IMF Executive Board Concludes 2017 Article IV Consultation with Sudan
IMF News, December 11, 2017
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- Published: December 11, 2017
Economic context and recent policy steps
- On November 29, 2017, the Executive Board concluded the Article IV consultation with Sudan.
- Economic conditions have been challenging since the secession of South Sudan in 2011 and the loss of the bulk of oil production and exports.
- Constraining external environment factors: arrears and limited access to external financing, U.S. sanctions, and the withdrawal of correspondent bank relations.
- Authorities’ recent policy adjustments: allowing for greater exchange rate flexibility and reducing fuel subsidies; described as helpful but insufficient for sustained macroeconomic stability and broad‑based growth.
- Recent revocation of U.S. sanctions would amplify benefits from decisive implementation of ambitious reforms.
Growth, external balances, and inflation
- Current account deficit (cash basis) expected to decline by 3.25 percentage points to 2.75 percent of GDP in 2017, reflecting:
- strong depreciation of the parallel exchange rate and introduction in late 2016 of a commercial bank incentive rate close to the parallel rate for many formal transactions;
- fuel and electricity price hikes in November 2016, which helped curb domestic demand;
- quantitative import restrictions adopted in 2016;
- improved terms of trade.
- GDP growth:
- Estimated 3.5 percent in 2016, led by private and public consumption and a positive contribution from net exports.
- Projected 3.25 percent growth for 2017 (data for the first half of 2017 indicate weaker real domestic demand partly offset by strengthening net exports, notably due to lower imports).
- Inflationary pressures:
- Loose policy settings are fueling inflationary pressures.
- Access to foreign currency at the overvalued official exchange rate for socially sensitive imports leads to quasi‑fiscal activities that result in continued monetization, causing monetary aggregates to expand rapidly and increasing inflationary pressures.
Fiscal and monetary framework
- On‑budget fiscal indicators:
- On‑budget fiscal deficit expected to widen from 1.6 percent of GDP in 2016 to 1.8 percent of GDP in 2017.
- This outcome is slightly better than the budget target (2 percent of GDP), as revenue shortfalls (largely oil related) have been more than offset by expenditure restraint in goods and services, capital expenditure, and transfers to state governments.
- Policy implications:
- Exchange rate unification is critical to eliminate distortions that hamper investment and growth; many Directors saw merit in an upfront unification, while some Directors supported a gradual approach to mitigate risks of overshooting and adverse social impact.
- Fiscal consolidation needed to entrench macroeconomic stability and create space for priority public spending; measures suggested include strengthened revenue mobilization, streamlined tax exemptions, phasing out costly fuel and wheat subsidies, and greater use of targeted cash transfers.
- Tighter monetary policy is needed to keep inflation in check; limits on central bank monetization of fiscal deficits should be reinforced.
- Until direct inflation targeting building blocks are in place, a reserve money targeting framework would be helpful under a flexible exchange rate regime.
- Central bank capacity upgrading to supervise and mitigate financial stability risks is encouraged.
- Continued efforts to strengthen the AML/CFT framework were welcomed.
Debt status and engagement with creditors
- Sudan remains in debt distress and is eligible for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative.
- Public and external debt remain high and unsustainable; most external debt are in arrears.
- Sudan’s arrears to the Fund declined to SDR 966.3 million at end‑September 2017.
- Authorities plan to continue engaging with external creditors to secure comprehensive support for debt relief and to strengthen cooperation with the Fund on policies and payments.
- Directors encouraged continued engagement with international partners to secure comprehensive support for debt relief and to strengthen cooperation with the Fund, including by making regular payments to the Fund at least sufficient to cover obligations falling due, and increasing them as Sudan's payment capacity improves.
- Directors noted the authorities’ interest in a new Staff Monitored Program, which is a pre‑condition to reach the HIPC decision point.
Executive Board assessment — key messages
- Directors welcomed policy adjustments but noted they have been insufficient to secure sustained macroeconomic stability and broad‑based growth given limited external financing and withdrawal of correspondent bank relations.
- The permanent revocation of U.S. sanctions presents a unique opportunity for decisive action to strengthen the outlook and boost reform payoffs.
- Key policy priorities identified by Directors:
- Exchange rate unification (upfront or gradual with close staff dialogue).
- Fiscal consolidation through revenue mobilization, streamlining exemptions, phasing out subsidies, and targeted cash transfers.
- Tighter monetary policy and reinforcement of limits on central bank monetization.
- Adoption of a reserve money targeting framework until direct inflation targeting is feasible.
- Continued strengthening of central bank supervision and AML/CFT frameworks.
- Modernizing business climate and legal framework and pressing ahead with anti‑corruption measures to support investment and growth.
- Continued engagement with creditors and the Fund to secure debt relief and improve payment performance.
Selected Economic Indicators, 2013–18 (as reported)
- Output and prices (Annual change in percent)
- Real GDP (market prices): 2013: 2.2; 2014: 3.2; 2015: 3.0; 2016: 3.5; 2017: 3.25; 2018: 4.0
- Consumer prices (end of period): 2013: 41.9; 2014: 25.7; 2015: 12.6; 2016: 30.5; 2017: 26.1; 2018: 22.2
- Consumer prices (period average): 2013: 36.5; 2014: 36.9; 2015: 16.9; 2016: 17.8; 2017: 29.8; 2018: 23.0
- Central government finances (In percent of GDP)
- Revenue and grants: 2013: 10.3; 2014: 10.8; 2015: 10.0; 2016: 8.7; 2017: 8.6; 2018: (blank)
- Of which: Oil revenues: 2013: 1.9; 2014: 2.1; 2015: 1.5; 2016: 0.8; 2017: 0.7; 2018: (blank)
- Tax revenue: 2013: 6.0; 2014: 5.5; 2015: 5.6; 2016: 5.3; 2017: 5.0; 2018: (blank)
- Expenditure: 2013: 12.5; 2014: 12.1; 2015: 11.7; 2016: 11.1; 2017: 10.6; 2018: (blank)
- Overall balance: 2013: -2.2; 2014: -1.3; 2015: -1.7; 2016: -1.6; 2017: -1.8; 2018: -2.1
- Primary balance: 2013: -0.5; 2014: -1.0; 2015: -1.1; 2016: (blank)
- Monetary sector
- Broad money: 2013: 13.0; 2014: 17.0; 2015: 19.8; 2016: 30.0; 2017: 49.5; 2018: 28.9
- Reserve money: 2013: 20.3; 2014: 16.0; 2015: 21.6; 2016: 27.5; 2017: 46.7; 2018: (blank)
- Credit to the economy: 2013: 22.5; 2014: 15.8; 2015: 26.3; 2016: 40.0; 2017: (blank)
- Balance of payments (In percent of GDP, unless otherwise indicated)
- Exports of goods (in US$, annual percent change): 2013: -4.4; 2014: -9.4; 2015: -28.5; 2016: -2.6; 2017: 9.8; 2018: 3.3
- Imports of goods (in US$, annual percent change): 2013: 2.3; 2014: -7.0; 2015: 3.1; 2016: -12.5; 2017: -12.7; 2018: 12.2
- Current account balance (cash basis): 2013: -7.3; 2014: -5.5; 2015: -7.7; 2016: -6.1; 2017: -2.8; 2018: -3.9
- External debt 1/: 2013: 77.4; 2014: 82.8; 2015: 81.3; 2016: 110.8; 2017: 94.9; 2018: 97.7
- External debt (in billions of US$): 2013: 45.0; 2014: 46.8; 2015: 49.7; 2016: 52.4; 2017: 54.1; 2018: 56.5
- Gross international reserves (in billions of US$): 2013: 1,611.5; 2014: 1,461.1; 2015: 1,003.0; 2016: 874.6; 2017: 969.6; 2018: 829.8
- In months of next year's imports of G&S: 2013: 1.7; 2014: 1.4; 2015: 1.1; 2016: (blank)
- Memorandum items:
- Nominal GDP (in millions of SDG): 2013: 331,804; 2014: 452,531; 2015: 540,785; 2016: 659,770; 2017: 917,208; 2018: 1,144,619
Press Release No. 17/480 — IMF Communications Department; December 11, 2017.