visited Khartoum from August 30 through September 8, 2005 to conduct the midyear review of the Staff‑Monitored Program (SMP); discussions concluded on September 25.
- Executive Directors commended authorities for pursuing prudent fiscal and monetary policies and implementing wide‑ranging reforms; emphasized keeping inflation low, prioritizing expenditures, strengthening public expenditure management, increasing transparency in the state‑owned oil company, and containing nonconcessional borrowing.

### II. Recent Developments and Performance Under the Program
Findings and macroeconomic outcomes
- Real GDP growth for the year as a whole is projected at 8.2 percent.
- Non‑oil economy grew strongly (agriculture, construction, services); oil output grew but slower than anticipated due to delay in production from two new fields.
- The 12‑month rate of inflation rose from 7.3 percent in December 2004 to 13.9 percent in July 2005; inflation fell to an estimated 8 percent in October after a more prudent policy stance and improvements in customs procedures.
- Monetary aggregates expanded more than programmed; reserve money, net foreign assets, net domestic assets, and broad money showed higher growth (see monetary indicators in source tables).
- The nominal and real effective exchange rates appreciated by 8 and 17 percent, respectively, in the first eight months of 2005.
- International reserves stood at the equivalent of 2.4 months of imports of goods and services at end‑June 2005.

Fiscal performance and financing
- Revenues were roughly as expected, but expenditures exceeded programmed levels mainly due to a large subsidy on domestic fuels and higher spending on relief and security operations in Darfur; authorities also adopted a policy to repay the entire stock of domestic arrears in 2005.
- The stock of arrears was audited and payment obligations equivalent to 0.7 percent of GDP were issued redeemable by end‑2005; more than half was paid by end‑June.
- Transfers to the south lagged because of delays in formation of the unity government; between January and June the government transferred US$80 million to the SPLM.
- Central bank financing to the government rose, contributing to monetary growth.
- Balance of payments: higher world oil prices increased oil export revenue but current account worsened because of a surge in imports of machinery and manufactured goods and weak non‑oil exports; strong capital inflows (including FDI) supported reserves.
- Balance of payments first half 2005 (cash basis): exports (f.o.b.) US$2,029 million Jan.–Jun. 2005 (oil exports in million barrels 47.0 Jan.–Jun. 2005); current account Jan.–Jun. 2005 -$663 million (annualized -5.2 percent of GDP); capital and financial accounts Jan.–Jun. 2005 $638 million (annualized 5.0 percent of GDP); change in official reserves (increase, -) -$180 million.

Program performance and structural measures
- Performance under the program was mixed: two of four quantitative targets for end‑June 2005 were missed; the end‑December 2005 target on nonconcessional borrowing was exceeded by a large margin.
- In the first half of 2005 the government contracted nonconcessional external financing for US$803 million compared to the annual program target of US$150 million.
- All end‑June structural benchmarks were carried out on time, including:
  - introduction of an auction system for government certificates;
  - formulation of a program to introduce commercial accounting standards in the state‑owned oil sector company;
  - creation of a medium‑size taxpayers’ unit.
- Authorities committed to removing two remaining exchange restrictions subject to Fund jurisdiction (prohibition on importers in arrears executing payments/transfers for import transactions; multiple currency practice arising from a historic buying rate for resale of export proceeds).

### III. Policy Discussions and Outlook for the Remainder of 2005
Macro targets and inflation outlook
- A revised financial program for the second half of 2005 was formulated with the goal of containing inflation.
- Average inflation for 2005 is targeted at 10.5 percent compared to 7.5 percent under the original program.
- The 12‑month rate of inflation is projected at 8–9 percent.
- Absent corrective actions, authorities estimated that the 12‑month rate of inflation could reach between 15 and 20 percent by year‑end.

Corrective measures and fiscal stance
- Authorities imposed strict controls on nonpriority government spending, tightened monetary policy, and committed to stop nonconcessional borrowing.
- The authorities set aside plans for additional nonconcessional borrowing in the second half of 2005 and indicated they will limit drawdown of recently contracted facilities.
- Understandings reached to restrain growth in nonpriority expenditures: intend to limit outlays in wages and salaries and in goods and services while keeping social and capital expenditures at budgeted levels; Darfur‑related spending likely to remain higher than programmed in the general reserve category.
- The higher oil price outlook implies higher oil revenues: oil revenues for 2005 are expected to be 22 percent higher than in the original program.
  - For 2005, the price of Sudan’s oil is projected at US$52 per barrel compared to US$34 in the original program.
- Non‑oil fiscal revenues revised upward reflecting robust non‑oil GDP growth and expected improvements in tax administration.

Fuel pricing and subsidies
- Domestic fuel prices were set when the 2005 budget was formulated and remained unchanged despite rising international prices; implicit fuel subsidies emerged (state‑owned oil company discounts difference and staff advised classifying these subsidies as a budget expenditure item).
- Authorities hesitant to raise domestic fuel prices immediately given political sensitivities; indicated likely to start gradual price increases toward the end of 2005 or in early 2006 and will prepare, in consultation with Fund staff, a medium‑term strategy including a more automatic adjustment of fuel prices in response to market conditions.

Monetary policy stance
- Monetary policy should continue to focus on controlling reserve money growth and allowing for further flexibility in the pricing of securities and foreign exchange.
- Authorities tightened monetary policy and undertook liquidity mopping operations in the second quarter but did not fully sterilize earlier liquidity because of concerns about effects on non‑oil exports.

### IV. Key Policy Recommendations and Institutional Priorities
- Continue to allocate expenditures to priority sectors and high‑return projects while reducing fuel subsidies.
- Maintain the oil saving account to provide self‑insurance against an oil price shock.
- Improve oil sector transparency and introduce commercial accounting standards in the state‑owned oil company.
- Conduct a public expenditure review.
- Build capacity and accountability in the states, including the government of Southern Sudan.
- Continue banking system reforms.
- Review the system of tax incentives.
- Carry out reforms to improve the business environment to address profitability concerns in non‑oil sectors.
- Prepare an interim poverty reduction strategy for the national unity government.

*Source: Executive Summary of the IMF staff report (midyear review of the Staff‑Monitored Program), Khartoum visit August 30–September 8, 2005; discussions concluded September 25, 2005.*

### 16.      The projected fiscal deficit for 2005 is similar to the one in the original program,

### _cr05430 - 16.      The projected fiscal deficit for 2005 is similar to the one in the original program,

### Fiscal outlook and financing composition
- The projected fiscal deficit for 2005 is similar to the one in the original program, but the composition of financing will be different.
- Fiscal revenues benefit from higher international oil prices, but expenditures are projected to be higher as well.
- Lower-than-programmed oil output and external financing will be offset by:
  - the use of deposits from the old oil stabilization account, and
  - a higher benchmark price of oil.
- The benchmark price was increased from US$30 per barrel in the first half of this year to US$45 per barrel in the second half. The difference between this price and the oil export price determines the amount accumulated in the oil savings account.
- The balances of the old oil savings account initially remained as part of government deposits; authorities decided to use these proceeds to finance additional spending, mainly capital expenditures.
- In 2005, the new oil savings account is projected to accumulate the equivalent of 2 percent of GDP.
- Social spending has been budgeted at about 1.2 percent of GDP. The authorities’ definition of social spending is quite narrow; discussions with the World Bank are underway to develop a more comprehensive definition of pro-poor spending.

### Transfers, decentralization, and the peace agreement
- As envisaged in the peace agreement with the south, the authorities set up in January 2005 a new oil savings account shared between the central government and the government of Southern Sudan.
- The peace agreement stipulates that about 40 percent of oil revenues would be transferred to the south and the war-affected areas.
- The government decided in late 2004 to implement a fiscal decentralization plan entailing a rapid increase in transfers to the remaining states to empower states, increase pro-poor spending, and alleviate regional disparities.
- The fiscal space of the central government has not increased in 2005 despite higher revenues because of large transfers to the government of Southern Sudan and to other states.

### Monetary policy and liquidity management
- Authorities have been tightening monetary policy in the second half of the year.
- Reserve money growth (12-month basis) fell from 40 percent in June to an estimated 32 percent in September and is projected to reach 30 percent in December.
- Broad money growth is expected to follow a similar profile.
- The central bank has been mopping up liquidity through open market sales of government securities and foreign exchange and by limiting its lending to commercial banks.

### Balance of payments and external flows
- The balance of payments will continue to benefit from higher oil export revenues and strong capital inflows.
- Observed trends likely to continue: higher export revenue from high oil prices, higher import demand, strong private capital inflows (mainly foreign direct investment), and a further reserve build up to about 2.9 months of imports of goods and services.

### Structural measures and reforms under the staff-monitored program
- By end-December, authorities are expected to convert the 2006 budget into Government Finance Statistics format.
- Authorities are preparing a three-year tariff reform program.
- Other near-term structural reform priorities include:
  - Import tariffs: forthcoming reform should be ambitious, especially in reducing the top tariff rate of 45 percent, to improve competitiveness and foster integration with the world economy.
  - Tax incentives: review of the system of incentives to boost non-oil revenue and distribute the tax burden more evenly and transparently.
  - Public expenditure and fiscal decentralization: a public expenditure review and urgent efforts to build capacity, transparency, and accountability in both central government and states.
  - Oil sector governance: the National Petroleum Commission will be expected to design a strategy to improve governance and transparency and reform the state-owned oil company and its subsidiaries.
  - Banking system restructuring: reorganization of the central bank, introduction of a new currency, a dual banking system (Islamic banking in the north and conventional banking in the south), and commercial bank restructuring through mergers and privatization.

### Financial sector reforms and currency timetable
- A financial sector reform program has been prepared in light of recent FSAP recommendations (end-December benchmark).
- Authorities submitted a request for technical assistance that the Fund will coordinate with the World Bank.
- As envisaged in the peace agreement, authorities drafted a plan to restructure and decentralize the central bank and submitted legislation to change its legal and operational structure (including setting up a branch in south Sudan).
- The target date for introduction of the new currency has been changed from October 2005 to June 2006 because of technical delays and uncertainty about financing sources.

### Debt, donor engagement, and poverty reduction strategy
- Sudan’s external debt situation:
  - End-2004 stock of external public debt is estimated at US$26 billion in nominal terms.
  - External public debt is 904 percent of exports of goods and services in net present value terms.
  - About 86 percent of the end-2004 external public debt is in arrears.
- Restoring external viability would require exceptional debt relief, including under the HIPC Initiative and the Multilateral Debt Relief Initiative.
- The strategy for resolving Sudan’s debt and arrears problems is discussed in a companion Board paper.
- Donor coordination and poverty reduction:
  - The UN is leading efforts to coordinate donor activity in Sudan.
  - The World Bank has established two multi-donor trust funds to finance projects of both the national government and the government of the south.
  - Authorities plan to finalize an interim poverty reduction strategy by mid-2006.
  - Semiannual consultative group meetings (the Sudan Consortium) have been scheduled between the government and donors to monitor progress.

### Staff appraisal and policy recommendations
- Progress under the peace agreement is being implemented despite political challenges; the government of national unity has been established and implementation continues.
- The non-oil economy has been expanding rapidly, but budget and monetary policy have been strained and inflation has edged upwards.
- Causes of recent instability include an expanding fuel subsidy (domestic fuel prices not increased following world price upsurge), higher-than-budgeted spending in certain categories, deviations from end-June quantitative targets, and reluctance to sterilize government spending and external inflows.
- Staff welcomes corrective actions:
  - Renewed fiscal restraint in other areas as envisaged in the revised program.
  - Central bank steps to control reserve money growth and allow further flexibility in pricing of securities and foreign exchange.
- Staff urges authorities to:
  - Adhere to their commitment to stop further nonconcessional borrowing in the second half of the year.
  - Design the 2006 budget to preserve macroeconomic stability, avoid excessive crowding out of the private sector, meet expenditure priorities, and carry out an appropriate reduction in fuel subsidies that minimizes the impact on the poor.
  - Build up balances in the oil saving account to self-insure against oil price shocks.
  - Maintain a prudent monetary policy to ensure inflation objectives are achieved.
- Additional notes:
  - Lack of household survey data prevents carrying out a poverty and social impact analysis.
  - Discussions between staff and authorities on the 2006 budget will take place in November and will include the plan for adjusting fuel prices.
  - Authorities indicated their intention to discuss a staff monitored program for 2006; these discussions are expected to be completed at the time of the next Article IV consultation discussions planned for February 2006.

*Source: IMF staff report content unit _cr05430 - 16.*

### 31.      Sudan’s structural reform efforts in recent years have yielded positive benefits,

### Sudan’s structural reform efforts in recent years have yielded positive benefits

### Structural reform assessment and policy recommendations
- Staff view: structural reform efforts have yielded positive benefits, but much more remains to be done.
- Main macroeconomic challenge: the oil sector boom coupled with an expansionary fiscal policy will likely constrain profitability in non-oil tradable sectors through real exchange rate appreciation and higher borrowing costs.
- Recommended priorities:
  - Focus on removal of transportation and other bottlenecks.
  - Press ahead with the structural reform agenda, including:
    - Further rationalization of tax incentives.
    - An ambitious import-tariff reform program.
    - Appropriate investment in infrastructure.
    - Financial sector restructuring.
    - Implementation of a strategy to reduce barriers to private sector development.
  - Pursue additional reforms to improve transparency in the oil sector, including adopting modern accounting standards in the state-owned oil company and its subsidiaries.

### Production, population, and prices (selected figures, 2001–06)
- Nominal GDP (in billions of Sudanese dinars, at market prices): 3,452; 3,964; 4,580; 5,535; 6,299; 6,912; 8,570
- Nominal GDP (in millions of U.S. dollars): 13,363; 15,054; 17,550; 21,463; 23,891; 28,050; 37,261
- Crude oil production (in thousands of barrels per day): 209; 232; 262; 288; 391; 312; 510
- Population (in millions): 31.9; 32.7; 33.6; 34.5; 35.4; 35.4; 36.3
- GNP per capita (in U.S. dollars): 400; 440; 499; 590; 751; 790; 950
- Real GDP (annual change in percent): 6.4; 6.1; 5.1; 5.2; 8.3; 8.2; 13.4
- Oil sector real GDP (annual change in percent): 21.6; 24.7; 13.0; 9.9; 35.6; 8.2; 63.6
- Non-oil sector real GDP (annual change in percent): 5.3; 4.6; 4.4; 4.8; 5.6; 8.2; 7.8
- Consumer prices (average): 4.9; 8.3; 7.7; 8.4; 7.5; 10.5; 7.0
- Consumer prices (end of period): 7.4; 8.3; 8.3; 7.3; 8.0; 9.1; 6.4

### Investment, saving, and fiscal aggregates (selected figures)
- Gross investment (percent of GDP): 17.6; 19.4; 20.0; 22.5; 24.4; 21.9; 23.8
  - Government: 2.3; 3.0; 3.0; 5.0; 6.8; 4.9; 6.6
  - Nongovernment: 15.3; 16.4; 17.0; 17.5; 17.7; 17.8; 17.2
- Gross national saving (percent of GDP): 7.9; 13.3; 15.3; 18.7; 18.8; 16.9; 22.8
  - Government: 1.4; 2.2; 3.9; 6.2; 6.2; 4.7; 9.3
  - Nongovernment: 6.6; 11.2; 11.4; 12.6; 12.6; 12.1; 13.5
- Central government operations (cash basis, percent of GDP):
  - Total revenue: 10.7; 11.9; 16.2; 20.0; 21.4; 22.4; 26.5
  - Total expenditure: 11.6; 12.7; 15.5; 18.4; 22.0; 23.0; 25.4
  - Overall balance (cash): -0.9; -0.8; 0.7; 1.5; -0.6; -0.6; 1.1

### External sector and reserves (selected figures)
- Exports, f.o.b. (in millions of U.S. dollars): 1,699; 1,949; 2,577; 3,778; 4,975; 5,619; 9,550
  - Of which: Oil: 1,377; 1,511; 2,082; 3,101; 4,220; 4,915; 8,776
- Imports, f.o.b. (in millions of U.S. dollars): 2,031; 2,153; 2,536; 3,586; 4,712; 5,122; 6,785
- Current account balance on cash basis (in millions of U.S. dollars): -1,289; -918; -827; -816; -1,409; -1,404; -372
- Current account balance on cash basis (in percent of GDP): -9.6; -6.1; -4.7; -3.8; -5.6; -5.0; -1.0
- Gross usable reserves (in millions of U.S. dollars): 452; 495; 271; 1,338; 1,754; 2,005; 3,392
- Gross usable reserves (in months of next year’s imports): 0.2; 1.0; 1.5; 2.5; 3.2; 2.9; 4.1
- Sudan’s crude-oil export price (U.S. dollars per barrel): 22.0; 23.0; 27.0; 36.4; 34.0; 51.8; 54.7
- External debt (in billions of U.S. dollars): 20.9; 23.6; 25.7; 26.0; 26.5; 27.0; 28.6
- External debt (percent of GDP): 156.8; 156.8; 146.5; 121.1; 110.9; 96.1; 71.5
- Debt service ratio (commitment basis, percent of exports of goods and services): 38.4; 37.5; 31.6; 23.2; 16.0; 16.8; 9.5
- Debt service ratio (actual payments basis, percent of exports of goods and services): 5.1; 6.8; 9.5; 7.9; 5.2; 5.8; 3.6

### Selected fiscal details (2003–Jan–Jun 2005, in billions of Sudanese dinars; central government operations)
- Total revenues (2003; 2004; Proj. 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): 741.9; 1,104.5; 603.1; 679.2; 1,348.3; 1,545.9
- Tax revenue (same sequence): 270.0; 420.5; 217.8; 228.7; 467.4; 490.0
  - Direct taxes: 52.3; 74.7; 42.2; 48.1; 95.0; 99.0
  - Indirect taxes: 217.7; 345.8; 175.6; 180.6; 372.4; 391.0
- Nontax revenues (same sequence): 471.9; 684.0; 385.3; 450.5; 880.9; 1,055.9
- Total expenditures (same sequence): 708.4; 1,019.5; 616.7; 681.0; 1,386.9; 1,587.3
- Current expenditures (same sequence): 563.8; 762.5; 522.7; 575.3; 1,169.0; 1,374.2
- Capital expenditures (same sequence): 135.2; 277.2; 94.0; 109.2; 217.9; 217.7
- Overall balance (deficit -) (same sequence): 33.5; 85.0; -13.6; -1.9; -38.6; -41.4

### Monetary aggregates and Bank of Sudan (selected figures, 2003–2005)
- Broad money (levels, in billions of Sudanese dinars): 734.1; 960.4; 1,088.5; 1,180.0; 1,215.4; 1,229.4; 1,277.4
- Currency outside banks (in billions of Sudanese dinars): 240.2; 304.9; 359.2; 324.7; 333.5; 405.7; 347.5
- Deposits (in billions of Sudanese dinars): 493.9; 655.5; 729.3; 855.3; 881.9; 823.7; 929.9
- Reserve money (annual percentage change): 26.6; 27.8; 32.9; 40.0; 32.0; 29.1; 29.9
- Broad money (annual percentage change): 30.3; 30.8; 29.7; 40.6; 38.0; 28.0; 33.0
- Credit to nongovernment sector (annual percentage change): 56.9; 44.8; 24.6; 50.0; 45.4; 28.5; 41.1
- Foreign currency deposits to total deposits (in percent): 37.2; 37.7; 39.3; 36.5; 35.3; 39.3; 35.3
- Usable international reserves to broad money (in percent): 18.7; 35.0; 36.8; 32.3; 37.2; 35.7; 36.1

### Balance of payments (selected figures, 2003–2005, in millions of U.S. dollars unless otherwise indicated)
- Current account balance (2003; 2004; Proj. 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): -1,457; -1,340; -1,012; -1,137; -2,107; -1,989
- Current account balance (on cash basis): -827; -816; -663; -841; -1,409; -1,404
- Trade balance (2003; 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): 401; 92; -80; -70; 264; 497
- Exports, f.o.b. (2003; 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): 2,576; 3,778; 2,029; 2,308; 4,975; 5,619
  - Oil exports (same sequence): 2,082; 3,101; 1,655; 2,003; 4,220; 4,915
  - Non-oil products (same sequence): 494; 677; 374; 304; 756; 704
- Imports, f.o.b. (same sequence): -2,536; -3,586; -2,109; -2,378; -4,712; -5,122
- Services (net) (2003; 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): -794; -1,020; -577; -769; -1,354; -1,632
- Income (net) (2003; 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): -1,421; -1,635; -912; -922; -2,153; -2,080
  - Oil related expenses (same sequence): -740; -1,038; -536; -610; -1,401; -1,444
- Financial account (net) (2003; 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): 1,079; 1,308; 638; 940; 1,462; 1,894
  - FDI and portfolio investment (net) (same sequence): 1,092; 1,481; 695; 1,093; 1,496; 2,090
- Overall balance (2003; 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): -296; 65; -373; 94; -645; 196
- Change in official reserves (increase -) (2003; 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): -434; -789; -185; -450; -457; -849
- Usable foreign reserves (increase -) (2003; 2004; Est. Jan–Jun 2005; Prog. 2005; Rev. Prog. Jan–Jun 2005): -283; -807; -180; -284; -420; -667

### Quantitative targets and program items (selected)
- Bank of Sudan net domestic assets (mid-year change): 129.5; 11.8; -32.1; -34.1; 14.3; -34.2
- Domestic financing of the central government (Jan.–Dec. cumulative change): -100.4; -6.3; -51.2; -1.9; -17.5; 29.4
- Contracting or guaranteeing of external nonconcessional debt by the government or the central bank (in millions of U.S. dollars): 310; ......; 803; 150; 803
- Gross official usable reserves (in millions of U.S. dollars): 1,338; 180; 358; 284; 420; 667
- Payments to the Fund (in millions of U.S. dollars): 32.4; 15.0; ...; 16.5; 30.0; 30.0
- Memorandum: Oil savings account (end-2004 and 2005 midyear): 129.0; 32.7; ...; 76.6; 72.6; 135.0

### Structural benchmarks under the Staff-Monitored Program (status as of end-October 2005)
- By end-June 2005:
  - 1. Introduce an auction system with competitive selling price for the General Musharaka Certificates (GMC) and General Investment Certificates (GIC) securities in the primary market. — Met
  - 2. Set up and operationalize a single treasury account for all Ministry of Finance operations. — Met
  - 3. Establish a medium-size taxpayers’ unit. — Met
  - 4. Develop a program (including timetable) for aligning the SPC and its subsidiaries’ accounting systems with commercial standards by end-2006. — Met
- By end-December 2005:
  - 5. Formulate the 2006 budget based on GFS classification. — In progress
  - 6. Prepare a three-year import-tariff reform program and incorporate it in the 2006 budget. — In progress
  - 7. Establish a new financing window that allows liquidity constrained banks to sell securities to the central bank at a penalty rate. — (status not indicated)

*Source: Sudanese authorities; and Fund staff estimates and projections.*

### 8. Prepare a financial sector reform program in light of FSAP

### 8. Prepare a financial sector reform program in light of FSAP

### Implementation status
- Recommendation status: Met

### Medium-Term Macroeconomic Scenario (2004–10) — Key projections and historical values
- Nominal GDP (in millions of U.S. dollars): 21,463; 28,050; 37,261; 42,549; 47,347; 52,184; 57,176 (2004–2010)
- Real GDP (change in percent): 5.2; 8.2; 13.4; 8.8; 8.7; 8.1; 7.5 (2004–2010)
- Oil (change in percent): 9.9; 8.2; 3.6; 13.7; 10.3; 5.1; 4.1 (2004–2010)
- Non-oil (change in percent): 4.8; 8.2; 7.8; 7.9; 8.4; 8.6; 8.1 (2004–2010)
- Inflation (period average): 8.4; 10.5; 7.0; 5.0; 4.0; 3.0; 3.0 (2004–2010)
- Gross investment (percent of GDP): 22.5; 21.9; 25.3; 26.0; 26.8; 27.5; 27.1 (2004–2010)
  - Government investment: 5.0; 4.9; 8.1; 8.6; 8.8; 8.9; 8.5
  - Nongovernment investment: 17.5; 17.0; 17.2; 17.4; 18.0; 18.6; 18.6
- Gross national saving (percent of GDP): 18.7; 16.9; 24.3; 22.7; 23.3; 21.7; 21.6
  - Government saving: 6.2; 4.7; 9.3; 10.1; 9.0; 8.9; 8.4
  - Nongovernment saving: 12.6; 12.1; 15.0; 12.5; 14.2; 12.8; 13.2
- Central government (percent of GDP)
  - Total revenue: 20.0; 22.4; 26.5; 28.2; 28.2; 27.9; 27.8
    - Of which: Oil revenue (crude oil revenue): 10.4; 13.7; 18.2; 19.8; 19.8; 18.3; 17.6
  - Total expenditure: 18.8; 23.1; 25.3; 26.6; 27.9; 28.1; 27.9
    - Current expenditures: 13.8; 18.0; 17.0; 18.1; 19.1; 19.1; 19.4
    - Capital expenditure: 5.0; 5.0; 8.3; 8.6; 8.8; 8.9; 8.5
  - Overall balance (cash basis): 1.2; -0.7; 1.2; 1.6; 0.2; -0.1; -0.2
- External sector (percent of GDP)
  - External trade balance: 0.9; 1.8; 7.4; 4.7; 3.7; 2.9; 2.4
  - Exports: 17.6; 20.0; 25.6; 24.6; 23.6; 22.0; 21.0
  - Imports: 16.7; 18.3; 18.2; 19.8; 20.0; 19.0; 18.6
  - Current account balance on cash basis: -3.8; -5.0; -1.0; -3.3; -3.6; -5.2; -5.2
  - Gross official reserves (in months of imports): 2.5; 2.9; 4.1; 4.4; 4.8; 4.9; 5.0
- Non-oil trade volumes (change in percent)
  - Non-oil export volume: 9.6; 1.1; 8.6; 9.0; 10.0; 10.6; 11.5
  - Non-oil import volume: 32.8; 34.5; 32.4; 24.8; 11.4; 4.7; 5.2
- Terms of trade (change in percent): 20.0; 27.6; 3.6; 0.4; -4.1; -1.4; -2.3
- Memorandum item: Crude oil export price (U.S. dollars per barrel): 36.45; 51.85; 54.75; 53.35; 53.35; 52.75; 51.9
- Sources for the table: Sudanese authorities; and Fund staff estimates and projections.
- Note: Projections based on August 2005 WEO oil prices.

### Relations with the Fund (as of September 30, 2005)
- Membership: Joined 09/05/57; Article VIII.
- General Resources Account
  - Quota (SDR Million, %): 169.70; 100.00
  - Fund holdings of currency: 476.95; 281.05
  - Reserve position in Fund: 0.01; 0.01
- SDR Department
  - Net cumulative allocation (SDR Million, %): 52.19; 100.00
  - Holdings: 0.40; 0.77
- Outstanding Purchases and Loans (SDR Million, % of Quota)
  - Stand-by Arrangements: 179.62; 105.85
  - Extended Arrangements: 108.05; 63.67
  - Contingency and Compensatory Financing Facility: 19.55; 11.52
  - Trust fund: 59.23; 34.90
- Financial Arrangements (selected approvals and drawings)
  - Stand-by approved 06/25/1984, expiration 06/24/1985: Amount (SDR million) 90.00; Drawn 20.00
  - Stand-by approved 02/23/1983, expiration 03/09/1984: Amount 170.00; Drawn 170.00
  - Stand-by approved 02/22/1982, expiration 02/21/1983: Amount 198.00; Drawn 70.00
- Projected Obligations to the Fund (SDR million; as of 9/30/05)
  - Overdue principal: 366.45
  - Charges/Interest (total listed): 688.42
  - Forthcoming charges/interest by year: 3.53 (2005); 13.63 (2006); 13.63 (2007); 13.65 (2008); 13.62 (2009)
  - Total projected (summary line): 1,054.87 (with forthcoming installments 3.53; 13.63; 13.63; 13.65; 13.62)

### Exchange rate and external payments measures
- Legal tender: Sudanese dinar (replaced Sudanese pound in proportion SDD 1 = LSd 10 in 1999).
- Exchange rate regime history:
  - Since October 1998: unified exchange rate system.
  - 2001: BOS introduced formal band of +1.5 percent (later broadened to 2 percent) around the official rate and began auctioning foreign exchange within the band.
  - May 2003: BOS adopted a managed-floating exchange rate regime; formal band abandoned; auction system replaced with direct interbank transactions.
  - BOS internal limit of +2 percent intraday trading in average daily market rate (later changed in 2004 to +3 percentage points permissible intraday fluctuation).
- Bilateral/payment arrangements: one inoperative bilateral payment agreement with Egypt; one inoperative payment clearing account with the former Soviet Union.
- Exchange measures subject to Fund jurisdiction:
  - Exchange restriction: prohibition for importers in arrears with valid import licenses from executing payments and transfers for import transactions.
  - Multiple currency practice: use of the historic buying rate for the resale of export proceeds.
- Authorities’ commitment: to remove these restrictions by end-November 2005.

### Article IV Consultation and FSAP
- Article IV: Sudan is on a 12-month consultation cycle. Last Article IV consultation discussion completed by the Executive Board on April 29, 2005 (Country Report No. 05/180; June 2, 2005).
- FSAP participation: FSAP mission conducted during December 1–20, 2004. The Financial System Stability Assessment report was discussed by the Executive Board on April 29, 2005.

### Resident representative and technical assistance
- Resident Representative: Fund's resident representative office in Khartoum was reopened in October 2005.
- Technical Assistance (summary 2002–2005 by department and topics)
  - Fiscal Affairs Department: expenditure control and management (January–September 2002); reform of direct taxation and revenue administration (November 2002 and December 2003); reform of direct taxes and investment incentives (March 2003); medium-term budgetary framework (April 2003); tax and customs administration (September 2003); fiscal cash management and budget classification (February 2004; METAC May and September 2004; June and October 2005); revenue administration assessment (METAC February 2005).
  - Monetary and Financial Department: monetary management and banking supervision (periodic visits, January–August 2002); banking supervision resident advisor May 2001–May 2003; Islamic compliant monetary instruments (October 2002); monetary policy operations and introduction of a commodities futures/forward market in the agriculture sector (December 2003); monetary policy operations (September 2004); currency workshop (February 2005); assessment of circulating currencies in Sudan (March 23–April 2, 2005); banking supervision (METAC August 27–31 2005); reorganization of the Bank of Sudan (August 27–September 1 2005).
  - Statistics Department: monetary statistics (periodic visits January–November 2003); national accounts and CPI statistics (periodic visits March 2002–February 2003) — Central Bureau of Statistics (CBS); balance of payments statistics (July 2003) — BOS; General Data Dissemination System (GDDS) (July 2003) — CBS, MFE and BOS; assessing Sudan’s emerging technical assistance needs in economic statistics (with METAC) (May 25–June 2, 2005) — CBS, MOF and BOS; government finance statistics (October 2005) — MOF.

### Relations with the World Bank (as of October 15, 2005) — key points
- World Bank lending: No active lending portfolio because of Sudan’s default; disbursements suspended in April 1993.
- Good faith payments: US$1 million per month starting July 1999; equivalent of US$500,000 per month since October 2002.
- Arrears and outstanding debt: arrears stood at about US$357 million as of September 30, 2005 (from US$145 million at end-1999). Sudan’s outstanding Bank debt, including arrears, is approximately US$1.3 billion.
- Reengagement strategy: Sudan Country Reengagement Note (CRN) discussed July 10, 2003; emphasis on knowledge generation, capacity building, demonstration projects, and resolution of the debt overhang.
- Joint Assessment Mission (JAM): co-led by the Bank and UN covering eight thematic sectors (January 2004–March 2005); JAM synthesis report “Framework for Transition, Reconstruction and Poverty Eradication” completed March 2005; raised US$2.0 billion in pledges for 2005–2007 at April 2005 Donors’ Conference in Oslo.
- Sudan Consortium: twice-yearly meetings agreed to report progress and renew financial pledges; first meeting expected in January 2006.
- Multi-Donor Trust Funds (MDTFs): two MDTFs established under the Comprehensive Peace Agreement for the National Government and for the Government of Southern Sudan; approximately US$500 million pledged in Oslo toward the two Trust Funds; World Bank is Administrator; MDTFs now effective and first projects being prepared.
- Poverty reduction and PRSP: workshop under JAM initiated joint strategy for poverty eradication; interim PRSP expected to be finalized by mid-2006.
- Donor support and trust funds: US$4.5 million LICUS trust-fund grant approved December 2004; complements two Post Conflict Fund grants totaling US$3.0 million.
- Joint IMF-World Bank activity: Bank participated in two missions to Sudan in October and December 2004 as part of the joint FSAP; World Bank preparing a Public Expenditure Review (PER) with IMF participation.

### Statistical issues
- Available economic data are sufficient for program monitoring purposes.
- Areas needing further improvement: compiling national accounts, state budgetary data, and external trade and financial statistics.

*Source: _cr05430 - 8. Prepare a financial sector reform program in light of FSAP*

### appendix discusses outstanding statistical issues by sector.

### appendix discusses outstanding statistical issues by sector

### I. REAL SECTOR
- Findings:
  - The compilation and dissemination of the monthly Consumer Price Index have been commendable in recent years.
  - Monthly CPI data for the Khartoum area are provided shortly after the end of each month while the CPI including other states is provided with a three-month lag.
  - The compilation of the national accounts is subject to delay; annual national accounts data are reported with a lag of over three years.
  - National accounts statistics lack basic information for many sectors, including oil, livestock, horticulture, and most services.
  - On the expenditure side, data are lacking on final consumption by households, investment, and changes in stocks.
  - There are no national accounts or industrial production data at sub annual frequencies.
- Areas of concern / priorities:
  - Urgent need to increase funding to the Central Bureau of Statistics (CBS) and rebuild its capacity.
  - Priorities include introducing the 1993 System of National Accounts, conducting a census of agricultural production, carrying out a household survey, producing poverty statistics, and improving coordination between the CBS, the Ministry of Finance and National Economy (MOFNE), the Ministry of Energy and Mining, and the Ministry of Agriculture and Livestock.
  - A peripatetic real sector expert provided some assistance on national accounts through to the end of 2003.

### II. FISCAL SECTOR
- Findings:
  - Government finance statistics reported to MCD are broadly adequate for program monitoring.
  - Main revenue, expenditure, and financing items are reported on a monthly basis with a lag of about one month.
  - Financing items are consistent with the monetary accounts.
  - Reported statistics are for the central government only and do not include the states and publicly owned corporations.
  - Data are submitted using an economic classification; MOFNE allocations to ministries are reported, but ministries’ actual expenditures are not.
  - Data reported for the Government Finance Statistics Yearbook are weak and cover only budgetary central government up to 1999.
  - Monthly and quarterly fiscal data are not reported for the International Financial Statistics (IFS).
- Areas of concern / recommendations:
  - Urgent need to improve accounting and reporting procedures at MOFNE.
  - Introduce the GFS classifications according to guidelines provided in Government Finance Statistics Manual (GFSM) 2001.
  - Implement the technical assistance recommendations on GFS.

### III. MONETARY SECTOR
- Findings:
  - Sudan has received significant technical assistance to improve monetary and financial statistics (joint MCD and STA mission in October 1992; six STA missions between 1993 and 2003).
  - Monetary statistics compiled by the Bank of Sudan (BOS) are broadly acceptable for monitoring purposes.
  - Concerns remain that the absence of some prior actions suggested by the July 2003 monetary and financial statistics mission may hinder progress toward compiling statistics based on international standards.
  - STA staff visit in May 2005 found harmonization of plan of accounts for BOS headquarters and branches was not complete; revision to banks’ monthly statistical return and preparation of additional guidelines were not finalized; work with MOF and line ministries on classification of government accounts in monetary statistics had not progressed.
- Actions planned:
  - STA plans a follow-up mission on monetary and financial statistics during November 28-December 9, 2005, to assist BOS in implementing July 2003 recommendations and exploring options to expand reporting to cover banking activities in the South.
- Areas of concern / recommended steps:
  - Establish a working group to review BOS foreign assets.
  - Review and revise guidelines related to consortium financing and ensure compliance.
  - Implement the 2001 TA mission recommendations on monetary statistics, including improvement of commercial banks’ other items (net).

### IV. EXTERNAL SECTOR
- Findings:
  - Daily exchange rate data are reported to the Fund with minimal lags.
  - Several areas need improvement in the external accounts, particularly foreign direct investment, trade, and oil statistics.
  - BOS’s foreign exchange balances include reserves earmarked for particular purposes such as medicine, oil, and spare part imports; composition and potential usability of these earmarked reserves in a balance of payments need is not clear.
  - Discrepancies exist between customs and BOS import statistics.
  - Lack of survey data affects compilation of important balance of payments items such as foreign direct investment.
  - Medium-term oil production projections and data on amortization of private sector debt need substantial improvement.
  - Authorities have made some progress in improving oil projections but appear reluctant to provide more detailed information on phasing-in and expected production levels of new blocks and on amortization of debt in the oil sector.
  - Total oil reserves available are estimated between 10 to 15 billion barrels, which, at a production rate of 350 thousand barrels a day, would last about 100 years.
- Recommendations:
  - Authorities should clarify items that qualify as international reserves in general and those included in earmarked reserves in particular.
  - Begin compiling the data template on international reserves and foreign currency liquidity.
  - Reconcile customs and BOS trade data; implement recommendations of the 1999 and 2003 TA reports on balance of payments statistics.
  - Improve survey data collection to better estimate FDI and other BOP components.

### Data quality: summary of issues, adequacy, and steps to improve integrity
- Real sector / national accounts:
  - Scope and timeliness: Historical data reported on time by the Central Statistics Office; real and nominal GDP by sector available with a 2-year lag.
  - Adequacy: Broadly acceptable.
  - Areas of concern: 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: Rebuild CBS institutional capacity; introduce the 1993 SNA; conduct census of agricultural production; implement project prepared by STA’s peripatetic real sector expert.
- Prices / CPI:
  - Scope and timeliness: Monthly CPI reported on time, with a minimal lag.
  - Adequacy: Acceptable; only CPI for Khartoum area available promptly; weekly CPI published in the flash report.
  - Areas of concern: CPI for Sudan as a whole is not available.
  - Steps: Conduct new household income and expenditure survey; reduce timing discrepancies and other reporting inefficiencies by individual states.
- Government finance:
  - Scope and timeliness: Monthly reporting of main budgetary items, generally on time; 1.5-month lag.
  - Adequacy: Good; main revenue and expenditure items reported; financing consistent with monetary accounts.
  - Areas of concern: Only partial data on state budgets available; incomplete functional classification; MOFNE allocations reported but ministries’ actual expenditure not; slow progress on introduction of GFS classification.
  - Steps: Introduce GFS classification; improve accounting and reporting at MOFNE; implement in full GFS (1997) TA mission recommendations.
- Monetary accounts:
  - Scope and timeliness: Monthly reporting of balance sheets; generally on time; 1.5-month lag. Weekly flash reports of key monetary aggregates; 1-week lag.
  - Adequacy: Acceptable following recent STA missions.
  - Areas of concern: Large and variable other items (net); frequent misclassification errors by commercial banks (particularly for consortium financing) preventing meaningful analysis of NDA composition; some divergence between reserve money in balance sheets and end-of-month flash reports.
  - Steps: Establish working group to review BOS foreign assets; review and revise guidelines related to consortium financing and ensure compliance; implement 2001 TA mission recommendations; include data on returns on investment deposits; aim at full reporting of the BOS balance sheet.
- External sector / reserves and BOP:
  - Scope and timeliness: Monthly reporting of BOS active balances; generally on time; 0.5-month lag. Quarterly full BOP data provided on time during missions; 3-month lag. Monthly trade data upon request with a 2–3 month lag.
  - Adequacy: Acceptable but needs improvement.
  - Areas of concern: Gross usable reserves are part of BOS active balances, which also include unusable earmarked reserves; composition and usability unclear; incompleteness of data on services, investment income, transfers, financial account, and FDI; large positive errors and omissions; discrepancies between BOS and customs trade data.
  - Steps: Clarify items that qualify as international reserves and those included in earmarked reserves; introduce revised reports form for commercial banks; improve data collection; enforce residency criterion; enhance BOS BOP compilation unit capacity; implement 1999 and 2003 TA recommendations.
- External debt:
  - Scope and timeliness: Monthly payments to creditors on time; 1.5-month lag. Other debt data: 10-month lag.
  - Adequacy: Good; coverage comprehensive though weaknesses persist.
  - Areas of concern: BOS records not reconciled with some creditors; ODA data not available; charges on interest in arrears not calculated; for some creditors interest on arrears not separated from delayed interest; BOS cash flow table does not reflect exactly actual payments made by MOFNE.
  - Steps: Reconcile data with creditors; further disaggregate data according to standard definitions; Debt Management Unit to send monthly statements on external debt to BOS’s Statistics Department; eliminate timing and recording discrepancies between BOS and MOFNE.

### Sudan: Table of Common Indicators Required for Surveillance (AS OF OCTOBER 20, 2005)
- Exchange Rates
  - Date of latest observation: 10/10/05
  - Date received: 10/10/05
  - Frequency of data: D
  - Frequency of reporting: D
  - Frequency of publication: D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities
  - Date of latest observation: 8/31/05
  - Date received: 9/20/05
  - Frequency of data: M
  - Frequency of reporting: M
  - Frequency of publication: M
- Reserve/Base Money
  - Date of latest observation: 8/31/05
  - Date received: 9/20/05
  - Frequency of data: M
  - Frequency of reporting: W
  - Frequency of publication: M/W
- Broad Money
  - Date of latest observation: 8/31/05
  - Date received: 9/20/05
  - Frequency of data: W
  - Frequency of reporting: W
  - Frequency of publication: M/W
- Central Bank Balance Sheet
  - Date of latest observation: 8/31/05
  - Date received: 9/20/05
  - Frequency of data: M
  - Frequency of reporting: M
  - Frequency of publication: M
- Consolidated Balance Sheet of the Banking System
  - Date of latest observation: 8/31/05
  - Date received: 9/20/05
  - Frequency of data: M
  - Frequency of reporting: M
  - Frequency of publication: M
- Interest Rates
  - Date of latest observation: 9/29/05
  - Date received: 10/10/05
  - Frequency of data: W
  - Frequency of reporting: M
  - Frequency of publication: M/W
- Consumer Price Index
  - Date of latest observation: August 2005
  - Date received: 9/3/05
  - Frequency of data: M/W
  - Frequency of reporting: M
  - Frequency of publication: M
- Revenue, Expenditure, Balance and Composition of Financing – General Government
  - Date of latest observation: August 2005
  - Date received: 10/3/05
  - Frequency of data: M
  - Frequency of reporting: M
  - Frequency of publication: M
- Stocks of Central Government and Central Government-Guaranteed Debt
  - Date of latest observation: June 2005
  - Date received: Sept. 2005
  - Frequency of data: A
  - Frequency of reporting: A
  - Frequency of publication: A
- External Current Account Balance
  - Date of latest observation: 2005: Q2
  - Date received: Sept. 2005
  - Frequency of data: Q
  - Frequency of reporting: Q
  - Frequency of publication: Q
- Exports and Imports of Goods and Services
  - Date of latest observation: June 2005
  - Date received: Sept. 2005
  - Frequency of data: M
  - Frequency of reporting: M
  - Frequency of publication: M
- GDP/GNP
  - Date of latest observation: 2004
  - Date received: Sept. 2005
  - Frequency of data: A
  - Frequency of reporting: A
  - Frequency of publication: A
- Gross External Debt
  - Date of latest observation: 2004:Q4
  - Date received: Feb. 2005
  - Frequency of data: A
  - Frequency of reporting: A
  - Frequency of publication: A

*Source: appendix discusses outstanding statistical issues by sector.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05430.pdf_