A team from the International Monetary Fund (IMF) led by Daniel Kanda
visited Khartoum from December 4 to December 17 to hold discussions on the
2019 Article IV Consultation with Sudan. At the conclusion of the visit,
Mr. Kanda issued the following statement:
“The political change provides Sudan with a window of opportunity to
implement critical reforms that address major macro imbalances and create
the conditions for sustained inclusive growth. However, the challenges
facing the new government are daunting. The economy is shrinking, fiscal
and external imbalances are large, inflation is high, the currency is
overvalued, and competitiveness is weak. The humanitarian situation is dire
with large numbers of internally displaced people and refugees. An expanded
front-loaded social safety net will be key to help mitigate the impact of
potentially difficult reforms on the vulnerable sectors of society. Limited
access to external financing continues to constrain the economy. Large
arrears block financing from international donors while prospects for
securing large external financing from bilateral donors remain uncertain.
“In 2018, economic activity contracted by an estimated 2.3 percent, and GDP
is projected to contract by 2.5 percent in 2019. Inflation increased to 60
percent in November 2019, and the parallel exchange rate continues to
depreciate rapidly. The fiscal position has deteriorated because of
ballooning fuel subsidies and weak revenue mobilization, and the fiscal
deficit rose from 7.9 percent in 2018 to 9.3 percent of GDP in 2019. The
economic outlook remains bleak absent policy adjustment and comprehensive
reforms.
“Discussions between the IMF team and the authorities focused on policies
and reforms to re-establish macroeconomic stability and support stronger
broad-based economic growth. This requires the liberalization of the
exchange rate, revenue mobilization, and gradually phasing out fuel
subsidies. A substantial increase in social transfers will be needed to
mitigate the impact of adjustment on vulnerable groups. Alongside,
structural reforms should focus on anti-corruption measures and improving
governance and the business environment to sustain macroeconomic stability
and boost inclusive growth. The authorities have made strong progress in
developing a comprehensive reform package and initiated dialogue with the
public. They had candid and productive discussions with the IMF team on the
main challenges ahead.
“Reforms should be carefully sequenced, preceded and accompanied by an
extensive information and communication campaign that reaches a broad cross
section of society and explains the rationale for reform, the cost of the status quo, potential adverse effects and mitigating measures.
“Sudan is in debt distress and is eligible for debt relief under the
Heavily Indebted Poor Countries (HIPC) Initiative. U.S. sanctions on trade and financial flows were revoked in October 2017,
but Sudan remains on the state sponsors of terrorism list (SSTL), which
blocks progress toward HIPC debt relief and the clearance of debt arrears.
Moreover, the large external debt and arrears hinder access to external
financing and weigh heavily on development. The team welcomes the
authorities’ engagement with international partners to secure comprehensive
support for debt relief and the delisting from SSTL, which would pave the
way for foreign investment and financing for growth and poverty reduction.
The team also 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 generous hospitality and the
productive discussions. Discussions with the authorities will continue and
the team will prepare a staff report for IMF Executive Board discussion of
the Article IV consultation in February 2020.”
