## _cr10256 ## Source details **Canonical URL:** [_cr10256](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10256.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10256.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10256.pdf.json) --- ### Executive Summary - Sudan affected by the global crisis through a sharp decline in oil receipts. - Real GDP growth in 2009 decelerated to 4 ½ percent. - Average inflation fell to about 11 percent, from over 14 percent in 2008. - Overall fiscal deficit widened in 2009; non-oil deficit narrowed from 7.6 percent of non-oil GDP in 2008 to 6.6 percent in 2009. - Most expenditures were lower than envisaged except transfers to the South, fuel subsidies, and elections-related expenditures. - Tax revenue increased significantly; non-oil non-tax revenue remained constant in relation to GDP. - Authorities relaxed the monetary stance in response to the global crisis; foreign international reserves remained low. - Under the 2009–10 staff-monitored program (SMP) important reforms were implemented with some delays; three quantitative targets for end-December, 2009 were not met: NIR, NDA, and domestic borrowing by the government. ### Authorities’ views (summarized) - Plan to reduce the fiscal deficit by broadening the revenue base, reducing tax exemptions, and improving administration. - Intend to build up foreign exchange reserves and recognize need for a cautious monetary policy. - Consider progress on debt relief under HIPC essential to remove the debt overhang and regain access to concessional financing. ### Staff recommendations (high-level) - Tighten the monetary stance to reduce pressures on inflation and the exchange rate. - Increase exchange rate flexibility to rebuild foreign exchange reserves. - Continue fiscal reforms to reduce dependence on oil revenues: - Streamline tax exemptions. - Reduce fuel subsidies. - Adopt a multi-year budget planning system. - Strengthen the financial sector: improve banking supervision and restructure Omdurman National Bank. ### Recent economic developments and SMP performance - Real GDP growth 2009: 4.5 percent (2008 nearly 7 percent). - Non-oil growth 2009: about 5 percent (dropped by half). - Reserve and broad money increased by 28 percent and 23.5 percent, respectively, in 2009. - Credit to the private sector increased by about 20 percent. - Current account deficit 2009: 11.5 percent of GDP. - Guinea exchange rate: depreciated by 13 percent through August, overall depreciation about 3 percent in 2009. - Central bank NIR remained low. - Financial sector indicators at end-2009: - Gross NPLs: 20 percent of total loans (down from 22 percent at end-2008). - Provisioning to NPLs: increased from 20 to 24 percent. - Average capital adequacy ratio: declined to 7 percent at end-2009 (from 11 percent at end-2008). - Omdurman National Bank accounts for nearly half of the NPLs and 25 percent of bank lending; financial position difficult. - Program target outcomes for end-2009: - Missed: domestic financing of the central government (higher than ceiling), NIR (missed by a large margin), NDA (higher than programmed). - Met or exceeded: clearance of domestic arrears significantly higher than target; payments to the Fund and contracting of non-concessional loans targets were met. ### Medium-term fiscal stance and non-oil primary balance - Oil production expected to gradually decline below current levels after 2013. - Authorities intend to develop a three-year budget framework and use the non-oil primary balance to GDP ratio as a key budget indicator. - Approved budget assumptions/outcomes: - overall deficit of 4.7 percent of GDP. - non-oil primary deficit of 7.5 percent of non-oil GDP (based on oil price assumptions $60/bbl Nile blend and $50/bbl Dar blend). - Program assumptions: based on WEO oil price forecast; oil revenues and related expenditures higher than budget; capital spending envisaged lower than budget. - Authorities recognized large social expenditure needs to be identified in the PRSP process (expected late 2010). ### Monetary policy, reserves, and exchange rate - Staff recommended cautious monetary stance; 2010 program targets: - broad money growth at 21 percent. - reserve money growth at 19 percent. - Current account deficit expected to improve to about 7.2 percent of GDP in 2010 (from 11.5 percent in 2009) in one note; elsewhere SMP expects about 8.5 percent in 2010. - SMP target: increase NIR to $950 million at end-2010. - Exchange rate assessment: - Staff estimates the guinea is near equilibrium in real effective terms (CGER and EREER approaches). - Slight overvaluation reemerged in 2009 but within margin of error and expected to be temporary. - Exchange restrictions noted: 100 percent cash margin for letters of credit on most imports; limits on foreign currency purchases for travel purposes. Authorities committed to remove these by end-June 2010 if NIR improves. ### Financial sector development and soundness - Banking sector: 32 banks (5 foreign, 4 state-owned); deposits to GDP: 16 percent; credit to private sector to GDP: 12 percent at end-2009. - Public banks account for about 50 percent of total banking sector assets; sector under-banked and concentrated in Khartoum. - Soundness and risks: - NPLs high and provisioning low; NPLs concentrated in Omdurman Bank (40 percent of its loan portfolio nonperforming in one assessment). - Capital adequacy ratios below required levels for bulk of system. - Policy recommendations: - Phased divestiture of public sector share to improve competition. - Improve banking supervision, enforcement, accounting and audit standards. - Rehabilitate Omdurman Bank and prepare for privatization. - Omdurman National Bank restructuring plan (February 2010) includes: - Close loss-making branches; liquidate loss-making companies fully owned by the bank; require shareholders (other than central bank) to recapitalize. - Total recapitalization needed to reach 12 percent CAR: SDG 1.8 billion; require shareholder injection (other than CBoS) of SDG 532 million in 2010. - Privatization proceedings planned to begin by end-2011. ### Structural fiscal reforms and revenue administration - Comprehensive tax policy review expected completed by July 2010. - Tax policy objectives for 2011 budget: - reduce VAT exemptions; - raise personal income tax collections; - resolve tax jurisdiction issues with sub-national governments; - optimize government’s net take from the oil sector. - Revenue administration improvements: - centralize taxpayer identification numbers; identify and incorporate 400 additional companies outside the tax system (structural measure for October 2010); - implement WTO-consistent customs valuation (structural measure for July 2010); - upgrade customs stations with ASYCUDA World (structural measure for December 2010). - Expenditure policy: - electricity subsidies abolished in August 2009 (expected to reduce current expenditures by more than SDG 100 million in 2010). - Fuel subsidy reform pushed to 2011 pending a targeted social safety net based on household survey expected mid-2010. - Public financial management: - adopt medium-term budget planning using non-oil indicators; develop three-year budget framework; extend GFS 2001 classification to additional states; require public oil companies to transfer profits directly to MoFNE. ### External debt, borrowing strategy, and debt sustainability - End-2009 stock of public and publicly-guaranteed debt: $35.7 billion (up from $33.7 at end-2008); arrears bulk the stock. - Contracting of nonconcessional borrowing in 2009: $693 million (mainly from China); authorities agreed to limit such borrowing to $700 million in 2010. - Debt sustainability analysis (joint Bank-Fund LIC DSF): Sudan will remain in debt distress in the foreseeable future even under benign global conditions and appropriate policies. - DSA baseline key outcomes: - PV of debt-to-GDP: 56 percent in 2010, around 33 percent in 2020 (threshold: 30 percent). - PV of debt-to-exports: 323 percent in 2010, projected to reach 535 percent in 2020 (threshold: 100 percent). - PV of debt-to-revenue: 323 percent in 2010, projected to reach 272 percent in 2020 (threshold: 200 percent). - Sensitivity tests highlight acute vulnerability to oil price, export shocks, depreciation (e.g., B6 one-time 30 percent depreciation and B2 export shocks produce large deteriorations). - Directors urged minimizing nonconcessional borrowing and accelerating reforms to support any future debt-relief efforts (HIPC/MDRI). ### Program targets, monitoring, and definitions - SMP relies on six quantitative targets for end-June and six indicative targets for end-December: ceilings on CBoS NDA, ceilings on domestic financing of fiscal deficit, floors for NIR, ceilings on new nonconcessional external loans, floors for payments to the Fund, and change in domestic arrears. - Oil revenue adjustor: - Programmed government oil revenues: SDG 6,992 million for June 2010; SDG 13,984 million for December 2010. - Adjustor rules allocate one half of the local currency equivalent difference between accrued and programmed oil revenues to changes in domestic financing/NDA and NIR (with exceptions for capital/peace spending). - Definitions preserved for NDA, NIR, domestic financing, and concessionality criteria (grant element at least 35 percent using CIRRs plus specified margins). - Reporting framework: detailed, time-bound reporting requirements for CBoS, MoFNE, CBS, GOSS, and other entities (weekly, monthly, quarterly deadlines specified). ### Poverty, MDGs, and sectoral priorities - Millennium Development Goals indicators included; many MDG indicators reported with gaps in the source. - 2009 macro facts relevant to poverty: - Real GDP growth 2009: about 4.5 percent. - Non-oil GDP growth 2009: about 5 percent. - Average inflation 2009: about 11 percent. - Overall commitment-basis deficit 2009: 4.7 percent of GDP (versus 4.0 percent envisaged). - Capital expenditure 2009: 2.8 percent of GDP. - Repayments of domestic arrears in 2009: 0.9 percent of GDP. - Reserve money growth 2009: about 28 percent. - Net domestic assets increased by 32 percent in 2009. - Current account deficit 2009: 11.5 percent of GDP. - Gross NPLs end-2009: 20 percent; loan provisions to NPLs: 24 percent; average CAR: 7 percent. - 2010 projections and policy priorities (implications for poverty reduction): - Real GDP growth 2010: about 5.5 percent. - Non-oil GDP growth 2010: about 6 percent. - Average inflation 2010: about 10 percent. - Policy emphasis: maintain macroeconomic stability, rebuild FX reserves, sustain growth. - Sectoral priorities: develop agriculture (authorities plan to invest about $5 billion through 2012), public-private partnerships for irrigation, infrastructure, agro-industry, microfinance channels to agriculture, and business environment reforms (one-stop-shop). ### Technical assistance priorities and progress - Technical assistance needs substantial and prioritized by authorities: - Monetary and financial sector: banking supervision, indirect monetary instruments, FSAP update. - Fiscal area: tax administration, oil revenue management, tax policy. - Public financial management: fiscal reporting, budget processing, multi-year budget planning. - National accounts: introduction of 1993 SNA via peripatetic expert. - Southern Sudan capacity building and diagnostic mission requests. - IMF and partners provided TA on central bank modernization, debt and cash management, budget classification, and Omdurman Bank restructuring plan. ### Recent updates since staff report (June 2010) - New government formed June 14, 2010; Mr. Ali Mahmood Abdul-Rasool appointed Minister of Finance and National Economy. - Inflation in first five months of 2010: 14–15 percent (food and beverages driven). - By end-May 2010, NIR increased by about $30 million relative to end-February figure available during mission. - Central bank measures announced to tighten policy: increase reserve requirement from 8 percent to 11 percent (effective July 1, 2010); withdraw central bank deposits with commercial banks. - Exchange rate allowed more flexibility; depreciated by 3.8 percent since end-March 2010. - Authorities confirm implementation of fiscal structural measures for end-June 2010 (review of tax exemptions; ASYCUDA). *Source: IMF staff report and annexes as presented in the provided content unit.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Background - Sudan has been adversely affected by the global crisis through a sharp decline in oil receipts. - Economic growth in 2009 decelerated to 4 ½ percent as a result of the global recession. - Average inflation fell to about 11 percent, from over 14 percent in 2008. - While the overall fiscal deficit widened in 2009, the non-oil deficit narrowed (as a percent of non-oil GDP), albeit to a lesser extent than programmed. - Most expenditures were lower than envisaged in the program with the notable exception of transfers to the South, fuel subsidies, and elections related expenditures. - Tax revenue increased significantly, but non-oil non-tax revenue remained constant in relation to GDP. - The authorities relaxed the monetary stance in response to the global crisis. - Foreign international reserves remained low, mainly due to lower external receipts and central bank sales of foreign exchange. - Under the 2009–10 staff-monitored program (SMP), important reforms were implemented, albeit some with a delay, and three quantitative targets for end-December, 2009 were not met: targets on NIR, NDA, and domestic borrowing by the government were missed, largely due to the larger than envisaged fiscal deficit, weak external inflows, and foreign exchange sales. ### Authorities’ views - Plan to reduce the fiscal deficit, including through broadening the revenue base by reducing tax exemptions and improving administration. - Intend to build up foreign exchange reserves and recognize that a cautious monetary policy is needed to achieve this objective. - Consider progress on debt relief under HIPC essential to remove the debt overhang and regain access to concessional financing for development and social projects. ### Staff recommendations - Tighten the monetary stance to reduce pressures on inflation and the exchange rate. - Increase exchange rate flexibility in order to rebuild foreign exchange reserves. - Continue with fiscal reforms to maintain macroeconomic stability and reduce dependence on oil revenues; specifically: - Streamline tax exemptions. - Reduce fuel subsidies. - Adopt a multi-year budget planning system. - Continue to strengthen the financial sector, including by improving banking supervision and restructuring Omdurman National Bank. ### Introduction (key context) - Sudan’s fiscal and external current account deficits widened and GDP growth decelerated due to a sharp decline in oil receipts. - Sudan has cooperated with the Fund over the last decade, evidenced by generally good performance under successive SMPs and by making payments in excess of obligations falling due. - Parliamentary and presidential elections were held in April 2010; President Al-Bashir was reelected. A referendum is scheduled for January 2011 in the South. - The United Nations has recently lowered the security phase for Khartoum to level II. ### Recent Economic Developments and Performance Under the SMP - Real GDP growth is estimated to have decelerated to 4.5 percent in 2009 compared to nearly 7 percent in 2008. - Non-oil growth dropped by half to about 5 percent. - The deterioration was broad-based, with the exception of a small increase in oil production. - The non-oil commitment primary deficit narrowed from 7.6 percent of non-oil GDP in 2008 to 6.6 percent in 2009; this adjustment was 1.5 percentage points lower than envisaged under the program. - Reserve and broad money increased by 28 percent and 23.5 percent, respectively, in 2009—higher than program targets due to increased credit to the government and efforts to ensure credit to the private sector. - Credit to the private sector increased by about 20 percent (slightly higher than nominal GDP but lower than envisaged under the program). - The current account deficit reached 11.5 percent of GDP in 2009 as the decline in imports (by about 6 percent) was not sufficient to offset the fall in oil receipts. - The guinea depreciated by 13 percent against the U.S. dollar through August but subsequently appreciated as the central bank increased the sale of foreign exchange; overall depreciation of the guinea against the U.S. dollar in 2009 was about 3 percent. - The central bank’s net international reserves (NIR) remained low. - Financial sector indicators: - Gross nonperforming loans (NPLs) declined to 20 percent of total loans at end-2009, from 22 percent at end-2008. - Provisioning to NPLs increased from 20 to 24 percent. - The average capital adequacy ratio declined to 7 percent at end-2009, compared to 11 percent at end-2008 (partly due to a change in methodology). - Banks with about half of the total banking sector loans require closer monitoring. - Omdurman National Bank accounts for nearly half of the NPLs and 25 percent of bank lending; its financial position remains difficult. - Program target outcomes for end-2009: - Missed: domestic financing of the central government (higher than ceiling), NIR (missed by a large margin), and net domestic assets of the central bank (higher than programmed). - Met or exceeded: clearance of domestic arrears was significantly higher than the target; targets on payments to the Fund and on contracting of non-concessional loans were met. ### Structural Reforms and Technical Assistance - In fiscal area: modernization of the taxation chamber, centralization of taxpayers identification numbers, and extension of GFS 2001 budget classification to 5 Northern states were implemented. - A comprehensive review of the tax policy regime is expected to be completed by July 2010. - A restructuring plan for Omdurman National Bank was prepared in February 2010, in line with an independent auditor’s recommendations. - The Fund has provided technical assistance on central bank modernization, debt and cash management, and budget classification at both national and sub-national levels. ### Policy Discussions — Macroeconomic Policies - Growth outlook: - Real GDP growth projected to be in the 5-6 percent range during 2010–15, contingent on strong non-oil growth as oil output is projected to moderate. - Inflation is expected to remain in single digits. - External current account deficit projected to stabilize in the range of 6–7 percent of GDP. - Fiscal deficit projected at about 4.5 percent of GDP. - Medium-term strategy focuses on increasing agricultural production; authorities plan to invest about $5 billion through 2012 to develop the sector. - Emphasis on attracting strategic foreign investors by improving infrastructure, removing structural rigidities and distortions, liberalizing investment and the labor market, and reforming the legal system (including property rights and land leasing arrangements). - Downside risks include high dependence on oil, the debt overhang, and the political and security situation. - Main parameters for the 2010 SMP include: - Reducing the fiscal deficit from 4.7 percent of GDP in 2009 to 3.4 percent of GDP. - Increasing the NIR by $560 million. - Containing broad money and reserve money growth to about 20 percent. - Limiting contracting of nonconcessional borrowing to $700 million. ### Policy Discussions — Fiscal Policy (highlights) - The program seeks to maintain macroeconomic stability while meeting social, infrastructure, and CPA-related expenditures. - The authorities’ approved budget was based on conservative assumptions on oil prices, but optimistic ones on foreign financing. - The program caps the wage bill at 5.4 percent of GDP (similar to the outcome of 2009) and preserves outlays for elections/referendum and goods and services. - Tax revenues projected to increase by 0.3 percent of GDP (or about 0.8 percent of non-oil GDP) relative to the 2009 outturn due to lagged effects of revenue-enhancing measures and anticipated additional measures. - Staff emphasized the need to increase tax revenues by tightening VAT and personal income tax (PIT) exemptions; authorities plan to adopt recommendations of the comprehensive tax policy review in the 2011 budget, recognizing that the 2010 election and referendum context may constrain reforms. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10256.pdf* ### 14. A steady improvement in the non-oil primary balance is needed over the ### 14. A steady improvement in the non-oil primary balance is needed over the ### Medium-term fiscal stance and non-oil primary balance - Oil production is expected to gradually decline below current levels after 2013. - A medium-term perspective is needed to reduce dependence on oil and reduce vulnerability to its price volatility. - Authorities intend to: - develop a three-year budget framework; and - use the non-oil primary balance to GDP ratio as a key indicator in budget preparation (MEFP, ¶21). - Approved budget (assumptions and outcomes): - overall deficit of 4.7 percent of GDP. - non-oil primary deficit of 7.5 percent of non-oil GDP (based on oil price assumptions $60/bbl for Nile blend and $50/bbl for Dar blend). - Program assumptions and adjustments: - Program prepared based on the most recent WEO oil price forecast and relatively conservative foreign aid inflows. - Program incorporates the most recent trend in the gap between the Nile and Dar blend prices. - As a result, oil revenues and related expenditures, including fuel subsidy and automatic transfers to the states, are higher than those in the budget. - Capital spending is envisaged to be lower than the budget, in line with the projected foreign inflows. - Authorities recognized large social expenditure needs likely to be identified in the PRSP process (expected to be completed in late 2010). ### Monetary policy and reserve objectives - Monetary stance: - Staff recommended adopting a cautious monetary stance to keep inflationary pressures in check while allowing for private sector credit needs. - Program targets for 2010: - broad money growth at 21 percent. - reserve money growth at 19 percent (MEFP ¶22). - Authorities are working to: - further develop indirect monetary instruments; - strengthen the inter-bank market; and - improve liquidity forecasting and management. - International reserves and current account: - Current account deficit expected to improve to about 7.2 percent of GDP in 2010 (from 11.5 percent in 2009), mainly due to higher oil price projections. - SMP targets an increase in net international reserves to $950 million at end-2010 (MEFP ¶23). - Exchange rate will be allowed to move in line with fundamentals; sale of foreign exchange limited to meeting genuine market needs and smoothing short-term volatility. - Exchange restrictions and intentions: - Sudan maintains an exchange restriction and a multiple currency practice arising from: - imposition of a 100 percent cash margin for letters of credit on most imports; and - limitation on amount of foreign currency purchases for travel purposes. - These measures were approved by the Board until end-June 2010 in light of authorities’ intention to eliminate these restrictions. - Authorities committed to remove these restrictions by end-June 2010, provided that their NIR position improves. ### Exchange rate assessment - Staff estimates indicate the Sudanese guinea is near equilibrium in real effective terms. - Macroeconomic Balance (MB) approach: - CGER-type panel regression for low income oil exporting countries (1970–2009) suggests real exchange rate is near equilibrium. - Norm for Sudan: current account deficit of about 6 percent of GDP in 2014; projected deficit about 7 percent of GDP. - Slight overvaluation reemerged in 2009 but remains within the margin of error and appears temporary. - Fiscal tightening and improved oil prices expected to help current account return to norm starting in 2010. - Equilibrium REER (EREER) approach: - Possible small diversion compared to medium-term estimated equilibrium. - Divergence widened in 2009 due to sharp decline in oil prices; projected to narrow in 2010 and remain small, within margin of error. ### Financial sector development and soundness - System structure and size: - Banking sector comprises 32 banks, including 5 foreign and 4 state-owned banks. - Deposits and credit to the private sector doubled during 2005–09. - Ratios at end-2009: - deposits to GDP: 16 percent. - credit to private sector to GDP: 12 percent. - Public banks account for about 50 percent of total banking sector assets. - Banking and other financial institutions concentrated around Khartoum; sector remains relatively small by regional standards and under-banked. - Soundness and risks: - Soundness and efficiency indicators generally weaker than regional peers and differ widely across banks. - Systemic risk limited due to small size and low intermediation, but: - non-performing loans (NPLs) are high and provisioning is low. - NPLs concentrated mainly in the Omdurman Bank (40 percent of its loan portfolio nonperforming). - capital adequacy ratios below required levels for bulk of banking system. - Policy recommendations and reforms: - Phased divestiture of public sector share in the sector to improve competition and system health. - Priority reforms include: - improving banking supervision and inspection and their enforcement; - rehabilitating Omdurman Bank and lowering public sector’s share in financial institutions; - adopting and enforcing international best practice accounting and audit standards. - Omdurman National Bank: - restructuring plan developed in February 2010 based on independent audit findings. - measures: close loss-making branches; liquidate loss-making companies fully owned by the bank; require shareholders (other than central bank) to recapitalize. - authorities plan to begin privatization proceedings by end-2011. - Non-bank financial institutions and markets: - Very small and underdeveloped; need modernization of insurance sector, development of securities markets, and promotion of microfinance. - Need to develop prudential framework and supervisory skills specific to these institutions. ### Structural fiscal reforms - Authorities plan comprehensive tax policy review to be completed by July 2010. - Tax policy objectives (to be incorporated in 2011 budget based on review): - reduce VAT exemptions; - raise personal income tax collections; - resolve tax jurisdiction issues with sub-national governments; - optimize government’s net take from the oil sector. - Revenue administration improvements: - establish database to allow information sharing on registered taxpayers to identify and incorporate entities outside the tax system; - implement WTO-consistent customs evaluation system (MEFP, ¶17–19). - Structural fiscal measures over 2010 (Box 5 highlights): - already introduced measures to improve tax compliance, including: - database for taxpayer information sharing; - review of tax exemptions under Investment Encouragement Act; - implementing WTO-consistent customs valuation; - upgrading customs stations with ASYCUDA World software. - Expenditure policy: - geared toward improving quality and targeting of government spending to protect priority areas as consolidation advances. - electricity subsidies eliminated recently; reform on restraining fuel subsidy pushed back to 2011. - prerequisite for gradual adjustment of petroleum price formula: develop targeted social safety net based on household survey expected to be completed in mid-2010. - Public financial management: - adopt medium-term budget planning system using non-oil indicators. - develop three-year budget framework including projections for non-oil revenue and non-oil primary balance to GDP ratios, to be used on rolling basis in budget preparation. - extend GFS 2001 budget classification to another 4 Northern states for better fiscal management and reporting. - require public oil companies to transfer profits directly to Ministry of Finance and National Economy (MoFNE) rather than to Sudan Petroleum Company. ### External debt and creditor relations - End-2009 stock of public and publicly-guaranteed debt: $35.7 billion (up from $33.7 at end-2008). - Bulk of increase reflects buildup of interest arrears and new drawings from Arab multilateral and bilateral creditors, and from China and India. - Debt sustainability: - Debt sustainability analysis under the joint Bank-Fund Low-Income Country Debt Sustainability Framework suggests Sudan will remain in debt distress in the foreseeable future even under a benign global environment and implementation of appropriate policies. - Authorities concurred with the assessment (MEFP, ¶28). - Nonconcessional borrowing: - Authorities aware of risks; emphasized such loans limited in recent years and generally tied to vital development projects. - In 2009 contracting of such borrowing amounted to $693 million, mainly from China. - Authorities agreed to limit contracting of such borrowing to a program ceiling of $700 million in 2010 (MEFP, ¶29). - Overdue obligations and creditor engagement: - Sudan has reduced repayments to other creditors due to difficult NIR position and requested rescheduling of debt services falling due in 2010. - Authorities intend to pay the Fund at least $10 million in 2010 but noted such payments cannot alone resolve obligations to the Fund (MEFP, ¶30). - Authorities believe debt relief under HIPC and MDRI initiatives would be crucial to improving relations with Fund and other donors. ### Data issues and technical assistance - Data quality and sufficiency: - Sudan’s economic data are sufficient for surveillance and program monitoring but need further improvement. - Improvements made in recent years, aided by participation in the Fund’s General Data Dissemination System. - Monetary and financial sector statistics are comprehensive and generally timely. - Significant progress in fiscal reporting due to adoption of GFSM 2001 classification starting from the 2008 budget. - CPI improved by expanding coverage and using new weights in the basket. - National accounts data need further improvement. *Source: _cr10256 - 14. A steady improvement in the non-oil primary balance is needed over the* ### 24. Sudan’s technical assistance needs are substantial and the authorities place high ### 24. Sudan’s technical assistance needs are substantial and the authorities place high ### Technical assistance priorities - Monetary and financial sector: technical assistance on banking supervision and developing indirect monetary instruments. - Financial Sector Assessment Program (FSAP): authorities reiterated their desire for an FSAP update as soon as possible. - Fiscal area: technical assistance needed in tax administration, including oil revenue management and tax policy. - Public financial management: assistance required in fiscal reporting, budget processing, and setting up multi-year budget planning. - National accounts: authorities requested a peripatetic expert to help introduce the 1993 System of National Accounts. - Southern Sudan: continued technical assistance requested to build capacity; authorities requested a diagnostic mission to identify specific needs in the fiscal, monetary, and banking sectors (MEFP, ¶32). - Donor financing example noted: pledges for projects in Darfur amounted to $750 million over the next five years. ### Staff appraisal — reforms implemented and progress - Reforms under the 2009–10 SMP: important steps to rein in tax exemptions, widen the tax base, and improve tax administration. - Financial management reforms: restructuring of the MoFNE, setting up committees to enhance interdepartmental coordination, and initiating Government Resource Planning. - Financial sector vulnerabilities: efforts under way, including developing a restructuring plan for Omdurman National Bank. - Outcomes: contributed to a narrowing in the non-oil primary deficit (albeit to a lesser extent than envisaged) and broad improvement in financial soundness indicators. ### Fiscal policy recommendations and structural reforms - Immediate priorities: - Continue efforts to create fiscal room to meet social and development needs and obligations under peace agreements. - Rebuild foreign exchange reserves. - Medium-term priorities: - Strengthen revenue and non-oil export base and develop the financial system to sustain strong growth. - Adopt a multi-year budget planning system using non-oil indicators and focus on steady improvement in the non-oil primary balance. - Adopt a medium-term fiscal adjustment strategy. - Replenish the oil stabilization account. - Specific tax and expenditure actions: - Complete the comprehensive review of the tax policy regime. - Establish clear commitments to identify policy measures in the context of the 2011 budget to reduce VAT and PIT exemptions and resolve tax jurisdiction issues with sub-national government. - Move expeditiously toward introduction of a targeted safety net and begin gradually phasing out fuel subsidies. - Constraints highlighted: - Narrow tax base and rigid expenditure profile necessitate focus on widening the tax base. ### Monetary policy and exchange rate guidance - Monetary stance: needs to be tightened in the period ahead; monetary aggregates have exceeded program targets, contributing to pressures on inflation and the exchange rate. - Credit provision: ensure sufficient credit to the private sector to sustain growth while tightening monetary policy. - Monitoring: closely monitor price developments and adjust monetary policy as appropriate. - Exchange rate: - CGER-based econometric regressions indicate the exchange rate level is broadly in line with the estimated norm. - Greater exchange rate flexibility is needed to mitigate external shocks and build foreign exchange reserves. - Reserves fell sharply with the decline in oil price through the first quarter of 2009 and remained low despite later oil price increases due to continued sales of foreign exchange. - Staff urges rebuilding reserves and limiting sales of foreign exchange to smoothing short-term volatility. ### Financial sector strengthening - Enforcement: increase enforcement of prudential regulations and take prompt corrective actions in cases of shortfalls. - Nonperforming loans (NPLs): continue measures to reduce NPLs, increase provisioning and capital. - Omdurman National Bank: urge full implementation of measures included in the restructuring plan and prepare it for eventual privatization. - Financial intermediation: enhance through development of non-bank financial institutions with appropriate legal and supervisory framework. - Credit information: efforts needed to further improve operation of the credit information bureau. ### Debt, arrears, and external financing - Debt status: Sudan is in debt distress and its arrears continue to constrain access to external development financing. - External borrowing: authorities should minimize contracting or guaranteeing of nonconcessional debt as it would weaken debt sustainability. - Payments to the Fund: staff urges authorities to make payments on a regular basis to meet the payments target for 2010. - SMP assessment: staff believes the SMP continues to meet the standard of upper-credit-tranche conditionality, except for the proposed level of nonconcessional borrowing. ### Risks and outlook - Downside risks: weakening resolve to maintain macroeconomic stability and advance critical reforms if political or security situation worsens. - External environment: impact of the global financial crisis likely to continue affecting recovery of investment and remittances. - Oil sector risks: volatile oil revenue and a potential deceleration in oil production in coming years underscore need for prudent policies and structural reforms to sustain growth. *Source: IMF staff appraisal and technical assistance assessment as presented in the provided content unit.* ### 37. It is proposed that the next Article IV consultation with Sudan be held on the ### It is proposed that the next Article IV consultation with Sudan be held on the standard 12-month cycle. ### Overview - Proposed timing: next Article IV consultation with Sudan on the standard 12-month cycle. ### Production, population, and prices (2006–10, selected) - Nominal GDP (in millions of Sudanese guinea, at market prices): 79,046 93,811 121,287 125,766 154,494 - Nominal GDP (in millions of U.S. dollars): 36,401 46,531 58,028 54,644 66,595 - Oil production (average, in thousands of barrels per day): 364 484 462 474 476 - Population (in millions): 36.2 37.2 38.1 39.1 40.1 - GNP per capita (in U.S. dollars): 941 1,147 1,394 1,290 1,530 - Real GDP (annual change, percent): 11.3 10.2 6.8 4.5 5.5 - Real GDP — Oil (annual change, percent): 26.5 33.0 -4.4 2.6 0.4 - Real GDP — Non-oil (annual change, percent): 9.7 7.5 8.5 4.8 6.2 - Consumer prices (average) 1/: 7.2 8.0 14.3 11.3 10.0 - Consumer prices (end of period) 1/: 15.7 8.8 14.9 13.4 10.0 ### Investment and saving (percent of GDP) - Gross investment: 25.1 26.5 22.7 21.8 23.3 - Government: 2/ 6.7 9.5 6.5 5.5 7.1 - Nongovernment: 18.4 17.0 16.2 16.3 16.2 - Gross national saving: 11.6 15.6 15.0 10.3 16.2 - Government: -0.2 -0.6 1.7 -1.8 0.3 - Nongovernment: 11.8 12.6 13.3 12.1 15.9 ### Central government operations (2007–10, selected; levels in millions of SDG and percent of GDP) - Revenues and grants (SDG millions): 19,307 26,424 17,641 19,780 25,526 28,003 - Taxes (SDG millions): 6,529 7,680 8,725 8,619 9,670 11,159 - Oil revenues (SDG millions): 10,893 17,338 6,550 9,519 12,343 13,984 - Current expenditure (SDG millions): 19,835 24,331 19,497 22,073 25,740 27,536 - Wages: 6,368 5,951 6,847 6,836 7,523 8,348 - Transfers: 8,674 11,575 8,608 9,799 12,124 12,638 - Of which: to South: 3,352 6,159 3,009 4,485 4,433 5,064 - Of which: to Northern states: 5,323 5,396 5,283 5,288 7,638 7,520 - Operating balance (accrual basis, SDG millions): -528 2,093 -1,856 -2,293 -214 467 - Net acquisition of NFA (capital expenditure, SDG millions): 4,525 3,838 3,234 3,572 6,819 5,713 - Overall commitment balance (incl. discrepancy, SDG millions): -5,053 -1,745 -5,090 -5,865 -7,033 -5,245 - Financing (SDG millions): 5,053 1,745 5,090 5,865 7,032 5,245 - Foreign: 932 459 2,225 827 5,977 3,397 - Domestic: 4,120 1,286 2,865 5,038 1,055 1,848 - Memo: Overall balance (cash basis, SDG millions): -2,859 -1,703 -5,811 -6,958 -7,033 -5,857 - Memo (percent of GDP): Revenues and grants: 20.6 21.8 14.0 15.7 16.5 18.1; Total expenditure: 21.1 20.1 15.5 17.6 16.7 17.8; Overall commitment balance (incl. discrepancy): -5.4 -1.4 -4.0 -4.7 -4.6 -3.4 Notes: - 1/ The exact characterization of Sudan's reporting basis is neither accrual nor cash. Revenues and most expenditures are still reported on a cash basis; however, goods and services spending (the main source of domestic arrears) are recorded on a payment-order due basis (starting January 2008) in the context of the switch to the GFS 2001 system. - 2/ In calculating the base non-oil balance, oil revenues and grants were removed from revenues, while pipeline fees (recorded under goods and services spending) and oil-related subnational transfers were deducted from expenditures. - 3/ In percent of nominal GDP. - 4/ In percent of non-oil GDP. ### Monetary and central bank accounts (2006–10, in millions of Sudanese guineas) - Net foreign assets (central bank): -3,147 -4,098 -4,405 -5,756 -4,288 - Foreign assets: 4,298 3,552 4,078 2,739 4,312 - International reserves: 3,342 2,828 3,055 1,530 3,103 - Foreign liabilities: 7,445 7,650 8,482 8,494 8,601 - Net domestic assets: 3,722 5,399 7,429 11,017 12,205 - Net domestic credit: 3,069 4,365 4,253 5,840 7,028 - Net claims on central government: 1,731 2,596 2,145 3,712 4,497 - Reserve money: 7,816 8,813 10,768 13,789 16,407 - Currency outside banks: 5,355 5,640 6,775 8,066 9,760 - Reserves of commercial banks: 2,059 2,836 3,495 5,387 6,310 - Deposits included in broad money at Central Bank of Sudan: 402 338 498 337 337 - Memorandum: Central bank credit to government (cumulative change): 1,313 550 -356 1,567 786 ### Monetary survey (2006–10, in millions of Sudanese guinea) - Net foreign assets (excluding valuation adjustment): 5,488 4,918 5,458 3,940 5,789 - Net domestic assets: 12,385 14,812 17,476 24,338 28,471 - Broad money: 17,872 19,715 22,933 28,314 34,261 - Currency outside banks: 5,355 5,640 6,775 8,066 9,760 - Deposits: 12,516 14,075 16,159 20,248 24,500 - Memorandum items: - Reserve money (annual percentage change): 27.8 12.8 12.8 22.8 19.0 - Broad money (annual percentage change): 27.4 10.3 16.3 23.5 21.0 - Credit to nongovernment sector (annual percentage change): 45.1 16.3 15.6 20.2 15.5 - Net international reserves (in million of U.S. dollars): 1,576 1,139 978 390 950 ### External sector and balance of payments (2006–10, selected, in millions of U.S. dollars) - Exports, f.o.b.: 5,813 8,902 12,480 7,834 11,018 - Oil exports: 5,244 8,443 11,904 7,131 10,065 - Non-oil exports: 569 460 576 703 953 - Imports, f.o.b.: -7,105 -7,722 -9,097 -8,528 -9,168 - Foodstuffs: -656 -723 -1,177 -1,428 -1,535 - Petroleum products: -364 -256 -626 -423 -455 - Trade balance: -1,291 1,180 3,382 -694 1,850 - Services (net): -2,689 -2,934 -2,945 -2,465 -2,594 - Receipts: 201 385 493 391 488 - Payments: -2,890 -3,319 -3,438 -2,856 -3,082 - Of which: oil transportation costs: -602 -813 -789 -723 -775 - Income (net): -2,952 -4,640 -5,662 -4,940 -5,957 - Receipts: 891 844 358 73 - Non-oil payments: -749 -857 -937 -1,177 -1,295 - Of which: interest cash payments: -94 -86 -89 -213 -303 - Oil-related payments 1/: -2,292 -3,967 -4,769 -3,821 -4,735 - Current transfers (net): 1,390 582 -151 1,055 1,178 - Private transfers: 1,034 209 -686 398 418 - Public transfers: 356 373 671 657 760 - Current account balance (cash basis, percent of GDP): -13.5 -10.9 -7.7 -11.5 -7.1 - Net international reserves (end-period, in millions of U.S. dollars): 1,576 1,139 978 390 950 - In months of next year’s imports: 1.8 1.2 1.1 0.4 1.0 - Sudan’s crude oil export price (U.S. dollars per barrel): 54.4 58.0 81.3 44.8 66.4 Notes: - 1/ Includes payments to oil companies related to profit-sharing arrangements. - 2/ Net short-term trade and other credit facilities of the government and commercial banks. - 3/ SDR 125.8 million allocation are not included. ### Medium-term macroeconomic scenario (2007–15, selected) - Nominal GDP (in millions of U.S. dollars, 2007–15): 46,531 58,028 54,644 66,595 74,635 84,290 93,843 102,531 111,259 - Real GDP (annual change, percent): 10.2 6.8 4.5 5.5 6.2 6.2 5.1 5.4 5.1 - Oil real growth (percent): 33.0 -4.4 2.6 0.4 10.0 4.5 -6.5 -5.3 -9.1 - Non-oil real growth (percent): 7.5 8.5 4.8 6.2 5.7 6.4 6.5 6.5 6.5 - Inflation (period average): 8.0 14.3 11.3 10.0 9.0 7.0 5.8 5.5 5.5 - Gross investment (percent of GDP): 26.5 22.7 21.8 23.3 23.8 23.8 23.6 23.4 23.2 - Gross national saving (percent of GDP): 15.6 15.0 10.3 16.2 16.9 17.3 17.4 16.7 17.3 - Central government: Total revenue (percent of GDP): 20.6 21.8 15.7 18.1 17.3 16.9 17.1 15.8 16.2 - Current account balance on cash basis (percent of GDP): -10.9 -7.7 -11.5 -7.1 -6.8 -6.4 -6.3 -6.7 -5.8 - Net international reserves (in months of imports): 1.2 1.1 0.4 1.0 1.3 1.4 1.6 1.7 1.8 - Crude oil export price (U.S. dollars per barrel, memorandum): 58.0 81.3 44.8 66.4 69.7 71.1 74.8 72.8 73.8 - Crude oil production (thousands barrels per day, memorandum): 484 462 474 476 524 547 512 484 440 Notes: - Projections are based on the latest WEO assumptions (based on future prices). - 1/ Includes estimated capital spending by state governments. - 2/ cash basis. In calculating the base non-oil balance, oil revenues and grants were removed from revenues, while pipeline fees (recorded under goods and services) and oil-related subnational transfers were deducted from expenditures. In augmented versions, interest and net NFA acquisition were deducted from expenditures to yield the primary and operating balances, respectively. - 3/ As a percent of non-oil GDP. - 4/ Sudanese oil blends. ### Indicators of debt service capacity (2004–09, selected) - GDP (in millions of U.S. dollars): 21,685 27,386 36,401 46,531 58,028 54,644 - Exports of goods and services (memorandum): 3,822 4,992 6,015 9,287 12,973 8,225 - Net current receipts (memorandum): 2,351 3,316 3,120 4,507 7,415 3,681 - Gross official reserves (memorandum): 1,338 2,072 1,660 1,378 1,399 783 - In months of next year's imports: 2.2 2.6 1.9 1.4 1.6 0.8 - External debt (including arrears): 25,106 27,007 28,447 31,873 33,741 35,687 - Total debt service paid (in millions of U.S. dollars): 342 312 352 225 380 314 - Payments to the Fund: 32 30 45 51 50 11 - Overdue obligations to the Fund (in millions of SDR): 1,062 1,054 1,051 1,026 995 991 - Overdue obligations to the Fund (levels): 1,636 1,558 1,538 1,513 1,481 1,476 ### Financial soundness indicators for the banking sector (selected, 2005–09) - Regulatory capital to risk-weighted assets (Dec-05 to Dec-09): 19.1 19.7 22.0 10.5 7.1 - Regulatory Tier I capital to risk-weighted assets: 10.0 17.4 20.0 8.7 6.1 - Capital (net worth) to assets: 12.0 14.1 ......... - Loans to nongovernment to total assets: 52.2 46.3 ... 22.4 ... - Gross NPLs to gross loans: 7.1 19.4 26.0 22.4 20.5 - NPLs net of provisions to gross loans: 6.3 17.0 22.0 17.9 17.9 - Loans provisions to NPLs: 26.5 14.0 15.0 20.0 23.9 - Foreign currency loans to total loans: 32.9 26.0 13.2 15.8 20.4 - Deposits and investment accounts to total assets: 63.9 60.0 55.5 57.4 63.2 - Foreign currency deposits to total deposits: 27.2 22.2 20.0 21.4 21.2 19.2 - ROA (before tax): 5.0 3.6 3.7 3.0 3.7 8 - ROE (before tax): 56.0 35.4 26.5 23.3 25.5 - Liquid assets to total assets: 16.9 25.0 25.6 28.0 34.2 *Source: Sudanese authorities; and Fund staff estimates.* ### 1. Eradicate extreme poverty and hunger ### 1. Eradicate extreme poverty and hunger ### Millennium Development Goals indicators (as reported) - 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..................... ### Associated education, health, and development indicators (table excerpts) - Net primary enrollment ratio (percent of relevant age group)40...44............ - Percentage of cohort reaching grade 5 (percent)94...8479......... - Youth literacy rate (percent ages 15-24)65......77......... - Ratio of girls to boys in primary and secondary education (percent)77...85...87...... - Ratio of young literate females to males (percent ages 15-24)71......84......... - Share of women employed in the nonagricultural sector (percent)222018............ - Proportion of seats held by women in national parliament (percent)......51518...... - Under 5 mortality rate (per 1,000)12010697...89...... - Infant mortality rate (per 1,000 live births)746965...61...... - Immunization, measles (percent of children under 12 months)575158...73...... - Maternal mortality ratio (modeled estimate, per 100,000 live births)............450...... - Births attended by skilled health staff (percent of total)698687...49...... - Prevalence of HIV, female (% ages 15-49)......1.4...1.4...... - Contraceptive prevalence rate (% of women ages 15-49)8.7...7.0...7.6...... - Number of children orphaned by HIV/AIDS..................... - Tuberculosis prevalence rate (per 100,000 people)172192213...242...... - Tuberculosis cases detected under DOTS...2.031.132.730.0...... - Forest area (percent of total land area)32...30...28...... - GDP per unit of energy use (PPP $ per kg oil equivalent)2.52.83.43.4......... - CO2 emissions (metric tons per capita)0.20.10.2............ - Access to an improved water source (percent of population)646769...70...... - Access to improved sanitation (percent of population)333334...35...... - Fixed line and mobile telephones (per 1,000 people)2.42.512.365.0202.5...... - Personal computers (per 1,000 people)...0.33.088.1112.4...... - Adult literacy rate (percent of people ages 15 and over)45.8...60.9............ - Total fertility rate (births per woman)5.95.65.14.54.3...... - Life expectancy at birth (years)52.954.756.057.758.1...... - Aid (percent of GNI)9.93.72.17.26.1...... ### Recent macroeconomic developments relevant to poverty reduction - Overall real GDP growth in 2009 is estimated at about 4.5 percent. - Non-oil GDP growth rate in 2009 dropped to about 5 percent. - Average inflation fell to about 11 percent from over 14 percent in 2008. - The overall deficit (on commitment basis) in 2009 was 4.7 percent of GDP (relative to 4.0 percent envisaged). - Capital expenditure in 2009 was 2.8 percent of GDP (compared to 2.6 percent under the program). - Repayments of domestic arrears in 2009 were 0.9 percent of GDP (relative to 0.6 percent under the program). - Draw-downs from the ORSA in 2009 were 0.5 percent of GDP, lower than program levels. - Reserve money growth in 2009 was about 28 percent. - Net domestic assets (NDA) increased sharply by 32 percent in 2009. - Net international reserves (NIR) remained very low; overall depreciation of the guinea against the U.S. dollar in 2009 was about 3 percent. - Current account deficit in 2009 reached 11.5 percent of GDP. - Gross nonperforming loans (NPLs) declined to 20 percent at end-2009, from 22 percent at end-2008. - Ratio of loan provisions to NPLs increased to 24 percent at end-2009, from 20 percent at end-2008. - Average capital adequacy ratio deteriorated to 7 percent at end-2009, from 11 percent at end-2008. - At least 9 banks with total lending of about 50 percent of banking sector loans remain problematic; Omdurman National Bank accounts for about half of the NPLs and 25 percent of bank lending. ### Projections and policy priorities for 2010 (implications for poverty and hunger) - Real GDP growth in 2010 is expected to increase to about 5.5 percent. - Non-oil GDP growth is projected at about 6 percent. - Average inflation in 2010 is expected to drop slightly to about 10 percent. - Key policy emphasis: maintain macroeconomic stability, safeguard and rebuild foreign exchange reserves, and sustain economic growth—important for poverty reduction efforts. - Sectoral focus to support growth and employment: - Develop agriculture based on the Agricultural Revitalization Plan (2008). - Public-private partnerships in 3 pilot irrigated projects. - Invest in basic infrastructure, diversify crops, increase land under cultivation, introduce advanced technology, integrate farming and livestock, build agro-business industry, and increase access to finance for farmers (central bank established channels for microfinance to the agricultural sector). - Establishment of large cement and sugar factories to support manufacturing growth. - Business environment reforms: streamline business registration procedures and establish a one-stop-shop. ### Fiscal policy stance and measures affecting social spending and poverty outcomes - The approved 2010 budget envisages a deficit of 5.3 percent of GDP on a commitment and cash basis. - Budget prepared with conservative oil price assumptions: US$60/bbl for Nile blend and US$50/bbl for Dar blend. - Total revenues projected at 15.3 percent of GDP (about 0.4 percent of GDP higher than 2009 outturn). - Tax collections budgeted at 6.3 percent of GDP. - Approved envelope for current expenditures (16.3 percent of GDP) was smaller than the 2009 outturn; capital expenditures envelope larger by 1.6 percent of GDP. - External loans and grants projected at 5.2 percent of GDP. - Revised program intentions: - Contain the deficit at no more than SDG 6,461 million (4.2 percent of GDP). - Plan to pay off over SDG 600 million of government arrears (clear the total stock at end-2009). - Implies a cash deficit of SDG 7,073 million (or 4.6 percent of GDP). - Fiscal revenues expected to reach SDG 25.7 billion (including tax revenues of SDG 11.1 billion). - Total expenditures envisaged at SDG 32.1 billion. - Plan for a net accumulation of 0.8 percent of GDP in the ORSA to buffer against future oil revenue volatility. - Underlying IMF-format caveats and definitions are noted for revenue and expenditure concepts. ### Concrete tax and expenditure measures committed to achieve fiscal adjustment - Tax policy measures and structural reforms: - Complete a comprehensive review of the tax policy regime (structural measure for July 2010) with a view to: - reducing VAT exemptions; - reforming the personal income tax; - clarifying tax jurisdiction issues with sub-national governments; - optimizing the oil tax revenue management framework. - Identify tax policy measures to be implemented in the 2011 budget (structural measure for December 2010) based on the above review. - Increase fees on certain construction material and parts from 10 to 40 percent; introduce new fees on certain transportation vehicles. - Increase excise rates to 25 percent on soft drinks, mineral water and juice; impose an excise duty of 15 percent on ceramic and some food items. *Source: World Bank, World Development Indicators; Sudan Letter of Intent and Memorandum of Economic and Financial Policies (May 26, 2010).* ### 18. In the area of revenue administration, we have launched a comprehensive drive to ### _cr10256 - 18. In the area of revenue administration, we have launched a comprehensive drive to ### Revenue administration: measures launched and committed - Measures launched: - Centralizing issuance of taxpayer identification numbers to business and VAT taxpayers, and operationalizing their use by the customs administration. - Passing new customs legislation containing provisions to adopt WTO-consistent valuation principles. - Installing X-ray container scanners at the entry ports to facilitate trade. - Committed measures (structural measures and timing where specified): - Identify and incorporate 400 additional companies currently outside of the tax system (structural measure for October 2010). - Undertake a review of tax exemptions granted under Investment Encouragement Act to identify entities that are no longer entitled to exemptions. - Establish a database that allows for a system of information-sharing, cooperation and coordination for registered companies (structural measure for October 2010). - Ensure that public oil companies transfer their profits directly to the MoFNE rather than to Sudan Petroleum Company. - Implement customs evaluation system in accordance with WTO provisions and Sudan customs law (structural measure for July 2010). - Upgrade customs stations with ASYCUDA World software (structural measure for December 2010). ### Expenditure policy: actions and plans - Actions already taken: - Abolished electricity subsidies in August 2009; expected to reduce current expenditures by more than SDG 100 million in 2010. - Sold all government vehicles to officials with positions below that of an undersecretary to lower spending on goods and services; generated one-time revenue increase in 2009 and expected to reduce annual government expenditures from insurance, fuel, and maintenance. - Plans and sequencing for fuel subsidy reform: - Objective: reduce fuel subsidies by gradually adjusting the petroleum price formula. - Precondition: put in place a well-targeted social safety net to protect the poor. - Use the results of the household survey (expected to be completed by mid-2010) to develop the social safety net. - Recognize implementation constraints (Sudan’s large geographic size and limited capacity); begin process by: - (i) designing a methodology study in the context of the Poverty Reduction Strategy Paper (PRSP); and - (ii) proposing an implementation mechanism to the line ministries and states (structural measure for December 2010). ### Public financial management - Reorganized the Ministry of Finance and National Economy (MoFNE) in line with recent IMF technical assistance advice. - Set up committees to enhance interdepartmental coordination. - Initiated implementation of a Government Resource Planning (GRP) system as a core component of MoFNE organizational development. - Planned extension of GFS 2001 budget classification to another 4 Northern states to better monitor general government's fiscal operations and track public spending by sector (structural measure for November 2010). ### Monetary and exchange rate policies - Monetary stance and targets for 2010: - Target broad money growth at 21 percent in 2010. - Target reserve money growth at 19 percent in 2010. - These monetary targets and projected change in foreign exchange reserves are intended to allow appropriate growth of credit to the private sector; targets will be revisited at the next review and modified if required. - Net international reserves (NIR) target: - NIR is targeted to increase by US$560 million to US$950 million at end-2010. - Current account and reserves context: - Current account deficit expected to improve to about 8.5 percent of GDP in 2010 (from 12.9 percent in 2009) due to higher oil exports from higher projected international oil prices. - Exchange rate policy: - Exchange rate will be allowed to move in line with fundamentals to rebuild foreign exchange reserves. - Foreign exchange sales will focus primarily to meet genuine market needs. - Intervention may be used to smooth short-term volatility given lumpiness of inflows related to oil exports and FDI. ### Financial sector: reforms and Omdurman National Bank - System-wide measures: - Improved legal and regulatory framework in areas including corporate governance, provisioning, risk management, and the role of Board of Directors. - Plan to strengthen enforcement of corrective actions when banks fall short of prudential requirements. - Strengthen supervision department through training and require banks to adopt international accounting standards. - Accelerate program for resolving NPLs, strengthen loan recovery and loan write-off processes, and improve the credit registry. - Encourage development of non-bank financial institutions and promote microfinance through appropriate legal and supervisory frameworks. - Omdurman National Bank restructuring: - Total recapitalization necessary to bring the bank to minimum capital adequacy ratio of 12 percent is SDG 1.8 billion. - Require shareholders (other than the central bank) to inject SDG 532 million in 2010. - Reinforce on-site inspection of the bank’s branches. - Require the bank to close loss-making branches, liquidate fully-owned loss-making companies, and implement remaining recommendations of the independent auditor (structural measure for December 2010). - Completed measures already include review of the bank’s regulations regarding: (i) the role of Board of Directors; (ii) internal audit and risk management system; (iii) financial and administrative procedures; and (iv) guidelines of operations. - Plan to begin privatization proceedings of Omdurman National Bank by end-2011. ### Relations with the IMF and other creditors - External debt and debt relief: - End-2009 stock of public and publicly guaranteed debt is estimated at US$35.6 billion. - Government position: Sudan has cooperated on policies and payments for many years and has met all conditions and requirements for debt relief; requests IMF facilitation and urges international community action prior to the 2011 referendum. - Debt sustainability: - Joint government/World Bank/IMF debt sustainability analysis concludes Sudan will remain in debt distress in the foreseeable future even under a benign global environment and implementation of appropriate policies. - Sudan has embarked on 13 successive years of SMPs. - External financing constraints and plans: - Limited access to concessional loans due to arrears situation; nonconcessional financing used but limited. - Nonconcessional borrowing contracted in 2009 was US$693 million (compared to a ceiling of US$700 million). - For 2010, contracting of non-concessional borrowing will be limited to US$700 million. - Payments to the IMF: - Will ensure IMF’s preferred creditor status by ensuring payments in 2010 continue to exceed obligations falling due. - Will make payments of US$10 million in 2010. - Historical IMF obligation context: - As of January 1, 1997, Sudan’s outstanding obligations to the IMF were about SDR 1,160 million. - Since then, Sudan has paid about SDR 390 million (about SDR 370 million in principal repayment and about SDR 20 in interest and other charges) and has accumulated new interest and charges of SDR 210 million. - PRSP and technical assistance: - PRSP expected to be completed by end-2010, emphasizing poverty alleviation, decentralization, private sector growth, capacity and institution building, and development of agriculture, infrastructure, and the financial sector. - Technical assistance priorities include: FSAP update, banking supervision, developing indirect monetary instruments, tax administration (including oil revenue management and tax policy), public financial management (fiscal reporting and budget processing, multi-year budget planning), introduction of the 1993 System of National Accounts and data rebasing, and additional IMF technical assistance in the South; request for a diagnostic mission to identify further needs. ### Program targets and monitoring (selected quantitative targets and status) - Key quantitative targets and memorandum items (figures preserved as presented): - Central Bank of Sudan net domestic assets (Ceiling): 2,190; Adj. Target 1,754; Actual 3,588; Target 610; Ind. Target 1,188. - Domestic financing of the central government (Ceiling): 3,003; Adj. Target 2,567; Actual 5,038; Target 855; Ind. Target 1,848. - Reduction in the stock of domestic arrears of the central government (Floor)1/ 3/: 721; 721; 1,093; 200; 612. - Net international reserves (in millions of U.S. dollars) (Floor): -378; -183; -588; 200; 560. - Contracting or guaranteeing of external nonconcessional debt by the government or the central bank (in millions of U.S. dollars) (Ceiling): 700; 700; 693; 700; 700. - Payments to the Fund (in millions of U.S. dollars) (Floor): 10; 10; 11; ...; 10. - Memorandum items (selected): - Broad money: 4,128; 5,381; 2,691; 5,946. - Reserve money: 1,292; 3,022; 1,365; 2,618. - Net central bank claims on government of Southern Sudan: -5; 6; 6; 6. - Government oil export revenues: 4,321; 6,679; 5,054; 10,109. - Of which: Net oil savings account (OSA) accumulation: -878; -585; 617; 1,234. - Monitoring and data sharing: - Relevant ministries, the Central Bank of Sudan, and the Central Bureau of Statistics will compile and share with IMF staff all economic and financial data necessary, on a timely basis, as specified in the attached Technical Memorandum of Understanding. *Source: _cr10256 - 18. In the area of revenue administration, we have launched a comprehensive drive to* ### 10. Develop a medium-term fiscal framework to help buffer against the uncertainties of oil revenue volatility, and us ### 10. Develop a medium-term fiscal framework to help buffer against the uncertainties of oil revenue volatility, and use it on a rolling basis for budget preparation. ### Strengthen fiscal policy management — policy recommendation - Develop a medium-term fiscal framework to help buffer against the uncertainties of oil revenue volatility, and use it on a rolling basis for budget preparation. - Strengthen fiscal policy management (November 2010). ### Bank restructuring — specific structural actions - Continue restructuring the Omdurman National Bank by: - (i) closing its loss making branches (unless they become profitable); - (ii) liquidating loss making companies fully owned by the bank; and - (iii) implementing the remaining recommendations of the independent audit report. - Financial sector soundness (December 2010). ### SMP quantitative targets and framework — overview - The 2009–10 staff-monitored program (SMP) relies on six quantitative targets for end-June and an equal number of quantitative indicative targets for end-December: - (i) ceilings on the change in net domestic assets of the Central Bank of Sudan (CBoS); - (ii) ceilings on the domestic financing of the fiscal deficit; - (iii) floors for the buildup of net international reserves of the central bank; - (iv) ceilings on new nonconcessional external loans contracted or guaranteed by the government or the central bank; - (v) floors for payments to the Fund; and - (vi) change in domestic arrears. - Broad money, reserve money, and total government revenues from crude oil exports will be monitored as memorandum items. - Some targets are subject to adjustors depending on: - the financial position of the government of South Sudan, - total government oil revenue performance, and - transfers from the central government to subnational governments. ### Definitions of key monetary and fiscal aggregates - Net domestic assets (NDA) of the CBoS: - sum of 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 (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) + net central bank claims on state and local governments + central bank claims on public enterprises + claims on banks − Central Bank Ijara Certificates (CICs). - Central government definition includes: 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, and all oil-related accounts controlled by the government (e.g., OSA). - To evaluate program targets, the guinea equivalent values of foreign exchange denominated items in the balance sheet of the central bank will be calculated at the program exchange rate (1US$=2.4 guinea). - Net international reserves (NIR): - total gross non-earmarked official foreign reserve assets on active accounts + reserve assets of the government of Southern Sudan in the central bank − official short-term liabilities (no more than one-year maturity). - Short-term liabilities include: short-term liabilities in the CBoS balance sheet; IMF deposit accounts; nonresident deposits; and (overdrawn) foreign correspondents accounts net of dormant accounts. - 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, sanadats, etc.), revenues from privatization (net of new acquisition of shares), net buildup of domestic government arrears, and drawdown in government cash deposits at the CBoS (including OSA). - The central government definition is the same as for NDA. - Limits on nonconcessional external debt: - apply to all forms of debt of more than one-year maturity contracted or guaranteed by the government or the CBoS, including commitments contracted or guaranteed for which value has not been received. - Degree of concessionality calculated as specified in the Guidelines on Performance Criteria with Respect to Foreign Debt. ### Concessionality and loan treatment - For program purposes, a loan is considered 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 margins depending on the loan maturity. - Margins: - 0.75 percent for repayment periods of less than 15 years; - 1 percent for 15–19 years; - 1.15 percent for 20–29 years; - 1.25 percent for 30 years or more. - The average of the CIRRs over the last ten years will be used for loans with a maturity of at least 15 years and the average of the CIRRs for the preceding six months will be used for shorter maturities. ### Oil revenue adjustor — programming and operation - Definitions: - Gross programmed government oil revenue is based on program assumptions about crude oil prices (f.o.b. Port Sudan) and volumes (government share). - Accrued revenue is the cumulative government oil revenue inflows based on actual shipments (including deliveries to refineries) at current international prices (f.o.b. Port Sudan). As compiled monthly by the Ministry of Finance and Economy (MOFNE). - The local currency equivalent of the dollar difference between the programmed and accrued oil revenues will be obtained by multiplying the dollar difference by the average of the monthly exchange rates prevailing during the period in question. - Programmed government oil revenues: - SDG 6,992 million for June 2010; - SDG 13,984 million for December 2010. - The oil revenue figures included both the projected negative fuel subsidy and the net OSA accumulation. - Operation of the oil revenue adjustor: - If accrued government revenue exceeds the programmed amount (because of price and/or volume increases), then: - the program targets for domestic financing of the budget deficit and NDA will be reduced by one half of the local currency equivalent difference between the accrued and the programmed amounts, and - the international reserves target will be increased by one half the local currency equivalent excess of accrued export oil revenues over the corresponding programmed level - unless the difference is used for capital expenditures and/or peace related spending in which case the program targets remain unchanged. - If accrued government revenue falls short of the programmed amount (because of price and/or volume decreases), then: - the program targets for domestic financing of the budget deficit and NDA will be increased by one half of the local currency equivalent difference between the programmed and accrued amounts, and - the international reserves target will be reduced by one half the local currency equivalent shortfall of the actual amounts accrued from the programmed export oil revenues. ### Adjustor on the financial position of the government of South Sudan - The 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 NIR target will also be increased by the amount of the new SDR allocation. - The adjustor will not apply if the stock of net claims on the government of South Sudan turns positive. ### Data reporting and monitoring — agreed reporting framework (selected items and timing) - Reporting agencies and key items (frequency and timing within period specified): - CBoS — Flash report: Weekly data for movement in main indicators of the CBoS balance sheet, international reserves, sales and purchases of foreign exchange, exchange rate. 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. - Cash flow of foreign exchange: Cash flow data of foreign exchange, including sales and purchases by the dealing room at the CBoS. Monthly — 1 week after the end of each month. - Banking indicators: Capital adequacy; asset composition and quality including non-performing loans; profitability; liquidity; open FX positions; and compliance with prudential norms. Quarterly — 1 month after the end of each quarter. - Balance of payments: Detailed composition. Quarterly — 2 months after the end of each quarter. - Ministry of Finance — Central government operations: Revenues, expenditures, and financing as in GFSM 2001 format. Monthly — 45 days after the end of each month. - GOSS — Revenues, expenditures, and financing. Monthly — Data for January-April by end-June; for the remaining months 45 days after the end of each month. - Privatization receipts: Detailed figures for each transaction and nature of the transaction. Quarterly — 2 months after the end of each quarter. - Central government domestic debt: End-month stocks, and monthly issuances and repayments, of all domestic debt instruments: GMCs, GICs, loans and advances from the banking system, sanadat, letters of guarantee, standing orders, accounts payable (including arrears). Monthly — 45 days after the end of each month. - External debt: Disbursements, debt service, and contracting or guaranteeing of medium-and long-term external debt of the government, the CBoS, and state-owned companies. Quarterly — 1 month after the end of each quarter. - Central Bureau of Statistics — CPI including detailed data. Monthly — 1 week after the end of each month. - Ministry of Finance/Ministry of Energy — Crude oil exports: Shipment data, listing by blend specifying date, quantity, prices, and values in US$ and in guinea. Monthly — 1 month after the end of each month. - Sales to refineries: Sales listing by refineries specifying date, quantity, prices, and values in US$ and in guinea. Monthly — 1 month after the end of each month. - Net operating income transfers to the treasury: Net income of SPC (including those derived from exports of petroleum products). Quarterly — 1 month after the end of each quarter. *International Monetary Fund — Staff Report for the 2010 Article IV Consultation and First Review Under the 2009–10 Staff-Monitored Program—Informational Annex (June 7, 2010).* ### ANNEX II. SUDAN: RELATIONS WITH THE WORLD BANK ### ANNEX II. SUDAN: RELATIONS WITH THE WORLD BANK ### IDA lending status and arrears - The International Development Association (IDA) has no active lending portfolio in Sudan because of the country’s default on its financial obligations to IDA, which led to the suspension of disbursements in April 1993. - The authorities have been making small, intermittent debt service payments since mid-1999. - Arrears currently stand at about US$ 580 million and are growing. - IDA’s financial reengagement requires clearance of Sudan’s outstanding arrears. - Clearance of these arrears can only be undertaken once a firm and comprehensive agreement among preferred creditors is in place; such an agreement would also include significant reductions in bilateral debts to make total debt service obligations sustainable. - Following eventual clearance of IDA arrears, an exceptional IDA allocation for Sudan as a post-conflict country would be sought and the World Bank would prepare another strategy document including a pipeline of projects. ### World Bank reengagement, MDTFs, and program performance - After near-absence between 1993 and 2002, the World Bank formulated a strategy for potential reengagement as peace prospects rose in 2003. - Following the Comprehensive Peace Agreement (CPA) on January 9, 2005, the World Bank became administrator for two large Multi-Donor Trust Funds (MDTFs) supporting the CPA, and expanded non-lending support. - Fifteen MDTF partners have contributed US$ 790 million in paid-in funds to the MDTFs. - The World Bank contributed (from IBRD surplus) US$5 million to each of the MDTFs. - MDTF-supported projects initially experienced implementation challenges but performance has steadily improved. - Significant MDTF-supported results include: - Successful launch of the CPA-mandated new national currency. - Completion of the 5th Population Census. - Major remaining challenge: low capacity, especially at the state level and in the South. ### Interim Strategy Note (ISN) and strategic objectives - The World Bank’s Interim Strategy Note (ISN) for Sudan was discussed by the World Bank’s Board in April 2008. - ISN aims to support the Government of National Unity and the Government of Southern Sudan to sustain peace and reduce conflict by meeting commitments in the CPA, Darfur Peace Agreement, and the Eastern Sudan Peace Agreement—particularly in war-affected and marginalized areas and in governance, basic services, and pro-poor economic growth. - ISN’s longer-term vision is to promote peace by making it attractive through development, shared prosperity, and a reformed system of governance serving all Sudanese. - With national elections recently completed, CPA implementation focus is on preparations for the referendum in Southern Sudan due in early 2011. ### Entry points for support and regional focus - National level: - Analytical work and policy dialogue on implementing CPA provisions: pro-poor growth, good governance and decentralization, empowerment. - The Three Areas and the East: - Pro-peace development projects; build capacity for community-driven development and local service delivery. - Darfur: - Work with partners, as security allows, to assess development and recovery needs and prepare rehabilitation and development programs to be implemented in the event of peace. - Southern Sudan: - Help build a competent, responsive and stable government based on good governance, rule of law, and transparency. - Promote efforts to empower and decentralize service delivery to states, counties, and communities. - Help Southern Sudan develop a long-term strategy to become a well-integrated, self-reliant, and viable economic unit harnessing natural resources for the welfare of its people. - The substantial financial support through the MDTFs and the World Bank’s analytical and advisory services will be mobilized to meet these objectives. ### Non-lending products, planned analytical work, and capacity building - Completed major non-lending products since the CPA include: - Public Expenditure Review. - Diagnostic Trade Integration Study (on behalf of Integrated Framework partners). - Country Economic Memorandum on sustainable and broad-based growth. - Major non-lending products planned to be completed and delivered by end of calendar 2010 include: - Investment Climate Assessment focusing on the needs of small firms. - Environment and Natural Resources study. - Country Integrated Fiduciary Assessment. - For Southern Sudan: studies on strengthening good governance and on States’ own revenue potential. - The World Bank will seek to deepen dialogue and open space for civil society participation in areas such as: - Developing a Darfur reconstruction and development strategy. - Making decentralization work. - Transforming Southern Sudan into an integrated and viable economic unit. - Local area development. - The World Bank’s Financial Market Integrity Unit will continue technical support to build capacity to combat money laundering through a proposed multi-phase program. ### Statistical issues — overview - Data provision has some shortcomings, but is broadly adequate for surveillance. - Many areas need improvement, particularly in compiling national accounts, state budgetary data, and external trade and financial statistics. - Sudan participates in the Fund’s General Data Dissemination System (GDDS) Project for Anglophone African Countries and in monetary and financial statistics and GDDS/PRSP modules. - Sudan’s metadata were posted on the Dissemination Standards Bulletin Board on August 19, 2003 and partially updated in December 2005. ### Real sector issues - Consumer Price Index (CPI): - Practices in production of the monthly CPI are good. - Monthly CPI data are provided shortly after the end of each month. - The Central Bureau of Statistics (CBS) has conducted new household income and expenditure survey and constructed the new CPI index based on the survey. - National accounts: - Compilation subject to delay; annual data reported with a lag of over three years. - Lack of basic information for many sectors, including oil, livestock, horticulture, and most services. - On the 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 CBS and rebuild capacity. - Priorities: introduce the 1993 System of National Accounts, conduct a census of agricultural production, produce poverty estimates on the basis of household survey, and improve coordination between CBS, MOFNE, Ministry of Energy and Mining, and Ministry of Agriculture and Livestock. ### Fiscal sector issues - 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; MOFNE allocations to various ministries are reported but their actual expenditures are not. - In 2008, progress made in improving accounting and reporting at MOFNE, introducing GFS classifications according to Government Finance Statistics Manual 2001, and implementing technical assistance recommendations on GFS. - Data reported for the Government Finance Statistics Yearbook are weak and cover only budgetary central government up to 1999. - No monthly and quarterly fiscal data are reported for the International Financial Statistics (IFS). ### Monetary sector issues - Significant technical assistance received to improve monetary and financial statistics; most recent STA mission in July 2007. - Assistance included training in monetary statistics methodology, development of data reporting in the format of Standardized Report Forms (SRFs), and a framework for incorporating data from South Sudan. - 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 adequate for monitoring, but BOS should: - Complete harmonization of accounting codes and network connections to improve data collection and compilation. - Work with MOFNE to review and reconcile government accounts held with the banking system to ensure appropriate classification in monetary statistics. - Continue implementing the framework for incorporating South Sudan’s banking activities into monetary statistics. - Areas of concern noted in data quality table: - Large and variable other items (net); frequent misclassification errors by commercial banks, in particular for consortium financing, preventing meaningful analysis of net domestic assets (NDA). - Some divergence between reserve money in balance sheets and end-of-month flash reports. - Recommended steps include establishing a working group to review BOS foreign assets, reviewing and revising guidelines related to consortium financing, and fully implementing 2001 TA mission recommendations on monetary statistics. ### External sector issues - Daily exchange rate data are posted on the central bank of Sudan’s web page with minimal lags. - Areas needing improvement: foreign direct investment, remittances, trade, and oil statistics. - BOS 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 are not clear. - Need to clarify items that qualify as international reserves and initiate compilation of the data template on international reserves and foreign currency liquidity. - Import statistics show significant discrepancies between customs and BOS reports; past missions (July 2003 STA, 2005 METAC, 2006 METAC) attempted reconciliation and provided technical assistance. - Authorities now report partial IIP data for 2003-2006 to STA for publication, but lack of survey data continues to affect compilation of important balance of payments and IIP items such as foreign direct investment. - Medium-term oil production projections and data on amortization of private sector debt need substantial improvement; authorities have made some progress but are reluctant to provide more detailed information on phasing-in and expected production levels of new blocks and on amortization of debt in the oil sector. ### Sudan: Data Quality — key points from table - Real sector: national accounts - Broadly acceptable: Real and nominal GDP by sector available with a 2-year lag. - 1968 System of National Accounts (SNA) still in use; oil sector value-added calculation not completed; no real GDP by expenditure; 4-year delay in nominal GDP by expenditure; private consumption derived as a residual; estimations rather than surveys used for most GDP components. - Steps: rebuild CBS institutional capacity; introduce the 1993 SNA; conduct census of agricultural production; implement STA peripatetic real sector expert project. - Prices (CPI) - Monthly CPI reported on time with minimal lag; detailed CPI data by individual states. - Step: reduce reporting inefficiencies by individual states. - Government finance - 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. - Areas of concern: only partial data on state budgets; incomplete functional classification; MOFNE allocations reported but not actual expenditure; slow progress on GFS classification introduction. - Steps: introduce GFS classification; improve accounting and reporting procedures at MOFNE; implement in full GFS (1997) TA recommendations. - Monetary accounts - Monthly reporting of balance sheets generally on time; 1.5-month lag. - Acceptable following recent STA missions. - Areas of concern: large and variable other items (net); misclassification errors by commercial banks. - Steps: establish working group to review BOS foreign assets; review/revise consortium financing guidelines; implement 2001 TA mission recommendations. - External sector: reserves and BOP - Monthly reporting of BOS active balances generally on time; 0.5-month lag. - Acceptable but needs improvement; frequency should increase to weekly; quality needs strengthening. - Gross usable reserves are part of BOS active balances, which also include unusable earmarked reserves. - Steps: clarify items that qualify as international reserves and those included in earmarked reserves. - Balance of payments: quarterly full BOP data provided on time with a 3-month lag; acceptable but incomplete on several items (services, investment income, transfers, financial account) with large positive errors and omissions. - Steps: introduce revised reports form for commercial banks; improve data collection; enforce residency criterion; enhance BOS BOP compilation unit capacity; implement 1999 and 2003 TA recommendations. ### Table of common indicators required for surveillance (as of April, 2010) — selected entries - Exchange Rates: Date of latest observation 4/30/2010; Date received 5/4/2010; 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 2/28/2010; Date received 3/28/2010; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Reserve/Base Money: Date of latest observation Feb. 2010; Date received 3/28/2010; Frequency of Data M; Frequency of Reporting W; Frequency of publication M/W. - Broad Money: Date of latest observation Feb. 2010; Date received 3/28/2010; Frequency of Data W; Frequency of Reporting W; Frequency of publication M/W. - Central Bank Balance Sheet: Date of latest observation Feb. 2010; Date received 3/28/2010; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Consolidated Balance Sheet of the Banking System: Date of latest observation Feb. 2010; Date received 3/28/2010; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Consumer Price Index: Date of latest observation Mar. 2010; Date received 4/15/2010; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation 2009:Q4; Date received March 2010; 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 2008: Q1; Date received June 2009; Frequency of Data A; Frequency of Reporting A; Frequency of publication A. - External Current Account Balance: Date of latest observation 2008: Q4; Date received July 2009; Frequency of Data Q; Frequency of Reporting Q; Frequency of publication Q. - GDP/GNP: Date of latest observation 2008; Date received Aug. 2009; Frequency of Data A; Frequency of Reporting A; Frequency of publication A. - Gross External Debt: Date of latest observation 2009:Q4; Date received March 2010; Frequency of Data A; Frequency of Reporting A; Frequency of publication A. - International Investment Position: Date of latest observation — (not supplied in excerpt). ### Joint World Bank/IMF 2009 Debt Sustainability Analysis — key finding - The Joint IMF-World Bank low-income country debt sustainability analysis (DSA) confirms last year’s assessment that Sudan continues to be in debt distress, and that there is limited possibility of significant improvement over the medium and long term. - Under the baseline scenario, all debt ratios, except for external debt service, remain above their indicative thresholds due largely to the country’s massive arrears and despite reasonably prudent macroeconomic policies over the projection period. - It will be critical for Sudan to continue to follow sound policies consistent with a prudent borrowing strategy. *Prepared by World Bank staff; Annex prepared as of April 30, 2010.* ### 1. Sudan’s DSA is prepared under the joint Bank-Fund Low-Income Country ### Sudan’s DSA is prepared under the joint Bank-Fund Low-Income Country (LIC) Debt Sustainability Framework (DSF). ### LIC DSF methodology and thresholds - DSA follows methodology based on projections of five debt burden indicators: the present value (PV) of external debt-to-GDP ratio; the PV of external debt-to-exports ratio; the PV of external debt-to-revenue ratio; debt service-to-exports ratio; and debt service-to-revenue ratio. - Framework compares forecasts of these indicators with policy-dependent thresholds using the three-year average of the World Bank’s Country Policy and Institutional Assessment (CPIA). ### Structure of total external debt (end-2009) - End-2009 stock of total public and publicly-guaranteed debt: US$35.7 billion (nominal). - Of which arrears: US$29 billion. - Creditor composition (approximate shares): - Official bilateral creditors: 69 percent (almost equally divided between Paris Club and non-Paris Club creditors). - Multilateral institutions: about 15 percent. - Commercial banks and suppliers: some 16 percent. - Text Table 1 (selected figures, end of period, millions of US dollar): - Total public and publicly guaranteed external debt: 2008 = 33,741; 2009 = 35,687. - Principals: 2008 = 14,681; 2009 = 15,407. - Interest arrears 1/: 2008 = 19,060; 2009 = 20,281. - Multilateral creditors: 2008 = 5,477; 2009 = 5,297. - Paris club creditors: 2008 = 10,502; 2009 = 11,233. - Non-paris club creditors: 2008 = 12,160; 2009 = 13,297. - Commercial banks: 2008 = 4,209; 2009 = 4,503. - Suppliers: 2008 = 1,393; 2009 = 1,357. - Memorandum item: New borrowings: 2008 = 485; 2009 = 978. - Note: interest arrears include late interests. ### New borrowings in 2008 - Sudan contracted US$906 million of new loans in 2008. - Of this amount, US$232 million (about 25 percent) were non-concessional loans, below the US$700 million ceiling under the Fund’s staff-monitored program. - About 83 percent of new borrowings were for development in the agriculture sector; about 6 percent to services; and 11 percent to financial sectors. ### Baseline scenario (external DSA) — key findings - DSA is based on conservative macroeconomic assumptions and a lower discount rate (from 5 percent to 4 percent). - Conclusion: Sudan is still in debt distress, largely due to massive arrears. - Three debt-burden indicators expected to exceed policy-dependent thresholds in 2010–20: - PV of debt-to-GDP ratio: 56 percent in 2010, declining to around 33 percent in 2020 (indicative threshold: 30 percent). - PV of debt-to-exports ratio: 323 percent in 2010, expected to slightly improve over the medium term, then increase after 2013 to reach 535 percent in 2020 (indicative threshold: 100 percent). - PV of debt-to-revenue: 323 percent in 2010, projected to reach 272 percent in 2020 (indicative threshold: 200 percent). - Debt service indicators: - Debt service-to-exports ratio and debt service-to-revenue ratio expected to remain below their thresholds throughout 2010–30. - Caveat: baseline assumes unchanged debt servicing performance — Sudan does not fully repay obligations, fully repays only new obligations to some selected creditors, and partially repays arrears accrued after 2007. ### Macroeconomic assumptions 2010–30 (Box 1) - Real sector: - Real GDP assumed to grow at an annual average rate of about 5.6 percent during 2010–30. - Real growth during 2010–15 largely based on projected increase in oil production, expected to peak in 2012 and subsequently decrease. - Non-oil growth projected to average about 6.1 percent during 2016–30. - Annual inflation assumed to decline from 10 percent in 2010 to around 4 percent; over 2010-2030 inflation averages 5 percent. - External sector: - Current account deficit (cash basis) projected to be around 5 percent of GDP on average throughout the projection period. - Foreign exchange reserve coverage projected to rise to 2.0 months of imports by 2015. - Fiscal sector: - Fiscal deficit (cash basis) projected to average about 4.3 percent of GDP during 2010–15. - Over 2016-30, fiscal deficit expected to average some 3.1 percent of GDP. - Tax revenues projected to rise to around 10 percent of GDP by 2030. - External financing: - FDI projected to average about 4 percent of GDP. - Disbursements of new loans projected at about 1.5 percent of GDP during 2010–15, and 2.0 percent during 2016–30. - Share of concessional loans: 60 percent in 2010, declining gradually to about 50 percent by 2030. - Debt assumptions: - Repayments on outstanding debt continue to a few selected creditors giving new loans; arrears on other obligations accumulate; debt service on new borrowing will be paid. ### Oil sector assumptions (Box 2) - Oil’s economic importance: - Oil accounts for about 90 percent of exports and about 50–60 percent of government revenue. - Production: - Ministry expects a slight increase of 0.5 percent in production in 2010 to around 476 thousand barrels per day (bpd). - Peak production expected in 2012 near 547 thousand bpd, then gradual descent to about 151 thousand bpd by 2030. - Prices: - Prices expected to average around US$71 per barrel over the medium term and settle around US$54 per barrel in the longer term. ### Standardized sensitivity analysis (scenarios and tests) - Alternative scenarios: - A1 (historical): key variables remain at their 10-year historical averages. - A2 (financing): new borrowing assumed at a 2 percentage points higher interest rate throughout the projection period. - Bound tests (B1–B6): apply two-period/one standard deviation negative shocks to key macro variables, export growth shocks, a combined one-half deviation shock, and a one-time 30 percent depreciation of the Sudanese pound against US dollar. - Results highlights: - Scenario A1 produces some improvements; PV of debt-to-GDP projected to be lower than indicative thresholds by 2030 under A1. - Scenario A2 (2 percentage points higher interest) flattens downward path of debt and debt service ratios relative to baseline. - Bound tests show debt situation remains precarious: - B6 (one-time 30 percent nominal depreciation in 2010) is worst for PV debt-to-GDP and PV debt-to-revenue: - PV debt-to-GDP: 56 percent in 2010 → 47 percent in 2020 → 26 percent by 2030 (7 percentage points higher than baseline). - PV debt-to-revenue: 323 percent in 2010 → 381 percent in 2020 → 257 percent in 2030 (about 70 percentage points above baseline). - B2 (lowering export value growth by historical average minus one standard deviation in 2011–12) produces most challenging outcomes for debt- and debt service-to-exports: - PV debt-to-exports: 323 percent in 2010 → 469 percent in 2011 → 1,175 percent in 2020 → 679 percent in 2030 (about double the baseline). - Debt service-to-exports ratio climbs to around 40 percent in 2020, before falling to 26 percent in 2030. ### Customized sensitivity analysis — oil price shock - A 20 percent shock to baseline oil price projections significantly worsens external debt indicators, especially PV of debt-to-exports and debt service-to-exports, underscoring high vulnerability to exogenous shocks. ### Total public debt sustainability analysis - Results mirror external DSA under baseline scenario. - PV of public sector debt-to-GDP: 71 percent of GDP in 2010, declining to about 60 percent in 2015. - Debt service-to-revenue ratio projected to fluctuate within 12–14 percent for the whole period. - Alternative scenarios underline dependence on fiscal soundness and non-oil growth: - Bound test B4 (one-time 30 percent real depreciation in 2010): PV debt-to-GDP and PV debt-to-revenue would be 56 and 436 percent in 2020; debt service-to-revenue would increase to 17 percent in 2020. - No reform scenario (primary balance unchanged from 2007-09): PV debt-to-GDP and debt service-to-revenue for 2020 would be 48 and 13 percents, respectively (about 3 and 2 percentage points higher than baseline). ### Conclusions and policy implications - DSA conclusion: Sudan remains in debt distress despite substantial economic progress since 2000. - Policy recommendations (implicit in analysis): - Address vulnerabilities through proactive public debt and financial management policies. - Increase reliance on concessional borrowing to finance necessary development expenditures. *Source: _cr10256 - 1. Sudan’s DSA is prepared under the joint Bank-Fund Low-Income Country (LIC) Debt Sustainability Framework (DSF).* ### 13. Sudan should reconsider its external borrowing strategy in light of the future ### 13. Sudan should reconsider its external borrowing strategy in light of the future ### Key policy message and recommendation - Further recourse to high volumes of non-concessional debt could increase Sudan’s future debt service burden and could jeopardize Sudan’s access to possible debt relief under the Enhanced HIPC Initiative and the MDRI. - The authorities believe that debt relief under these two initiatives will play a crucial part in helping Sudan assume a path to achieving sustainable development goals. - Directors urged the authorities to minimize nonconcessional borrowing in view of Sudan’s unsustainable external debt burden and to signal cooperative effort to avoid complications in any future debt-relief operation. ### Main empirical findings and projections (selected) - External debt (nominal) 1/: 68.5; 58.1; 65.3; 57.0; 55.2; 51.6; 48.8; 46.9; 45.5; 34.7; 19.4 (series as reported). - o/w public and publicly guaranteed (PPG): 68.5; 58.1; 65.3; 57.0; 55.2; 51.6; 48.8; 46.9; 45.5; 34.7; 19.4. - Change in external debt: -9.7; -10.4; 7.2; -8.3; -1.9; -3.6; -2.8; -1.9; -1.4; -2.2; -1.3. - Identified net debt-creating flows: -11.0; -9.1; 11.7; 0.8; -0.1; -0.3; 0.2; -0.3; -0.1; -0.7; -0.2. - Non-interest current account deficit (selected): 12.1; 8.8; 12.4; 10.6; 2.2; 7.9; 6.8; 6.4; 6.2; 6.6; 5.8; 4.8; 4.3; 4.4. - Exports (in percent of GDP, selected): 20.0; 22.4; 15.1; 17.3; 17.4; 16.8; 15.1; 12.8; 11.2; 6.3; 5.4. - Imports (in percent of GDP, selected): 23.7; 21.6; 20.8; 18.4; 16.9; 16.4; 16.5; 15.7; 16.0; 14.0; 12.1. - Net FDI (negative = inflow, selected): -6.5; -4.5; -4.8; -5.4; 2.8; -4.5; -4.1; -4.0; -4.0; -4.9; -4.0; -3.8; -3.6; -3.6. - Endogenous debt dynamics 2/ (selected): -16.7; -13.3; 4.0; -2.6; -2.8; -2.7; -2.0; -2.1; -1.9; -1.7; -0.9. - Contribution from nominal interest rate (selected): 0.4; 0.3; 0.4; 0.4; 0.3; 0.3; 0.3; 0.3; 0.3; 0.2; 0.2. - Contribution from real GDP growth (selected): -6.2; -3.8; -2.8; -3.0; -3.1; -3.0; -2.4; -2.4; -2.2; -2.0; -1.0. - Contribution from price and exchange rate changes (selected): -10.8; -9.8; 6.4; -8.7; -3.0; -3.3; -2.9; -1.7; -1.5; -1.8; -0.7. - PV of external debt (selected): 64.2; 55.9; 53.9; 50.2; 47.4; 45.5; 44.1; 33.5; 18.8 (years shown in table). - In percent of exports (PV of external debt, selected): 426.5; 323.4; 309.5; 298.5; 314.8; 356.0; 395.1; 535.2; 345.8. - Debt service-to-exports ratio (in percent, selected): 4.2; 4.1; 8.9; 7.0; 6.2; 6.1; 6.2; 6.3; 6.9; 10.8; 8.9. - Total gross financing need (Billions of U.S. dollars, selected): 3.0; 3.0; 4.9; 3.1; 2.8; 2.9; 3.0; 2.6; 2.8; 3.1; 5.5. - Non-interest current account deficit that stabilizes debt ratio (selected): 21.8; 19.1; 5.3; 16.2; 8.7; 10.0; 9.0; 8.5; 7.2; 6.9; 5.6. ### Stress tests and scenario outcomes (high-level) - Alternative scenario A2 (New public sector loans on less favorable terms in 2010-2030) produces materially higher debt ratios relative to baseline (table shows large increases across PV of debt-to-GDP and PV of debt-to-exports indicators). - Bound test B6 (One-time 30 percent nominal depreciation relative to the baseline in 2011) is identified as an extreme shock in several indicators and yields some of the highest ratios in 2020. - The sensitivity analysis panels highlight that shocks to real GDP growth, export value growth, US dollar GDP deflator, and net non-debt creating flows all materially worsen public and external debt indicators under bound tests B1–B4 and combinations thereof. ### Macroeconomic and fiscal context and assumptions (selected key assumptions and historical context) - Recent macro performance: Real GDP growth estimated at 4.5 percent in 2009 (down from nearly 7 percent in 2008); average inflation fell to about 11 percent in 2009 (from over 14 percent in 2008). - Nominal GDP (Billions of US dollars, memorandum items): 46.5; 58.0; 54.6; 66.6; 74.6; 84.3; 93.8; 102.5; 111.3; 185.6; 477.3 (series as shown). - Real GDP growth (in percent, key projection series): 10.2; 6.8; 4.5; 8.0; 4.9; 5.5; 6.2; 6.2; 5.1; 5.4; 5.1; 5.6; 5.9; 5.5; 5.6 (table entries). - GDP deflator in US dollar terms (change in percent, selected): 16.0; 16.7; -9.9; 13.0; 16.8; 15.5; 5.6; 6.4; 5.9; 3.7; 3.2; 6.7; 5.1; 3.7; 4.4. - Effective interest rate (percent, selected): 0.6; 0.5; 0.7; 0.8; 0.3; 0.7; 0.7; 0.7; 0.7; 0.8; 0.8; 0.7; 0.8; 0.8; 0.8. - Grant element of new public sector borrowing (in percent, selected): 13.8; 13.3; 13.0; 13.2; 12.9; 12.9; 13.2; 10.4; 8.4; 10.0. - Government revenues (excluding grants, in percent of GDP, selected): 20.0; 21.3; 15.2; 17.3; 16.8; 16.4; 16.6; 15.3; 15.6; 12.3; 10.2; 11.8. ### Executive Board assessment and recommended actions - Directors welcomed Sudan’s progress on key structural reforms under the staff-monitored program (SMP), while noting macroeconomic performance was affected by the global crisis. - Directors urged maintaining prudent macroeconomic policies and accelerating fiscal, financial sector, and structural reforms. - Fiscal recommendations include: further efforts to rein in the non-oil primary fiscal deficit; widen the tax base; complete the comprehensive review of the tax regime (expected by July 2010 in the text); reduce VAT and income tax exemptions; resolve tax jurisdiction issues with sub-national governments; introduce a targeted safety net; gradually phase out fuel subsidies; adopt a medium-term budget framework using non-oil indicators. - Monetary and financial sector recommendations include: tighten monetary stance to reduce inflation and exchange rate pressures; increase exchange rate flexibility to rebuild foreign exchange reserves; strengthen the financial sector by enforcing prudential regulations, reducing nonperforming loans, increasing provisioning and capital; implement the restructuring plan for Omdurman National Bank and prepare it for eventual privatization. - Directors encouraged significantly increasing arrears payments to the Fund as Sudan’s payment capacity improves and noted that minimizing nonconcessional borrowing would support normalization with the Fund and facilitate debt-relief prospects. ### Selected headline economic indicators (from PIN and tables) - Real GDP growth: 2009 estimated at 4.5 percent (2008 nearly 7 percent). - Inflation (period average): 2009 about 11 percent. - Current account deficit (cash basis) 2009: -6,306 (in millions of U.S. dollars); in percent of GDP: -11.5. - External debt (in billions of U.S. dollars, selected): 28.4; 31.9; 33.7; 35.7; 37.8 (years shown). - External debt as percent of GDP (selected): 78.1; 68.5; 58.1; 65.3; 56.8. - Net international reserves (in millions of U.S. dollars, selected): 1,576; 1,139; 978; 390; 950. - Central government operations (percent of GDP, selected): Revenue and grants 21.0; 20.6; 21.8; 15.7; 18.1. Expenditure 25.0; 23.6; 23.2; 21.3; 21.9. Overall balance (commitment basis) -4.3; -5.4; -1.4; -4.7; -3.4. *Source: Staff simulations, projections, and IMF Executive Board assessment as presented in the chapter.* ### 1. The following information has become available since the staff report (www.imf.org ### 1. The following information has become available since the staff report (www.imf.org) was prepared. It does not change the thrust of the staff appraisal. ### Recent political developments and institutional appointments - A new government was formed on June 14, 2010. - Mr. Ali Mahmood Abdul-Rasool was appointed Minister of Finance and National Economy. - Mr. Awad Ahmed Al-Jaz, the ex-Finance Minister, became Minister of Industry. - The new Minister of Finance has reconfirmed Sudan’s commitment to the staff-monitored program and to continued cooperation with the Fund. - Statement by Mr. Itam, Executive Director for Sudan: June 23, 2010 — authorities broadly agree with staff assessment, consent to publication of the reports, and express appreciation for Fund engagement. ### Recent macroeconomic developments and monetary stance - Inflation was in the 14–15 percent range in the first five months of 2010, mainly due to an increase in food and beverages prices, which constitute more than 50 percent of the CPI basket. This was mostly supply driven. - By end-May, net international reserves have increased by about $30 million, compared to the most recent figure available during the mission (end-February). - The central bank announced measures to tighten monetary policy by: - increasing reserve requirement from 8 percent to 11 percent (effective July 1, 2010), and - withdrawing central bank deposits with commercial banks. - The authorities have allowed more flexibility in the exchange rate which has depreciated by 3.8 percent since end-March 2010. ### Fiscal measures, structural benchmarks, and ongoing reforms - Authorities have confirmed that fiscal structural measures for end-June 2010 are expected to be implemented: - review of tax exemptions granted under Investment Encouragement Act, and - introduction of customs ASYCUDA software. - The review of the tax policy regime (structural measure for end-July 2010) is underway and expected to be completed as scheduled. - Important structural reforms completed in 2009 included improvements in tax compliance and fiscal management and administration. - The comprehensive review of the tax policy regime is ongoing and is expected to be completed in July 2010. - The Ministry of Finance and National Economy (MOFNE) was reorganized, benefiting from Fund advice; capacity enhancing measures to improve its operations are on track. - In the financial sector, a restructuring plan for Omdurman National Bank was completed, in line with recommendations of an independent auditor. ### Economic structure and diversification strategy - Sectoral value added shares cited: - oil sector: about 10 percent of GDP, - agriculture: 35 percent of GDP, - services: 50 percent of GDP. - External/fiscal dependence on oil: - oil accounted for about 95 percent of exports and more than half of government revenue. - Authorities are accelerating programs to diversify growth, emphasizing agriculture through the Revitalization of Agriculture Program, which includes: - irrigated and rain-fed farming, - livestock development, - expansion of non-traditional products and exports. - Program hinges on: - utilization of opportunities created by the new Merowe dam, - rehabilitation and reclamation of old irrigation infrastructure, - provision of improved seeds. - Reforms to encourage private sector investment include FDI and public private partnerships, streamlining business registration procedures, and establishing a one-stop shop. - Central bank actions include focusing on increasing financing access to farmers and establishing channels for microfinance to the agricultural sector. ### Program performance, macroeconomic outcomes, and vulnerabilities - In the five years up to 2008, Sudan’s average annual growth was 8 percent. - Real GDP growth rate decelerated to 4.5 percent in 2009 due to global crisis spillovers. - Average inflation declined (period unspecified in source). - Substantial improvements in tax revenues were achieved in line with program targets. - Higher-than-programmed expenditure and repayments of domestic arrears resulted in the overall deficit being higher than programmed. - Authorities adhered to the limit on non-concessional borrowing. - Monetary policy focused on mitigating external shocks and ensuring sufficient credit to the private sector to partially offset liquidity shortages. - The substantial decline in oil prices in the first half of 2009 led to a widening of the current account deficit and deterioration in the overall balance of payments position. ### 2010 macroeconomic policy objectives and program targets - Authorities intend to contain the overall fiscal deficit at 4.2 percent of GDP in 2010, with a number of new tax and expenditure measures. - These measures constitute the bulk of the program targets and structural benchmarks incorporated in the SMP. - Authorities expect continued low foreign exchange earnings from oil exports, foreign direct investment, and remittances. - Priority policy objectives include: - maintaining macroeconomic stability, - safeguarding and rebuilding foreign exchange reserves, - enhancing economic growth. ### Financial sector and public administration capacity building - Authorities attach high importance to strengthening supervision, improving the regulatory framework, and addressing problems and vulnerabilities in the financial sector. - An action plan has been developed to resolve banking sector problems within a realistic timeframe, benefiting from FSAP recommendations. - Authorities are engaged in a comprehensive effort to build and upgrade public sector capacity both at the central and state levels, have identified gaps and weaknesses, and prioritized technical assistance needs in discussion with IMF staff. ### Normalization of relations with the Fund, arrears clearance, and debt relief - Sudan has a thirteen-year track record of performance under SMPs and has met upper-credit-tranche conditionality. - Authorities state they have long satisfied requirements for arrears clearance and the start of the HIPC process. - Authorities reiterate the importance of debt relief to Sudan’s stability and development and view debt relief as important for implementing peace agreements. - Authorities expect the Fund to take the lead and use its leverage and good offices to facilitate expeditious arrears clearance. - Authorities emphasize their sustained engagement with the Fund, performance record, and commitment to reform and development as grounds for international support. ### Challenges and outlook - Sudan faces challenges of building peace, post-conflict reconstruction, broad-based development, and poverty reduction ahead of a referendum slated for early 2011. - High dependency on oil revenues creates vulnerability due to price volatility and nonrenewable nature. - Ongoing implementation of peace agreements and preparation for the 2011 referendum, and potential implementation of the Doha agreement on Darfur, will add to financial obligations. - External perception of the country and lingering global crisis impacts constrain development pace. ### Conclusion - Authorities’ prudent policies enabled Sudan to weather the global crisis and maintain reasonably high economic growth. - Sudan continues to make progress in national political and social objectives but faces difficult and complex challenges. - In the thirteenth year of an SMP, authorities continue to show strong commitment to strengthening engagement with the Fund and international community and seek Fund support for arrears clearance and debt relief. *Source: Statement and update material provided to IMF staff and Executive Directors, June 2010.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10256.pdf_