IMF Staff Completes 2017 Article IV Visit to Sudan

IMF News, September 27, 2017

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Economic conditions in Sudan remain challenging in the face of persistent fiscal deficits, high inflation, and economic sanctions.
The bulk of oil production and exports remain in South Sudan following separation six years earlier, constraining Sudan’s economy.
A difficult external environment—limited access to external financing, trade and financial sanctions, and withdrawal of correspondent bank relations—continues to constrain the economy.
Sudan is in debt distress and is eligible for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative.
The IMF staff team had constructive discussions with the Sudanese authorities and welcomed Sudan’s efforts to strengthen cooperation with the IMF on policies and payments.

2016:
- Economic activity growth: 3.5 percent.
- Inflation: 17.8 percent.
- Fiscal deficit: 1.6 percent of GDP.
- External trade deficit: moderated owing largely to the depreciation of the real exchange rate.
2017 (projections/observations during visit):
- Growth expected to be limited to 3.2 percent due to weaker domestic demand and a reduction in energy subsidies in late 2016.
- Inflation rose to 34 percent in July, driven by higher energy prices and rapid monetary expansion to finance remaining subsidies.
- Fiscal deficit expected to widen to 2 percent of GDP.
- External current deficit moderating due to higher energy prices and a depreciated real exchange rate, but international reserves remain low.

Unsustainable fiscal deficits persist and are being monetized, contributing to inflationary pressures.
Rapid monetary expansion to finance subsidies has pushed inflation sharply higher.
Large external debt, arrears, and economic sanctions hinder access to external financing and weigh heavily on development.
Withdrawal of correspondent bank relations and trade/financial sanctions limit international transactions and investment.

Accelerate bold and broad-based reforms to restore macroeconomic stability and promote inclusive growth.
Allow greater exchange rate flexibility to:
- Reduce the external trade deficit.
- Increase competitiveness.
- Encourage foreign direct investment.
Increase fiscal revenue to:
- Create space for investment in public infrastructure and human capital.
- Reduce the fiscal deficit and its monetization.
Implement tighter monetary policy to reduce inflation.
Phase out costly and untargeted energy subsidies to facilitate monetary stabilization.
Expand social safety nets to support the most vulnerable during adjustment.
Implement reforms to improve the business environment to engender strong, broad-based growth.
Continue engagement with international partners to secure comprehensive support for debt relief and the lifting of sanctions to pave the way for foreign investment and financing for growth and poverty reduction.

Press Release No. 17/373 — September 27, 2017