A team from the International Monetary Fund (IMF) led by Daniel Kanda
visited Khartoum from September 13–September 26 to hold discussions on
the 2016 Article IV Consultation with Sudan. At the conclusion of the
visit, Mr. Kanda issued the following statement:
“Economic conditions in Sudan remain challenging six years after South
Sudan separated, with the bulk of oil production and exports remaining in
its territory. Since then, the authorities have embarked on reforms to help
stabilize the economy and reestablish growth, including by allowing for
greater exchange rate flexibility and reducing energy subsidies. While
these reforms are important steps in the right direction, more needs to be
done to turn the tide toward sustained macroeconomic stability and
broad-based growth. A difficult external environment, including limited
access to external financing, trade and financial sanctions, and withdrawal
of correspondent bank relations has continued to constrain the economy.
Thus, unsustainable fiscal deficits persist, inflation is high, and
economic growth remains below potential.
“In 2016, economic activity grew at a modest rate of 3.5 percent while
inflation increased to 17.8 percent. The fiscal deficit was stable at 1.6
percent of GDP despite shortfalls in oil related revenues, and the external
trade deficit moderated owing largely to the depreciation of the real
exchange rate. In 2017, weaker domestic demand—partly due to a reduction in
energy subsidies by the government in late 2016—is expected limit growth to
3.2 percent. The impact of higher energy prices and rapid monetary
expansion to help finance large remaining subsidies pushed inflation to 34
percent in July. The fiscal deficit is expected to widen to 2 percent of
GDP. While the external current deficit is moderating due to the impact of
higher energy prices and a depreciated real exchange rate, international
reserves remain low.
“The medium-term outlook hinges on implementing bold and broad-based
reforms and improvements in the external environment. The team encouraged
the authorities to accelerate reforms to restore macroeconomic stability
and promote inclusive growth. Greater exchange rate flexibility should help
reduce the external trade deficit, increase competitiveness, and encourage
much needed foreign direct investment. Increasing fiscal revenue is needed
to create space for investment in public infrastructure and human capital,
while reducing the deficit to curtail its monetization. Tighter monetary
policy is needed to reduce inflation and would be greatly facilitated by
phasing out costly and untargeted energy subsidies. The expansion of social
safety nets to support the most vulnerable and reforms to improve the
business environment to engender strong, broad-based growth are also
critical. These reforms and positive decision on the permanent revocation
of economic and financial sanctions would significantly improve Sudan’s
economic prospects.
“Sudan is in debt distress and is eligible for debt relief under the
Heavily Indebted Poor Countries (HIPC) Initiative. The large external debt
and arrears and economic sanctions hinder access to external financing and
weigh heavily on development. The team encouraged the authorities to
continue to engage with international partners to secure comprehensive
support for debt relief and the lifting of sanctions, which would pave the
way for foreign investment and financing for growth and poverty reduction.
The team welcomed Sudan’s efforts to strengthen cooperation with the IMF on
policies and payments.
“The IMF staff team had constructive discussions with the Sudanese
authorities on economic developments and policies over the past two weeks
and wishes to thank the authorities for their hospitality and cooperation.”
