## _cr07343

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---

### Executive summary — background and program focus
- Sudan cooperated closely with the Fund over the last eight years with generally good performance under successive staff‑monitored programs (SMPs) and by making payments in excess of obligations falling due.
- Performance under the 2006 SMP was mixed; macroeconomic imbalances emerged in late 2006/early 2007: expansionary fiscal policy combined with lower oil revenues resulted in a buildup of government arrears, a deterioration of financial sector indicators, and exchange rate pressures.
- Article IV and SMP discussions focused on:
  - policies to ensure macroeconomic stability and growth;
  - fiscal reforms to increase the revenue base;
  - financial sector reforms to strengthen financial intermediation and increase investment.

### Main elements of the 18‑month SMP (July 2007–December 2008)
- Fiscal stance:
  - Reduce the 2007 fiscal deficit by about 2 percent of GDP in the second half of 2007, to 3.8 percent of GDP.
  - 2007 fiscal deficit target (cash basis): no more than SD 359 billion.
  - 2008 fiscal deficit target (cash basis): no more than SD 326 billion (2.9 percent of GDP).
- Monetary and exchange rate policy:
  - Prudent monetary policy targeting single digit inflation; reserve money growth target: 18 percent (2007) and 20 percent (2008).
  - Broad money growth target: 24 percent (2007) and 25 percent (2008).
  - Greater exchange rate flexibility; central bank will limit foreign exchange intervention and target an increase in international reserves (net international reserves targets: US$1.3 billion by end‑2007 and US$1.8 billion by end‑2008).
- Fiscal reforms and public financial management:
  - Establish a Treasury Single Account (TSA) (zero‑balance TSA by August 15 2007).
  - Enact commitment controls that limit expenditures by line ministries to monthly or quarterly cash plans.
  - Halt the use of nontraditional forms of financing (sanadats, standing orders, letters of guarantee).
  - Adopt 2001 GFSM classification for the 2008 budget.
  - Reduce VAT exemptions and income tax holidays; VAT rate raised from 10 percent to 12 percent effective June 1, 2007.
  - Improve tax administration (introduce self‑assessment for business income tax in the LTO by end‑January 2008).
- Financial sector reforms:
  - Audit of Omdurman Bank by a local affiliate of an internationally recognized auditing firm; prepare a resolution/restructuring plan based on audit findings (audit to start by December 2007; restructuring plan by June 2008).
  - Commercial banks to submit action plans to achieve compliance with capitalization and provisioning regulations by end‑December 2007.
  - Central Bank of Sudan (CBOS) to actively enforce prudential standards; prepare resolution/restructuring strategy for Omdurman Bank.
- External borrowing and payments:
  - Authorities to limit contracting of nonconcessional borrowing to US$700 million annually in 2007 and 2008.
  - Authorities intend to make minimum annual payments of US$50 million in 2007 and 2008 to the Fund and to move to monthly payments.

### Main program risk
- Waning political support for reforms, given Sudan’s concern with lack of progress on debt relief.

---

### Recent developments and 2006 SMP performance (selected facts and indicators)
- Output and prices:
  - Overall real GDP increased by 12 percent in 2006; non‑oil GDP increased by roughly 10 percent in 2006.
  - 12‑month inflation: 5.6 percent in 2005 → 15.7 percent in 2006; declined to 8–9 percent by February–March 2007 and remained in this range through June.
  - Core inflation (excluding food and transport): 11 percent at end‑2005 → 13.3 percent end‑2006 → 6.3 percent by June 2007.
- Oil sector:
  - Average daily production: 287,000 bpd in 2005 → 364,000 bpd in 2006 (below projected 492,000 bpd).
  - By May‑June 2007 the Dar blend discount relative to dated Brent narrowed from about US$34 per barrel to US$25 per barrel.
- Fiscal performance:
  - Overall deficit estimated to have widened to over 4 percent of GDP in 2006 (2 percentage points higher than targeted in the revised 2006 SMP).
  - Tax‑to‑GDP ratio fell from 6.9 to 6.3 percent from 2005 to 2006.
  - Accumulation of domestic arrears equivalent to about 2 percent of GDP.
  - Text Table 2 (Selected Fiscal Indicators, 2006, in billions of Sudanese dinars): Total revenue 1,796; Of which: Oil 1,020; Total expenditure 1,970; Current Expenditure 1,683; Capital Expenditure 287; Overall balance -174; (as share of GDP) -2.1 (program) and -4.2 (est.).
  - First quarter 2007: overall deficit roughly 6 percent on an annualized basis; Q1 2007 overall government deficit SD 143.6 billion (1.5 percent of annual GDP).
- External sector and reserves:
  - External current account deficit about 13 percent of GDP in 2006.
  - Net international reserves fell from US$1.9 billion at end‑2005 to less than US$1.4 billion by end‑2006, and to US$563 million as of end‑May 2007 (less than three weeks of imports).
- Monetary and exchange rate:
  - Broad money growth (yoy): peaked 45 percent by July 2006; ended 2006 at 27 percent; end‑May 2007 broad money growth 5 percent (other tables show 24.0 for 2006 and 25.0 for 2008 targets); reserve money growth: 26.6, 27.8, 34.9, 27.8, 18.0, 20.0 (series).
  - Credit to the private sector growth: almost 90 percent by July 2006; declined to 45 percent by end‑2006 and to 16 percent by end‑May 2007.
  - Dinar nominal appreciation vis‑à‑vis the U.S. dollar: 12.7 percent in 2006; real effective exchange rate (REER) appreciated 21 percent in 2006. From end‑December 2006 the exchange rate system became a de facto peg.
- Financial sector soundness (selected indicators):
  - Regulatory capital to risk‑weighted assets: 19.1 (Dec‑05), 19.7 (Dec‑06), 18.3 (Mar‑07).
  - Capital (net worth) to assets: 12.0 (Dec‑05), 14.1 (Dec‑06), 13.0 (Mar‑07).
  - Gross NPLs to gross loans: 7.1 (Dec‑05), 19.4 (Dec‑06), 23.3 (Mar‑07), 23.9 (Apr‑07).
  - NPLs net of provisions to capital: 37.4 (Dec‑05), 63.7 (Dec‑06), 76.0 (Mar‑07), 91.0 (Apr‑07).
  - ROA (before tax): 5.0 (Dec‑05), 3.6 (Dec‑06), 2.8 (Mar‑07), 3.6 (Apr‑07).
  - ROE (before tax): 56.0 (Dec‑05), 35.4 (Dec‑06), 23.4 (Mar‑07), 32.0 (Apr‑07).
  - Liquid assets to total assets: 16.9 (Dec‑05), 25.0 (Dec‑06), 22.5 (Mar‑07), 24.0 (Apr‑07).
  - Omdurman Bank intervention: official intervention and injections of liquidity from the central bank totaled SD120 billion—1.5 percent of GDP—during September 2006–January 2007.

### 2006 SMP quantitative target performance
- Two of five quantitative targets met: payments to the Fund and the ceiling on nonconcessional borrowing.
- Three targets missed: net international reserves, net domestic assets, and domestic financing of the government.
- Major factors for missed targets: commitments under peace agreements without donor disbursements; shortfalls in projected oil revenues.

---

### Macroeconomic outlook and program targets (2007–08 and medium term)
- Real GDP growth envisaged: about 11 percent in both 2007 and 2008 (program envisages 11.2 percent in 2007 and 10.7 percent in 2008 in some tables).
- Average inflation: 8 percent in 2007 and 6.5 percent in 2008.
- Oil production and exports assumptions:
  - Annual daily production above 500,000 bpd in the second half of 2007; modest increase to 565,000 bpd in 2008.
- Non‑oil GDP growth: expected around 8 percent in 2007; projected to pick up in 2008 with resumed private credit and capital inflows.
- Reserve rebuilding targets:
  - Increase net international reserves to US$1.3 billion (1.4 months of imports) by end‑2007.
  - Increase net international reserves to US$1.8 billion (1.7 months of imports) by end‑2008.
- Medium‑term scenario (selected series, 2006–12):
  - Nominal GDP (in millions of U.S. dollars): 27,904 37,442 46,708 55,929 66,931 75,784 84,808 94,423.
  - Real GDP (annual changes in percent): 8.6 11.8 11.2 10.7 12.6 8.3 7.6 7.5.
  - Inflation (period average): 8.5 7.2 8.0 6.5 5.5 4.5 4.0 4.0.
  - Net international reserves (in months of imports): 2.4 1.7 1.4 1.7 2.5 2.6 2.6 2.9.

---

### Fiscal policy — composition of adjustment and specific measures
- 2007 program deficit target: 3.8 percent of GDP (compared with estimated deficit under approved budget of 5.6 percent of GDP).
- Program preserves a 20 percent nominal increase in primary expenditures while protecting peace‑agreement related spending.
- Authorities intend to reduce expenditures in second half of 2007 by 1.6 percent of GDP relative to the approved 2007 budget via:
  - goods and services: 0.3 percent of GDP;
  - other current spending: 0.4 percent of GDP;
  - transfers to states: 0.3 percent of GDP;
  - capital spending: 0.6 percent of GDP.
- Revenue measures:
  - VAT rate increase from 10 percent to 12 percent effective June 1, 2007.
  - Reduce VAT exemptions to raise SD 15–20 billion annually effective December 2007.
  - Prepare program by October 2007 to progressively reduce income tax holidays under the Investment Encouragement Act (IEA); adopt accelerated depreciation; agree to a single profit tax rate in 2009.
  - Suspend granting of new VAT or income tax exemptions; existing exemptions grandfathered but not renewed.
- Expenditure control and transparency:
  - MOFNE to issue decree by July 15, 2007 prohibiting line ministries from new spending commitments without MOFNE permission.
  - Centralize domestic debt monitoring unit in MOFNE by September 2007.
  - Issue quarterly accounting reports on committed vs. paid expenditure.

---

### Monetary policy, liquidity management, and exchange rate
- Monetary stance:
  - Conduct monetary policy increasingly via open market operations; CBOS to acquire government securities from banking system to build indirect instruments.
  - Reserve money growth target: 18 percent (2007), 20 percent (2008).
  - Broad money growth target: 24 percent (2007), 25 percent (2008).
  - Targeted private sector credit growth: near 40 percent by end‑2007.
- Exchange rate:
  - Managed floating exchange rate system with limited occasional interventions to smooth volatility.
  - CBOS introduced a cash margin requirement on sight letters of credit in mid‑2007; authorities intend to remove it by end‑2007.
  - CBOS had operated a formal exchange rate band of 1.5 percent (later broadened to 2 percent) historically; since January 2007 the dinar was de facto pegged.
- Reporting and adjustors:
  - NDA and NIR program targets include adjustors for the financial position of the government of South Sudan (capped) and for oil revenue (symmetric).
  - If accrued oil revenue exceeds (falls short of) programmed amounts, OSA deposits and program targets are adjusted per oil revenue adjustor rules.
  - Programmed OSA accumulation for 2007 is zero; OSA used to smooth oil revenue volatility.

---

### Financial sector: vulnerabilities, indicators, and reform priorities
- System characteristics and development:
  - Financial system underdeveloped: no interbank market; shallow equity and foreign exchange markets; nonbank financial institutions small; limited financial access; commercial banks accounted for 97 percent of sector assets at end‑2003.
- Key banking indicators (comparative and recent Sudan series):
  - Deposits/GDP and Credit/GDP (2006): Sudan Deposits/GDP 15.5; Credit/GDP 15.5.
  - Capital to risk‑weighted assets (Sudan): 18.3.
  - Non‑performing loans to total loans (Sudan): 23.9.
  - ROA (Sudan): 3.6; ROE (Sudan): 32.0; Lending‑Deposit Spread (Sudan): 9.2.
- Short‑term actions (2007–08):
  - Audit Omdurman Bank by a local affiliate of an internationally recognized auditing firm; prepare resolution/restructuring plan by June 2008.
  - Commercial banks to submit action plans to achieve compliance with capitalization and provisioning regulations by end‑December 2007.
  - CBOS to enforce prudential standards and require credible independent loan assessments.
  - Prepare resolution/restructuring strategy for Omdurman Bank based on the independent audit.
- Importance:
  - Omdurman Bank accounts for about 44 percent of total bank lending and about 40 percent of deposits; CBOS does not envisage further injections of liquidity into Omdurman Bank.

---

### External debt, debt sustainability, and borrowing strategy
- End‑2006 stock of public and publicly‑guaranteed debt estimated at US$27 billion in nominal terms (up by about US$9 billion since end‑2000); in NPV terms end‑2006 external debt roughly 55 percent of GDP and 340 percent of exports.
- Nonconcessional borrowing in 2006: contracted US$589 million (grant elements in table: 11.6 percent overall), with US$392 million from India and US$182 million from China; disbursed US$286 million in 2006.
- Authorities intended to limit contracting of nonconcessional borrowing to US$700 million annually in 2007 and 2008.
- Debt sustainability analysis (DSA) findings:
  - DSA under the Low‑Income Country Debt Sustainability Framework indicates most debt ratios remain above indicative thresholds even under the baseline with prudent policies.
  - Sudan assessed to be in debt distress.
  - Baseline projections (selected outcomes):
    - NPV of debt‑to‑GDP ratio expected to decline from 47 percent in 2007 to 34 percent in 2017 (still above indicative threshold by 4 percentage points).
    - NPV of debt‑to‑exports ratio projected 284 percent in 2007 → 203 percent in 2009 → increase to 429 percent in 2017 (threshold 100 percent).
    - NPV of debt‑to‑revenue ratio projected to decline through 2012 but to breach threshold by 7 percentage points in 2017.
  - Debt service indicators remain below thresholds in baseline but are sensitive to shocks; caveat: servicing projections exclude more than US$24 billion in arrears.
- Stress tests and scenarios (selected):
  - Scenario A1 (historical averages): debt ratios remain above indicative thresholds over next decade.
  - Scenario A2 (2 percentage points higher interest on new borrowing): flattens downward path of debt ratios; all ratios remain above thresholds.
  - Bound test B6 (one‑time 30 percent nominal depreciation in 2008): NPV debt‑to‑GDP would reach 60 percent in 2008, decline to 34 percent in 2027; NPV debt‑to‑revenue would reach 301 percent in 2008, decline to 228 percent in 2027.
  - Bound test B2 (lower export value growth shock): NPV debt‑to‑export would rise to 370 percent in 2008 and reach 1037 percent in 2017.
  - Customized test A3 (20 percent oil price shock): external debt indicators worsen significantly; debt‑to‑revenue remains above 200 percent threshold through 2017.
- Policy recommendation:
  - Reconsider external borrowing strategy; avoid high volumes of nonconcessional borrowing which could jeopardize access to possible debt relief and worsen future debt service burdens.

---

### Data, reporting, and technical assistance needs
- Improvements and weaknesses:
  - Monetary and financial statistics generally comprehensive and timely; CPI and national accounts weak.
  - Fiscal reporting has progressed; adoption of GFSM 2001 classification for 2008 budget expected.
  - Regular data on domestic debt, standing orders, promissory notes (sanadats), and arrears uneven.
- Reporting requirements (selected):
  - Weekly flash report on CBOS balance sheet movements; monthly detailed CBOS balance sheet and monetary survey; monthly central government GFSM 2001 data (data for January–May by end‑June).
- Technical assistance priorities requested:
  - GFSM 2001 methodology training.
  - Public financial management (commitment control and TSA).
  - Tax policy and administration, and fiscal federalism.
  - Improving bank supervision in the context of a dual banking system.
  - FSAP update requested.
- Specific data integrity issues:
  - Significant discrepancies between imports reported by customs and BOS; inadequate FDI data collection; oil sector data improvements needed; national accounts use 1968 SNA and need upgrading to 1993 SNA; CBS capacity and household survey needed.

---

### Risks to the outlook and staff appraisal
- Main risks identified:
  - Waning political support for reforms due to lack of donor progress on debt relief.
  - Volatility in oil production and prices and capital flows.
  - Weaknesses in public financial management.
  - Failure to promptly improve financial sector indicators.
- Staff appraisal:
  - The 18‑month SMP aims to address institutional and policy weaknesses, ensure safety and soundness of the financial system, and lay groundwork for medium‑term macroeconomic stability and growth.
  - Program includes semi‑annual quantitative targets for end‑December 2007, end‑June 2008, and end‑December 2008, and structural benchmarks.

---

### Key numeric highlights and series (selected exact figures preserved)
- Real GDP growth: 7.1 5.1 8.6 11.8 11.2 10.7 (series shown).
- Oil production (average, thousands of bpd): 262 288 287 364 505 565.
- Nominal GDP (billions of Sudanese dinars, market prices): 4,640 5,592 6,798 8,131 9,373 11,186.
- Nominal GDP (millions of U.S. dollars): 17,780 21,685 27,904 37,442 46,708 55,929.
- Central government total revenue (percent of GDP): 16.0 19.7 21.7 19.4 18.7 20.4.
- Central government total expenditure (percent of GDP): 15.3 18.2 23.4 23.7 22.5 23.3.
- Overall balance (percent of GDP): 0.7 1.5 -1.8 -4.2 -3.8 -2.9.
- Net international reserves (end‑period, millions of U.S. dollars): 477.8 566.4 334.2 227.5 230.2 295.3 (selected series) and alternative series: 290 1,144 1,889 1,384 1,300 1,800 (table).
- Total public and publicly‑guaranteed external debt (end‑2006 nominal): US$27 billion (Text and tables cite 26,588 million in table).
- Nonconcessional borrowing contracted in 2006: US$589 million.
- Omdurman Bank liquidity injections: SD120 billion (1.5 percent of GDP) during September 2006–January 2007.
- Payments to the Fund (selected series): 30 15 ... 144 5 ... 51 (table entries preserved as in source).

*Source: IMF staff report (content unit: _cr07343)._

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

### Executive Summary

### Background
- Sudan has maintained close cooperation with the Fund over the last eight years, evidenced by generally good performance under successive staff monitored programs (SMPs) and by making payments in excess of obligations falling due.
- Performance under the 2006 SMP was mixed, reflecting a worsening economic situation and weaknesses in the policy framework.
- Macroeconomic imbalances emerged in the latter half of 2006 and early 2007: expansionary fiscal policy combined with lower oil revenues resulted in a buildup of government arrears, a deterioration of financial sector indicators, and exchange rate pressures.

### Focus of discussions and main policy recommendations
- Article IV and SMP discussions focused on:
  - policies to ensure macroeconomic stability and growth;
  - fiscal reforms to increase the revenue base;
  - financial sector reforms to strengthen financial intermediation and increase investment.
- Main elements of an 18-month SMP (July 2007–December 2008):
  - A tightening of the fiscal stance: authorities agreed to reduce the 2007 fiscal deficit by about 2 percent of GDP in the second half of 2007, to 3.8 percent of GDP.
  - A prudent monetary policy targeting single digit inflation, combined with greater exchange rate flexibility. The central bank will limit foreign exchange intervention and target an increase in international reserves.
  - Fiscal reforms to increase the revenue base and improve public finance management. Critical measures to be implemented include:
    - establishing a Treasury Single Account;
    - enacting controls that limit expenditures;
    - halting the use of nontraditional forms of financing;
    - adopting 2001 GFSM classification for the 2008 budget;
    - reducing VAT exemptions and income tax holidays; and
    - improving tax administration.
  - Financial sector reforms to address current weaknesses and promote development. In particular, an audit of Omdurman Bank will be done in preparation for a resolution/restructuring plan for the bank.
- Main risk: waning political support for reforms, given Sudan’s concern with the lack of progress on debt relief.

### Introduction (context and agreed program)
- Sudan’s economy has significant potential if concerns related to policy management and security can be improved.
- Major challenges discussed: (i) policies to ensure macroeconomic stability in the context of significant structural changes; (ii) recent fiscal performance and the need for further reform of public financial management, tax policy, and tax administration; (iii) financial sector reform and development.
- Agreement reached on an 18-month SMP (July 2007–December 2008) balancing a prudent macroeconomic framework with fiscal and financial sector reforms.

### Recent developments and performance under the 2006 SMP — Key facts and indicators
- Political and monetary developments:
  - Most CPA-mandated commissions formed; three critical commissions (National Human Rights Commission, Electoral Commission, Land Commission) yet to be created; draft bills to be discussed when the National Assembly reconvenes in October.
  - Nationwide exchange to a new national currency (Sudanese pound) largely completed as of end-June 2007.
  - Darfur: agreement on June 12 for deployment of a 23,000 strong UN/African Union hybrid force; risk remains if not followed by political dialogue.
- Output and inflation:
  - Overall real GDP increased by 12 percent in 2006.
  - Non-oil GDP increased by roughly 10 percent in 2006.
  - 12-month inflation rose from 5.6 percent in 2005 to 15.7 percent in 2006; declined to 8–9 percent by February–March 2007 and remained in this range through June.
  - Core inflation (excluding food and transport) rose from 11 percent at end-2005 to 13.3 percent by end-2006, then declined to 6.3 percent by June 2007.
- Oil sector:
  - Average daily production rose from 287,000 bpd in 2005 to 364,000 bpd in 2006 (below projected 492,000 bpd).
  - Dar blend production delayed; marketing problems resulted in substantial discounts. By May-June the discount on Dar blend relative to dated Brent narrowed from about US$34 per barrel to US$25 per barrel.
- Fiscal performance:
  - Overall deficit estimated to have widened to over 4 percent of GDP in 2006 (2 percentage points higher than targeted in the revised 2006 SMP).
  - Tax-to-GDP ratio fell from 6.9 to 6.3 percent from 2005 to 2006.
  - Accumulation of domestic arrears equivalent to about 2 percent of GDP.
  - Deficit financed by running down the oil savings account (OSA), issuance of government bonds, and central bank credit; commitment-basis deficit larger due to arrears and nonrecording of expenditures financed by promissory notes (“sanadats”).
  - Text Table 2 (Selected Fiscal Indicators, 2006, in billions of Sudanese dinars): Total revenue 1,796; Of which: Oil 1,020; Total expenditure 1,970; Current Expenditure 1,683; Capital Expenditure 287; Overall balance -174; (as share of GDP) -2.1 (program) and -4.2 (est.).
  - First quarter 2007: overall deficit roughly 6 percent on an annualized basis.
  - GOSS faced a substantial deficit due to shortfalls in oil revenue share under the Wealth Sharing provisions of the CPA.
- External sector and reserves:
  - External current account deficit about 13 percent of GDP in 2006.
  - Exports: crude oil volume rose about 70 percent, value rose 24 percent due to low prices for Dar blend; nonoil exports declined about 11 percent in dollar terms.
  - Imports surged, particularly capital goods.
  - Net international reserves fell from US$1.9 billion at end-2005 to less than US$1.4 billion by end-2006, and to US$563 million as of end-May 2007 (less than three weeks of imports).
- Monetary and exchange rate developments:
  - Broad money growth (yoy) peaked at 45 percent by July 2006; ended 2006 at 27 percent; as of end-May 2007 broad money growth stood at 5 percent.
  - Credit to the private sector growth reached almost 90 percent by July 2006; private sector credit growth declined to 45 percent by end-2006 and to 16 percent by end-May 2007.
  - Dinar appreciated 12.7 percent nominally vis-à-vis the U.S. dollar in 2006; real effective exchange rate appreciated 21 percent in 2006. From end-December 2006 onwards, the dinar was virtually flat and the exchange rate system became a de facto peg.
  - Central bank sales of foreign exchange to mop up excess dinar liquidity and support a soft landing contributed to reserve losses.
- Financial sector soundness:
  - Financial soundness indicators deteriorated markedly due to fiscal expansion, rapid credit growth, accumulation of government arrears, and intervention in state-owned Omdurman Bank.
  - Banks’ regulatory capital to risk-weighted assets: 19.1 (Dec-05), 19.7 (Dec-06), 18.3 (Mar-07) (data limitations noted).
  - Capital (net worth) to assets: 12.0 (Dec-05), 14.1 (Dec-06), 13.0 (Mar-07).
  - Gross NPLs to gross loans: 7.1 (Dec-05), 19.4 (Dec-06), 23.3 (Mar-07), 23.9 (Apr-07).
  - NPLs net of provisions to capital: 37.4 (Dec-05), 63.7 (Dec-06), 76.0 (Mar-07), 91.0 (Apr-07).
  - ROA (before tax): 5.0 (Dec-05), 3.6 (Dec-06), 2.8 (Mar-07), 3.6 (Apr-07).
  - ROE (before tax): 56.0 (Dec-05), 35.4 (Dec-06), 23.4 (Mar-07), 32.0 (Apr-07).
  - Liquid assets to total assets: 16.9 (Dec-05), 25.0 (Dec-06), 22.5 (Mar-07), 24.0 (Apr-07).
  - Liquid assets to total short-term liabilities: 37.2 (Dec-05), 75.0 (Dec-06), 75.0 (Mar-07), 71.2 (Apr-07).
  - Ratio of NPLs to assets almost tripled between 2005 and 2006, reaching 19.4 percent at end-2006; NPLs stood at 23.9 percent of loans in April 2007.
  - Omdurman Bank was a major contributor to deterioration: official intervention and injections of liquidity from the central bank totaled SD120 billion—1.5 percent of GDP—during September 2006–January 2007.
  - Low provisioning levels suggest possible de facto undercapitalization for some banks.

### Policy discussions (overview of staff recommendations)
- Macroeconomic stance:
  - Tighten fiscal stance to restore fiscal discipline and reduce deficit to 3.8 percent of GDP in 2007 (about 2 percent of GDP reduction in second half of 2007).
  - Pursue prudent monetary policy targeting single-digit inflation and increase exchange rate flexibility; limit foreign exchange intervention and target an increase in international reserves.
- Fiscal and public finance measures:
  - Implement fiscal reforms to increase revenue base and improve public financial management, including establishing a Treasury Single Account, expenditure controls, halting nontraditional financing, adopting 2001 GFSM classification for the 2008 budget, reducing VAT exemptions and income tax holidays, and improving tax administration.
- Financial sector measures:
  - Implement financial sector reforms to address weaknesses and promote development, including an audit of Omdurman Bank to prepare a resolution/restructuring plan.
- External debt and relations:
  - Discussions noted Sudan’s concern about lack of progress on debt relief, which poses a political risk to sustaining reforms.

_Executive Summary (IMF staff report)._

### 13.      Performance under the 2006 SMP was uneven—representing a break from

### 13.      Performance under the 2006 SMP was uneven—representing a break from

### Performance under the 2006 SMP
- Two of the five quantitative targets were met: payments to the Fund and the ceiling on nonconcessional borrowing.
- Three quantitative targets were not met: net international reserves, net domestic assets, and domestic financing of the government.
- Major factors for missed targets:
  - Need to meet commitments under various peace agreements in the absence of donor disbursements.
  - Shortfall relative to projected revenues from oil exports.
- Structural reform implementation:
  - Most structural reforms under the program were implemented, although some with delays.
  - Three benchmarks were not met: fiscal reporting on a GFSM 2001 basis, publishing of financial audits of state oil company Sudapet, and formulation of a program to revamp investment incentives under the Investment Encouragement Act.

### Macroeconomic outlook and targets (2007–08)
- Real GDP growth envisaged: about 11 percent in both 2007 and 2008.
- Average inflation: 8 percent in 2007 and 6.5 percent in 2008.
- Oil production and exports assumptions:
  - Annual daily production above 500,000 bpd in the second half of 2007.
  - Modest increase to 565,000 bpd in 2008.
- Non-oil GDP growth:
  - Expected around 8 percent in 2007.
  - Projected to pick up again in 2008 assuming resumption of private sector credit, buoyant construction and services, and resumption of foreign capital inflows.

### Fiscal policy and adjustment
- 2007 fiscal deficit target under program: 3.8 percent of GDP (compared with an estimated deficit under the approved budget of 5.6 percent of GDP).
- Program still allows for a 20 percent increase in nominal terms in primary expenditures (excluding interest payments and the fuel subsidy) while protecting spending related to government commitments under various peace agreements.
- 2008 fiscal stance: a deficit of about 3 percent of GDP, with room for greater transfers to the states.
- Fiscal adjustment composition:
  - Most adjustment from expenditure cuts; several revenue measures also implemented.
  - Authorities intend to reduce expenditures in the second half of 2007 by 1.6 percent of GDP relative to the approved 2007 budget.
    - To meet the expenditure envelope, spending restrained on: goods and services (0.3 percent of GDP), other current spending (0.4 percent of GDP), transfers to states (0.3 percent of GDP), and capital spending (0.6 percent of GDP).
  - VAT rate increased from 10 percent to 12 percent, effective June.
  - Authorities agreed to reduce tax incentives/holidays in the 2008 budget context and to hold off on further tariff reductions in 2007.

### Monetary policy, reserves, and credit
- Staff assessment: dinar had become overvalued by end-2006 (degree of overvaluation diminished more recently).
- Authorities' actions: central bank sold foreign exchange to mop up domestic liquidity and provide a soft landing for the exchange rate; introduced a cash margin requirement on sight letters of credit (primarily for prudential reasons given the rise in NPLs).
- Reserve rebuilding targets:
  - Increase net international reserves to US$1.3 billion (1.4 months of imports) by end-2007.
  - Increase net international reserves to US$1.8 billion (1.7 months of imports) by end-2008.
  - Preliminary data indicate that the central bank began to accumulate reserves in June 2007.
- Exchange rate policy:
  - Authorities recognized exchange rate flexibility would be essential, even if implying some depreciation.
  - Central bank to more closely limit interventions to servicing the market for current international transactions and smoothing short-term volatility.
  - Mission suggested greater use of indirect instruments (GMCs and GICs) rather than sale of foreign exchange to manage liquidity.
  - Authorities intend to remove the cash margin on sight letters of credit and import credits by the end of 2007.
- Monetary targets for 2007:
  - Reserve money growth target: 18 percent.
  - Broad money growth target: 24 percent.
  - Targeted private sector credit growth: near 40 percent by end-2007.
- Monetary targets for 2008 (to be discussed in subsequent missions):
  - Reserve money growth: 20 percent.
  - Broad money growth: 25 percent.

### External competitiveness and exchange rate—Box 1 highlights
- REER appreciation: about 40 percent since January 2005.
- Observations:
  - REER closely correlated with oil prices since start of oil production.
  - REER deviated from historical trend in the second half of 2006 due to higher inflation and continued nominal appreciation, suggesting likely overvaluation by end-2006.
  - Since that time REER has moved back toward the implied trend because of (i) a drop in inflation; (ii) a steady nominal rate vis-à-vis the U.S. dollar (a de facto peg since January 2007); and (iii) rising oil prices.
  - Negative correlation between REER deviation from trend and non-oil exports suggests real appreciation may have negatively affected external competitiveness.
- Policy implication: increasing productivity and structural reforms are key to ensure external competitiveness and non-oil growth.

### Structural reforms and growth strategy
- Medium- and long-term priorities from the new five-year plan (2007–11) include:
  - Physical infrastructure—particularly electricity and transport.
  - Irrigation projects and prioritizing agriculture sector expenditures.
  - Improving production and management processes in agricultural and industrial sectors to meet international standards.
  - Aligning training and education outputs to labor market needs.
  - Modernizing and developing the judicial system.
  - Simplification of administrative and legal procedures to facilitate domestic and foreign investment.
- Authorities committed to producing a draft PRSP by March 2008.

### Fiscal reforms and public financial management
- Measures to put public finances on a firmer footing (see MEFP, ¶21–23):
  - Establishing a Treasury Single Account (TSA).
  - Enacting commitment controls that limit expenditures by line ministries to monthly or quarterly cash plans.
  - Halting the use of sanadats, standing orders, and other nontraditional forms of finance.
  - Adopting the full economic and functional classifications of the Government Financial Statistics Manual (GFSM) 2001.
- Rationale: avoid resort to nontraditional forms of public finance (issuance of promissory notes, accumulation of arrears) that harmed growth, confidence, and macro balances.

### Tax policy and administration (Box 2)
- Tax revenue trajectory:
  - Tax revenue rose from 5.8 to 8.6 percent of non-oil GDP during 2001–04.
  - Tax revenue fell to 7.4 percent of non-oil GDP during 2005–06.
- Fiscal cost of incentives/exemptions:
  - Investment Encouragement Act (IEA) incentives estimated cost: 2.0 percent of GDP.
  - VAT exemptions estimated revenue cost: 1.2 percent of GDP.
- Personal income tax (PIT) base: very narrow with many allowances; almost all government employees and about 80 percent of private-sector workers are exempt.
- Revenue administration reforms to date:
  - Establishment of the large taxpayer office (LTO) — accounts for 70 percent of domestic tax collection — and the medium taxpayers office (MTO).
  - Raising the VAT threshold to SD 10 million.
- Concerns in the 2007 budget:
  - Raising the VAT rate on telecommunication services from 10 percent to 15 percent fragmented the VAT system.
  - Exempting agricultural inputs from customs duties seen as ill-advised.
- Fiscal decentralization challenges:
  - Need clarity on assignment of tax authority and revenue collection between the GNU, the GOSS, and various state governments.
  - PIT base not harmonized between the GNU and the states.
  - Assignment of customs collection authority at borders needs clarification.
- Recommended tax policy and administration steps:
  - Replace IEA incentives with a system of accelerated depreciation.
  - Unify the business profit tax at around 20 percent.
  - Scale back VAT and customs exemptions.
  - Broaden the personal income tax base.
  - Restructure the network of tax offices and establish a function-based headquarter structure.
  - Adopt a simple, transparent criterion for the selection of taxpayers administered by the LTO and MTO.
  - Improve compliance programs to support a proper self-assessment system.

### Financial sector notes
- Omdurman Bank represents about 44 percent of total bank lending, and about 40 percent of total deposits.
- The Bank of Sudan does not envisage further injections of liquidity into Omdurman Bank.
- Indicators of financial development (2006): Deposits/GDP and Credit/GDP for selected countries (as reported):
  - Egypt: Deposits/GDP 84.3; Credit/GDP 84.1
  - Kenya: Deposits/GDP 34.1; Credit/GDP 34.1
  - Nigeria: Deposits/GDP 16.0; Credit/GDP 20.3
  - Sudan: Deposits/GDP 15.5; Credit/GDP 15.5
  - Yemen: Deposits/GDP 25.7; Credit/GDP 12.8

*Source: IMF staff report (chapter content as provided).*

### 25.      Continued financial sector reform and development is an essential pillar for

### _cr07343 - 25.      Continued financial sector reform and development is an essential pillar for

### Financial sector: structure and recent reforms
- Sudan’s financial system is relatively underdeveloped and small compared with countries at a similar level of development.
- The financial system characteristics:
  - No interbank market; equity and foreign exchange markets are shallow; nonbank financial institutions are small.
  - Only a small share of the population has access to bank services; enterprises often face difficulties obtaining funding from banks or capital markets.
  - Commercial banks accounted for 97 percent of the sector’s total assets at end-2003.
  - Nonperforming assets are relatively high and provisioning low.
  - Spreads and profitability indicators tend to be higher than in other economies, symptomatic of a low level of competition.
- Second-generation reform focus:
  - A second round of recapitalization is underway.
  - Additional reforms focused on mergers, modernization of information technology, development of an interbank market, building capacity for supervision of conventional banking in the South, and implementation of the Islamic Financial Services Board (IFSB) standards (equivalent to Basle II for Islamic banks).

### Key banking-sector indicators (as presented)
- Capital to risk-weighted assets:
  - Egypt 16.3, Kenya 13.4, Nigeria 14.3, Sudan 18.3, Yemen 12.0
- Non-performing loans to total loans:
  - Egypt 24.7, Kenya 5.2, Nigeria 21.9, Sudan 23.9, Yemen 23.0
- Provisions to non-performing loans:
  - Egypt 68.2, Kenya 115.6, Nigeria ...9.5, Sudan ...
- Return on assets:
  - Egypt 0.9, Kenya 1.0, Nigeria 0.5, Sudan 3.6, Yemen 1.2
- Return on equity:
  - Egypt 17.4, Kenya 3.1, Nigeria 7.5, Sudan 32.0, Yemen 16.4
- Lending-Deposit Spread:
  - Egypt 6.6, Kenya 8.5, Nigeria 7.4, Sudan 9.2, Yemen 5.0
- Source note: Latest data available vary by country (see original Table 2 notes). For Sudan, spread equals the difference between the effective investment rate and the effective deposit rate.

### Priority financial-sector reforms and short-term actions (findings and policy recommendations)
- Priority reforms highlighted:
  - (i) Improve the legal and regulatory framework (greater corporate transparency and creation of a credit bureau).
  - (ii) Rehabilitate Omdurman bank.
  - (iii) Enhance competition to reduce the cost of financing for small firms.
  - (iv) Promote the integration of the northern and southern financial systems.
- Short-term (2007–08) specific actions:
  - An audit of Omdurman Bank will be done by a local affiliate of one of the internationally recognized auditing firms; based on audit findings the central bank will prepare a plan for resolution/restructuring of the bank.
  - Commercial banks are required to submit well-specified action plans to achieve compliance with existing regulations on capitalization and provisioning.
  - Central bank to more actively enforce prudential standards and ensure bank compliance with regulations based on credible and independent loan assessments.
  - Prepare a resolution/restructuring strategy for Omdurman Bank based on the forthcoming independent audit.

### External debt, nonconcessional borrowing, and relations with creditors
- External debt stock and composition:
  - End-2006 stock of public and publicly-guaranteed debt is estimated at US$27 billion in nominal terms, up by about US$9 billion since end-2000.
  - The bulk of the increase reflects primarily a further buildup of arrears (approximately US$6 billion) to Paris Club and non-Paris Club creditors.
  - Includes new drawings of some US$520 million from Arab multilateral and bilateral creditors, as well as from China and India.
  - In NPV terms, the end-2006 stock of external debt was equivalent to roughly 55 percent of GDP and 340 percent of exports.
- Debt sustainability findings:
  - A DSA based on the joint Bank-Fund Low-Income Country Debt Sustainability Framework indicates that, even under the baseline with prudent macroeconomic policies and further increases in oil revenues, most of Sudan’s debt ratios remain above indicative thresholds for sustainability.
  - Heavy reliance on oil makes Sudan highly vulnerable to oil production and price shocks.
  - Sudan will be at much lower risk of further debt distress if it curtails recourse to additional nonconcessional borrowing.
- Authorities’ stance and limits:
  - Authorities emphasized limiting nonconcessional borrowing and argued recent such borrowing was principally supplier credits tied to specific development projects.
  - Authorities intended to limit contracting of nonconcessional borrowing to US$700 million annually in 2007 and 2008.
  - Authorities intend to make minimum annual payments of US$50 million in 2007 and 2008 to the Fund.
  - Authorities view token payments as insufficient to resolve arrears; debt relief under HIPC and MDRI initiatives seen as crucial.
- Nonconcessional borrowing details (2006–07 Q1):
  - Total amount of loans contracted: 2006 US$589 (11.6), 2007 Q1 US$125 (3.2) — numbers in parentheses are grant elements (percent).
  - Power projects: 2006 US$416 (12.8); 2007 Q1 - (no value shown).
  - Water projects: 2006 US$136 (9.4); 2007 Q1 US$50 (4.0).
  - Other projects: 2006 US$36 (6.6); 2007 Q1 US$75 (2.7).
  - Of the contracted loans, amounts from China and India are indicated in the table for certain project categories.

### Data issues and technical assistance needs
- Improvements and remaining weaknesses:
  - Monetary and financial sector statistics are comprehensive and generally timely.
  - Information on oil production, shipments, pricing, and transfers of revenue are available regularly.
  - Significant progress on fiscal reporting; adoption of GFSM 2001 classification for the 2008 budget expected.
  - Regular data on domestic debt (standing orders, promissory notes (sanadats and letters of guarantee), and arrears) is uneven.
  - CPI and national accounts data remain weak but should improve with completion of the national census and the household budget survey.
- Technical assistance priorities requested from the Fund:
  - Further training on GFSM 2001 methodology.
  - Assistance on improving public financial management (commitment control and treasury single account).
  - Tax policy and administration, and fiscal federalism.
  - Improving bank supervision, particularly in the context of a dual banking system.
  - Fund is providing technical assistance to the South in currency exchange and supervision of conventional banking systems.
  - Authorities reiterated desire for an FSAP update as soon as possible.

### Risks to the outlook and staff appraisal
- Main risks identified:
  - Waning political support for reforms due to lack of donor progress on debt relief.
  - Volatility in oil production and prices as well as capital flows.
  - Weaknesses in public financial management.
  - Failure to move quickly and decisively to improve financial sector indicators.
- Staff appraisal and program objectives:
  - The 18-month staff-monitored program aims to address institutional and policy weaknesses, ensure safety and soundness of the financial system, and lay groundwork for medium-term macroeconomic stability and growth.
  - Program includes semi-annual quantitative targets for end-December 2007, end-June 2008, and end-December 2008, and structural benchmarks (detailed in the attached MEFP).
  - Fiscal policy: authorities agreed to lower the budget deficit by about 2 percent of GDP in the second half of 2007 and to take measures to control expenditures and improve budget execution.
  - Fiscal reforms needed to improve the revenue base: tax-to-GDP ratio relatively low; recent decision to broaden the tax base by reducing VAT exemptions and income tax holidays welcomed.
  - Monetary policy: will need to increasingly rely on open market operations and greater coordination between the finance ministry and the central bank; central bank’s decision to acquire government securities from the banking system is welcomed.
  - Exchange rate policy: greater exchange rate flexibility recommended to buffer external shocks and protect reserves; staff welcomes authorities’ decision to allow greater flexibility and to rebuild foreign exchange reserves.
  - External financing: authorities should minimize contracting nonconcessional debt as it threatens debt sustainability and could delay creditor participation in potential debt-relief operations; staff underscores treating all new borrowing under the Enhanced HIPC initiative.
  - Program assessment: except for the high level of nonconcessional borrowing, staff considers the 2007–08 SMP equivalent in strength to a Rights Accumulation Program.

*Source: IMF country report text (content unit: _cr07343 - 25. Continued financial sector reform and development is an essential pillar for).*

### 46.      While Sudan’s economic prospects are good, important risks exist. The main risk

### _cr07343 - 46.      While Sudan’s economic prospects are good, important risks exist. The main risk

### Summary finding
- While Sudan’s economic prospects are good, important risks exist.

### Main risks
- The main risk is a weakening of political resolve to maintain macroeconomic stability, advance critical reforms, foster Sudan’s integration with the world economy, and resist political pressures—particularly in the context of forthcoming elections.

### Policy recommendations
- It will be crucial for the authorities to implement the envisioned fiscal adjustment in order to maintain macroeconomic stability.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07343.pdf*

### 47.      It is proposed that the next Article IV consultation with Sudan be held on the standard

### _cr07343 - 47.      It is proposed that the next Article IV consultation with Sudan be held on the standard

### Production, population, and prices
- Nominal GDP (in billions of Sudanese dinars, at market prices): 4,640 5,592 6,798 8,131 9,373 11,186
- Nominal GDP (in millions of U.S. dollars): 17,780 21,685 27,904 37,442 46,708 55,929
- Oil production (average, in thousands of barrels per day): 262 288 287 364 505 565
- Population (in millions): 33.6 34.5 35.3 36.2 37.2 38.1
- GNP per capita (in U.S. dollars): 506 597 753 970 1,182 1,382
- Real GDP (annual changes in percent): 7.1 5.1 8.6 11.8 11.2 10.7
- Oil real GDP (annual changes in percent): 13.0 9.9 -0.2 26.5 38.8 11.9
- Non-oil real GDP (annual changes in percent): 6.6 4.6 9.6 10.3 8.1 10.5
- Consumer prices (average): 7.7 8.4 8.5 7.2 8.0 6.5
- Consumer prices (end of period): 8.3 7.3 5.6 15.7 7.0 6.0

### Investment and saving
- Gross investment (percent of GDP): 20.0 22.5 23.6 24.6 24.1 24.6
  - Government: 2/ 2.9 5.0 5.4 6.2 7.1 7.3
  - Nongovernment: 17.0 17.5 18.2 18.4 17.0 17.3
- Gross national saving (percent of GDP): 15.3 18.7 15.3 11.6 14.7 17.2
  - Government saving: 3.6 6.5 3.6 2.0 3.2 4.4
  - Nongovernment saving: 11.7 12.3 11.7 9.5 11.5 12.8

### Central government operations (cash basis; percent of GDP and levels)
- Total revenue (percent of GDP): 16.0 19.7 21.7 19.4 18.7 20.4
- Total expenditure (percent of GDP): 15.3 18.2 23.4 23.7 22.5 23.3
- Overall balance (percent of GDP): 0.7 1.5 -1.8 -4.2 -3.8 -2.9
- Non-oil balance (percent of GDP): -7.6 -8.3 -15.3 -16.0 -14.5 -15.8

- Table 2 (levels, in billions of Sudanese dinars): Total revenue 1,105 1,473 1,579 1,732 1,748 2,282; Total expenditure 1,020 1,594 1,923 2,252 2,107 2,608
- Table 2 (components highlights, in billions of Sudanese dinars):
  - Oil revenue (nontax): 579 901 879 913 913 1,305
  - Tax revenue (levels): 421 472 510 608 578 731
  - Current expenditure (levels): 763 1,383 1,585 1,858 1,768 2,188
  - Capital expenditure (levels): 277 228 312 394 340 420
- Overall balance (levels, Table 2): 85 -121 -344 -520 -359 -326

### Money and credit / Monetary survey
- Broad money (change in percent): 30.3 32.1 44.7 27.4 24.0 25.0
- Reserve money (change in percent): 26.6 27.8 34.9 27.8 18.0 20.0
- Velocity (ratio of non-oil nominal GDP to average broad money): 6.6 5.7 4.8 4.1 4.2 3.8
- Monetary survey (selected levels, in billions of Sudanese dinars): Broad money 1,403.1 1,721.6 1,787.2 1,768.4 1,893.8 2,032.8
  - Currency outside banks: 374.0 409.0 535.5 457.1 482.9 518.4
  - Deposits: 1,029.1 1,312.6 1,251.6 1,311.3 1,410.8 1,514.4
- Net foreign assets (excluding valuation adjustment, in billions of Sudanese dinars): 705.5 759.0 548.8 401.4 365.9 411.2
- Net domestic assets (in billions of Sudanese dinars): 697.7 962.7 1,238.5 1,367.1 1,527.9 1,621.6

### Monetary authorities’ accounts (selected)
- Reserve money (levels, in billions of Sudanese dinars): 611.7 696.3 781.6 722.2 748.5 800.3
- International reserves (in millions of U.S. dollars): 477.8 566.4 334.2 227.5 230.2 295.3
- Central Bank of Sudan net claims on central govt. (levels): 41.8 73.7 173.1 173.5 227.7 278.4
- Oil Savings Account 1/ (deposits): 64.4 65.1 1.4 1.9 1.4 1.4

### External sector and balance of payments
- Exports, f.o.b. (in millions of U.S. dollars): 2,577 3,778 4,878 5,813 7,567 9,440
  - Of which oil exports: 2,082 3,101 4,240 5,244 7,014 8,819
- Imports, f.o.b. (in millions of U.S. dollars): 2,536 3,586 5,946 7,105 7,518 9,000
- Non-oil export volume (change in percent): -6.9 7.8 -12.4 -13.6 -3.4 12.7
- Non-oil import volume (change in percent): 6.6 27.9 55.2 16.1 5.6 18.6
- Current account balance (cash basis, percent of GDP): -4.7 -3.8 -8.3 -13.1 -9.3 -7.4
- Net international reserves (end-period, in millions of U.S. dollars): 290 1,144 1,889 1,384 1,300 1,800
  - In months of next year’s imports: 0.8 1.9 2.4 1.7 1.4 1.7
- Sudan’s crude-oil export price (U.S. dollars per barrel): 27.0 36.2 49.7 54.4 46.8 51.8

### Balance of payments (detailed flows, selected, in millions of U.S. dollars)
- Current account balance (levels): -1,399 -2,977 -5,489 -4,975 -4,761
- Current account balance (cash basis): -815 -2,324 -4,903 -4,358 -4,145
- Trade balance (levels): 192 -1,068 -1,291 494 40
- Services (net): -1,020 -1,641 -2,689 -3,016 -3,231
  - Oil transportation costs (component): -434 -404 -602 -882 -1,005
- Income (net): -1,694 -1,989 -2,898 -3,418 -3,874
  - Oil-related payments (component): -1,038 -1,271 -2,292 -2,778 -3,198
- Current transfers (net): 1,123 1,721 1,390 1,409 1,904
- Financial account (net): 1,165 2,806 4,257 4,352 4,567
  - FDI and portfolio investment (net): 1,481 2,355 3,533 3,580 3,804
- Overall balance (levels): 149 49 -1,202 -847 -195

### Medium-Term Macroeconomic Scenario (2006–12; selected series)
- Nominal GDP (in millions of U.S. dollars): 27,904 37,442 46,708 55,929 66,931 75,784 84,808 94,423
- Real GDP (annual changes in percent): 8.6 11.8 11.2 10.7 12.6 8.3 7.6 7.5
- Inflation (period average): 8.5 7.2 8.0 6.5 5.5 4.5 4.0 4.0
- Gross investment (percent of GDP): 23.6 24.6 24.1 24.6 25.5 25.5 25.3 25.0
- Gross national saving (percent of GDP): 15.3 11.6 14.7 17.2 20.3 20.0 20.1 20.7
- Central government total revenue (percent of GDP): 21.7 19.4 18.7 20.4 22.9 22.0 21.2 20.5
- Central government total expenditure (percent of GDP): 23.4 23.7 22.5 23.3 25.1 24.2 23.3 22.9
- Overall balance (cash basis, percent of GDP): -1.8 -4.2 -3.8 -2.9 -2.2 -2.2 -2.1 -2.4
- Current account balance on cash basis (percent of GDP): -8.3 -13.1 -9.3 -7.4 -5.2 -5.5 -5.2 -4.3
- Net international reserves (in months of imports): 2.4 1.7 1.4 1.7 2.5 2.6 2.6 2.9
- Crude oil export price (U.S. dollars per barrel, projections): 49.7 54.4 46.8 51.8 54.7 56.9 58.7 59.3

### Quantitative targets under the 2006 Staff‑Monitored Program (cumulative change during 2006; selected)
- Central Bank of Sudan net domestic assets (cumulative change during 2006): 3/ 762 114 818 271 802 98
- Domestic financing of the central government (cumulative change during 2006): 3/ 111 371 601 171 332 693 22
- Net international reserves (in millions of U.S. dollars, cumulative change during 2006): 3/ 1,889 283 -298 420 792 31 -505
- Contracting or guaranteeing of external nonconcessional debt by the government or the central bank (in millions of U.S. dollars): 935 ...... 547 700 ... 589
- Payments to the Fund (in millions of U.S. dollars): 30 15 ... 144 5 ... 51

### Structural benchmarks under the 2006 Staff‑Monitored Program (timing and status at end-December 2006)
- Stop referral of requests for renewal of exemptions under the Investment Encouragement Act by the Minister of Investment to the Council of Ministers — Timing: After March 2006 — Status: Met
- Remit net operating income of Sudapet (year end) and the SPC (quarterly) to the treasury — Timing: Throughout — Status: Met
- Convert the 2006 fiscal framework of the national government to GFSM 2001 classification and present it to parliament — Timing: May 2006 — Status: Met
- Finalize and publish the GOSS budget for 2006 according to GFSM 2001 — Timing: May 2006 — Status: Met in October 2006
- Initiate public information campaign on costs of fuel subsidies and pro‑poor policies — Timing: June 2006 — Status: Met in October 2006
- Compile (monthly) and publish (quarterly) fiscal reporting data according to GFSM 2001 — Timing: June 2006 — Status: Met
- Establish rules and procedures for FFAMC — Timing: June 2006 — Status: Not met
- Begin monthly publication on official websites of oil production/export data and of new external loan/financing contracts — Timing: July 2006 — Status: Met in August 2006
- Complete and publish the 2004 and 2005 financial audits of Sudapet — Timing: September 2006 — Status: Not met
- Finalize strategy for elimination of fuel subsidies and automatic world-price passthrough — Timing: October 2006 — Status: Met in October 2006
- Finalize program to revamp investment incentives under the Investment Encouragement Act — Timing: October 2006 — Status: Not met

### Debt service capacity and arrears indicators (selected)
- Total debt service paid (in millions of U.S. dollars): 166 276 342 313 352 445
- Payments to the Fund (in millions of U.S. dollars): 25 ... 28 ... 33 ... 30 51 50
- Overdue obligations to the Fund (levels, in millions of U.S. dollars): 1,475 1,596 1,650 1,507 1,580 1,556
- Total debt service paid, in percent of exports of goods and nonfactor services: 8.3 10.6 9.0 6.3 5.8 5.7
- Gross official reserves (in millions of U.S. dollars): 249 527 1,338 2,072 1,660 1,696
  - In months of next year's imports: 1.0 1.5 2.2 2.6 2.0 1.8
- GDP (in millions of U.S. dollars): 14,976 17,780 21,685 27,904 37,442 46,708

### Financial soundness indicators for the banking sector (selected, percent)
- Regulatory capital to risk-weighted assets: 12.0 (Dec-04), 19.1 (Dec-05), 19.7 (Dec-06), 18.3 (Mar-07)
- Capital (net worth) to assets: 13.8 12.0 14.0 13.0
- Loans to nongovernment to total assets: 47.0 52.2 46.3 47.0 48.9
- Gross NPLs to gross loans: 8.9 7.1 19.4 23.3 23.9
- ROA (before tax): 5.3 5.0 3.6 2.8 3.6
- Liquid assets to total assets: 15.5 16.9 25.0 22.5 24.0
- Required reserves to total assets: 5.5 4.9 4.0 3.6 3.5

*Source: Sudanese authorities; and Fund staff estimates. Canonical URL: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07343.pdf*

### 1. Eradicate extreme poverty and hunger

### 1. Eradicate extreme poverty and hunger

### Millennium Development Goals indicators (1990–2005)
- Population below $1 a day (percent)...............
- Poverty gap ratio at $1 a day (percent)...............
- Percentage share of income or consumption held by poorest 20 percent...............
- Prevalence of child malnutrition (percent of children under 5)...............
- Population below minimum level of dietary energy consumption.........27.0...
- Net primary enrollment ratio (percent of relevant age group)40.0...43.2......
- Percentage of cohort reaching grade 5 (percent)93.8...84.191.9...
- Youth literacy rate (percent ages 15-24)65.0.........77.2
- Ratio of girls to boys in primary and secondary education (percent)77.6......88.389.0
- Ratio of young literate females to males (percent ages 15-24)71.5.........84.4
- Share of women employed in the nonagricultural sector (percent)22.220.118.217.1...
- Proportion of seats held by women in national parliament (percent)......5.010.014.7
- Under 5 mortality rate (per 1,000)120.0106.097.093.090.0
- Infant mortality rate (per 1,000 live births)74.069.065.063.062.0
- Immunization, measles (percent of children under 12 months)57.051.047.057.060.0
- Maternal mortality ratio (modeled estimate, per 100,000 live births)...............
- Births attended by skilled health staff  (percent of total)69.4...87.0......
- Prevalence of HIV, female (% ages 15-49)......3.11.61.6
- Contraceptive prevalence rate (% of women ages 15-49)8.7...7.0......
- Number of children orphaned by HIV/AIDS...............
- Tuberculosis prevalence rate (per 100,000 people)178.2193.5210.2220.8228.2
- Tuberculosis cases detected under DOTS...2.032.132.234.6
- Forest area (percent of total land area)32.1...29.7...28.4
- Nationally protected areas (percent of total land area).........5.2...
- GDP per unit of energy use (PPP $ per kg oil equivalent)2.73.44.13.7...
- CO2 emissions (metric tons per capita)0.20.10.20.3...
- Access to an improved water source (percent of population)64.0......69.0...
- Access to improved sanitation (percent of population)33.0...34.0...
- Access to secure tenure (percent of population)...............
- Youth unemployment rate (percent of total labor force ages 15-24)...............
- Fixed line and mobile telephones (per 1,000 people)2.42.612.542.068.9
- Personal computers (per 1,000 people)...0.33.010.089.7
- Adult literacy rate (percent of people ages 15 and over)45.8.........60.9
- Total fertility rate (births per woman)5.65.14.64.44.1
- Life expectancy at birth (years)52.754.655.958.656.7
- Aid (percent of GNI)6.63.82.13.87.1

### Recent performance and macroeconomic context
- Program performance under the 2006 SMP was uneven: two of five quantitative targets (payments to the Fund and the ceiling on nonconcessional borrowing) were met; net international reserves, net domestic assets, and domestic financing of the government were not met.
- Key factors behind missed targets: commitments under peace agreements in the absence of donor disbursements; shortfall in projected oil export revenues; need to absorb excess domestic liquidity; intervention in Omdurman Bank.
- 2006 macro outcomes:
  - Real GDP growth: about 11.8 percent in 2006.
  - Nonoil growth: estimated 10.3 percent.
  - Average inflation: 7.2 percent; end-period inflation rose to 15.7 percent after reduction of domestic fuel subsidies.
  - Dinar nominal appreciation vs. US dollar: about 12 percent; real effective appreciation: about 21 percent in 2006.
  - Oil exports: volume up roughly 70 percent over 2005; dollar value up 24 percent.
  - External current account deficit: expanded from 8 percent of GDP in 2005 to roughly 13 percent in 2006.
  - Net international reserves of the central bank declined by almost one-third.
  - Overall fiscal deficit in 2006: estimated to have widened to over 4 percent of GDP (2 percentage points higher than targeted).
  - Total oil production in 2006: some 132 million barrels.
  - Broad money growth: around 40 percent through most of 2006, declining to 27.4 percent by end-December.
  - Private sector credit growth: peaked just over 80 percent (12-month) in July, declining to about 45 percent by end-December.
  - Reserve money growth: about 28 percent, broadly in line with program targets.
- Structural reforms completed in 2006 included conversion of the national government's fiscal framework to GFSM 2001 format, public release of oil production and related transfers data, and reduction in domestic fuel subsidies.

### Developments in early 2007 and immediate fiscal situation
- First quarter 2007 fiscal performance:
  - Revenues below budgeted levels; oil revenues below expectations due to technical problems with pipeline and marine terminal and low prices for Dar blend (average US$19 per barrel during January-March).
  - Government expenditures remained in line with budget allocations.
  - Overall government deficit in Q1 2007: SD 143.6 billion (1.5 percent of annual GDP).
- Monetary developments to April 2007:
  - 12-month broad money growth fell to about 8 percent by April.
  - Declines in net foreign assets and reduced credit to the private sector contributed to slowdown.
  - Central bank used foreign exchange reserves to mop up domestic liquidity and smooth exchange rate.

### Medium-term outlook and priorities
- Medium-term growth projected: about 9-10 percent.
- Assumptions and drivers:
  - Increasing oil production and robust activity in non-oil sectors—construction, manufacturing, transport, and services.
  - Agricultural performance to be boosted via market reforms and removal of transport, finance, and input bottlenecks.
- External position: external current account (cash basis) projected to stabilize at a deficit of 4-5 percent of GDP.
- Fiscal policy: focus on balancing expenditure needs with maintaining a fiscal stance consistent with macroeconomic stability.
- Monetary policy: target broad money growth consistent with single-digit inflation and reserve rebuilding.
- Structural priorities: financial sector stability and development, prudent regulation and oversight, labor and capital market flexibility.
- Poverty reduction and social policies:
  - Work plan to prepare a national Poverty Reduction Strategy Paper (PRSP); request for funding under the Technical Assistance Facility pending.
  - PRSP expected to be ready by March 2008.
  - Bank of Sudan, with the World Bank, has initiated a microfinance unit to expand financial access for the poor and set up legislative, organizational, and information frameworks for microfinance.

### Policies for 2007–08 (program commitments and targets)
- Fiscal management measures already implemented:
  - Starting in June, Bank of Sudan to coordinate payments for priority expenditures via direct transfer from current revenues; remaining expenditures to be executed based on remaining cash revenues by a committee including the State Minister of Finance, the Under Secretary of Finance (co-chair), the Director of the Budget, and the Director of the Chamber of Accounts.
- Real sector projections:
  - Program envisages real economic growth of 11.2 percent in 2007 and 10.7 percent in 2008.
  - Oil GDP growth expected: about 39 percent in 2007 (additional output from Blocks 3 and 7) and nearly 12 percent in 2008.
  - Non-oil growth expected at a robust 8 percent in real terms in 2007.
- Monetary and exchange rate policy:
  - Managed float exchange rate system; central bank to focus on price stability and allow the pound to move with fundamental forces.
  - Limited, occasional interventions permitted to smooth short-term volatility; room for intervention limited given need to rebuild foreign exchange reserves.
  - Remove, by end-December 2007, the floor on cash margins for sight letters of credit and import credits.
  - Broad money growth targets: 24 percent in 2007, and 25 percent in 2008—consistent with GDP growth, inflation objectives, and increased money demand from reintegration of the south.
  - Monetary policy will be flexible to respond to shifting FDI and other capital flows, volatility in oil-related foreign exchange movements, and aid disbursements; monitoring of monetary developments will be intensive to keep broad money growth in line with inflation objectives.

*Source: Table 11. Sudan: Millennium Development Goals, 1990–2005; Attachment I and Attachment II, July 27, 2007.*

### 19.      The conduct of monetary policy will increasingly rely on open market operations,

### 19.      The conduct of monetary policy will increasingly rely on open market operations,

### Monetary policy and liquidity management
- The conduct of monetary policy will increasingly rely on open market operations, with an emphasis on indirect monetary policy instruments.
- In the coming months, the central bank will acquire government securities from the banking system to increase its stocks of indirect monetary policy instruments.
- Trading of these instruments could in future be used to meet liquidity management objectives, rather than relying on sales of foreign exchange.

### Fiscal policy framework and targets
- Fiscal deficit targets:
  - 2007 fiscal deficit to be contained to no more than SD 359 billion on a cash basis.
  - 2008 fiscal deficit to be no more than SD 326 billion (2.9 percent of GDP).
- Fiscal revenues and oil:
  - Fiscal revenues expected to reach SD 1,748 billion in 2007.
  - This includes some SD 56 billion (US$280 million) in license fees and payment of past obligations from Mobitel.
  - Oil revenues projected to reach 9.7 percent of GDP in 2007.
  - Total central government expenditures programmed at SD 2,107 billion in 2007.
- Fiscal management principles:
  - All standing orders, guarantees, sanadats, and other obligations coming due will be paid; no new arrears to be created in 2007 and 2008.
  - Flexibility and frequent review of expenditures and commitments to ensure the deficit stays at or below the agreed level.
  - If oil revenues are lower-than-programmed, compensate (to the extent resources are available) by drawing from the Oil Saving Account (OSA) or by reducing spending to maintain the fiscal deficit unchanged.
  - If oil revenues exceed programmed levels, additional revenue will be deposited in the OSA.

### Fiscal revenue measures (2007–08)
- Specific reform measures intended for 2007-08:
  - The VAT rate was raised from 10 percent to 12 percent effective June 1, 2007.
  - Reduce VAT exemptions granted by ministerial decree to achieve an additional SD 15-20 billion in revenue on an annual basis, effective December 2007.
  - The Ministry of Finance will prepare a program by October 2007 to progressively reduce income tax holidays for new investments under the IEA.
  - Recommendations of the above program will be incorporated and implemented as part of the 2008 budget.
  - Implement an accelerated depreciation mechanism, and agree to adopt a single profit tax rate in 2009.
  - Existing exemptions will be grandfathered, but eliminated at the time of expiration (no renewal).
  - Continue to suspend the granting of any new VAT or income tax exemptions.
  - Improve tax administration through introduction of self-assessment for business income tax (BIT) for taxpayers covered under the Large Taxpayer Office (LTO) by end-January 2008.

### Expenditure control and cash management
- Expenditure policy focus for 2007-08: maintain a tighter balance between spending and available resources while supporting reconstruction and decentralization priorities.
- Specific actions:
  - Implement a zero-balance Treasury Single Account (TSA) by August 15 2007 to bolster expenditure management and preclude domestic arrears.
  - Implement commitment controls that limit expenditures by line ministries to monthly or quarterly cash plans reflecting likely cash availability rather than budgeted allocations.
  - The MOFNE will issue a decree by July 15, 2007 establishing that line ministries cannot undertake spending commitments without the permission of the MOFNE.
  - Prepare quarterly reports on accounting data on expenditure committed and expenditure paid, by main budgetary items and chapters.
  - Formulate contingency measures for expenditure cuts if projected revenues (oil and non-oil) fail to materialize.

### Transparency and public financial management
- Measures to improve transparency and public financial management:
  - Halt the use of sanadats, standing orders, and other nontraditional forms of finance, and carefully monitor the existing stock of such instruments with a view to their eventual extinction.
  - Issuance of letters of guarantee in the second half of 2007 will not exceed SD 20 billion.
  - Establish in MOFNE a centralized domestic debt unit by September 2007 to compile and monitor monthly the stock of domestic debt, and quarterly the stock of domestic arrears (payments due for over 3 months) by debt instrument; provide quarterly accounting data on expenditure committed and expenditure paid, by main budgetary items and chapters.
  - Adopt for the 2008 budget the full economic and functional classifications of the Government Financial Statistics Manual (GFSM) 2001.

### Balance of payments and external reserves
- External current account:
  - External current account deficit (cash basis) expected to narrow significantly to some 9 percent of GDP, compared with a deficit of 13 percent in 2006.
  - Improvement reflects a sharp increase in oil exports as production and shipment difficulties are expected to be resolved by mid-year.
  - Imports expected to rise by about 6 percent—mainly materials and capital goods for large-scale projects financed by official creditors and FDI.
- Net international reserves targets:
  - Rebuild net international reserves of the central bank to about US$1.3 billion (1.4 months of imports) by the end of 2007.
  - Rebuild to US$1.8 billion (1.7 months of imports) by end-2008.

### Financial sector restructuring and prudential enforcement
- Banking system measures:
  - Continue plans to restructure and strengthen the banking system.
  - A strategy for resolving problems with Omdurman Bank is being implemented.
  - An audit of Omdurman Bank will be started by December 2007 by a local affiliate of one of the internationally recognized auditing firms; the audit will follow international audit standards.
  - Based on audit findings, prepare a plan for resolution/restructuring of the bank by June 2008.
  - Rehabilitation plans for Saudi Sudanese Bank will be implemented.
  - The CBOS will actively enforce prudential standards and ensure banks comply with existing regulations.
  - Commercial banks will submit to the central bank by end-December 2007 well-specified action plans to achieve full compliance with existing regulations on capitalization and provisioning.

### Oil sector transparency and reporting
- With rising oil production, steps to increase oil sector transparency:
  - Provide to the IMF the 2004 and 2005 audits of Sudapet by October 2007.
  - Publish (on the MOFNE website) data (with one month lag) on: volume of oil production; total volume of crude oil exports; volume of government oil exports; volume of input to refineries; volume of petroleum product production; import/export of petroleum products.

### External debt, financing, and payments to creditors
- Debt stock and constraints:
  - End-2006 stock of public and publicly-guaranteed debt estimated at over US$27 billion in nominal terms, up by about US$9 billion since end-2000.
  - Increase largely reflects a US$6.3 billion buildup in arrears to official bilateral creditors and new drawings of some US$520 million from Arab multilateral and bilateral creditors as well as from China and India.
- External financing policy:
  - Limited access to concessional loans due to debt and arrears situation; recourse to nonconcessional financing has been necessary.
  - For 2007, limit contracting of external nonconcessional obligations to US$700 million, and impose a similar limit for 2008.
- Payments to the Fund:
  - Payments to the Fund have exceeded program levels under the SMP; payments continued in the first half of 2007 even without an SMP.
  - Commit to minimum payments of US$50 million in 2007 and at least US$50 million in 2008.
  - Intention to move to a monthly payment basis.
  - Acknowledge that these payments do not resolve Sudan’s arrears to the Fund and appeal for comparable debt relief from the international community.

### Program targets, monitoring, and data reporting
- Program monitoring and targets:
  - Proposed semi-annual quantitative targets for periods up to end-December 2007, end-June 2008, and end-December 2008 are set forth in Table 1; structural benchmarks are detailed in Table 2.
  - Semi-annual staff assessments of the program are proposed.
- Data sharing and technical memorandum:
  - Relevant ministries, the CBOS, and the Central Bureau of Statistics will compile and share with Fund staff all economic and financial data necessary, on a timely basis, as specified in the attached Technical Memorandum of Understanding (TMU).
  - The SMP relies on six quantitative indicative targets and associated memorandum items; some targets are subject to adjustors depending on the financial position of the government of South Sudan and total government oil export revenue performance.

*Source: _cr07343 - 19.      The conduct of monetary policy will increasingly rely on open market operations,*

### 3. Net domestic assets (NDA) of the CBOS are defined as the sum of the Net Domestic

### _cr07343 - 3. Net domestic assets (NDA) of the CBOS are defined as the sum of the Net Domestic

### Definitions and monetary aggregates
- Net domestic assets (NDA) of the CBOS: defined as the sum of the Net Domestic Credit of the CBOS, the net issue of money market instruments and other items net.
- Net Domestic Credit: net credit to the central government (i.e. Government Musharaka Certificates (GMCs), Government Investment Certificates (GICs), and any other form of central bank credit to the central government minus total central government deposits) plus net central bank claims on state and local governments, central bank claims on public enterprises, and claims on banks, and minus Central Bank Ijara Certificates (CICs).
- Central government definition (for NDA and program criteria): all accounts of line ministries and agencies controlled by the government (Group no. 11, Group no. 12, and some accounts of Group no. 19 in the CBOS general ledger), the Zakat funds (Group no. 13), margin deposits placed with the CBOS by the central government against letters of credit issued by the CBOS, and all oil-related accounts controlled by the government.
- Foreign exchange–denominated items on the central bank balance sheet: dinar equivalent values will be calculated at the program exchange rate for program evaluation.
- Broad money: sum of local currency circulating outside of the banks, banks’ demand, and time and savings deposits; includes transferable deposits and margin deposits against letters of credit placed by state and local governments, nonfinancial public enterprises, and the nonbank private sector with the CBOS.
- Reserve money: sum of local currency circulating outside of the banks, total reserves (required and excess) for banks, and deposits at the CBOS included in broad money.

### Domestic financing and fiscal definitions
- Domestic financing of the fiscal deficit: total net domestic borrowing by the central government, including:
  - net borrowing from the banking system (including GMCs and GICs),
  - net sales of GMCs and GICs outside the banking system,
  - promissory notes (standing orders, letters of guarantee, and sanadats),
  - revenues from privatization,
  - changes in government cash deposits of the BOS.
- The central government definition for this criterion is the same as that applied for the NDA of the central bank.

### Net international reserves (NIR)
- NIR: total gross non-earmarked official foreign reserve assets on active accounts plus reserve assets of the government of Southern Sudan in the central bank minus official short-term liabilities (i.e. no more than one-year maturity).
- Assets include accounts with overseas correspondent banks and foreign exchange banknotes in the central bank vaults.
- Short-term liabilities include IMF deposit accounts, nonresident deposits, and (overdrawn) foreign correspondents accounts.

### Limits on nonconcessional external debt
- Limits apply to all forms of debt of more than one-year maturity contracted or guaranteed by the government or the CBOS.
- Limit covers debt as defined in point no. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision no. 12274-(00/85), August 24, 2000) and commitments contracted or guaranteed for which value has not been received.
- Concessionality criterion (program purposes): a loan is concessional if the grant element is at least 35 percent calculated using a discount factor based on the Commercial Interest Reference Rates (CIRRs) published by the OECD plus maturity-dependent margins:
  - margins: 0.75 percent for repayment periods < 15 years, 1 percent for 15–19 years, 1.15 percent for 20–29 years, and 1.25 percent for 30 years or more.
  - averages of CIRRs: average of the CIRRs over the last ten years for loans with maturity ≥ 15 years; average of the CIRRs for the preceding six months for shorter maturities.

### Adjustors affecting NDA and international reserves
- Adjustor on the financial position of the government of South Sudan (capped):
  - Program target for changes in the NDA of the central bank will be reduced (increased) and the international reserve target will be increased (reduced) by the amount of any decline (increase) in net central bank claims on the government of South Sudan.
  - The adjustor will not apply if the stock of net claims on the government of South Sudan turns positive.
- Oil revenue adjustor (symmetric):
  - Programmed government oil revenue from crude oil exports is based on program assumptions about oil prices (f.o.b. Port Sudan) and quantities expected to be exported.
  - Accrued revenue: cumulative government oil revenue inflows based on actual shipments at current international prices (f.o.b. Port Sudan).
  - Accrued government oil revenue in excess of planned budgeted amounts is deposited in an oil saving account (OSA), a locked sub-account within net credit to the government at the CBOS.
  - Programmed OSA accumulation for 2007 is zero.
  - Oil revenue adjustor rules:
    - If accrued revenue exceeds programmed amount, proceeds are deposited in the OSA; program targets for domestic financing of the budget deficit and NDA will be reduced, and the international reserves target will be increased, by the difference between accrued and programmed amounts.
    - If accrued revenue falls short of programmed amount, the international reserves target will be reduced by the difference between programmed and accrued amounts.
    - If within a quarter accrued oil revenue for the budget falls below planned amount, withdrawals from the OSA (if available) will be used to match cumulative planned budget amounts. If OSA resources are not available, the government will undertake expenditure adjustment to ensure the deficit does not exceed the targeted level of:
      - SD 359 billion in 2007
      - SD 326 billion in 2008

### Government oil revenues (Table 1: Nile blend and Dar blend crude; quarterly and yearly figures)
- Nile blend crude (including crude from Block 5A)
  - Price (f.o.b. Port Sudan) US$/barrel: 54.75 59.5 60.5 61.0 59.2 63.0 64.5 64.9 65.2 64.4
  - Volume exported Million barrels: 6.88 9.86 5.88 9.88 9.99 0 36.6 10.1 1.4 10.7 10.8 43.1
  - Export revenue US$ millions: 376.0 586.5 597.8 609.4 2,170 639 738 696 705 2,779
  - Of which: OSA accumulation US$ millions: 5500 0 0 55 0000 0 0 0 (table shows "550005500000")
- Dar blend crude
  - Price (f.o.b. Port Sudan) US$/barrel: 17.72 27.1 33.6 35.6 30.9 34.7 34.5 34.9 35.2 34.8
  - Volume exported Million barrels: 6.6 8.4 10.9 11.1 37.0 11.1 12.1 11.4 11.5 45.2
  - Export revenues US$ millions: 117 252 377 399 1,144 383 387 399 404 1,573.2
  - Of which: OSA accumulation US$ millions: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Memo item:
  - Revenue from crude exports US$ millions: 493 838 975 1,009 3,314 1,023 1,125 1,095 1,110 4,352
  - Revenue from crude exports SDD billions: 991 681 952 0 26 6320 522 521 922 282 870 (table shows "99168195202663205225219222870")
  - Of which: programmed OSA accumulation SDD billions: 1100 0 0 1100 000 (table shows "110001100000")
  - Oil export revenue for use in the budget SDD billions: 88 168 195 2026 5220 522 521 922 282 870 (table shows "88168195202652205225219222870")
- Notes:
  - Projected prices for 2008 will be revisited in the context of preparing the 2008 budget, based on latest information regarding international prices and discounts applied to Nile blend and Dar blend.

### Reporting requirements and timetable (selected items)
- Flash report: Weekly data for movement in main indicators of the CBOS balance sheet, international reserves, sales and purchases of foreign exchange, exchange rate, murabaha rate, musharaka shares, and inflation — Weekly — Tuesday of each week.
- CBOS balance sheet: Detailed CBOS balance sheet — Monthly — 1 month after the end of each month.
- Monetary survey: Banking system balance sheet and consolidated balance sheet of commercial banks — Monthly — 1 month after the end of each month.
- Rates of return and securities: Murabaha rate and shares of Musharaka and the rate of return on securities (GMC, GIC and CIC). Information on auctions and expiry for all certificates from the Sudan Financial Company — Monthly — 1 week after the end of each month.
- Banking indicators: Capital adequacy; asset composition and quality; profitability; liquidity; open FX positions; and compliance with prudential norms — Quarterly — 1 month after the end of each quarter.
- CBOS Balance of payments: Detailed composition — Quarterly — 2 months after the end of each quarter.
- Central government (traditional presentation): Revenues, expenditures, and financing — Monthly — 30 days after the end of each month.
- Central government (GFSM 2001): Revenues, expenditures, and financing as in GFSM 2001 — Monthly — Data for January-May by end-June, for the remaining months 45 days after the end of each month.
- Crude oil exports (Central Bureau of Statistics): Shipment data, listing by blend specifying date, quantity, prices, and values in US$ and in dinars — Monthly — 1 month after the end of each month.
- Net operating income transfers to the treasury (Ministry of Finance/Ministry of Energy): Net income of SPC (including those derived from exports of petroleum products) — Quarterly — 1 month after the end of each quarter.

### Debt sustainability and macro-financial context (summary findings)
- Total public and publicly guaranteed external debt (end-2006 nominal estimate): US$27 billion (document states "public and publicly-guaranteed debt is estimated at US$27 billion in nominal terms").
- Increase components and arrears:
  - US$6.3 billion buildup in arrears to official bilateral (Paris Club and non-Paris Club) creditors.
  - New drawings of some US$520 million from Arab multilateral and bilateral creditors (mainly from China and India).
- Composition of external debt (Text Table 1, 2006, in million US dollars):
  - Total public and publicly guaranteed external debt: 26,588
  - Multilateral Creditors: 4,262
  - Paris Club Creditors: 8,821
  - Non-Paris Club Creditors: 8,647
  - Commercial Banks: 3,960
  - Suppliers: 897
- Nonconcessional borrowing in 2006:
  - Sudan contracted US$589 million of new nonconcessional loans in 2006.
  - Breakdown: US$392 million from India, US$182 million from China, and a small amount from Turkey.
  - Disbursed in 2006: US$286 million of the contracted loans.
  - Contracted total was below IMF staff-monitored program ceiling of US$700 million.
- Debt Sustainability Analysis (DSA) baseline scenario key outcomes:
  - Conclusion: Sudan is in debt distress.
  - Baseline projections (2007–17): apart from ratio of NPV of debt-to-revenue from 2009 onwards, all three debt-burden indicators remain above policy-dependent thresholds.
  - NPV of debt-to-GDP ratio: expected to decline from 47 percent in 2007 to 34 percent in 2017 (still 4 percentage points higher than the indicative threshold).
  - NPV of debt-to-exports ratio: expected to fall from 284 percent in 2007 to 203 percent in 2009, then increase to 429 percent in 2017 (threshold is 100 percent for Sudan’s CPIA category).
  - NPV of debt-to-revenue: projected to decline from an average of about 240 percent a year in 2007 and 2008 to remain below its threshold of 200 percent through much of the forecast period through 2012, but expected to breach the threshold by 7 percentage points in 2017.
  - Debt service indicators (debt service-to-exports ratio and debt service-to-revenue ratio): expected to remain below policy-dependent thresholds throughout forecast period 2007–27.
  - Caveat: debt service indicators are based on servicing only new obligations falling due (including highly concessional multilateral debt) and no servicing of the more than US$24 billion in arrears.
  - Example: in 2006, Sudan paid US$352 million in debt service while accruing some US$124 million in additional arrears.

*Source: _cr07343 (excerpt).*

### 7.      Under the new sustainability framework, the various standard stress tests

### _cr07343 - 7.      Under the new sustainability framework, the various standard stress tests

### Stress-test framework
- Two alternative scenarios (permanent modifications of key baseline assumptions):
  - (A1) Historical scenario: main variables determining debt dynamics (real GDP growth; inflation, measured by changes in the U.S. dollar GDP deflator; the noninterest external current account in percent of GDP; and nondebt-creating flows in percent of GDP) are assumed to remain at their 10-year historical averages.
  - (A2) Financing scenario: new borrowing is assumed to be on less favorable terms (a 2 percentage points higher interest rate) throughout the projection period.
- Bound tests (temporary deviations, some with permanent level effects) B1 through B6:
  - Apply two-period/one standard deviation negative shocks to key macroeconomic variables (the parameters above plus export growth), a combined one-half deviation shock, and a one-time 30 percent depreciation of the Sudanese pound.
- Impact of stress tests reported for key debt-burden indicators (presented in Table 2 and Figure 1 in the source).

### Macroeconomic assumptions 2007–27 (Box 1)
- Real GDP:
  - Annual average about 12 percent a year during 2007–09, boosted by further increases in oil production and a continued strong recovery (10 percent) in the non-oil economy.
  - After strong oil GDP growth (an average 26 percent) during the period, average GDP growth forecast to fall to 5½ percent per annum during 2010–27.
  - Note: "Some of the macroeconomic assumptions are on the optimistic side, suggesting that the debt situation could be even worse than what is projected in the analysis."
- Exports:
  - Projected to grow at 30 percent a year during 2007–09, then decline thereafter at an average rate of about 2½ percent per year through 2027.
  - Oil exports: average annual rate of 26½ percent during 2007–09, then decline at an annual average rate of almost 12 percent a year through 2027.
  - Oil share in total exports projected to fall from 95 percent in 2009 to 50 percent in 2021 and to 17 percent in 2027.
- Imports:
  - Projected to grow by about 12 percent annually through 2009; average rate expected to fall to under 6 percent a year thereafter.
- Current account and reserves:
  - Current account deficit projected to average about 8½ percent of GDP annually during 2007–09, improving thereafter to an annual average of 3 percent of GDP through 2007 (text contains this phrasing).
  - Net international reserves of the central bank expected to increase from US$1.3 billion (1.4 months of imports) in 2007 to US$6.3 billion (3.9 months of imports) in 2017; import coverage forecast to increase to 4.6 months through 2027.
- Debt and disbursements:
  - Continued repayment of selected creditors and accumulation of arrears on other obligations; scheduled amortization and interest on new borrowing.
  - Disbursement of new loans projected at about US$300 million per year in the medium term (2008-12) and about US$380 million on average over the long term (2013-27), with a grant element of just under 35 percent.

### Oil sector developments (Box 2)
- Oil’s role:
  - Accounts for almost two-thirds of GDP.
  - Average daily production: 287,000 barrels per day (bpd) in 2005; 364,000 bpd in 2006.
  - Projected to average about 505,000 (bpd) in 2007 (after technical problems); expected to average about 730,000 bpd in 2010–13; projected to descend to 292,000 bpd by 2027.
  - Oil currently accounts for about 95 percent of exports and about 50–60 percent of government revenue.
  - Government oil revenue reached US$4.2 billion in 2006, compared with US$2.3 billion in 2004.

### Results: alternative scenarios and bound tests
- Scenario A1 (historical averages held long-term):
  - Produces some deterioration in the downward path of both debt and debt service indicators relative to the baseline, reflecting recent improvements in GDP and export growth relative to the past decade.
  - Under A1, all debt ratios continue to remain above the indicative thresholds over the next decade.
- Scenario A2 (2 percentage points higher interest rate):
  - Somewhat flattens the downward path of debt and debt service ratios in all indicators, except:
    - NPV of debt-to-export ratios show marked deterioration after 2010 through 2017, mapping the declining path of oil exports.
  - Under A2, all debt ratios continue to remain above the indicative thresholds over the next decade.
- Bound tests highlights:
  - B6 (one-time 30 percent nominal depreciation in 2008) is the worst scenario for two of three debt indicators (NPV of debt-to-GDP and NPV of debt-to-revenue):
    - NPV of debt-to-GDP ratio would reach 60 percent in 2008, then decline to 34 percent in 2027 (9 percentage points higher than the baseline and 4 percentage points above the indicative threshold).
    - NPV of debt-to-revenue ratio would reach 301 percent in 2008, declining to 228 percent in 2027 (63 and 28 percentage points above the baseline and indicative threshold, respectively).
  - B2 (lowering export value growth to historical average minus one standard deviation in 2008–09) is most challenging for debt- and debt service-to-export ratios:
    - NPV of debt-to-export would rise to 370 percent in 2008, reach 1037 percent in 2017, then fall to 996 percent in 2027 (535 percentage points above the baseline and 896 percentage points higher than the indicative threshold).
    - Debt service indicator would climb to 26 percent in 2017 (20 and 11 percentage points above the baseline and the threshold, respectively), then fall to 19 percent in 2027 (4 percentage points above the indicative threshold).

### Customized sensitivity analysis (oil price shock, scenario A3)
- Baseline uses IMF World Economic Outlook projections for oil prices (noted as significantly higher than World Bank projections).
- Additional stress test: 20 percent shock to the baseline oil price (A3).
- Under A3:
  - Sudan’s external debt indicators worsen significantly (referenced in Figure 2).
  - Debt-to-revenue ratio would remain above its 200 percent threshold over the entire period through 2017.
  - Debt service indicators remain below their thresholds but increase significantly due to higher exceptional financing on nonconcessional terms.

### Total public debt sustainability (IV)
- Baseline (Table 3):
  - Total public sector debt starts at 75 percent of GDP in 2006, falling to 55 percent in 2012.
  - Public sector debt stocks in NPV terms start at 64 percent in 2006, fall to 49 percent of GDP in 2012, and to 39 percent in 2027.
  - Debt service-to-revenue ratio projected to fall from 6 percent in 2006 to 5 percent in 2012 and then stay around 5–6 percent thereafter.
- Alternative scenarios (Table 4, Figure 3) — main results:
  - No reform scenario (primary balance unchanged from 2007 onwards):
    - NPV of debt-to-GDP would increase to 65 percent in 2017.
    - Debt service-to-revenue ratio would increase steadily to 11 percent.
  - Most extreme stress test (real GDP growth at historical average minus one standard deviation):
    - NPV of debt-to-GDP would increase to 81 percent in 2017.
    - Debt service-to-revenue ratio would increase to 16 percent.

### Conclusions and policy implications
- Sudan is in debt distress despite economic progress since 2000:
  - External debt ratios are well above country-specific indicative thresholds during the entire analysis period.
  - Debt indicators are sensitive to shocks in the stress tests.
  - Total public debt sustainability analysis reinforces the assessment of vulnerability.
- Policy implications and recommendations (explicit and implied):
  - Address vulnerabilities through proactive public debt and financial management policies.
  - There is little room for slippages in implementing planned fiscal and structural reforms.
  - Improving debt indicators in the coming period will depend on obtaining concessional financing rather than relying on more expensive nonconcessional borrowing.

*Source: _cr07343 - 7.      Under the new sustainability framework, the various standard stress tests*

### 16.      Sudan should reconsider its external borrowing strategy in light of the future

### _cr07343 - 16.      Sudan should reconsider its external borrowing strategy in light of the future

### Key message
- Sudan should reconsider its external borrowing strategy in light of the future debt service burden that would follow if it took on high volumes of nonconcessional debt.
- Further recourse to such borrowing could jeopardize Sudan’s access to possible debt relief.

### Baseline projections and external debt dynamics (selected figures)
- External debt (nominal) in 2004: 107.6
- External debt (nominal) in 2005: 95.5
- External debt (nominal) in 2007: 60.0
- Change in external debt (2004): -21.6
- Change in external debt (2005): -12.1
- Identified net debt-creating flows (2004): -23.6
- Non-interest current account deficit (2004): 5.7
- Exports (selected entry): 17.6
- Imports (selected entry): 21.4
- Net current transfers (negative = inflow) (2004): -5.2
- Endogenous debt dynamics (2004): -22.5
  - Contribution from nominal interest rate (2004): 0.8
  - Contribution from real GDP growth (2004): -5.4
  - Contribution from price and exchange rate changes (2004): -17.8
- Residual (3-4) (2004): 2.1
  - o/w exceptional financing (2004): -814.8
- NPV of external debt (selected years): 54.9, 47.4, 43.0, 39.0, 37.2, 35.9, 34.7, 33.9, 24.5 (sequence as shown)
- NPV of external debt in percent of exports (selected entries): 341.6, 283.5, 247.8, 202.7, 207.5, 219.1, 227.7, 429.0, 461.4
- Debt service-to-exports ratio (in percent) (selected entries): 12.9, 11.6, 8.3, 7.0, 5.8, 4.6, 4.6, 4.7, 4.5, 5.7, 4.9
- Total gross financing need (billions of U.S. dollars) (selected entries): 0.2, 1.0, 2.3, 1.8, 1.4, 0.8, 1.6, 1.9, 1.6, 2.5, 0.7
- Non-interest current account deficit that stabilizes debt ratio (selected entries): 27.3, 22.0, 38.9, 21.3, 14.9, 11.8, 9.1, 8.1, 6.9, 4.9, 2.8

### Key macroeconomic assumptions (selected)
- Real GDP growth (in percent) (selected sequence): 5.1, 8.6, 11.8, 6.0, 3.3, 11.2, 10.7, 12.6, 8.3, 7.6, 7.5, 9.7, 4.4, 5.1, 4.7
- GDP deflator in US dollar terms (change in percent) (selected sequence): 16.0, 18.5, 20.0, 10.1, 7.8, 12.2, 8.2, 6.2, 4.5, 4.0, 3.5, 6.4, 3.9, 4.2, 4.0
- Effective interest rate (percent) (selected entries): 0.7, 1.0, 0.5, 0.7, 0.2, 0.6, 0.6, 0.6, 0.5, 0.5, 0.5, 0.5, 0.3, 0.2, 0.3
- Growth of exports of G&S (US dollar terms, in percent) (selected entries): 46.3, 30.6, 20.5, 29.7, 38.8, 29.7, 24.5, 32.6, 5.6, 2.1, 3.6, 16.3, -4.8, 4.0, 1.7
- Growth of imports of G&S (US dollar terms, in percent) (selected entries): 38.1, 65.6, 29.8, 22.7, 19.1, 7.7, 16.1, 14.2, 8.9, 5.9, 3.7, 9.4, 3.4, 5.9, 4.3
- Grant element of new public sector borrowing (in percent) (selected entries): 17.2, 17.4, 17.6, 17.8, 18.0, 18.2, 17.7, 19.1, 21.5, 19.9
- Aid flows (in billions of US dollars) (selected sequence): 0.0, 0.2, 0.4, 0.4, 0.7, 0.6, 0.6, 0.6, 0.7, 1.0, 2.4
  - o/w Grants (selected entries): 0.0, 0.0, 0.2, 0.3, 0.3, 0.4, 0.5, 0.5, 0.6, 0.8, 2.0
  - o/w Concessional loans (selected entries): 0.0 (sequence shows 0.0 entries)

### Public sector debt indicators (selected figures from Table 3)
- Public sector debt (total) in 2004: 109.2
- Public sector debt (total) in 2005: 96.1
- Public sector debt (total) in 2006: 74.5
- Public sector debt (total) in 2007: 70.6
- o/w foreign-currency denominated (2004): 105.0
- Change in public sector debt (2004): -24.1
- Identified debt-creating flows (2004): -26.2
- Primary deficit (selected entries): -3.0, 0.5, 3.1, -0.6, 2.1, 2.8
- Revenue and grants (selected entries): 19.7, 21.7, 19.4, 18.7, 20.4, 22.9
  - of which: grants (selected entries): 0.0, 0.0, 0.4, 0.6, 0.6, 0.6
- Primary (noninterest) expenditure (selected entries): 16.8, 22.2, 22.5, 21.5, 22.3, 24.0
- Automatic debt dynamics (2004): -23.2
  - Contribution from interest rate/growth differential (2004): -7.9
    - Contribution from average real interest rate (2004): -1.4
    - Contribution from real GDP growth (2004): -6.5
  - Contribution from real exchange rate depreciation (2004): -15.3
- Residual, including asset changes (selected entries): 2.1, 12.2, -0.3, 2.8
- NPV of public sector debt (selected entries): 91.7, 81.0, 63.6, 58.2, 54.9, 51.1, 50.0, 49.3, 49.1, 51.9, 38.5
  - o/w foreign-currency denominated (selected entries): 87.5, 75.4, 54.9, 47.4, 43.0, 39.0, 37.2, 35.9, 34.7, 33.9, 25.0
- Gross financing need (selected entries): -1.5, 1.8, 4.2, 3.8, 2.9, 2.2, 2.2, 2.1, 2.4, 1.9, -0.2
- NPV of public sector debt-to-revenue ratio (in percent) (selected entries): 464.3, 373.8, 327.2, 311.8, 269.2, 223.4, 227.4, 232.1, 239.1, 305.4, 248.3
- Debt service-to-revenue ratio (in percent) (selected entries): 7.3, 5.9, 5.9, 5.5, 5.2, 4.8, 4.8, 5.0, 5.2, 6.0, 6.0
- Primary deficit that stabilizes the debt-to-GDP ratio (selected entries): 21.1, 13.6, 24.6, 6.7, 7.2, 6.8, 3.3, 2.6, 2.3, 1.1, 2.2

### Sensitivity analyses and stress tests (high-level)
- Table 2 and Table 4 present multiple alternative scenarios and bound tests for 2007–27, including:
  - A1. Key variables at their historical averages in 2007–27 / 2008–27.
  - A2. New public sector loans on less favorable terms in 2007–27 / 2008–27 (interest rate on new borrowing assumed 2 percentage points higher than baseline).
  - A3. Twenty percent downward shock to baseline oil price 2008–27.
  - B1–B6. Bound tests including shocks to real GDP growth, export value growth, US dollar GDP deflator, net nondebt creating flows, combinations of shocks, and one-time 30 percent nominal depreciation in 2008.
- Stress scenarios produce marked increases in vulnerability indicators (examples shown):
  - NPV of debt-to-exports ratios under shocks reach values well above baseline (figures across tables and figures).
  - NPV of debt-to-revenue ratio and debt service-to-revenue ratio rise substantially under extreme tests (figures provided in Tables 2 and 4 and Figures 1–3).

### Policy implications and recommendations (implicit in staff message)
- Avoid high volumes of nonconcessional external borrowing to prevent large future debt service burdens.
- Recognize that additional nonconcessional borrowing could jeopardize access to possible debt relief.
- Monitor and manage external-debt indicators highlighted: NPV of external and public debt, NPV-to-exports, NPV-to-revenue, debt service-to-exports, and debt service-to-revenue ratios under baseline and stress scenarios.

*Source: Staff simulations and projections as presented in the IMF staff report tables and figures.*

### 1.5 percent (later broadened to 2 percent) around the

### _cr07343 - 1.5 percent (later broadened to 2 percent) around the

### Exchange rate regime and restrictions
- The CBOS initially maintained a formal exchange rate band of 1.5 percent (later broadened to 2 percent) around the official rate and began auctioning its foreign exchange within the band.
- Since May 2003, the CBOS adopted a managed-floating exchange rate regime with no pre-announced path for the exchange rate.
- The formal exchange rate band was abandoned and the auction system was replaced with direct transactions in the interbank market.
- The CBOS established an internal limit of +2 percent in intraday trading in the average daily market rate.
- In 2004, the CBOS changed the permissible intraday exchange rate fluctuation from +2 percentage points to +3 percentage points.
- Sudan maintains one inoperative bilateral payment agreement with Egypt and an inoperative payment clearing account with the former Soviet Union.
- Sudan has maintained a managed float exchange system since May 2003, and de facto peg since January 2007.
- The exchange rate system has been free of restrictions on the making of payments and transfers for current international transactions until the Bank of Sudan introduced an exchange restriction and multiple currency practice by imposing a floor on cash margins for letters of credit and import credit in June 2007.
- The Bank of Sudan intends to eliminate the measure by end-year.

### Article IV Consultation
- Sudan is on a 12-month consultation cycle.
- The last Article IV consultation discussion was completed by the Executive Board on May 3, 2006 (Country Report No.06/182).

### FSAP participation
- The FSAP work took place during October 9–14, 2004 and was completed during December 1–14, 2004.
- The Financial System Stability Assessment report was discussed by the Executive Board on April 29, 2005.

### Resident representative
- The Fund’s resident representative office in Khartoum was opened in October 2005, as a shared post with Djibouti.
- It was converted to a full post in September 2006.

### Technical assistance (summary: 2003–07)
- Technical assistance resumed in January 1995; table summarizes assistance provided since 2002 from headquarters and METAC.
- Fiscal Affairs Department:
  - Expenditure control and management: Short-term; Periodic visits, January-September 2002, April 2006; Counterpart: Ministry of Finance (MOF).
  - Reform of direct taxation and revenue administration: Short-term November 2002 and December 2003; MOF.
  - Reform of direct taxes and investment incentives: Short-term March 2003; MOF.
  - Medium-term budgetary framework: Short-term April 2003; MOF.
  - Tax and customs administration: Short-term September 2003, August 2006; MOF.
  - Cash management and budget classification (GFS): Short-term February 2004, October 2006; MOF.
  - Cash management and budget classification (GFS) (METAC): Short-term May and September 2004, June and October 2005, April 2006, April 2007; MOF.
  - Revenue administration assessment (METAC): Short-term February and October 2005, August 2006, January 2007; MOF.
  - Revenue administration assessment: Short-term May 2006; MOF.
  - Public Finance Management Diagnostic: Short-term October 2006, June 2007; MOF.
- Monetary and Capital Markets Department:
  - Monetary management and banking supervision: Short-term; Periodic visits, January-August 2002, March and April 2006; Central Bank of Sudan (CBOS).
  - Banking supervision Resident Advisor: May 2001-May 2003; CBOS.
  - Islamic compliant monetary instruments: Short-term October 2002, August 2006, May 2007; CBOS.
  - Monetary policy operations and introduction of a commodities futures/forward market: Short-term December 2003; CBOS.
  - Monetary policy operations: Short-term September 2004, June 2006; CBOS.
  - Introduction of new national currency: Short-term February and April 2005, January 2006, February and April 2007; CBOS.
  - Banking supervision (METAC): Short-term August 2005; CBOS.
  - Central bank organization Resident Advisor: September 2005, Feb. 2006-August 2007; CBOS.
  - Assessment of technical assistance needs on microfinance supervision and regulation: Short-term December 2005; CBOS.
  - Liquidity management: Short-term March 2006; CBOS.
  - Bank regulation: Short-term March and April 2006, May 2007; CBOS.
  - Banking operations: Short-term April and July 2006; CBOS.
  - Banking supervision: Short-term August, September and December 2006; CBOS.
  - Currency handling and reform: Short-term November 2006; CBOS.
- Statistics Department:
  - National accounts, CPI, and PPI statistics: Short-term; Periodic visits, March 2002-February 2003, April 2007; Central Bureau of Statistics (CBS).
  - Real sector statistics (METAC): Short-term March 2007; CBOS.
  - Balance of payments statistics: Short-term July 2003, September 2006, January 2007; CBOS.
  - General data dissemination system (GDDS): Short-term July 2003, June 2006; CBS, MOF, CBOS.
  - Assessing technical assistance needs in economic statistics (with METAC): Short-term May-June 2005; CBS, MOF and CBOS.
  - Government Financial Statistics: Short-term October 2005, March 2007; MOF.
  - Monetary and Financial Statistics: Short-term; Periodic visits, January-November 2003, December 2005, June 2006, July 2007; CBOS.

### Relations with the World Bank (as of July 24, 2007)
- IDA has no active lending portfolio in Sudan because of Sudan’s default on its financial obligations to IDA, which led to the suspension of disbursements in April 1993.
- Authorities have made small, intermittent debt service payments since mid-1999; payments insufficient to prevent accumulation of arrears.
- Arrears stood at about US$438 million as of July 9, 2007 (from US$145 million at the end of 1999).
- Sudan’s outstanding Bank debt, including arrears, is approximately US$1.3 billion.
- The Bank administered two large Multi-Donor Trust Funds (MDTFs) supporting the Comprehensive Peace Agreement (CPA); sixteen international partners pledged a total of US$561 million to the MDTFs.
- The World Bank prepared a Sudan Interim Strategy Note (ISN) scheduled for discussion by the Bank’s Board on July 31, 2007; ISN focuses on governance, basic services, and pro-poor economic growth to sustain peace and reduce conflict.
- IDA’s financial reengagement requires clearance of Sudan’s outstanding arrears; clearance can only be undertaken once a firm and comprehensive agreement among preferred creditors is in place.
- Following eventual clearance of IDA arrears (currently US$438 million), an exceptional IDA allocation for Sudan as a post-conflict country would be sought.
- Major nonlending products planned or under way include an Investment Climate Assessment (ICA), a Diagnostic Trade Study, an Environment and Natural Resources study, a Country Integrated Fiduciary Assessment (CIFA), and a Country Economic Memorandum (CEM) on pro-poor growth in an oil economy.
- The Bank and Fund are collaborating on an updated Debt Sustainability Analysis (DSA) for Sudan.

### Statistical issues and data quality
- Overall: Available economic data are sufficient for program monitoring purposes, but many improvements are needed, particularly in national accounts, state budgetary data, and external trade and financial statistics.
- Support received:
  - DFID financed three STA missions in June–July 2003 (monetary and financial statistics, balance of payments statistics, and GDDS metadata completion), contributing to participation in the GDDS starting in August 2003.
  - An STA/METAC mission in May 2005 assessed technical assistance needs in macroeconomic statistics.
  - Follow-up missions on monetary and financial statistics, balance of payments and national account statistics visited Khartoum.
I. Real sector
- Monthly CPI practices are commendable: monthly CPI data for the Khartoum area provided shortly after month-end; CPI including other states provided with a three-month lag.
- CBS plans a new household income and expenditure survey in 2007 and will construct a new CPI based on the survey; the new CPI is expected to be released in 2009.
- National accounts compilation is delayed and lacks basic information for many sectors, including oil, livestock, horticulture, and most services.
- Expenditure side data lacking on final consumption by households, investment, and changes in stocks.
- No national accounts or industrial production data at sub-annual frequencies.
- Urgent need to increase funding to the CBS and rebuild 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 among CBS, MOFNE, Ministry of Energy and Mining, and Ministry of Agriculture and Livestock.
- A peripatetic real sector expert provided some assistance on national accounts through end-2003.
II. Fiscal sector
- Government finance statistics reported to MCD are broadly adequate for program monitoring; main revenue, expenditure, and financing items reported monthly with a lag of about one month.
- Reported statistics cover central government only; do not include states and publicly owned corporations.
- Data are submitted using an economic classification; allocation of resources by MOFNE to ministries is reported, but actual expenditures by ministries are not.
- Urgent need to improve accounting and reporting procedures at MOFNE, introduce GFS classifications per Government Finance Statistics Manual (GFSM) 2001, and implement technical assistance recommendations on GFS.
- 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).
III. Monetary sector
- Sudan received significant technical assistance to improve monetary and financial statistics; most recent STA mission took place in July 2007.
- July 2007 mission conducted a training course in monetary statistics methodology and assisted the Bank of Sudan (BOS) in implementing an action plan, including development of data reporting to STA in the format of the Standardized Report Forms (SRFs) and a framework for incorporating data from South Sudan in monetary statistics.
- The weekly flash report on BOS activities is consistent with relevant components in the depository corporations survey as recommended in the Monetary and Financial Statistics Manual.
- Monetary statistics compiled by BOS are broadly acceptable for monitoring purposes.
- BOS should complete harmonization of accounting codes and network connections to improve data collection and compilation.
- BOS should work with MOFNE to review and reconcile government accounts held with the banking system to ensure appropriate classification in monetary statistics.
- BOS should continue implementing the framework for incorporating South Sudan’s banking activities into monetary statistics.
- Another follow-up mission on monetary and financial statistics will be considered after authorities complete priority actions recommended by the July 2007 mission.
IV. External sector
- Daily exchange rate data are reported to the Fund with minimal lags.
- Areas for improvement in external accounts include 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.
- Authorities need to clarify items that qualify as international reserves in general and earmarked reserves in particular.
- Authorities should be encouraged to begin compiling the data template on international reserves and foreign currency liquidity.
- Assistance is needed in preparing a detailed foreign exchange cash flow of the central bank to serve as an official reserve management tool.

*Source: _cr07343 - 1.5 percent (later broadened to 2 percent) around the*

### 9. Regarding import statistics, there are significant discrepancies between the reports

### _cr07343 - 9. Regarding import statistics, there are significant discrepancies between the reports

### Import statistics and balance of payments data
- Significant discrepancies exist between imports reported by customs and by the Bank of Sudan (BOS).
- July 2003 STA mission identified possible causes and worked with authorities to reconcile the data.
- Follow-up actions:
  - September 2006 METAC technical assistance to improve quality of International Investment Position (IIP) data.
  - Authorities now report partial IIP data for 2003-2006 to STA for publication in IFS and BOPSY.
  - BOS staff participated in a METAC IIP statistics seminar in Cairo in April 2007.
- Ongoing deficiencies affecting BOP and IIP compilation:
  - Inadequate institutional arrangements for collection of Foreign Direct Investment (FDI) data, including lack of survey data.
  - Incomplete data on 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; presence of large positive errors and omissions.
- Steps recommended to improve integrity:
  - Introduce the revised reports form for commercial banks.
  - Improve data collection procedures and enforce residency criterion.
  - Enhance institutional capacity of the BOS BOP compilation unit.
  - Implement in full the recommendations of the 1999 and 2003 TA in BOP statistics.

### International Investment Position (IIP) and FDI compilation
- METAC provided technical assistance in September 2006 to improve IIP data.
- Authorities reporting partial IIP data for 2003-2006 to STA.
- Progress examined on compiling FDI statistics; key constraints remain:
  - Lack of adequate institutional arrangements for FDI data collection.
  - Lack of survey data affecting compilation of important BOP and IIP data.
- Mission provided training in external debt statistics.

### Oil sector projections and private sector debt amortization
- Medium-term oil production projections and data on amortization of private sector debt need substantial improvement.
- Authorities have made some progress improving oil projections.
- Authorities appear reluctant to provide more detailed information on:
  - Phasing-in and expected production levels of new blocks.
  - Amortization of debt in the oil sector.

### Real sector and national accounts
- Historical data reported on time by the Central Statistics Office (CSO).
- Broadly acceptable: Real and nominal GDP by sector available with a 2-year lag.
- Deficiencies:
  - 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.
- Areas of concern for current estimates:
  - Estimates based on incomplete data, notably oil value added, livestock, and fruit and vegetable production.
- Steps to improve integrity:
  - Rebuild the Central Bureau of Statistics’ (CBS) institutional capacity.
  - Introduce the 1993 SNA.
  - Conduct census of agricultural production.
  - Implement the project prepared by the STA’s peripatetic real sector expert.
  - Improve coordination between MOFNE, CBS, and the ministry of agriculture.

### Prices and household data
- Consumer Price Index (CPI) reported monthly on time with minimal lag.
- Acceptable coverage: only CPI for Khartoum area available promptly; weekly CPI published in the flash report.
- CPI for Sudan as a whole is not available.
- Steps to improve integrity:
  - Conduct new household income and expenditure survey.
  - Reduce timing discrepancies and other reporting inefficiencies by individual states.

### Government finance and public debt data
- Monthly reporting of main budgetary items generally on time; 1.5-month lag.
- Good: main revenue and expenditure items reported; financing consistent with monetary accounts.
- Concerns:
  - Only partial data on state budgets available.
  - Incomplete functional classification.
  - MOFNE allocations to ministries reported, but not their actual expenditure.
  - Slow progress on introduction of government finance statistics (GFS) classification.
- Steps to improve integrity:
  - Introduce the GFS classification; improve accounting and reporting procedures at MOFNE.
  - Implement in full GFS (1997) TA mission recommendations.
- External debt reporting:
  - Monthly payments to creditors on time; 1.5-month lag.
  - BOS cash flow table not available; does not reflect exactly actual payments made by MOFNE.
  - Other debt data have a 10-month lag; coverage is comprehensive but weaknesses persist:
    - BOS records are not reconciled with some creditors.
    - Data on Official Development Assistance not available.
    - Charges on interest in arrears not calculated; for some creditors, interest on arrears not separated from delayed interest.
  - Steps to improve integrity:
    - Eliminate timing and recording discrepancies between the BOS and the MOFNE.
    - Reconcile data with creditors; further disaggregate data according to standard definitions.
    - Debt Management Unit to send monthly statements on external debt to the BOS’s Statistics Department.

### Monetary accounts and reserves
- Monthly reporting of balance sheets generally on time; 1.5-month lag.
- Acceptable following recent STA missions to improve transparency and reliability of monetary statistics.
- Concerns:
  - Large and variable other items (net); frequent misclassification errors by commercial banks, particularly for consortium financing, preventing meaningful analysis of the composition of net domestic assets (NDA).
  - Some divergence between reserve money in balance sheets and end-of-month flash reports.
- Weekly flash reports of key monetary aggregates with a 1-week lag; estimates of usable reserves of BOS added in January 2003.
- External sector: foreign exchange reserves reported monthly with a 0.5-month lag; acceptable but needs improvement:
  - Frequency of monitoring should increase to weekly.
  - Gross usable reserves are part of BOS active balances, which also include unusable earmarked reserves (such as oil, medicine, and spare parts imports).
  - Composition and potential usability of earmarked reserves in a balance of payments need are not clear.
- Steps to improve integrity:
  - 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 on monetary statistics recommendations, including improvement of commercial banks’ other items (net).
  - Include data on returns on investment deposits and aim at full reporting of the BOS balance sheet.
  - Clarify items that qualify as international reserves and those included in earmarked reserves.

### Table of common indicators required for surveillance (as of July 16, 2007): selected entries
- Exchange Rates: Date of latest observation 7/15/07; Date received 7/16/07; 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 5/31/07; Date received 7/10/07; Frequency of data M; Frequency of reporting M; Frequency of publication M.
- Reserve/Base Money: Date of latest observation 5/31/07; Date received 7/10/07; Frequency of data M; Frequency of reporting W; Frequency of publication M/W.
- Broad Money: Date of latest observation 5/31/07; Date received 7/10/07; Frequency of data W; Frequency of reporting W; Frequency of publication M/W.
- Central Bank Balance Sheet: Date of latest observation 5/31/07; Date received 7/10/07; Frequency of data M; Frequency of reporting M; Frequency of publication M.
- Consolidated Balance Sheet of the Banking System: Date of latest observation 5/31/07; Date received 7/10/07; Frequency of data M; Frequency of reporting M; Frequency of publication M.
- Interest Rates: Date of latest observation 12/31/06; Date received 1/09/06; Frequency of data Q; Frequency of reporting Q; Frequency of publication Q.
- Consumer Price Index: Date of latest observation June 2007; Date received 7/05/07; 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 2007:Q1; Date received June 2007; 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 2007: Q1; Date received June 2007; Frequency of data A; Frequency of reporting A; Frequency of publication A.
- External Current Account Balance: Date of latest observation 2007: Q1; Date received June 2007; Frequency of data Q; Frequency of reporting Q; Frequency of publication Q.
- Exports and Imports of Goods and Services: Date of latest observation 2007:Q1; Date received June 2007; Frequency of data M; Frequency of reporting M; Frequency of publication M.
- GDP/GNP: Date of latest observation 2005; Date received Sep. 2006; Frequency of data A; Frequency of reporting A; Frequency of publication A.
- Gross External Debt: Date of latest observation 2006:Q4; Date received June 2007; Frequency of data A; Frequency of reporting A; Frequency of publication A.
- Footnote definitions and frequency codes preserved from source.

### Statement by the Staff Representative (September 7, 2007)
- Information since the staff report of August 7 does not change the thrust of the staff appraisal.
- Monetary and external developments:
  - Broad and reserve money growth in July were in line with program targets.
  - Growth of credit to the private sector was lower than envisaged, suggesting ongoing deterioration of financial sector indicators and impact on banking system intermediation.
  - Net international reserves rebounded by about US$300 million since May 2007, in line with the target under the staff-monitored program.
  - Increase in reserves occurred in an environment of a broadly stable nominal exchange rate, suggesting market pressures have mostly subsided and central bank intervention in the foreign exchange market has reverted to replenishing reserves.
  - As of July, 12-month inflation was 8.2 percent.
- Fiscal developments:
  - Preliminary June data show improvement in the fiscal position during second quarter of 2007.
  - The annualized overall deficit decreased from 6.0 percent of GDP at end-March to 4.8 percent of GDP at end-June.
  - Improvement reflects better revenue performance in the second quarter, mainly in oil revenues, and lower-than-budgeted expenditures.

*Source: _cr07343 - 9. Regarding import statistics, there are significant discrepancies between the reports*

### 4. Finally, the authorities have started to move forward on expenditure control reforms

### 4. Finally, the authorities have started to move forward on expenditure control reforms

### Progress on expenditure control and cash management
- Establishment of a Treasury Single Account.
- Implementation of an interim agreement between the Ministry of Finance and the Central Bank to control current expenditures while commitment control procedures based on quarterly cash ceilings are being established in line with FAD recommendations.
- Expenditure management measures to be implemented:
  - Controls that limit expenditures by line ministries to cash plans rather than budgeted allocations.
  - Centralized Treasury Single Account.
  - Contingency measures for expenditure cuts if projected revenues fail to materialize.
  - Halt the use of sanadats, standing orders and other nontraditional forms of finance, and carefully monitor the existing stock of such instruments with a view to their eventual extinction.

### Recent macroeconomic developments (selected findings)
- Real GDP growth in 2006: 12 percent.
- Non-oil GDP growth in 2006: roughly 10 percent.
- Inflation developments:
  - 12-month inflation rate rose from 5.6 percent in 2005 to 15.7 percent in 2006.
  - Rate of inflation declined to 8 percent by February–March 2007 and remained in this range through June.
- Fiscal position:
  - Overall deficit in 2006: estimated to over 4 percent of GDP.
  - Fiscal weakening in 2006 largely due to oil revenue shortfalls; non-oil revenues also lower than projected due largely to wide use of tax exemptions in the VAT, customs, and business profit tax.
- External sector:
  - External current account deficit in 2006: roughly 13 percent of GDP.
  - Exports of crude oil rose by some 70 percent in volume terms in 2006, but value rose only 24 percent due to extremely low price received for Dar blend.
  - Nonoil exports declined by some 11 percent in dollar terms in 2006.
- Monetary and reserves:
  - Broad money growth ended 2006 at 27 percent.
  - The dinar appreciated by nearly 13 percent in nominal terms vis-à-vis the U.S. dollar (period cited: 2006).
  - By 2007 the dinar remained broadly unchanged.
  - Net international reserves concerns: reserves were described as uncomfortably low; recent developments showed reserve build-up to more than one month of imports by mid-2007 (text notes reserves had been less than a month of imports earlier).
- Structural and institutional reforms completed or underway:
  - Fiscal framework of the national government converted to GFSM 2001 format and presented to parliament.
  - Reduction in domestic fuel subsidies in August 2006.
  - Establishment of an Oil Saving Account to smooth risks and volatility and to help improve expenditure and revenue management.
  - Plans to raise revenues over the medium term through measures including raising VAT rate, reduction of VAT exemptions and income tax holidays, and organizational reform of the Tax Chamber including establishment of revenue collection centers country-wide.

### Executive Board and authorities’ assessments and policy recommendations
- Executive Board assessment highlights:
  - Policy slippages contributed to weaker fiscal and external positions in late 2006 and early 2007, creating significant risks to macroeconomic and financial stability.
  - Directors welcomed corrective measures envisaged in the new 18-month staff-monitored program (SMP) aimed at restoring fiscal discipline and ensuring stability while supporting continued strong economic growth.
  - Directors stressed that successful implementation of the peace agreement is crucial for social and economic advancement.
  - Emphasis on improved expenditure management and more transparent budget execution, combined with bold fiscal reforms to increase revenues.
  - Welcomed authorities’ efforts to tighten fiscal policy, including reducing fuel subsidies.
  - Key revenue and fiscal recommendations:
    - Broaden the tax base by reducing exemptions and incentives.
    - Improve tax administration.
    - Adopt conservative revenue forecasting.
    - Improve transparency in oil sector revenues.
  - Monetary policy recommendations:
    - Monitor developments to ensure money growth remains in line with inflation objectives.
    - Rely increasingly on open market operations and indirect monetary policy instruments.
  - Exchange rate and reserves:
    - Welcomed authorities’ decision to allow greater exchange rate flexibility and to rebuild reserves.
    - Welcomed intention to eliminate exchange restriction and multiple currency practice arising from a floor on cash margins for letters of credit and import credit before the end of 2007.
  - Financial sector:
    - Stressed preparation of a resolution/restructuring strategy for the state-owned Omdurman Bank based on forthcoming independent audit.
    - Called on the central bank to actively enforce prudential standards and ensure banks comply with regulations on capitalization and provisioning.
  - Debt and borrowing:
    - Many Directors urged minimizing nonconcessional borrowing given Sudan’s already unsustainable external debt burden.
    - Several Directors preferred a zero ceiling on nonconcessional borrowing in the SMP.
    - Directors noted the expected reliance on nonconcessional borrowing would limit consideration of the SMP as constituting part of a satisfactory track record for HIPC or MDRI purposes.
    - Some Directors called for a timely and clear road map for arrears clearance reflecting Sudan’s performance under successive SMPs.

### Authorities’ stance and intended reforms
- Authorities’ commitments and measures:
  - Reiteration of commitment to maintain sound macroeconomic stability and advance the ambitious reform agenda focusing on fiscal and financial sector reforms.
  - Establish Oil Saving Account to smooth volatility and improve expenditure and revenue management.
  - Commitment to raise revenues through VAT rate increases, reduction of VAT exemptions and income tax holidays, and Tax Chamber organizational reforms.
  - Expenditure policies for 2007–08 to focus on tighter balance between spending and available resources with the controls listed above.
  - Commitment to halt use of nontraditional financing instruments (sanadats, standing orders) and monitor existing stock toward extinction.

*Source: IMF Public Information Notice (PIN) No. 07/121 — IMF Executive Board Concludes 2007 Article IV Consultation with Sudan (October 2, 2007).*

### 9.      Despite Sudan’s strong economic growth over the last seven years, its external debt,

### _cr07343 - 9.      Despite Sudan’s strong economic growth over the last seven years, its external debt,

### Debt overhang and debt relief
- External debt remains high, and most of it is in arrears.
- Resolving Sudan’s debt overhang is a high priority for the authorities.
- Authorities note that despite Sudan’s "superb economic performance and satisfactory cooperation with the Fund," progress toward resolving the debt problem has been "slow, uneven and frustrating to say the least."
- Authorities believe that debt relief under the HIPC Initiative and the MDRI will play a crucial part in helping Sudan resolve its debt and enable them to assume a path to achieving sustainable development goals.

### Structural issues and public expenditure management
- Authorities committed to further strengthen public expenditure management through:
  - Recently adopted measures to control expenditures and improve budget execution.
  - Implementing the full economic and functional classification of the GFSM 2001 for 2008 budget.
- Authorities view continuing Technical Assistance as important and request required TA from the Fund, World Bank and other stakeholders.

### Monetary, exchange rate, and financial sector policies
- Primary objective: maintain a focus on price stability as the central mandate within a managed float exchange rate system.
- Exchange rate policy:
  - The Sudanese Pound will be allowed to move in line with fundamentals.
  - Intervention will be limited to smoothing transitory overshooting of the exchange rate.
- Monetary policy instruments and actions:
  - Authorities will move away from direct instruments and rely more on open market operations with an emphasis on indirect monetary policy instruments.
  - As part of this process the central bank will acquire government securities from the banking system to consolidate its stocks of indirect monetary policy instruments.
  - Authorities will continue to monitor monetary developments to ensure that broad money growth rate remain in line with the target and inflation objective.
- Financial sector role and reform:
  - Sustaining strong growth requires a greater role for the financial sector to channel savings into investment.
  - Short-term reforms to ensure the soundness of the banking system; medium- to long-term reforms to achieve more efficient channeling of savings to investment and integration of the financial sector of the North and South.
  - Measures already undertaken include restructuring the banking system and implementation of an overhaul strategy for Omdurman Bank.
  - Swift response—liquidity injection, replacement of the board and executive management—restored confidence in Omdurman Bank and prevented spillovers to the rest of the banking system.
  - The Central Bank of Sudan has put in place measures to strengthen and enforce prudential standards and ensure banks comply with existing regulations.
  - The introduction of the new currency constitutes an important step toward realizing financial sector objectives.

### Non-concessional borrowing
- Challenge: lack of access to concessional borrowing.
- Authorities do not consider it prudent to borrow on non-concessional terms but face limited fiscal space, lack of access to traditional concessional finance, and pressing development needs from peace agreements and unification.
- Authorities see a gradual improvement in terms of concessional borrowing compared to three years ago.
- Purpose of non-concessional borrowing:
  - Most non-concessional borrowing contracted was directly linked to financing infrastructure development and social development projects, such as power, water supply and transportation.
  - Authorities have been very transparent on the use of all non-concessional loans.
  - Provision of these services is essential to the overall strategy to unite the country after signing multiple peace agreements.
- Borrowing limit:
  - Authorities agreed on the borrowing limit ceiling of US$700 million, which was fulfilled for 2006.
  - Authorities are committed to imposing and complying with a similar limit in 2007 and 2008.

### Structural reforms for revenue and competitiveness
- Fiscal reforms undertaken include reduction of VAT exemptions and income tax holidays.
  - These reforms are intended to improve the revenue base, create a more stable revenue base, and lessen dependence on volatile oil receipts.
  - Improved tax policy and administration expected to enable government to address infrastructure development and poverty reduction.
- External competitiveness issues:
  - Lack of external competitiveness is not entirely due to a strong domestic currency; productivity factors play a major role.
  - Authorities are undertaking measures to address structural problems affecting non-oil exports, including poor quality, enhancing the role of the National Agency for Insurance and Exports Financing, and addressing rigidity in the labor market.
  - The Green Revolution project launched recently aims to transform agriculture from subsistence and traditional farming to a commercial exports competitive sector.

### Conclusions and policy stance
- Authorities reaffirm strong commitment to prudent macroeconomic policies aimed at sustaining growth, employment creation and poverty reduction.
- Authorities recognize the challenge of balancing expenditure needs of the peace process with maintaining macroeconomic stability.
- Country’s debt overhang continues to be a major issue affecting poverty and reconstruction efforts.
- Authorities remain hopeful that the international community will recognize Sudan’s track record and take tangible actions on debt relief for Sudan comparable to that provided to other countries in similar circumstances.

*Source: Excerpt from the provided IMF content unit.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07343.pdf_