## SUDAN 2012 ARTICLE IV REPORT — content unit _cr12298

## Source details

**Canonical URL:** [SUDAN 2012 ARTICLE IV REPORT — content unit _cr12298](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12298.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12298.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12298.pdf.json)

---

### INTRODUCTION — Background and impact of South Sudan secession
- CPA signed January 9, 2005; South Sudan seceded in July 2011.
- Secession resulted in Sudan losing "some three-quarters of its oil production, half of its fiscal revenues, and about two-thirds of its international payment capacity."
- Box 1 quantified impacts:
  - Real sector: oil output loss estimated at 75 percent; overall loss about SDG 50 billion (26¼ percent of 2012 GDP), of which about 19 percent of GDP in the oil sector.
  - Fiscal: revenue loss estimated at SDG 12 billion (6¼ percent of GDP).
  - External: loss of oil exports estimated at about US$6.6 billion (12.9 percent of GDP) in 2012.
  - Monetary: official reserves declined by 17 percent (US$0.5 billion); stock of bank credit to the private sector down by 7 percent (0.9 of GDP) due to southern branches.
- 2011–2012 snapshot (Box 1):
  - 2011 GDP: Overall SDG 19.4 billion; Oil SDG 14.3 billion (8.4 percent of GDP); Nonoil SDG 5.1 billion (3.0 percent of GDP).
  - 2012 GDP: Overall SDG 48.8 billion; Oil SDG 36.1 billion (19.0 percent of GDP); Nonoil SDG 12.7 billion (6.7 percent of GDP).
  - Fiscal net effect: 2011 = SDG 3.6 billion; 2012 = SDG 12.4 billion.
  - Export revenues: 2011 = SDG 8.3 billion (4.8 percent of GDP); 2012 = SDG 25.0 billion (13.1 percent of GDP).
  - Transfers to South Sudan: 2011 = SDG 3.9 billion (2.6 percent of GDP); 2012 = SDG 13.1 billion (6.3 percent of GDP).
  - Oil exports: 2011 = US$3.7 million; 2012 = US$6.6 million (percent of GDP 5.8 and 12.9 respectively as shown).

### Policy response and IMF engagement
- Authorities' June 2012 comprehensive reform program (Three-Year Emergency Program 2012–14) included:
  - an exchange rate devaluation of about 66 percent;
  - an increase in key taxes;
  - a sharp reduction in fuel subsidies;
  - cuts in non-priority spending;
  - strengthening of social safety nets.
- Three-Year Emergency Program objectives: maintain fiscal and external sustainability, boost inclusive growth, and gradually reduce unemployment.
- IMF role since secession:
  - intensive economic advice and technical assistance;
  - co-chair of Technical Working Group on Sudan’s external debt with the World Bank;
  - economic advice to the African Union High Implementation Panel (AUHIP);
  - inter-departmental working group set up to ramp up Fund work on Sudan prior to secession.
- Tentative oil-related agreement reached under AU mediation; implementation contingent on border security agreement.

### RECENT MACROECONOMIC DEVELOPMENTS (2011 and H1 2012)
- 2011 macro deterioration:
  - Nonoil real GDP growth decelerated to 3.4 percent.
  - Inflation rose to about 18.5 percent.
  - Overall fiscal deficit reached 1.3 percent of GDP.
  - Reserve money grew 28 percent; credit to the economy grew 8 percent.
  - Exports declined by 13 percent; imports declined by about 8 percent.
  - Current account deficit about 0.5 percent of GDP.
- First half of 2012:
  - Revenues under-performed by some 30 percent (no agreement on oil transit fees which represented almost 30 percent of total revenues in the original budget).
  - Spending execution rate over 95 percent.
  - Reserve money and broad money grew 24 percent and 25 percent, respectively (excluding devaluation effects growth would have been about 13 percent).
  - Exports contracted by -40 percent relative to H1 2011, widening the trade deficit to an estimated $2.7 billion (from a surplus of about $2.2 billion in H1 2011).
  - By end-July 2012, 12-month inflation reached 41 percent.
- External reserves and exchange rate:
  - Administrative restrictions in 2011: rationing foreign exchange; restrictions on banks’ excess reserves in foreign currency and on foreign currency deposits.
  - Year-end official reserves stabilized at about US$1.3 billion (1.8 months of imports) (gross official reserves revised to correct misclassification).
  - Following external support, gross official reserves about 2.7 months of imports (end-June).
  - Authorities devalued the Sudanese pound in late June 2012 after the premium on the US dollar exceeded 100 percent.

### FINANCIAL SECTOR CONDITIONS AND RISKS FROM DEVALUATION
- Monetary system and dollarization:
  - Moderate dollarization with a dynamic curb market.
  - Foreign currency deposits to broad money (M2) fell from 16.5 percent in H1 2011 to 14 percent by end-May 2012.
  - Loans in foreign currency about 10–15 percent of total bank credit; after devaluation share rose to about 23 percent.
  - Central bank balance sheets inflated by about 40 percent; commercial banks inflated by about 20 percent due to devaluation.
- Banking sector indicators (end-2010 to March 2012):
  - Capital adequacy ratio rose from 10 percent in 2010 to 11 percent in March 2012.
  - Nonperforming loans (NPLs) remained high at 14 percent.
  - Banks’ liquidity: 37 percent.
  - Return on assets fell from 3.9 percent (December 2010) to 1.4 percent (March 2012).
  - Return on equity fell from 26½ percent to 8.1 percent over the same period.
- Expected devaluation impact:
  - Preliminary staff estimates indicate capital adequacy ratio could fall below 10 percent.
  - NPLs ratio could exceed 15 percent and may deteriorate further over the next 12 months as foreign currency loan maturities are reached.

### OUTLOOK (SHORT-TERM AND MEDIUM-TERM) AND RISKS
- Short-term (next 18 months, 2012–13) expectations:
  - Non-oil GDP expected to decline slightly in real terms.
  - Authorities expect overall GDP growth of 2 percent in 2012 (driven by agriculture and gold).
  - Inflation expected to average about 30 percent in 2012, easing to 17 percent in 2013.
  - Overall fiscal balance expected to reach 3.7 percent of GDP in 2012 before narrowing to 3.2 percent of GDP in 2013.
  - Current account deficit expected to average 6.9 percent of GDP in 2012–13, with imports contracting by a cumulative 20 percent, and capital inflows, including FDI, dropping by an estimated 50 percent.
- Medium-term (post-2013) under June 2012 reform package:
  - Gradual improvement starting in 2014 with non-oil growth picking up to about 4.5 percent; inflation declining to single digits; fiscal deficit dropping to about 1.5 percent of GDP.
- Key risks (tilted to the downside):
  - Tight financing constraints and fragile security environment.
  - Political fragility from protests and volatile security conditions.
  - Implementation risks related to agreements with South Sudan (border security, oil-related issues).
- Risk Assessment Matrix highlights (Box 4):
  - Persistent tensions between Sudan and South Sudan: Overall Level of Concern: Medium-High; Likelihood of Severe Realization in Next 1–3 Years: Medium-High; Expected Impact: Medium-High.
  - World commodity price increases and insufficient capacity to implement reforms rated Medium concern and Medium likelihood with Medium expected impact.
  - Spillover from regional unrest: Low to Medium concern; Likelihood Medium; Expected Impact Medium.

### POLICY DISCUSSIONS AND REFORM STRATEGY
- Two-tier reform strategy required:
  - Short-term adjustment measures to mitigate deterioration.
  - Medium-term reform program to refocus economy on non-resource sector.
- Underlying policy mix:
  - Fiscal adjustment,
  - Increased exchange rate flexibility,
  - Tightening of the monetary stance.
- Restoring macro stability requires strong and determined implementation; severity of shock and limited external financing imply additional medium-term efforts.
- Potential easing factors noted by authorities:
  - Higher gold exports,
  - Gradual pickup in oil production,
  - Financial assistance from friendly countries.

### KEY MEASURES ADOPTED IN JUNE 2012 (Box 5)
- Fiscal — Revenue measures:
  - Increase VAT from 15 to 17 percent.
  - Increase development tax from 10 to 13 percent.
  - Increase Business profit tax on banking sector from 15 to 30 percent.
  - Increase stamp duties on financial transactions and international flights.
  - Repeal negative list and impose import tariffs.
  - Enhance revenue collection and lift discretionary tax exemptions.
- Fiscal — Expenditure measures:
  - Phase out fuel subsidies and strengthen social safety nets.
  - Liberalize sugar price.
  - Consolidate ministries at all levels.
- Social spending:
  - Raise civil servants and pensioners salary by 100 SDG per month (about 40 percent of minimum wage).
  - More than doubling spending on social benefits.
  - Lower custom duties on main staples and exempt medicine.
- Monetary — Exchange rate reform (four-rate framework):
  - Central rate: SDG 4.42 per US dollar (applies to fuel, government payments, customs valuation).
  - Subsidized rate for wheat: SDG 2.9 per US dollar.
  - Gold exchange rate used by central bank.
  - Commercial banks rate for other transactions with three components: (i) an indicative rate; (ii) a variable incentive premium (currently 15 percent); (iii) a flexibility factor allowing ±4 percent deviation.
- Monetary — Other measures:
  - Increase reserve requirement ratio from 15 percent to 18 percent.
  - Roll back CBOS deposits in commercial banks.
- Note on indicative rate: "The indicative rate is the weighted average of the previous day central rate and the average commercial banks rate excluding the incentive premium."

### FISCAL POLICY ANALYSIS AND RECOMMENDATIONS
- Near-term challenge: adjust to loss of about 50 percent of government revenues.
- Limited access to external financing and need to contain monetary financing require bold revenue and expenditure action.
- Staff view:
  - Diligent implementation of revenue measures could yield additional revenues of about 1 percent of GDP higher than envisaged in the revised budget.
  - Encourage resourcing tax and customs directorates and enhancing administration.
- Gold sector taxation:
  - Gold trading companies pay 15 percent business profit tax on commission; gold producers pay 7 percent royalty.
  - Staff recommended subjecting gold producers to business profit tax.
  - Footnote: Gold exports amounted to some 29 tons (about US$1.4 billion) in 2011 and projected at 50 tons in 2012 (about US$2.5 billion).
- Staff welcomed replacement of negative list by import tariffs and recommended gradual tariff reduction over medium term to reinforce openness.
- On fuel subsidies and social safety nets:
  - Staff noted budgeted increase in social safety nets is not targeted; general wage increase could be inflationary.
  - Advised limiting transfers to states to 30 percent of total revenues, in line with constitutional provisions.
- Strengthen government development budget:
  - Development budget reduced by 17 percent in nominal terms.
  - Recommend comprehensive appraisal of investment budget and establish quarterly monitoring.
- Authorities broadly agreed but cautioned on taxing gold producers (concern reenergizing smuggling); committed to phasing out fuel subsidy by end-2014 and to streamline exemptions and reduce transfers to states gradually.

### MONETARY POLICY — DEVELOPMENTS, IMPACT, AND STAFF RECOMMENDATIONS
- Recent monetary conditions driven by fiscal stance and exchange rate developments.
- Secession effects: abrupt rise in government financing needs, loss in oil export proceeds, erosion of domestic currency in curb market.
- Increased monetization raised core inflation by 44 percent in the 12-month period through July.
- CBOS rescheduled about SDG 4 billion (about 2.3 percent of GDP) of its temporary advances to government over a 100-year period.
- CBOS measures (raising required reserve ratio to 18 percent and administrative tightening) found inefficient and counter-productive.
- Staff recommended (given large bank excess liquidity):
  - Tighten monetary stance by: (i) containing credit to government, (ii) unwinding CBOS deposits with commercial banks, (iii) refrain from providing credit to the economy.
  - Use reserve money rather than exchange rate as anchor.
  - Refrain from raising reserve requirements to stabilize exchange rate.
  - Restore monetary transmission by enabling banks to recycle excess deposits via:
    - competitive auction system of CBOS securities;
    - reactivation of interbank market as first step toward open market operations.
- Staff recommended a comprehensive banking system assessment.
- On gold market: staff urged CBOS to gradually withdraw from gold market activities; authorities to remain active until industry and regulatory framework established.

### EXCHANGE RATE POLICY
- Curb market became preponderant after secession, influencing trade and inflation and depreciating equilibrium REER.
- Indicators up to June 2012 suggest exchange rate overvalued though magnitude uncertain.
- Devaluation on June 25, 2012:
  - CBOS indicative rate from 2.67 to 4.42 SDG/USD.
  - Commercial banks rate from 2.88 to 5.45 SDG/USD.
  - Reduced gap to curb rate from over 100 to 23 and 93 to 3 percent (Box Figure 1); gap widened again by end-July to 40 and 15 percent respectively.
- Staff strongly recommended unifying official rates by eliminating central, subsidized and gold rates and extending commercial banks rate to all transactions; end premium incentive practice and administrative restrictions.
- Note on devaluation magnitudes: devaluation of CBOS indicative rate about 66 percent; effective devaluation of commercial banks rate about 88 percent.

### EXTERNAL STABILITY ASSESSMENT (Box 6 findings)
- Secession induced permanent adjustment needs threatening external stability and competitiveness.
- Indicators (up to June 2012):
  - current account dynamics worsened permanently;
  - curb rate became main denominator and gap to official rate widened;
  - REER and NEER on appreciating trend, well above historical levels and above REER/NEER based on curb rate;
  - reserves suffered from protracted interventions; growing external arrears add to unsustainable external public debt burden.
- Reserve levels judged too low; new methodology suggests coverage of more than 4 months of 2011 imports.

### MEDIUM-TERM ECONOMIC TRANSFORMATION AND STRUCTURAL REFORMS
- Objective: refocus economy on non-resource sector by strengthening fundamentals, improving business environment, and improving growth inclusiveness.
- Fiscal reform:
  - Anchor fiscal policy in medium-term budget framework with fiscal deficit target of 2 percent of GDP.
  - Maintain non-oil primary deficit at about 5 percent of GDP.
  - Pillars: (i) revise revenue model, (ii) rationalize public spending and civil service, (iii) overhaul state finances.
  - Measures: eliminate tax exemptions, implement ambitious privatization, improve public spending efficiency, maintain subsidy reform momentum (subsidy reform expected to generate savings of more than 0.6 percent of GDP during H2-2012), subject public enterprises to hard budget constraints, conduct civil service census, overhaul state finances to reduce states’ dependence on central transfers.
- Monetary and banking reforms:
  - Shift to indirect monetary management and comprehensive banking restructuring.
  - Terminate directed credit allocations; use CBOS securities to manage liquidity; reactivate interbank market; strengthen CBOS monetary policy committee.
  - Comprehensive evaluation of banking system; strengthen supervision and training.
- Promoting competitiveness and inclusive growth:
  - Remove impediments to private sector investment; link wages to productivity; encourage exports via specialized agencies and banks.
  - Support SME development and opening to foreign investors.
  - Invest in infrastructure, human capital, and basic public services.
- Labor and social indicators:
  - Unemployment above 20 percent; UNDP estimate about 47 percent of population below poverty line (< US$1/day).
  - Staff recommends skills assessment and reform of technical and vocational training.

### DEBT ISSUES AND DEBT SUSTAINABILITY ANALYSIS (DSA) — Key findings
- Sudan in debt distress with bulk of external debt in arrears.
- DSA findings (end-2011):
  - All debt indicators exceeded thresholds under joint IMF-WB LIC DSA.
  - Stock of external debt about US$41.5 billion (65 percent of GDP); 84 percent in arrears.
  - Public and publicly guaranteed (PPG) debt: US$39.9 billion with 87 percent in arrears.
  - PV of total external PPG debt: US$71 billion; PV equals 112 percent of GDP, 605 percent of exports and 625 percent of revenues.
- DSA drivers and assumptions:
  - Secession-induced reduction of economic potential incorporated.
  - Box 1 macro assumptions:
    - Secession-induced loss of ¾ of oil production.
    - 2012 oil production expected to decline by 60 percent to 117 to 120 thousand bpd; production expected to peak near 240 thousand bpd in 2020 then decline to about 144 thousand bpd in 2030.
    - Gold production projected to increase 3 percent per year until 2020 and decline 3 percent after 2026.
    - Price outlook: average around US$83 per barrel medium term; around US$79 per barrel longer term.
  - Baseline DSA outcome: sustained breach of indicative thresholds well into 2032; deterioration vs 2010 DSA.
- Public sector DSA:
  - PV of public sector debt-to-GDP ratio rose to over 180 percent in 2012 due to depreciation, then declined to about 156 percent in 2017.
  - Debt service-to-revenue ratio projected to decline from 42 percent in 2012 to 36 percent by end of projection horizon.
- Stress tests and alternative scenarios:
  - One-time 30 percent real depreciation in 2013 produces worst outcomes: PV debt-to-GDP in 2032 almost 130 percent; PV debt-to-revenue in 2032 over 1100 percent; debt service-to-revenue in 2032: 56 percent.
  - Alternative scenarios show vulnerability to exports shock and depreciation; debt dynamics driven more by massive stock of arrears than by new borrowing.
- Policy implications:
  - Avoid reliance on nonconcessional borrowing; secure concessional external support; increase grant element of borrowing.
  - Strengthen external and fiscal stance; improve political and business environment.
  - Prudent public debt and macro policies, especially under a successor SMP, critical to access debt relief under Enhanced HIPC Initiative and MDRI.
  - Potential further assistance options: Paris Club “beyond HIPC” bilateral relief, MDRI or MDRI-like relief.

### RELATIONS WITH THE FUND, ARREARS, AND TECHNICAL ASSISTANCE
- Membership: Joined 09/05/1957; Article VIII.
- Outstanding Purchases and Loans (SDR Million; percent quota):
  - Stand-by Arrangements: 116.86 SDR Million, 68.86 percent quota.
  - Trust Fund: 59.23 SDR Million, 34.9 percent quota.
  - Extended Arrangements: 65.83 SDR Million, 38.79 percent quota.
- Projected payments to Fund (as of 31-Jul-12):
  - Principal overdue: 241.92 SDR Million.
  - Overdue Charges/interest: 741.36 SDR Million.
  - Total overdue (Principal + Charges/interest): 983.29 SDR Million.
  - Total forthcoming by year: 2012: 1.19; 2013: 2.34; 2014: 2.34; 2015: 2.34; 2016: 2.34 (SDR Million).
- Technical assistance 2004–12 summarized across Fiscal Affairs, Monetary and Capital Markets, Statistics and Legal Departments with multiple short-term missions and resident advisors.
- Staff encourages continued regular payments to the Fund and increased payments as capacity improves.

### STATISTICAL ISSUES AND DATA ADEQUACY (ANNEX IV)
- General assessment: statistical database broadly adequate for surveillance but needs improvements.
  - Upgrade base year, coverage, periodicity and timeliness of national accounts.
  - Improve labor market and direct investment data.
  - More detailed fiscal accounting.
- National accounts shortcomings:
  - Reliance on administrative reporting; economic surveys last conducted in 1970s–1980s.
  - National accounts based on SNA 1968; base year for constant price series 1981.
  - No sub-annual national accounts or industrial production data.
  - Recommendations: adopt SNA 2008, rebase national accounts, improve timeliness, rebuild survey capacity.
- CPI practices good (monthly CPI base year=2007); plan for new household expenditure survey recommended.
- GFS coverage adequate for central government but excludes states and public corporations; priority to compile consolidated GFS for general government.
- MFS progress: major recommendations from 2007 implemented; coverage includes CBOS and 32 commercial banks; exclude BOSS and conventional banks in South Sudan from July 2011.
- External sector statistics need improvement: DI, remittances, goods and services, capital transfers and oil statistics; clarify reserve assets and earmarked reserves; initiate data template on international reserves.
- Participation in GDDS since August 2003; metadata need updating; no data ROSC available.
- Table of Common Indicators provided with latest observation dates (e.g., Exchange Rates 8/28/2012; CPI July 2012).

### STAFF APPRAISAL — CONCLUSIONS AND KEY RECOMMENDATIONS
- Context: secession caused severe shock reducing economic potential and international payment capacity.
- Strategy:
  - Near term: stabilize macroeconomy.
  - Medium term: recalibrate economy to reduced potential, relying mainly on domestic resources.
- Key staff recommendations:
  - Support revised 2012 budget policies, substantial fuel subsidy reduction, reinforce social safety nets, reduce non-priority spending.
  - Consider tax rate increases but widen tax base; develop medium-term budget framework; strengthen execution and control; overhaul state finances.
  - Enhance tax policy and administration; reduce exemptions and improve compliance.
  - Link average civil service wage to nonoil productivity.
  - Phase out subsidies and develop well-targeted safety nets.
  - Impose profit tax on gold producers as sector develops.
  - Improve coordination between monetary and fiscal authorities; increase CBOS de facto independence to reduce monetization.
  - Use reserve money as anchor; tighten credit to government; refrain from raising reserve requirements ratio.
  - Restore monetary transmission by enabling banks to recycle deposits via CBOS securities auctions.
  - Exchange rate: unify official rates, extend commercial banks rate to all transactions, end premium incentive practice, repeal administrative restrictions gradually, allow greater flexibility.
  - Structural reforms: civil service reform, banking sector restructuring, ambitious privatization, improving governance.
  - Contain non-concessional external borrowing and reach out to donors for debt relief support.
- International support critical to avoid jeopardizing economic maturing, cap growth potential and worsen poverty.

### KEY ECONOMIC INDICATORS (selected figures as reported)
- Inflation (period average): 2010: 13.1; 2011: 18.3; 2012 (prel./proj.): 28.6; 2013 (proj.): 17.0.
- Real GDP (annual changes, selected): 2008: 3.0; 2009: 3.2; 2010: 3.5; 2011: -3.3; 2012 (prel./proj.): -11.1; 2013 (proj.): -0.6.
- Oil GDP annual changes: 2011: -36.0; 2012: -58.2; 2013 (proj.): 14.5.
- Nonoil GDP annual changes: 2011: 3.4; 2012 (prel./proj.): -5.1; 2013 (proj.): -1.4.
- Current account balance (USD, millions): 2012 (prel./proj.): -3,836.
- Exports, f.o.b. (USD, millions): 2012: 4,939.
- Gross international reserves (USD, millions): 2012: 1,074; in months of next year's imports: 2012: 1.5.
- Revenues and grants (SDG millions): 2012: 19,353; Revenues: 2012: 17,438; Oil revenues: 2012: 3,957.
- Total expenditure (SDG millions): 2012: 29,578; Total expenditure (percent of GDP): 2012: 16.6.
- Overall accrual balance (SDG millions): 2012: -10,225; (percent of GDP): 2012: -5.4.
- Broad money (end-2012 SDG millions): 44,777; Reserve money (end-2012 SDG millions): 25,707.
- Regulatory capital to risk-weighted assets (Dec-11): 13.0; Gross NPLs to gross loans (Dec-11): 12.6; ROA (before tax) (Dec-11): 4.2; Liquid assets to total assets (Dec-11): 36.3.
- Public debt (percent of GDP): 2012: 98.8; 2013 (proj.): 111.4; 2014 (proj.): 113.4; 2017 (proj.): 107.0.
- Crude oil export price (US$ per barrel): 2012: 70.7; 2013 (proj.): 95.8; 2014 (proj.): 89.7.
- Domestic public debt: 11.5 percent of GDP at end-2011; time series SDG: 2000: SDG 2.1 billion; 2005: SDG 6.3 billion; 2011: SDG 19.8 billion.
- Total public debt SDG series: 2000: SDG 49 billion; 2005: SDG 65 billion; end-2011: SDG 137 billion (74 percent of GDP).
- PV of public sector debt-to-GDP ratio stood at 124 percent of GDP at end-2011 (DSA).

*Source: IMF staff report text (SUDAN 2012 ARTICLE IV REPORT — content unit _cr12298).*

### INTRODUCTION  __________________________________________________________________________________  4

### INTRODUCTION

### Background and impact of South Sudan secession
- The Comprehensive Peace Agreement (CPA) was signed on January 9, 2005; South Sudan seceded in July 2011.
- The secession resulted in Sudan losing:
  - "some three-quarters of its oil production, half of its fiscal revenues, and about two-thirds of its international payment capacity."
- Box 1 highlights quantified impacts:
  - Real sector: oil output loss estimated at 75 percent; overall loss about SDG 50 billion (26¼ percent of 2012 GDP), of which about 19 percent of GDP in the oil sector.
  - Fiscal: revenue loss estimated at SDG 12 billion (6¼ percent of GDP).
  - External: loss of oil exports estimated at about US$6.6 billion (12.9 percent of GDP) in 2012.
  - Monetary: official reserves declined by 17 percent (US$0.5 billion); stock of bank credit to the private sector down by 7 percent (0.9 of GDP) due to southern branches.
- 2011–2012 GDP and fiscal snapshot from Box 1:
  - 2011 gross domestic product: Overall SDG 19.4 billion; Oil SDG 14.3 billion (8.4 percent of GDP); Nonoil SDG 5.1 billion (3.0 percent of GDP).
  - 2012 gross domestic product: Overall SDG 48.8 billion; Oil SDG 36.1 billion (19.0 percent of GDP); Nonoil SDG 12.7 billion (6.7 percent of GDP).
  - Fiscal net effect: 2011 = SDG 3.6 billion; 2012 = SDG 12.4 billion.
  - Export revenues: 2011 = SDG 8.3 billion (4.8 percent of GDP); 2012 = SDG 25.0 billion (13.1 percent of GDP).
  - Transfers to South Sudan: 2011 = SDG 3.9 billion (2.6 percent of GDP); 2012 = SDG 13.1 billion (6.3 percent of GDP).
  - Oil exports: 2011 = US$3.7 million; 2012 = US$6.6 million (percent of GDP 5.8 and 12.9 respectively as shown).

### Policy response and IMF engagement
- Authorities approved in late June 2012 a comprehensive reform program building on the Three-Year Emergency Program (2012–14) with measures including:
  - an exchange rate devaluation of about 66 percent;
  - an increase in key taxes;
  - a sharp reduction in fuel subsidies;
  - cuts in non-priority spending; and
  - strengthening of social safety nets.
- The Three-Year Emergency Program objectives: maintain fiscal and external sustainability, boost inclusive growth, and gradually reduce unemployment.
- IMF involvement since secession (Box 2) includes:
  - intensive economic advice and technical assistance on policies to address secession impact;
  - co-chairing with the World Bank the Technical Working Group on Sudan’s external debt;
  - providing economic advice to the African Union High Implementation Panel (AUHIP);
  - setting up an inter-departmental working group to ramp up Fund work on Sudan prior to secession.
- A tentative oil-related agreement was reached under AU mediation; implementation contingent on agreement on border security issues.

### Recent developments (2011 and first half of 2012)
- Macroeconomic deterioration in 2011:
  - Nonoil real GDP growth decelerated to 3.4 percent.
  - Inflation rose to about 18.5 percent.
  - Overall fiscal deficit reached 1.3 percent of GDP.
  - Reserve money grew 28 percent; credit to the economy grew 8 percent.
  - Exports declined by 13 percent; imports declined by about 8 percent.
  - Current account deficit about 0.5 percent of GDP.
- First half of 2012 developments:
  - Revenues under-performed by some 30 percent (mainly due to no agreement on oil transit fees which represented almost 30 percent of total revenues in the original budget).
  - Spending execution rate over 95 percent.
  - Reserve money and broad money grew 24 percent and 25 percent, respectively (excluding devaluation effects, growth would have been about 13 percent).
  - Exports contracted by -40 percent relative to first half of 2011, widening the trade deficit to an estimated $2.7 billion (from a surplus of about $2.2 billion in H1 2011).
  - By end-July 2012, 12-month inflation reached 41 percent.
- External reserves and exchange rate:
  - Administrative restrictions were introduced in 2011: rationing foreign exchange; restrictions on banks’ excess reserves in foreign currency and on foreign currency deposits.
  - By year-end official reserves stabilized at about US$1.3 billion (1.8 months of imports) (note: gross official reserves were revised to correct a misclassification).
  - Following receipt of external support, gross official reserves stood at about 2.7 months of imports (end-June).
  - The authorities devalued the Sudanese pound in late June 2012 after premium on the US dollar exceeded 100 percent.

### Financial sector conditions and risks from devaluation
- Monetary system characteristics:
  - Moderate dollarization with a dynamic curb market.
  - Foreign currency deposits to broad money (M2) fell from 16.5 percent in H1 2011 to 14 percent by end-May 2012, just before the devaluation.
  - Loans in foreign currency were about 10–15 percent of total bank credit; after devaluation the share rose to about 23 percent.
  - Balance sheets: central bank inflated by about 40 percent; commercial banks inflated by about 20 percent due to devaluation.
- Banking sector indicators (end-2010 to March 2012):
  - Capital adequacy ratio rose from 10 percent in 2010 to 11 percent in March 2012.
  - Nonperforming loans (NPLs) remained high at 14 percent (Table 8).
  - Banks’ liquidity: 37 percent.
  - Return on assets fell from 3.9 percent (December 2010) to 1.4 percent (March 2012).
  - Return on equity fell from 26½ percent to 8.1 percent over the same period.
  - Commercial banks faced profitability pressures from high NPLs and large unremunerated excess reserves; less liquid banks faced rising reserve requirements.
  - Interest rate spreads remained large; lending was cautious.
- Expected impact of devaluation on banking sector:
  - Preliminary staff estimates indicate capital adequacy ratio could fall below 10 percent.
  - NPLs ratio could exceed 15 percent and may deteriorate further over the next 12 months as foreign currency loan maturities are reached.

### Outlook and risks
- Short-term (next 18 months, 2012–13) expectations:
  - Non-oil GDP expected to decline slightly in real terms due to reduced domestic absorption consistent with fiscal adjustment and lack of offsetting non-resource export gains.
  - Authorities expect overall GDP growth of 2 percent in 2012 driven by agriculture and gold sectors.
  - Inflation expected to average about 30 percent in 2012, easing to 17 percent in 2013.
  - Overall fiscal balance expected to reach 3.7 percent of GDP in 2012 before narrowing to 3.2 percent of GDP in 2013, reflecting an improved non-oil primary balance.
  - Current account deficit expected to average 6.9 percent of GDP in 2012–13, with imports contracting by a cumulative 20 percent, and capital inflows, including FDI, dropping by an estimated 50 percent.
- Medium-term outlook (post-2013) under authorities’ June 2012 reform package:
  - Gradual macroeconomic improvement starting in 2014 with non-oil growth picking up to about 4.5 percent; inflation declining to single digits; fiscal deficit dropping to about 1.5 percent of GDP.
- Key risks:
  - Tight financing constraints and fragile security environment.
  - Political fragility from protests and volatile security conditions.
  - Implementation risks related to agreements with South Sudan, including border security and oil-related issues.

*SUDAN 2012 ARTICLE IV REPORT — INTERNATIONAL MONETARY FUND*

### 15. Risks to the outlook are tilted to the

### _cr12298 - 15. Risks to the outlook are tilted to the

### Risks to the outlook
- Risks are tilted to the downside.
- Increased tensions along the borders with South Sudan could lead to an increase in military spending, adding pressure on the budget.
- A reform slowdown could result from either:
  - a pickup in oil and gold production, or
  - social resistance to further reforms (Box 4).
- Upside risks:
  - Implementation of the recent tentative agreement with South Sudan on oil related issues, or
  - Commitment from the international community to provide Sudan debt relief,
  would lessen fiscal and external constraints and facilitate the adjustment process.

### Authorities’ views on outlook and risks
- Authorities broadly agreed with staff’s assessment of the economic outlook and risks.
- They emphasized the difficulty of the recently adopted reforms but considered them necessary to address prevailing imbalances.
- They acknowledged the need to sustain the reform process over the medium term.

### Box 4 — Risk Assessment Matrix (nature, likelihood, and impact)
- 1. Spillover from wider regional unrest leading to a sharp slowdown in the GCC and neighboring countries.
  - Overall Level of Concern: Low to Medium
  - Likelihood of Severe Realization in the Next 1–3 Years: Medium
  - Expected Impact on Sudan if Realized (high/medium/low): Medium
    - Drop in remittances and demand for exports; FDI may be affected.
    - Further reduction in GDP growth and higher unemployment.
    - Inflation could decelerate as global recession lowers commodity prices.
- 2. World commodity (especially food and fuel) price increases.
  - Overall Level of Concern: Medium
  - Likelihood of Severe Realization in the Next 1–3 Years: Medium
  - Expected Impact: Medium
    - Geopolitical uncertainty in the Middle East is a non-negligible risk.
    - Sudan relies on imports of food (especially wheat) and some petroleum products.
    - Increase in food and fuel prices could increase inflation further and raise subsidies.
    - Weak social protection networks imply a significant poverty impact.
- 3. Insufficient capacity to implement needed fiscal, exchange rate, and structural reforms.
  - Overall Level of Concern: Medium
  - Likelihood of Severe Realization in the Next 1–3 Years: Medium
  - Expected Impact: Medium
    - Resource shortages, both human and financial.
    - Past hindrance to implementation of reform policies.
    - Delays and uneven, disorderly implementation of key reforms.
- 4. Persistent tensions between Sudan and South Sudan.
  - Overall Level of Concern: Medium-High
  - Likelihood of Severe Realization in the Next 1–3 Years: Medium-High
  - Expected Impact: Medium-High
    - Past escalation into military skirmishes; could recur until outstanding post-referendum issues are resolved.
    - Military and defense spending could take a toll on the budget.
    - Increasing deficit mostly monetized.
    - Inflation could accelerate.

### Policy discussions and reform strategy
- Context: difficult social, political and security conditions following South Sudan’s secession.
- Two-tier reform strategy required:
  - Short-term adjustment measures to mitigate deterioration of economic conditions.
  - Medium-term reform program to refocus the economy on its non-resource sector.
- Underlying policy mix of the reform program:
  - Fiscal adjustment,
  - Increased exchange rate flexibility,
  - Tightening of the monetary stance.
- Restoring macroeconomic stability requires strong and determined implementation.
- Severity of fiscal and external shock plus limited external financing access will require additional medium-term efforts to restore fiscal sustainability and international payment capacity.
- Authorities agreed with the two-tier strategy and noted potential easing factors:
  - Higher gold exports,
  - A gradual pickup in oil production,
  - Financial assistance from friendly countries.

### Box 5 — Key Measures Adopted in June 2012 (Fiscal and Monetary measures)
- Fiscal policy — Revenue measures:
  - Increase the VAT from 15 to 17 percent
  - Increase the development tax from 10 to 13 percent
  - Increase the Business profit tax on the banking sector from 15 to 30 percent
  - Increase stamp duties on financial transactions and international flights
  - Repeal the negative list used to limit imports and impose instead import tariffs
  - Enhance revenue collection and lift discretional tax exemptions
- Fiscal policy — Expenditure measures:
  - Phase out fuel subsidies and strengthen social safety nets
  - Liberalize the price of sugar
  - Consolidate ministries at all levels of government
- Social spending:
  - Raise the salary of civil servants and pensioners by 100 SDG per month (about 40 percent of minimum wage)
  - More than doubling spending on social benefits
  - Lower custom duties on main staples and exempt medicine
- Monetary policy — Exchange rate reform (new foreign exchange regime centered on four rates):
  - A central rate of SDG 4.42 per US dollar that applies also to the importation of fuel products, the payment of government obligations, and valuation assessment at customs;
  - A subsidized rate for wheat of SDG 2.9 per US dollar;
  - A gold exchange rate used by the central bank in its gold transactions;
  - A commercial banks rate that applies to all other transactions and has three components:
    - (i) an indicative rate;
    - (ii) a variable incentive premium set by the central bank (currently 15 percent);
    - (iii) a flexibility factor that allows banks to deviate from the sum of the indicative rate and the incentive by a range of ±4 percent.
- Monetary policy — Other measures:
  - Increase the reserve requirement ratio from 15 percent to 18 percent
  - Roll back CBOS deposits in commercial banks.
- Note on indicative rate: "The indicative rate is the weighted average of the previous day central rate and the average commercial banks rate excluding the incentive premium."

### A. Containing the deterioration of economic conditions — Fiscal policy analysis and recommendations
- Near-term challenge: adjust to the loss of about 50 percent of government revenues.
- Limited access to external financing and need to contain monetary financing require bold action on revenue and expenditure sides.
- Authorities’ efforts to enhance revenue collection are encouraging; moderate tax increases are likely the most feasible in the near term.
- Staff view: diligent implementation of revenue measures could yield additional revenues of about 1 percent of GDP higher than envisaged in the revised budget.
- Staff encouraged providing tax and customs directorates with adequate resources and enhancing tax and customs administration in line with Fund technical assistance.
- Gold sector taxation:
  - Government gold revenues currently small; gold trading companies pay a 15 percent business profit tax on their commission; gold producers currently pay a 7 percent royalty.
  - Staff recommended subjecting gold producers to the business profit tax.
  - Footnote: Gold exports amounted to some 29 tons (about US$1.4 billion) in 2011 and are projected at 50 tons in 2012 (about US$2.5 billion).
- Staff welcomed replacement of the negative list by import tariffs and recommended gradual tariff reduction over the medium term to reinforce openness.
- Reduction in fuel subsidies and strengthening of social safety nets create space for priority spending.
  - Staff noted budgeted increase in social safety nets is not targeted; general wage increase could be inflationary.
  - Staff advised limiting transfers to states to 30 percent of total revenues, in line with constitutional provisions.
- Staff recommended strengthening the government development budget:
  - Development budget reduced by 17 percent in nominal terms.
  - Recommendations: comprehensive appraisal of investment budget and establishment of quarterly monitoring.

### Authorities’ views on fiscal measures
- Authorities broadly agreed with staff assessment and considered revenue projections realistic given limited scope for raising revenue.
- On gold taxation, authorities argued taxing producers would be counterproductive and reenergize smuggling.
- Authorities expressed determination to phase out fuel subsidy by end-2014 (SIP, Chapter 1).
- Intended to streamline legal exemptions and gradually reduce transfers to states while developing better revenue collection at lower levels.

### Monetary policy — developments, impact, and staff recommendations
- Recent monetary conditions determined mostly by fiscal stance and market exchange rate developments (SIP, Chapter 2).
- Secession effects: abrupt rise in government financing needs, loss in oil export proceeds affecting central bank foreign reserves, erosion of domestic currency in curb market.
- Deterioration affected banking system and weakened CBOS independence.
- Increased monetization of a fast growing fiscal deficit raised core inflation by 44 percent in the 12-month period through July.
- CBOS rescheduled about SDG 4 billion (about 2.3 percent of GDP) of its temporary advances to the government over a 100-year period, giving more space to deficit monetization and circumventing existing laws.
- Credit to the economy hampered by segmentation of foreign exchange market and increased bank risk aversion; banks prefer lending to state-owned enterprises or investing in government securities.
- CBOS measures to lessen exchange rate pressure: increased required reserve ratio from 10 percent to 18 percent since the beginning of the year and administrative measures to tighten controls; found inefficient and counter-productive.
- Staff recommendations for CBOS given large bank excess liquidity:
  - Tighten the monetary stance by:
    - (i) containing credit to the government,
    - (ii) unwinding the CBOS deposits with commercial banks,
    - (iii) refrain from providing credit to the economy;
  - Use reserve money rather than the exchange rate as an anchor to keep inflation under control;
  - Refrain from raising reserve requirements to stabilize the exchange rate (this increases taxes on banks and has limited effects on exchange rate movements given root causes);
  - Restore monetary transmission mechanism by enabling commercial banks to recycle unused deposit liabilities via:
    - organization of a competitive auction system of CBOS securities,
    - reactivation of the interbank market as first step toward open market operations.
- Staff recommended a comprehensive assessment of Sudan’s banking system to determine short- and medium-term effects of secession on banks’ balance sheets and vulnerability.
- CBOS role in gold market: burdening core mandate of price stability; staff urged CBOS to gradually withdraw from gold market activities.
- Authorities concurred on need to tighten monetary stance and will gradually reduce monetization as revenue base improves; regarding gold, CBOS will remain active until industry is well established and regulatory framework finalized.

### Exchange rate policy
- Curb market exchange rate became very important and preponderant after secession, influencing trade flows and inflation dynamics and depreciating equilibrium real exchange rate.
- Based on data up to June 2012, various indicators suggest the exchange rate is overvalued, though magnitude uncertain (Box 6).
- Recent large devaluation of the official exchange rate signals determination to move to a more flexible regime and bridge gap with curb market.
- Staff strongly recommended unifying the official market by eliminating the other three rates (central rate, subsidized rate, and gold rate) to facilitate convergence with curb market rate, consistent with authorities’ preference for a managed float.
- Evidence: end-July increase in gap between the two rates to about 10–15 percent after narrowing initially in late June.
- Staff warned exchange regime and administrative restrictions could give rise to multiple currency practices and exchange restrictions under Article VIII.
- Authorities agreed on need for greater exchange rate flexibility and will monitor market conditions to ensure convergence with curb rate; justified special rates to limit burden on government obligations and will gradually align special gold rate with commercial banks rate.
- Note on devaluation magnitudes: The devaluation of the central bank’s indicative rate is about 66 percent, the effective devaluation of the commercial banks rate is about 88 percent.

### Box 6 — External stability assessment (findings)
- Staff assessment finds major vulnerabilities and secession-induced permanent adjustment needs threatening external stability and competitiveness.
- Secession resulted in a structural shift in balance of payments dynamics; current account driven by oil sector previously.
- Medium-term BoP expected to shrink due to drop in oil exports and limited alternative financing; current account will depend on developing non-oil export base.
- Indicators (based on data up to June 2012) suggest exchange rate overvalued though magnitude uncertain:
  - current account dynamics worsened permanently;
  - curb rate became main denominator and gap to official rate widened;
  - REER and NEER on appreciating trend, well above historical levels and above REER/NEER based on curb rate;
  - reserves suffered from protracted exchange market interventions in one direction;
  - growing external arrears add to already unsustainable external public debt burden.
- On June 25, authorities allowed corrective outright exchange rate depreciation:
  - CBOS indicative rate from 2.67 to 4.42 SDG/USD;
  - commercial banks rate from 2.88 to 5.45 SDG/USD.
  - This reduced the gap to the curb rate from over 100 to 23 and 93 to 3 percent (Box Figure 1) and undid a major part of the REER overvaluation (Box Figure 2).
  - Until end-July, the gap widened again to 40 and 15 percent, respectively, supporting need for continued exchange rate flexibility.
- Qualitative competitiveness indicators point to structural and institutional bottlenecks; substantial structural reforms needed to improve business climate, facilitate cross-border trading, accelerate financial sector development, invest in infrastructure, and improve governance, political stability and security.
- Reserve levels judged too low; new methodology makes case for coverage of more than 4 months of 2011 imports.

### B. Economic transformation — medium-term reforms
- Objective: refocus the economy on its non-resource sector by:
  - Strengthening economic fundamentals,
  - Improving the business environment,
  - Improving growth inclusiveness.

*SUDAN 2012 ARTICLE IV REPORT, INTERNATIONAL MONETARY FUND*

### 37. The authorities’ development

### 37. The authorities’ development

### Development strategy and outlook
- The authorities’ development strategy in the three-year economic plan projects a relatively fast economic recovery, identifying potential sources of growth and assuming timely implementation of comprehensive reforms that would significantly enhance economic performance.
- Staff’s medium-term assessment: regenerate most of the lost economic and financial potential while minimizing adjustment costs through a gradual transformation to a more competitive economy that can generate the foreign exchange to cover import requirements and deliver the tax revenues needed for government operations.

### Required policies — Fiscal reform
- Anchor fiscal policy in a medium-term budgetary framework with a fiscal deficit target of 2 percent of GDP to ensure steady progress toward a long-term primary surplus via continued structural consolidation while boosting potential growth through increased infrastructure investment.
- Maintain non-oil primary deficit at about 5 percent of GDP and limit inflationary financing in the short- and medium-term.
- Fiscal reform pillars:
  - (i) Revision of the government revenue model.
  - (ii) Rationalization of public spending and streamlining of the civil service.
  - (iii) Overhaul of state finances (SIP, Chapter 4).
- Specific measures and expected effects:
  - Gradually eliminate tax exemptions and improve taxpayer compliance management.
  - Implement an ambitious privatization program to generate transitory resources for increased government investment.
  - Improve efficiency and quality of public spending, including developing a well-targeted safety net system.
  - Maintain subsidy reform momentum in the context of the 2013 budget; related savings should strengthen social safety nets and the investment program.
    - The subsidy reform is expected to generate savings of more than 0.6 percent of GDP during H2-2012.
  - Subject public enterprises to hard budget constraints via comprehensive restructuring of the public sector.
  - Conduct a civil service census to identify reforms to rationalize government services.
  - Overhaul state finances to reduce states’ dependence on central transfers, improve revenue collection capacity, rationalize expenditure control at the state level, and rebalance federal transfers toward capital spending and basic social services.

### Required policies — Monetary and banking sector reform
- Shift to increased reliance on indirect monetary management and comprehensive banking system restructuring.
- Monetary policy recommendations:
  - Terminate directed credit allocations.
  - Use central bank securities to manage liquidity, reactivate the interbank money market, and develop open market operations.
  - Strengthen the CBOS monetary policy committee by increasing economic monitoring capabilities.
- Banking sector recommendations:
  - Undertake a comprehensive evaluation of the banking system to enhance legal, regulatory, and institutional frameworks in line with international practice and remove impediments to financial deepening.
  - Strengthen banking supervision, including enhanced training of supervisory staff.

### Authorities’ views (on reform and growth)
- Authorities agree with staff on the importance of continuing fiscal consolidation and structural reforms to move the economy to a sustainable growth path.
- Authorities’ strategy emphasizes accelerating structural reforms to create new sources of growth to compensate for the loss of oil revenues, including:
  - Revitalizing agriculture.
  - Emphasizing large untapped potential of the mining sector, evidenced by sharp increase in gold production.
  - Belief that oil production could increase over the medium-term through enhanced recovery and discovery of new wells.
    - Gold production change: from 4 tons in 2008 to 29 tons in 2011, and projected to increase to 50 tons in 2012.

### Promoting competitiveness and inclusive growth
- Business environment constraints:
  - Regulations governing investment and banking are opaque and subject to frequent change, discouraging entrepreneurial activity (World Bank’s Doing Business Report).
- Policies to boost competitiveness and exports:
  - Remove impediments to private sector investments and promote wage policy linking wages to productivity.
  - Encourage exports and provide advice and services to exporters via specialized agencies and banks.
- Support SME development and opening the economy:
  - SMEs as key driver for economic diversification.
  - Opening to foreign investors would: (i) attract external resources for investment and employment, and (ii) enhance local know-how.
  - Government focus should include developing physical infrastructure, human capital, and improving basic public services to generate productivity gains, reduce policy uncertainty, and bolster investor confidence.
- Labor market and social indicators:
  - Unemployment remains high (above 20 percent), mostly affecting youth and women.
  - UNDP estimate: about 47 percent of Sudan’s population lives below the poverty line of less than one U.S. dollar a day.
  - Staff recommendations on labor supply: (i) conduct a skills assessment to identify market needs; and (ii) reform technical and vocational training programs and enhance quality of general and technical education (SIP, Chapter 5).
- Regional integration:
  - Membership in COMESA and GAFTA beneficial; greater integration with South Sudan (common market) could boost trade and productivity but requires close policy and institutional coordination and integration of transportation infrastructure and networks.

### Debt issues
- Sudan is in debt distress with the bulk of external debt in arrears.
- DSA findings: at end-2011, all debt indicators exceeded their thresholds under the joint IMF-WB LIC debt sustainability framework (Annex 1).
- Staff recommendations:
  - Establish broad support for debt relief under the Enhanced HIPC Initiative via enhanced dialogue with creditors and donors.
  - Continue cooperating with the IMF on economic policies.
  - Limit borrowing on non-concessional terms as much as possible.
- Arrears and payments:
  - Sudan’s arrears to the Fund totaled SDR 983.3 million at end-July.
  - Payments made so far in 2012: US$6.7 million against obligations falling due of SDR 2.49 million (or US$3.85 million).
  - Staff encourages continued, regular payments to the Fund and increases as payment capacity improves.
- Technical work on debt relief:
  - The technical working group (TWG) co-chaired by the Fund and Bank met five times since late 2010 to advance technical work on debt relief, reconcile debt data, present on arrears clearance and debt relief process, and develop debt relief scenarios.
    - As of end-July 2012, more than 92 percent of Sudan’s external debt has been reconciled.
- Authorities’ stance:
  - Authorities agree with staff’s assessment but expressed frustration at slow progress toward debt relief and feel subject to unfair treatment; they may consider apportioning the debt with South Sudan as a fallback option.
    - Prior “zero option” agreement conditions and fallback apportionment trigger: absent firm international commitments to deliver debt relief within two years, Sudan’s debt would be apportioned between the two countries.

### Other issues
- Measures introduced since the 2010 Article IV consultation may be inconsistent with Article VIII obligations, including a new exchange regime and distortionary measures inhibiting current account convertibility; staff is assessing whether these give rise to multiple currency practices (MCPs) or exchange rate restrictions under Article VIII.
- Progress on the Interim-Poverty Reduction Strategy Paper (I-PRSP): adopted by Parliament in late June 2012 and government preparing to share it with the IMF and World Bank.
- Statistics: current database broadly adequate but needs improvements; staff urges enhanced status and resources for the Central Bureau of Statistics with authority to produce and disseminate official statistics and coordinate national statistical program.
- Authorities expressed interest in a successor SMP; staff noted recent measures could form basis for initiating SMP discussions later this year.

### Staff appraisal — conclusions and key recommendations
- Context: despite internal tensions, Sudan promoted economic growth over past 15 years; secession of South Sudan caused a severe economic shock reducing economic potential and international payment capacity.
- Near-term and medium-term strategy:
  - Near term: stabilize the macroeconomy.
  - Medium term: recalibrate the economy to the reduced economic and financial potential, relying mainly on domestic resources given limited access to international markets.
- Policy assessment and recommendations:
  - Welcome revised 2012 budget policies, including substantial fuel subsidy reduction; support reinforcement of social safety nets and marked reduction in non-priority spending.
  - Consider increase in tax rates appropriate, but urge efforts to widen the tax base.
  - Develop a medium-term budget framework; strengthen budgetary execution and control; overhaul and reform state finances.
  - Enhance tax policy and revenue administration by reducing tax exemptions and improving tax compliance.
  - Link average civil service wage to the nonoil economy’s productivity to boost competitiveness and improve external trade balance.
  - Pursue phasing-out of subsidies and develop a well-targeted safety net system.
  - Impose a profit tax on gold producers as the sector develops.
  - Improve coordination between monetary and fiscal authorities; increase de facto central bank independence to contain and reduce monetization of the fiscal deficit.
  - Use reserve money as an anchor to tighten credit to government and ensure sufficient credit to private sector; refrain from raising reserve requirements ratio given systemic excess liquidity and adverse effects on intermediation and profitability.
  - Restore monetary transmission by allowing commercial banks to recycle unused deposit liabilities through a competitive auction system of CBOS own securities.
  - Exchange rate policy: welcome step devaluation of the official exchange rate; strongly recommend unifying the existing four official rates and extending the commercial banks rate to all transactions; end premium incentive practice and gradually repeal administrative restrictions; allow greater exchange rate flexibility to facilitate adjustment and safeguard foreign exchange reserves.
  - Structural reforms needed: (i) comprehensive civil service reform, (ii) banking sector restructuring, (iii) ambitious privatization program, and (iv) improving governance.
  - Continue to contain contracting or guaranteeing of non-concessional external borrowing and reach out to donors to garner support for debt relief; continue strengthening cooperation with the Fund on policies and payments.
- International support:
  - The support of the international community is critical; its absence could jeopardize economic maturing, cap growth potential, and worsen poverty. Staff strongly encourages enhanced dialogue with creditors and donors and sound macroeconomic policies to catalyze donor support.

*Source: IMF staff report text (37. The authorities’ development).*

### 66. It is recommended that the next

### _cr12298 - 66. It is recommended that the next

### Recommendation
- It is recommended that the next Article IV Consultation with Sudan takes place on the standard 12-month cycle.

### Key economic developments and indicators
- Inflation:
  - "Inflation is on the rise, driven mostly by higher food prices."
  - Consumer prices (period average): 2010: 13.1; 2011: 18.3; 2012 (prel./proj.): 28.6; 2013 (proj.): 17.0.
  - Food inflation (period average): 2010: 29.1; 2011: 12.2; 2012: 15.8; 2013: 20.4.
- Output and growth:
  - "Real GDP is expected to contract driven by a sharp decline in oil GDP."
  - Real GDP (at factor costs) annual changes (selected years): 2008: 3.0; 2009: 3.2; 2010: 3.5; 2011: -3.3; 2012 (prel./proj.): -11.1; 2013 (proj.): -0.6.
  - Oil GDP annual changes (selected years): 2008: -4.5; 2009: 3.0; 2010: -3.9; 2011: -36.0; 2012: -58.2; 2013 (proj.): 14.5.
  - Nonoil GDP annual changes (selected years): 2008: 4.8; 2009: 3.3; 2010: 5.1; 2011: 3.4; 2012 (prel./proj.): -5.1; 2013 (proj.): -1.4.
- External sector and reserves:
  - Current account balance (USD, millions): 2012 (prel./proj.): -3,836.
  - Current account balance (accrual basis, percent of GDP): 2012: -7.4.
  - Exports, f.o.b. (USD, millions): 2012: 4,939.
  - Oil exports (USD, millions): 2012: 1,591.
  - Crude oil exports (USD, millions): 2012: 1,536.
  - Gross international reserves (USD, millions): 2012: 1,074.
  - Gross international reserves (in months of next year's imports): 2012: 1.5.
  - "Gross reserves declined sharply in the second half of 2011 as a result of continued heavy intervention."
  - Real effective exchange rate: "The real effective exchange rate appreciated significantly."
- Fiscal sector (SDG millions and percent of GDP):
  - Revenues and grants (SDG millions): 2012: 19,353.
  - Revenues (SDG millions): 2012: 17,438.
  - Oil revenues (SDG millions): 2012: 3,957.
  - Total expenditure (SDG millions): 2012: 29,578.
  - Total expenditure (percent of GDP): 2012: 16.6.
  - Total revenue and grants (percent of GDP): 2012: 12.9.
  - Overall accrual balance (SDG millions): 2012: -10,225.
  - Overall accrual balance (percent of GDP): 2012: -5.4.
  - "Total revenue has fallen but this has been more than offset by expenditure cuts."
- Monetary and financial sector:
  - Broad money (SDG millions): end-2012: 44,777.
  - Reserve money (SDG millions): end-2012: 25,707.
  - Bank of Sudan net foreign assets (SDG millions): end-2012: -7,853.
  - Commercial banks net foreign assets (SDG millions): end-2012: 1,692.
  - Credit to the economy (annual changes, percent): 2012: 18.1 (Table 1 / Table 4 entries).
  - Broad money growth (annual change, percent): 2011: 38.4; 2012 (proj.): 17.4.
  - Reserve money growth (annual change, percent): 2011: 39.5; 2012 (proj.): 20.3.
  - Monetary authorities: Reserve money level (SDG millions): 2012: 21,672; 2013 (proj.): 25,707.
- Banking sector soundness (selected indicators, percent):
  - Regulatory capital to risk-weighted assets (Dec-11): 13.0.
  - Gross NPLs to gross loans (Dec-11): 12.6.
  - ROA (before tax) (Dec-11): 4.2.
  - Liquid assets to total assets (Dec-11): 36.3.

### Balance of payments (selected line items, USD millions)
- Current account balance: 2008: -1,065; 2009: -5,264; 2010: -1,383; 2011: -303; 2012 (prel./proj.): -3,836; 2013 (proj.): -3,042.
- Current account balance (on cash basis): 2008: 311; 2009: -3,663; 2010: 261; 2011: 1,330; 2012: -2,290; 2013: -1,496.
- Trade balance: 2008: 4,212; 2009: -634; 2010: 3,711; 2011: 2,751; 2012: -1,910; 2013: -1,197.
- Exports, f.o.b.: 2008: 12,628; 2009: 8,087; 2010: 12,700; 2011: 11,063; 2012: 4,939; 2013: 5,406.
- Imports, f.o.b.: 2008: -8,416; 2009: -8,722; 2010: -8,989; 2011: -8,312; 2012: -6,849; 2013: -6,603.
- Services (net): 2008: -1,755; 2009: -1,507; 2010: -2,063; 2011: -1,389; 2012: -1,133; 2013: -1,009.
- Income (net): 2008: -3,907; 2009: -4,135; 2010: -5,162; 2011: -2,778; 2012: -1,957; 2013: -2,030.
- Current transfers (net): 2008: 385; 2009: 1,012; 2010: 2,131; 2011: 1,112; 2012: 1,164; 2013: 1,193.
- Overall balance (USD millions): 2008: -789; 2009: -2,418; 2010: -4,618; 2011: -2,039; 2012: -2,729; 2013: -1,558.
- Financing and exceptional financing lines include large "Change in arrears" entries (e.g., 2009: 2,067; 2010: 4,807; 2011: 1,804; 2012: 1,570).

### Government operations (selected SDG levels and ratios)
- Revenues and grants (SDG millions): 2010: 28,789; 2011: 31,884; 2012 (prel./proj.): 19,353; 2013 (proj.): 24,587.
- Revenues (SDG millions): 2010: 27,814; 2011: 30,572; 2012: 17,438.
- Tax revenues (SDG millions): 2010: 10,008; 2011: 11,426; 2012: 11,195.
- Oil revenues (SDG millions): 2010: 16,880; 2011: 17,519; 2012: 3,957.
- Total expenditure (SDG millions): 2010: 29,337; 2011: 34,147; 2012: 29,578.
- Current expenditure (SDG millions): 2010: 25,437; 2011: 31,115; 2012: 27,066.
- Wages (SDG millions): 2010: 7,516; 2011: 9,763; 2012: 11,149.
- Operating balance (accrual basis, SDG millions): 2010: 3,352; 2011: 769; 2012: -7,713.
- Overall accrual balance (SDG millions): 2010: -548; 2011: -2,263; 2012: -10,225.

### Medium-term outlook (selected projections)
- Nominal GDP:
  - 2012 (billions of SDGs): 190.4.
  - 2012 (millions of U.S. dollars): 51,549.
- Real GDP growth (annual changes, percent):
  - Oil sector: 2012: -58.2; 2013 (proj.): 14.5; 2014 (proj.): 6.8.
  - Non-oil sector: 2012: -5.1; 2013 (proj.): -1.4; 2014 (proj.): 1.8.
- CPI inflation (period average, percent): 2012: 28.6; 2013 (proj.): 17.0; 2014 (proj.): 10.8; 2015 (proj.): 10.1.
- Current account balance (percent of GDP): 2012: -7.4; 2013 (proj.): -6.5; 2014 (proj.): -5.8.
- Gross usable reserves (months of imports, proj.): 2012: 1.5; 2013: 1.6; 2014: 1.7; 2015: 1.8.
- Public debt (percent of GDP): 2012: 98.8; 2013 (proj.): 111.4; 2014 (proj.): 113.4; 2017 (proj.): 107.0.
- Crude oil export price (U.S. dollars per barrel, memorandum): 2012: 70.7; 2013 (proj.): 95.8; 2014 (proj.): 89.7.

### Social, governance, and other indicators (selected)
- Figures shown in the informational annex include governance, competitiveness, Human Development Index, and Millennium Development Goals indicators drawn from Worldwide Governance Indicators; Global Competitiveness Indicators; UNDP Human Development Indicators; World Bank Development Indicators; Business Monitor International; and World Development Indicators, 2011.
- Table 9: Millennium Development Goals indicators present a broad set of social indicators (employment ratios, literacy, infant and under-5 mortality rates, maternal health, access to water and sanitation, etc.) drawn from World Development Indicators, 2011.

*Prepared by Middle East and Central Asia Department (In Consultation with Other Departments).*

### ANNEX I. RELATIONS WITH THE FUND ____________________________________________ 2

### ANNEX I. SUDAN: RELATIONS WITH THE FUND

### Membership Status and Accounts
- Joined 09/05/1957; Article VIII.
- General Resources Account:
  - Quota: 169.7 SDR Million, 100.00 percent quota
  - Fund holdings of currency (Exchange Rate): 352.42 SDR Million, 207.67 percent quota
  - Reserve Tranche Position: 0.01 SDR Million, 21.47 percent quota
- SDR Department:
  - Net cumulative allocation: 177.99 SDR Million, 100 percent quota
  - Holdings: 125.35 SDR Million, 70.43 percent quota
- (Repeated aggregate lines in source)
  - Quota: 2927.3 SDR Million, 100.00 percent quota
  - Fund holdings of currency: 2298.9 SDR Million, 78.53 percent quota
  - Reserve position in Fund: 628.4 SDR Million, 21.47 percent quota

### Outstanding Purchases, Loans and Recent Arrangements
- Outstanding Purchases and Loans (SDR Million; percent quota):
  - Stand-by Arrangements: 116.86 SDR Million, 68.86 percent quota
  - Trust Fund: 59.23 SDR Million, 34.9 percent quota
  - Extended Arrangements: 65.83 SDR Million, 38.79 percent quota
- Latest Financial Arrangements (as reported):
  - Type: Stand-By
  - Date of Arrangement: Jun 25, 1984
  - Expiration Date: Jun 24, 1985
  - Amount Approved (SDR Million): 90.00
  - Amount Drawn (SDR Million): 20.00
- (Repeated aggregate lines in source)
  - Quota: 2927.3 SDR Million, 100.00 percent quota
  - Fund holdings of currency: 2298.9 SDR Million, 78.53 percent quota
  - Reserve position in Fund: 628.4 SDR Million, 21.47 percent quota

### Projected Payments to the Fund
- Overdue and Forthcoming (as of 31-Jul-12):
  - Principal overdue: 241.92 SDR Million
  - Charges/interest overdue and forthcoming:
    - Overdue Charges/interest: 741.36 SDR Million
    - Forthcoming 2012: 1.19 SDR Million
    - Forthcoming 2013: 2.34 SDR Million
    - Forthcoming 2014: 2.34 SDR Million
    - Forthcoming 2015: 2.34 SDR Million
    - Forthcoming 2016: 2.34 SDR Million
  - Total overdue and forthcoming:
    - Total overdue (Principal + Charges/interest): 983.29 SDR Million
    - Total forthcoming by year: 2012: 1.19; 2013: 2.34; 2014: 2.34; 2015: 2.34; 2016: 2.34 (SDR Million)
- Forthcoming schedule (2009–2013) shown in source:
  - 2009 principal: 8.28 SDR Million
  - Charges/interest by year: 2009: 0.04; 2010: 0.09; 2011: 0.31; 2012: 0.31; 2013: 0.31 (SDR Million)
  - Totals by year in source: 2009: 0.04; 2010: 0.09; 2011: 0.31; 2012: 0.31; 2013: 0.31 (SDR Million)

### Exchange Rate Arrangement
- Legal tender: Sudanese guinea, which replaced the Sudanese dinar in proportion SDG 1 = SDD 100 in mid-2007.
- After currency conversion to the new Sudanese guinea the Bank of Sudan (BOS) has allowed greater exchange rate flexibility than in 2006 and early 2007, suggesting a return to a floating exchange rate arrangement.
- Sudan maintains the following exchange restrictions (subject to Fund approval under Article VIII, Sections 2(a) and 3; approved by the Board to end-June 2010):
  - An exchange restriction and a multiple currency practice arising from the imposition by the government of a cash margin requirement for most imports.
  - An exchange restriction arising from the imposition of an absolute ceiling on foreign exchange for travel.
- Additional exchange measures were recently introduced and Fund staff were assessing these measures for compliance with Article VIII.

### Article IV Consultations, FSAP, and Resident Representation
- Sudan is on a 12-month consultation cycle.
- The last Article IV consultation discussion was concluded by the Executive Board on June 7, 2010.
- FSAP participation:
  - FSAP work took place during October 9–14, 2004 and was completed during December 1–14, 2004.
  - The Financial System Stability Assessment report was discussed by the Executive Board on April 29, 2005.
- Resident Representative:
  - The Fund’s resident representative office in Khartoum was opened in October 2005, as a shared post with Djibouti.
  - Converted to a full post in September 2006.

### Technical Assistance (2004–12) — Summary by Department, Type and Timing
- Fiscal Affairs Department (selected entries):
  - Revenue administration assessment (including METAC): Short-term; February and October 2005, May and August 2006, January 2007; Counterpart: Ministry of Finance (MOF)
  - Expenditure control and management: Short-term; April 2006; Counterpart: MOF
  - Restructuring of headquarters (METAC): Short-term; November 2007; Counterpart: MOF
  - Installation of STX (METAC): Short-term; March 2008; Counterpart: MOF
  - Tax and customs administration: Short-term; August 2006; Counterpart: MOF
  - Cash management and budget classification (GFS) (including METAC): Short-term; February 2004, May and September 2004, June and October 2005, April and October 2006, April, September and November 2007; Counterpart: MOF
  - Public Finance Management Diagnostic: Short-term; October 2006, June 2007; Counterpart: MOF
  - Implementing a TSA and improving cash management (including METAC): Short-term; June and July 2008; Counterpart: MOF
  - Self Assessment and Audit (METAC) and related items: Short-term; March 2008; January and February 2009; January 2009; Counterpart: MOF
  - Fuel subsidy reform: Short-term; April 2012; Counterpart: MOF
- Monetary and Capital Markets Department (selected entries):
  - Introduction of new national currency: Short-term; February and April 2005, January 2006, February and April 2007; Counterpart: Central Bank of Sudan (CBOS)
  - Monetary management and banking supervision: Short-term; March and April 2006; Counterpart: CBOS
  - Islamic compliant monetary instruments: Short-term; August 2006, May 2007; Counterpart: CBOS
  - Monetary policy operations: Short-term; September 2004, June 2006; Counterpart: CBOS
  - Banking supervision (METAC): Short-term; August 2005; Counterpart: CBOS
  - Central bank organization Resident Advisor: September 2005, Feb. 2006–August 2007; Counterpart: CBOS
  - Microfinance supervision and regulation: Short-term; December 2005; Counterpart: CBOS
  - Liquidity management and forecast: Short-term; March 2006, November 2007; Counterpart: CBOS
  - Payment systems: Short-term; November 2007; Counterpart: CBOS
  - Bank regulation and banking operations/supervision: Short-term; March and April 2006, May 2007; April and July 2006; August, September and December 2006; Counterpart: CBOS
  - Implementation of Islamic financial services board standards: Short-term; April 2008; Counterpart: CBOS
  - Currency handling and reform: Short-term; November 2006; Counterpart: CBOS
- Statistics Department (selected entries):
  - National accounts, CPI and PPI statistics: Short-term; April 2007; Counterpart: Central Bureau of Statistics (CBS)
  - Real sector statistics and CPI statistics (METAC): Short-term; March and September 2007, March 2008; Counterpart: CBS
  - Balance of payments statistics: Short-term; September 2006, January 2007; Counterpart: CBOS
  - General data dissemination system (GDDS): Short-term; June 2006, August and September 2007; Counterparts: CBS, MOF and CBOS
  - Assessing technical assistance needs in economic statistics (with METAC): Short-term; May–June 2005; Counterparts: CBS, MOF and CBOS
  - Government Financial Statistics: Short-term; October 2005, March 2007, July 2008; Counterpart: MOF
  - Monetary and Financial Statistics: Short-term; December 2005, June 2006, July 2007, July 2008; Counterpart: CBOS
  - Multisector Statistics: Short-term; April/May 2012; Counterparts: CBOS, MOF, CBS, TAT
- Legal Department:
  - Payment system law: Short-term; September 2007; Counterpart: CBOS

*ANNEX I. SUDAN: RELATIONS WITH THE FUND (As of July 31, 2012)*

### ANNEX IV. SUDAN: STATISTICAL ISSUES

### ANNEX IV. SUDAN: STATISTICAL ISSUES

### Assessment of Data Adequacy for Surveillance
- General assessment: Sudan’s current statistical data base appears broadly adequate for surveillance and program monitoring, but needs further improvements, including:
  - upgrading the base year, coverage, periodicity and timeliness of national accounts data;
  - improving labor market and direct investment data;
  - more detailed and comprehensive fiscal accounting.
- Institutional priorities:
  - Enhance the status of the Central Bureau of Statistics (CBS) with authority and resources to compile and disseminate official statistics and coordinate the national statistical work program.
  - Develop the five-year National Strategy for the Development of Statistics (2012-16).
  - Retool CBS’ computing infrastructure and increase funding to the CBS.

### National Accounts
- Current practices and shortcomings:
  - CBS lacks a comprehensive data collection program and relies largely on administrative reporting.
  - Economic surveys were last conducted in the 1970s and 1980s; benchmarks from these surveys inform current estimates of value added.
  - Compilation of GDP by activity depends heavily on indirect indicators of growth rates and price indicators that are less appropriate.
  - Informal activities are not covered and are likely significant in retail trade and construction.
  - National accounts are based on the System of National Accounts 1968 (SNA 1968).
  - Base year of the existing GDP constant price series (by activity and by expenditure) is 1981.
  - National accounts statistics are compiled with a lag exceeding three years; no sub-annual national accounts or industrial production data.
  - Expenditure side lacks data on final consumption by households, investment, and changes in stocks.
- Recommendations and medium-term objectives:
  - Adopt SNA 2008.
  - Rebase the national accounts.
  - Develop procedures to improve the timeliness of GDP estimates.
  - Rebuild capacity for conducting household, agricultural and enterprise surveys.

### Price Statistics
- Consumer Price Index (CPI):
  - Practices are good.
  - Monthly CPI data (base year=2007) are provided shortly after the end of each month.
  - Recommendation: develop plans for a new household expenditure survey to facilitate weight updates to the CPI.
- Producer Price Index (PPI):
  - CBS is developing, for the first time, a quarterly PPI for manufactured goods.
  - STA’s April 2012 multisector statistics mission conducted a preliminary assessment of PPI methods and procedures; raised issues regarding frame and sample size.
  - Mission advised on adjusting base year weights to reflect reduced contributions of oil to the Sudan economy.

### Government Finance Statistics (GFS)
- Current coverage and timeliness:
  - 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; exclude states and publicly owned corporations.
  - Data submitted using an economic classification; allocation of resources by MOFNE to ministries is reported, but their actual expenditures are not.
- Institutional and methodological gaps:
  - No significant progress in implementing GFS classifications at state and other sub-national governments and extra budgetary funds.
  - Responsibility for GFS compilation and dissemination is not assigned to any specific unit within MOFNE.
  - No comprehensive data reconciliations on government claims on and liabilities to the banking system.
  - Recording of “arrears securities” is not in line with GFSM guidelines.
- Priority actions:
  - Compile consolidated GFS for the general government to produce the statement of government operations.

### Monetary and Financial Statistics (MFS)
- Progress and coverage:
  - Sudan has received significant technical assistance to improve MFS collection, compilation, and dissemination.
  - STA’s 2012 multisector statistics mission found that all major recommendations from the 2007 MFS mission have been implemented.
  - Current coverage includes CBOS and 32 commercial banks (ODCs).
  - Due to South Sudan’s secession, Bank of South Sudan (BOSS) and conventional banks in South Sudan were excluded from CBOS and ODCs coverage beginning with July 2011 data.
  - Revised monthly statistical return used by all commercial banks to report data for compiling monetary statistics.
- Remaining issues and next steps:
  - Improve consistency in reporting of inter-bank data and the timeliness of data reporting and dissemination.
  - Develop a work program for collecting and compiling data on insurance corporations and pension funds for inclusion in monetary statistics.

### External Sector Statistics
- Current dissemination:
  - Daily exchange rate data are posted on the CBOS web page with minimal lags.
- Areas needing improvement:
  - Direct investment (DI), remittances, goods and services, capital transfers and oil statistics.
  - Lack of survey data affects compilation of balance of payments and IIP items such as direct investment.
  - BOS’s foreign exchange balances include reserves earmarked for particular purposes (medicine, oil, spare part imports); composition and usability of earmarked reserves in a BOP need is unclear.
  - Need clarification on what qualifies as reserve assets and earmarked reserves.
  - Initiate compilation of the data template on international reserves and foreign currency liquidity.
  - Medium-term oil production projections and data on amortization of private sector debt need substantial improvement.
  - Authorities have been reluctant to provide detailed information on phasing-in and expected production levels of new blocks and on amortization of debt in the oil sector.
- Mission assistance and support:
  - STA’s multisector statistics mission assisted CBOS in improving compilation of several balance of payments and IIP items, including correcting reserve asset positions that were incorrectly recorded with a negative sign for some months in 2011.
  - Mission advised on treatment of external debt arrears in the BOP and IIP and recommended steps to initiate collection of data on capital transfers.
  - METAC is providing ongoing support in implementing the DI survey.

### Data Standards and Quality
- Participation and metadata:
  - Sudan participates in the General Data Dissemination System (GDDS) since August 2003.
  - GDDS metadata and plans for improvement need to be updated.
  - No data ROSC is available.

### Reporting to STA
- Current reporting status:
  - Annual data reported for the Government Finance Statistics Yearbook cover only budgetary central government up to 1999.
  - No monthly and quarterly fiscal data are reported for the International Financial Statistics (IFS).
  - External trade statistics for inclusion in the Direction of Trade Statistics (DOTS) database are reported with significant lags.
  - National accounts data are not provided for publication in the IFS.
  - CBOS has compiled and reported to STA the Standardized Report Forms (SRFs) 1SR for the central bank and 2SR for ODCs for publication in the IFS.
  - CBOS reports quarterly balance of payments and annual IIP data to STA.
- Recommended follow-up:
  - Improve timeliness of data reporting and dissemination.
  - Submit updated GDDS metadata for dissemination on the Dissemination Standards Bulletin Board.

### Table of Common Indicators Required for Surveillance (As of August, 2012) — Selected entries
- Exchange Rates: Date of latest observation 8/28/2012; Date received 8/28/2012; Frequency: D; Frequency of Reporting: D; Frequency of Publication: D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation June 2012; Date received 7/19/2012; Frequency: M; Frequency of Reporting: M; Frequency of Publication: M
- Reserve/Base Money: Date of latest observation June 2012; Date received 7/19/2012; Frequency: M; Frequency of Reporting: W; Frequency of Publication: M/W
- Broad Money: Date of latest observation June 2012; Date received 7/19/2012; Frequency: W; Frequency of Reporting: W; Frequency of Publication: M/W
- Central Bank Balance Sheet: Date of latest observation June 2012; Date received 7/19/2012; Frequency: M; Frequency of Reporting: M; Frequency of Publication: M
- Consolidated Balance Sheet of the Banking System: Date of latest observation June 2012; Date received 7/19/2012; Frequency: M; Frequency of Reporting: M; Frequency of Publication: M
- Interest Rates: Date of latest observation 12/31/05; Date received 1/09/06; Frequency: W; Frequency of Reporting: M; Frequency of Publication: M/W
- Consumer Price Index: Date of latest observation July 2012; Date received 8/8/2012; Frequency: M; Frequency of Reporting: M; Frequency of Publication: M
- Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation 2012:Q2; Date received August 2012; Frequency: M; Frequency of Reporting: M; Frequency of Publication: M
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation 2012:Q1; Date received May 2012; Frequency: A; Frequency of Reporting: A; Frequency of Publication: A
- External Current Account Balance: Date of latest observation 2012:Q1; Date received May 2012; Frequency: Q; Frequency of Reporting: Q; Frequency of Publication: Q
- Exports and Imports of Goods and Services: Date of latest observation 2012:Q1; Date received May 2012; Frequency: M; Frequency of Reporting: M; Frequency of Publication: M
- GDP/GNP: Date of latest observation 2011; Date received May 2012; Frequency: A; Frequency of Reporting: A; Frequency of Publication: A
- Gross External Debt: Date of latest observation 2012:Q1; Date received May 2012; Frequency: A; Frequency of Reporting: A; Frequency of Publication: A
- International Investment Position: Date of latest observation 2011; Date received June 2012; Frequency: A; Frequency of Reporting: A; Frequency of Publication: A

### Debt Sustainability Analysis — Key findings (selected)
- The 2012 debt sustainability analysis (DSA) confirms that Sudan continues to be in debt distress.
- Drivers of debt deterioration:
  - Further accumulation of new external arrears.
  - Increased domestic borrowing.
  - Permanent deterioration of macroeconomic fundamentals after secession of South Sudan in July 2011.
- Projections and risks:
  - Debt dynamics under the baseline scenario are projected to remain unfavorable—with all debt ratios but one breaching their indicative thresholds even through the long term.
  - It will be critical for Sudan to follow sound economic policies consistent with a prudent borrowing strategy, and to garner support for debt relief.
- Background and eligibility for relief:
  - Sudan potentially eligible for debt relief under different initiatives, including the Heavily Indebted Poor Countries Initiative (HIPC) Initiative; Sudan is included in the list of ring-fenced countries.
  - Government progress toward HIPC decision point includes:
    - Reconciled over 90 percent of the end-2010 external debt stock in collaboration with creditors.
    - Parliament approved an interim-PRSP in June 2012.
    - Sudan has implemented 13 Staff-Monitored Programs (SMPs) with the Fund since 1997.
  - Sudan indicated desire to continue cooperation with the Fund, including in the framework of a new SMP.
  - Re-engagement with development partners is necessary for comprehensive arrears clearance and debt relief.
- Structure of external debt (end-2011):
  - Stock of external debt: about US$41.5 billion (65 percent of GDP).
  - 84 percent of external debt was in arrears.
  - Public and publicly guaranteed (PPG) debt: US$39.9 billion, with 87 percent in arrears.
  - Ownership of PPG debt: 73 percent to bilateral creditors (roughly equally divided between Paris and non-Paris Club creditors), 13 percent to multilateral and commercial creditors.
  - Private external debt to suppliers: US$1.6 billion.
- Present value (PV) indicators (end-2011):
  - PV of total external PPG debt: US$71 billion.
  - PV equals 112 percent of GDP, 605 percent of exports and 625 percent of revenues.
  - Note: 2012 deterioration of external debt indicator ratios reflects denominator effects from sharp drop in GDP, exports and government revenues after secession and substantial currency depreciation.
- New borrowing and debt service (2010–2011):
  - Core strategy: keep new nonconcessional external borrowing under the US$700 million ceiling.
  - New PPG loans contracted: US$419 million in 2010 and US$857 million in 2011.
    - Share nonconcessional: 64 percent in 2010 and 77 percent in 2011.
  - New debt directed mainly to agriculture, services and energy sectors; mainly provided by multilateral or non-Paris Club creditors.
  - No new private external debt in decades.
  - Repayments were partial; further accumulation of external arrears continued.
  - Actual PPG debt service: US$395 million in 2010 and US$288 million in 2011.
  - Total due PPG debt service (including late interest and penalties): US$2.2 billion in 2010 and US$2.1 billion in 2011.
  - PPG disbursements: US$575 million in 2010 and US$606 million in 2011.
  - No private external debt was serviced.

*ANNEX IV. SUDAN: STATISTICAL ISSUES (As of July 31, 2012).*

### 8.      Domestic public debt is relatively small (11.5 percent of GDP at end-2011), but has been

### _cr12298 - 8.      Domestic public debt is relatively small (11.5 percent of GDP at end-2011), but has been

### Domestic public debt: levels and composition
- Domestic public debt was 11.5 percent of GDP at end-2011.
- Time series of domestic public debt (SDG):
  - SDG 2.1 billion in 2000
  - SDG 6.3 billion in 2005
  - SDG 19.8 billion in 2011
- Primary drivers: primary deficits continuously financed by domestic resources.
- Maturity composition in 2011:
  - Medium-term obligations: 66 percent of domestic debt
  - Long-term debt: 19 percent of domestic debt
  - Short-term debt: 15 percent of domestic debt

### Total public debt: recent trajectory and present levels
- Total public debt increases:
  - SDG 49 billion in 2000
  - SDG 65 billion in 2005
  - SDG 137 billion (74 percent of GDP) at end-2011
- Main contributing factors:
  - Increase in stock of debt denominated in foreign currency, including a devaluation effect.
- Present value (PV) of public sector debt:
  - PV of public sector debt-to-GDP ratio stood at 124 percent of GDP at end-2011.

### Underlying assumptions for the DSA
- This DSA accounts for the secession-induced reduction of Sudan’s economic potential while extrapolating current debt dynamics.
- Data sources:
  - Provided by Sudanese authorities or estimated and projected by Fund and World Bank staffs.
  - External debt data for 2010 and onwards reconciled with information from the 2011 debt reconciliation exercise.
- Methodological choices:
  - The DSA refrains from presenting alternative scenarios based on speculative external debt relief or apportionment settlement between Sudan and South Sudan.
  - Assumes Sudan remains current on debt service falling due on disbursed outstanding debt (DOD), but not on creditors that still disburse only.

### Box 1 — Macroeconomic assumptions 2012–32 (summarized)
- Natural resources:
  - Secession-induced loss of ¾ of oil production.
  - Oil accounts for 3 to 5 percent of GDP, 20 to 25 percent of government revenue, and 35 to 40 percent of exports.
  - Gold exports have tripled since 2009.
  - Oil production outlook:
    - 2012 production expected to decline by 60 percent to 117 to 120 thousand barrels per day (bpd).
    - Production expected to increase starting in 2013 with a peak near 240 thousand bpd in 2020, then decline to about 144 thousand bpd in 2030.
  - Gold production: projected to increase by 3 percent per year until 2020 and to decline by 3 percent after 2026.
  - Price outlook:
    - Average around US$83 per barrel over the medium term.
    - Around US$79 per barrel in the longer term.
- Real sector:
  - Real GDP growth: expected to gradually increase to 4.2 percent until 2017 and then average 4.6 percent over 2018–32.
  - Inflation (GDP deflator): after averaging 13.6 percent over the medium term, projected to come down to 6 percent by 2032.
- Fiscal sector and domestic debt:
  - Projected fiscal deficit averages 2.3 percent of GDP during 2012–17.
  - During 2018–32, fiscal deficit expected to average 2.6 percent of GDP.
  - Budget deficits financed mostly domestically, assuming no further accumulation of arrears.
- External sector and financing:
  - Exports grow until 2020 then gradually contract.
  - Import coverage averaging 3.1 percent of GDP or 2 months of imports over 2018–32.
- External debt:
  - New loan disbursements projected at about 1.3 percent of GDP during 2012–17, and 1.2 percent during 2018–32.
  - Share of new concessional loans kept at around one third.
  - From 2012, Sudan assumed to remain current on scheduled debt service on disbursed outstanding debt (including new borrowing), but continue to fail to service obligations arising from the stock of arrears.

### External sector DSA — Baseline scenario findings
- Main outcome: sustained breach of indicative thresholds for poor performers well into 2032; substantially worse than the 2010 DSA.
- Primary reasons for deterioration:
  - Secession-induced deterioration in fundamentals.
  - More complete external debt portfolio from 2011 reconciliation.
- Debt dynamics drivers:
  - Growing stock of arrears more important than new debt.
- Long-term trend:
  - Most external debt indicator ratios (except those related to collapsing exports) exhibit a declining trend but remain well above policy-dependent debt burden thresholds.
  - Debt service-to-revenue ratio shows some improvement toward the end of the projected period (caution: DSA does not assume any external arrears clearance strategy and timeline).

- Indicative thresholds (excerpted from Table 3):
  - PV of debt-to-GDP: 30|170|114|75 (2012|2022|2032?) [table formatting preserved as in source]
  - PV of debt-to-exports: 100|1567|1046|1432
  - PV of debt-to-revenues: 200|1468|1011|657
  - Debt service-to-exports: 15|372|336
  - Debt service-to-revenues: 18|352|216

### External sector DSA — Alternative scenario and bound tests
- Alternative scenario (Table 5, Scenario A1):
  - A financing scenario with a 2 percentage points higher interest rate on new public loans.
  - Relative to baseline, all debt burden indicators only marginally deteriorate.
  - Reason: debt dynamics driven more by massive stock of arrears than by contracting new debt.
- Bound tests (Table 5, Scenarios B1–B6):
  - Confirm vulnerability to unexpected external shocks.
  - PV of debt-to-GDP, PV of debt-to-revenue and debt service-to-revenue ratios most vulnerable to a One-time depreciation shock.
  - PV of debt-to-exports and debt service-to-exports ratios more sensitive to an exports shock.

### Public sector DSA — Baseline scenario findings
- Public DSA mirrors external DSA debt stock and service indicators.
- 2012 effects:
  - Owing to sharp currency depreciation, PV of public sector debt-to-GDP ratio jumps to over 180 percent in 2012 before declining to about 156 percent in 2017.
- Debt service-to-revenue ratio:
  - Projected to decline from 42 percent in 2012 to 36 percent by end of projection horizon.

### Public sector DSA — Alternative scenarios and bound tests
- Alternative scenarios (Table 7, Scenarios A1–A3):
  - Public debt sustainability depends on improving fiscal soundness and growth potential, particularly in the non-oil economy.
  - No reform scenario (A2): primary balance remains unchanged from the relatively high 2012 level:
    - PV of debt-to-GDP for 2032: 89 percent
    - Debt service-to-revenue for 2032: 34 percent
  - Permanently lower GDP growth scenario (A3):
    - PV of debt-to-GDP for 2032: over 120 percent
    - Debt service-to-revenue for 2032: over 50 percent
- Bound tests (Table 7, Scenarios B1–B5):
  - One-time 30 percent real depreciation in 2013 (B4) produces the worst outcomes:
    - PV of debt-to-GDP in 2032: almost 130 percent
    - PV of debt-to-revenue in 2032: over 1100 percent
    - Debt service-to-revenue ratio in 2032: 56 percent

### Conclusion and policy implications
- Debt distress status:
  - Sudan remains in debt distress.
  - All external debt burden ratios remain well above indicative thresholds during the projection period (except for debt service-to-revenue at the end of the projection horizon).
  - Overall public sector debt dynamics remain unsustainable given the current size and projected dynamics of the domestic debt stock.
- Implications for debt relief and assistance:
  - Even after traditional and HIPC Initiative assistance, Sudan is likely to be left with a sizeable external debt requiring either servicing or further assistance.
  - Potential further assistance options mentioned: Paris Club “beyond HIPC” bilateral debt relief, Multilateral Debt Relief Initiative (MDRI) or MDRI-like debt relief.
- Risk rating:
  - The risk rating remains unchanged with respect to the previous 2010 DSA.

*International Monetary Fund — SUDAN 2012 ARTICLE IV REPORT — DEBT SUSTAINABILITY ANALYSIS (content unit _cr12298)*

### 17.      Prudent public debt and macro policies, especially under a successor SMP, are critical to

### _cr12298 - 17.      Prudent public debt and macro policies, especially under a successor SMP, are critical to

### Policy recommendations and strategic priorities
- Sudan’s debt strategy should:
  - avoid reliance on nonconcessional borrowing;
  - secure external support on highly concessional terms;
  - increase the grant element of external borrowing received to finance necessary development and infrastructure expenditures.
- Recourse to non-concessional borrowing “further increases the future debt burden, undermining debt sustainability even after possible debt relief.”
- To address DSA-highlighted vulnerabilities, Sudan should:
  - strengthen its external and fiscal stance;
  - provide a more stable political and business environment.
- Prudent public debt and macro policies, especially under a successor SMP, are critical to secure access to possible debt relief under the Enhanced HIPC Initiative and MDRI.

### Debt sustainability diagnostics and key indicators (selected)
- PV of external debt (selected projections and observations as reported):
  - PV of external debt (series): 114.4; 172.8; 174.7; 168.1; 161.1; 153.2; 143.8; 116.8; 76.5
  - PV of PPG external debt (series): 111.9; 169.7; 171.2; 164.7; 157.8; 150.0; 140.8; 114.3; 74.6
- Ratios and service indicators:
  - Debt service-to-exports ratio (in percent) sample: 25.8; 17.1; 18.3; 37.7; 34.1; 30.8; 27.6; 25.6; 25.0; 23.3; 36.7
  - PPG debt service-to-revenue ratio (in percent) sample: 24.9; 18.2; 18.7; 34.9; 34.6; 33.3; 31.5; 29.3; 27.6; 22.0; 16.3
  - Total gross financing need (Billions of U.S. dollars) sample: 3.1; -1.0; -1.9; 2.5; 1.6; 0.9; 0.9; 0.8; 0.9; 0.9; 0.5

### Financing composition and grant-equivalent metrics
- Grant element of new public sector borrowing (in percent): reported consistently as 27.5 for multiple projection years; later values include 26.7; 25.3; 26.2 in series.
- Grant-equivalent financing (in percent of GDP) sample: 2.0; 1.8; 1.8; 1.7; 1.6; 1.4; 1.0; 0.6; 0.9
- Grant-equivalent financing (in percent of external financing) sample: 55.2; 64.9; 64.4; 63.2; 61.8; 60.1; 52.6; 40.0; 48.7
- Aid flows (in Billions of US dollars) sample: 0.4; 0.6; 0.7; 1.0; 0.9; 0.9; 0.9; 0.9; 0.8; 0.6
  - of which: Grants: 0.0; 0.4; 0.5; 0.7; 0.7; 0.7; 0.7; 0.6; 0.6; 0.5; 0.4
  - of which: Concessional loans: 0.3; 0.2; 0.2; 0.3; 0.2; 0.2; 0.2; 0.2; 0.2; 0.2

### Key macroeconomic and fiscal assumptions used in the DSA (selected)
- Real GDP growth (in percent) sample series: 3.2; 3.5; -3.3; 5.4; 4.2; -11.1; -0.6; 2.1; 3.0; 3.9; 4.7; 0.3; 4.3; 4.7; 4.6
- GDP deflator in US dollar terms (change in percent) sample: -5.4; 18.6; 2.0; 11.5; 8.4; -9.4; -8.0; -0.2; 2.3; 2.1; 2.9; -1.7; 1.6; 1.4; 1.6
- Effective interest rate (percent) sample: 5.2; 5.0; 4.4; 5.0; 0.4; 4.1; 3.9; 3.7; 3.6; 3.5; 3.4; 3.7; 2.9; 2.3; 2.7
- Growth of exports of G&S (US dollar terms, in percent) sample: -35.4; 52.7; -8.7; 26.4; 27.5; -52.8; 9.4; 12.4; 8.6; 4.7; 3.8; -2.3; -1.2; -1.2; -0.5
- Government revenues (excluding grants, in percent of GDP) sample: 16.5; 18.6; 17.9; 11.6; 12.6; 13.0; 12.7; 12.5; 12.5; 11.3; 11.4; 11.5
- Grant element assumed on residual financing (memorandum item): 26; 26; 26; 26; 26; 26; 26

### Stress tests and sensitivity analysis (selected outcomes)
- The most extreme stress test is defined as “the test that yields the highest ratio in 2022.”
  - In different indicators this most extreme shock corresponds to:
    - One-time depreciation shock (figure b and d);
    - Exports shock (figure c and e).
- Table outcomes under alternative scenarios and bound tests (selected entries):
  - PV of debt-to-GDP ratio baseline samples: 170; 171; 165; 158; 150; 141; 114; 75
  - PV of debt-to-exports ratio baseline samples: 1567; 1321; 1006; 1046; 1432 (as reported in table contexts)
  - Debt service-to-revenue ratio baseline samples: 1468; 1354; 1265; 1240; 1198; 1127; 1011; 657
- Sensitivity table highlights:
  - A1 (new public sector loans on less favorable terms): assumption example — interest rate on new borrowing is by 2 percentage points higher than in the baseline (grace and maturity periods same).
  - B6 (one-time 30 percent nominal depreciation relative to the baseline in 2013) produces notably higher ratios in several indicators (e.g., PV and service ratios rise markedly in the 2013-2014 window).

### Public sector debt dynamics (selected aggregates and drivers)
- Public sector debt (percent of GDP) sample series: 72.5; 74.0; 74.1; 111.8; 115.6; 113.9; 111.8; 109.0; 105.0; 97.7; 78.7; 78.1
- Change in public sector debt (percent of GDP) sample: 3.1; 1.5; 0.1; 37.7; 3.9; -1.7; -2.2; -2.7; -4.0; -1.0; -1.9
- Identified debt-creating flows (percent of GDP) sample: 0.6; -7.7; -3.7; 33.0; 0.0; -5.4; -5.9; -6.4; -7.4; -3.4; -2.2
- Primary deficit that stabilizes the debt-to-GDP ratio (sample): -3.0; -4.7; -2.6; -38.2; -5.6; -1.1; -0.7; 0.1; 1.4; 0.5; 2.7

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12298.pdf*

### 3.4 percent and inflation picking up at about 18.5 percent. Delays in responding to the fiscal

### _cr12298 - 3.4 percent and inflation picking up at about 18.5 percent. Delays in responding to the fiscal

### Macroeconomic developments and key indicators
- Real GDP (at factor costs): 3.0, 3.2, 3.5, -3.3, -11.1, -0.6 (2008–2013 series as presented)
- Consumer prices (period average): 14.3, 11.2, 13.1, 18.3, 28.6, 17.0 (2008–2013)
- 2011: overall fiscal deficit of 1.3 percent of GDP despite low execution rate of the investment budget.
- Reserve money growth associated with deficit financing by the banking system: 28 percent (period referenced in text).
- Credit to the economy growth: about 8 percent (period referenced in text).
- Balance of payments in 2011: exports declined by an estimated 13 percent; imports declined by an estimated 7.5 percent.
- 2011 current account deficit: ½ percent of GDP.
- First half of 2012: revenue under-performed by some 30 percent versus spending execution rate of 95 percent.
- By end-July 2012: 12-month inflation exceeded 40 percent.
- Premium on the US dollar over 100 percent by end-June 2012 (parallel/curb market pressures).
- June 2012 reform package included a step devaluation of the official exchange rate: 66 percent.

### Monetary aggregates and exchange rates (selected)
- Reserve money growth: 28 percent (associated with deficit financed by banking system).
- First half of 2012: both reserve money and broad money grew by 24 percent.
- Broad money (annual changes): 16.4, 24.1, 24.9, 17.7, 38.4, 17.4 (2008–2013)
- Credit to the economy (annual changes): 15.6, 20.2, 16.4, 8.0, 18.1, 15.0 (2008–2013)
- Exchange rate: SDGs per U.S. dollar, end of period: 2.18, 2.24, 2.48, 2.68, ...... (period average: 2.09, 2.30, 2.31, 2.67, ......)

### Fiscal developments and public finance
- Revenue and Grants (percent of GDP): 24.0, 16.5, 19.3, 18.7, 12.9, 14.1 (2008–2013)
- Total expenditure (percent of GDP): 24.1, 20.7, 19.6, 20.0, 16.6, 17.3 (2008–2013)
- Overall balance (percent of GDP): -0.1, -4.2, -0.4, -1.3, -3.7, -3.2 (2008–2013)
- Nonoil primary balance (percent of nonoil GDP): -7.1, -6.4, -4.9, -6.1, -6.2, -6.2 (2008–2013)
- Gross capital formation (percent of GDP): 18.3, 18.6, 16.0, 15.7, 15.1, 15.6 (2008–2013)
- Gross Savings (percent of GDP): 16.4, 8.6, 13.9, 15.2, 7.8, 9.2 (2008–2013)

### External sector and reserves
- Exports of goods (US$, annual change in percent): 30.9, -36.0, 57.0, -12.9, -55.4, 9.4 (2008–2013)
- Imports of goods (US$, annual percent change): 6.6, 3.6, 3.1, -7.5, -17.6, -3.6 (2008–2013)
- Gross international reserves (in millions of U.S. dollars): 1,816; 1,370; 1,566; 1,325; 1,074; 1,155 (2008–2013)
- Reserves in months of next year's imports of goods and services: 2.1, 1.5, 1.8, 1.8, 1.5, 1.6 (2008–2013)
- Total external debt (percent of GDP): 60.2, 66.0, 60.9, 64.8, 84.9, 96.7 (2008–2013)
- Total external debt (in US$ billion): 32.6, 34.9, 39.5, 41.4, 43.7, 45.6 (2008–2013)

### Executive Board Assessment — summary of Directors' views
- Main challenges: restore macroeconomic stability and growth prospects after secession of South Sudan.
- Fiscal policy: fiscal adjustment grounded on a sound medium-term framework is central to stabilization.
- Directors welcomed measures to enhance revenue collection and rationalize expenditure.
- Recommended measures:
  - Phase-out remaining fuel subsidies in parallel with strengthening social safety nets.
  - Greater public sector wage restraint.
  - Better public expenditure management.
  - Widen the tax base, improve tax administration, and streamline taxation of extractive industries.
  - Reforms of state finances to improve overall fiscal position.
- Monetary policy recommendations:
  - Merit in further monetary tightening given high inflation and exchange rate pressures.
  - Refrain from deficit monetization.
  - Switch to a reserve money anchor.
  - Improve coordination between monetary and fiscal authorities.
  - Greater independence for the Bank of Sudan.
  - Develop interbank market and auctions of central bank securities to absorb excess bank liquidity.
  - Discontinue central bank gold-trading operations and unify official foreign exchange rates.
  - Pursue greater exchange rate flexibility.
- Structural reform priorities:
  - Comprehensive civil service reform.
  - Banking sector restructuring.
  - Ambitious privatization program.
  - Improving governance.
  - Restructuring or privatization of public enterprises and measures to improve the business climate to boost private-sector-led growth.
  - Comprehensive assessment of the banking system.

### Policy actions taken by authorities (June 2012 package and related)
- Adopted measures in June 2012:
  - Step devaluation of the official exchange rate: 66 percent.
  - Increase in taxes.
  - Bold reduction in energy subsidies.
  - Cuts in non-priority spending.
  - Expansion of social safety nets.
- Authorities' measures to stabilize exchange rate and reserves included administrative restrictions and rationing imports; these were noted as unsuccessful in preventing depreciation in the curb market prior to the June package.
- Authorities were encouraged to continue payments to the Fund and step up dialogue with creditors and donors to garner support for debt relief.

### Sudanese authorities' statement (Moeketsi Majoro, Executive Director for Sudan, September 21, 2012) — key points
- Secession impact: loss of oil revenues and foreign currency reserves precipitated macroeconomic instability, unsustainable debt situation, protracted balance of payments problems, widening current account deficit, exchange rate and inflation pressures, high fiscal deficit, growing debt burden, high poverty and unemployment.
- Policy commitment: authorities committed to policy adjustments and structural reforms and seek technical and financial support from development partners.
- Growth and diversification targets and plans:
  - Five-Year Strategic Plan 2012-2017 aiming to achieve 6 percent growth by 2016 with increased private sector participation.
  - Three-Year Emergency Program to restore macroeconomic stability.
  - Emphasis on agricultural production (wheat, cooking oil), expand exports of cotton and animal products, increase cultivated land, partnerships with China, Brazil and Australia.
  - Extend and annex the Green Revolution Plan 2008-11 to the Five-Year Strategic Plan.
  - Oil sector target: increase oil production from current 115,000 to 180,000 barrels per day by end 2012 (from new discoveries and more efficient technology).
  - Plans to expand three refineries in Khartoum, Elobayed, and Port Sudan.
  - Enhance exploration and mining of gold; Hassai Gold Mine, Dalgo Gold Mines, and Ariab Mining Company involved in production; plans for a gold refinery and commodity market.
- Fiscal policy measures in revised FY2012 budget:
  - Expenditure-side: cut number of constitutional posts; reduce privileges and entitlements of constitutional post holders; prioritize government spending; tighten government procurement; encourage local purchases; rationalize allocation of fuel to government departments; continue liquidation and privatization of government companies.
  - Revenue-side: increase development tax on imports from 10 to 13 percent except for capital commodities, production inputs, and some essential commodities; increase VAT from 15 to 17 percent; increase business profit tax from 15 to 30 percent.
  - Social cushioning measures: lift fuel subsidies gradually; reduce customs duty on dry milk and edible oil; retain tax and duty exemptions on imported wheat, flour, sugar, pharmaceutical drugs and food additives; increase direct government support beneficiaries from 500,000 to 750,000 poor households.
- Gold and agriculture tax stance: authorities concerned that taxing gold could spur smuggling and loss of foreign reserves; agricultural taxes seen as inappropriate as they would tax the poor reliant on agriculture.
- Agreement with South Sudan reached "last month" (relative to September 21, 2012 statement) on oil transit fees and transitional financial assistance:
  - Transit fee set at US$11 per barrel for crude oil from Unity state and US$9.10 for Upper Nile state oil for a period of three and half years.
  - Payment of US$3 billion agreed as part of transitional financial assistance expected to cover one third of the authorities’ budget for the oil revenue lost in the first six months of FY2012.
  - Implementation conditional on agreement on remaining CPA 2005 issues, especially border security.
- Monetary policy observations and actions:
  - Inflation rose from 30 percent in May 2012 to 37 percent in June and 42 percent in July (authorities’ reported series).
  - Authorities attribute inflation to imported inflation via heavily depreciated parallel exchange rate used in international payments and to central bank gold purchases at the parallel rate and selling at the official rate as a liquidity injection channel.
  - Central Bank of Sudan measures to reduce money supply: raising banks’ cash reserves and undertaking open market operations.
  - Authorities favour a flexible exchange rate regime implemented gradually and comprehensively to avoid escalating inflation.
  - Measures to stabilize exchange rate: rationing imports, increasing gold and agricultural exports, receiving foreign deposits from friendly partners to build official foreign reserves, depreciation of indicative and commercial banks trading rates to align with parallel rate.
- Debt relief and Fund engagement:
  - Progress on technical aspects of debt relief and debt reconciliation.
  - IPRSP passed by parliament and ready for sharing with IMF and World Bank.
  - Authorities continued payments to clear arrears with the Fund though amounts reduced.
  - Concerns about feasibility of reaching decision point of debt relief before expiry of the “Zero Debt Option” in July 2013.
  - Authorities seek resolution of political issues surrounding debt relief.
- Relationship with South Sudan:
  - Outstanding CPA 2005 issues: security arrangements, border demarcations, final status of Abyei, cross-border trade, status of nationals residing in both countries.
  - Authorities committed to timely resolution to ensure peaceful coexistence and improved trade relations.

### Conclusion (authorities' view)
- Authorities face critical challenges restoring macroeconomic stability and revamping growth; commitment to policy adjustment and reforms is stated but momentum is threatened by limited external resources and possible delays in debt relief decision point.
- Authorities request continued policy advice, technical support, and external assistance to address constraints.

*International Monetary Fund — Public Information Notice and staff report material as provided in the content unit.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12298.pdf_