IMF Executive Board Concludes 2019 Article IV Consultation with Sudan

March 10, 2020

WASHINGTON, DC – February 21, 2020 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Sudan.

Regime change has created a window of opportunity for fundamental reforms to address major macro imbalances and lay the groundwork for inclusive growth. However, the challenges facing the new government are daunting. The economy is shrinking, macroeconomic imbalances are large, competitiveness is weak, and the humanitarian situation is dire. Concerns about governance and corruption persist. Sudan’s listing as a state sponsor of terrorism by the United States also blocks progress toward HIPC debt relief and the clearance of large arrears to the IMF.

Reflecting weak competitiveness, the poor business environment, and social turmoil, GDP is estimated to have contracted by 2½ percent in 2019. Moreover, the fiscal deficit rose by almost three percentage points to 10.8 percent of GDP in 2019, reflecting ballooning energy subsidies and weak revenue mobilization. With limited external financing, the fiscal deficit has primarily been financed by monetization, fueling a vicious cycle of inflation, exchange rate depreciation, and deficit expansion. Inflation rose to 60 percent in November 2019, while the parallel market exchange rate continues to depreciate strongly. The exchange rate system remains highly distorted with multiple currency practices, and the real exchange rate is substantially overvalued.

The external position is weak, with the current account deficit standing at 7.8 percent of GDP in 2019 and low international reserves ($1.4 billion in October 2019, 2 months of imports). Limited forex for fuel imports has led to rationing, persistent shortages, and disruptions to electricity and food supplies. Public and external debt ratios remain high and unsustainable, and stood at 211.7 percent of GDP and 198.2 percent of GDP, respectively, in 2019.

With large imbalances and loose policies, the outlook is alarming without policy reforms. Absent reforms, the weaknesses in competitiveness and in the business environment will persist. GDP growth would then likely remain negative in the near term, with minimal investment and subdued consumption, while bank fragility will rise. High inflation, continued exchange rate depreciation, and pervasive shortages will continue to aggravate social tensions. The fiscal imbalance would also intensify over the medium term, while the current

account deficit would remain large, raising risks of disorderly adjustment. Downside risks to the outlook would dominate, albeit with large margins of uncertainty.

Executive Board Assessment [2]

Directors emphasized that gradual exchange rate liberalization is critical for eliminating the distortions that hamper investment and growth. It would bolster competitiveness and transparency, eliminate multiple currency practices and associated distortions, reduce rent‑seeking, strengthen central bank independence and boost fiscal revenues. The monetary policy framework needs to be enhanced, and the banking system’s ability to sustain shocks needs to be reviewed and strengthened prior to the unification of the exchange rate. Moreover, there is a need to upgrade the central bank law to boost its independence and effectiveness, and curb fiscal dominance. The central bank should continue to upgrade its capacity to supervise and mitigate financial stability risks, including by strengthening banking regulation and supervision and continuing to address AML/CFT deficiencies.

Directors highlighted that substantial consolidation is needed to achieve macroeconomic stability and fiscal sustainability. In this regard, broadening the tax base and strengthening revenue administration are important and would help strengthen governance, transparency and accountability. Stronger public financial management and publication of comprehensive fiscal data would improve governance. Directors called for intensified efforts to mobilize additional domestic revenues to ensure credible fiscal consolidation in 2020. They also emphasized that phasing out fuel subsidies over the medium term is crucial for durable consolidation. Strong information and communication efforts and a substantially expanded social safety net that can credibly be financed with donor assistance will be needed to build public support for reforms.

Directors recognized that Sudan remains in debt distress and is eligible for debt relief under the HIPC Initiative. They acknowledged that Sudan’s inclusion in the state sponsors of terrorism list (SSTL) by the United States constitutes one of the obstacles to potential debt relief. Directors encouraged the authorities to continue to engage with international partners to secure comprehensive support for debt relief, respect the Fund’s preferred creditor status, and avoid selective debt service payments and non‑concessional borrowing. They also emphasized the need to strengthen cooperation with the Fund on policies and payments, 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. In this context, Directors welcomed the authorities’ interest in a Staff Monitored Program to help build a track record of policy implementation to facilitate debt relief.


Table 1. Sudan: Selected Economic Indicators, 2017–20

2017

2018

2019

2020

Est.

Proj.

Output and prices

(Annual change in percent)

Real GDP (market prices)

0.7

-2.3

-2.5

-1.2

Consumer prices (end of period)

25.2

72.9

60.2

70.2

Consumer prices (period average)

32.4

63.3

51.3

66.4

Central government

(In percent of GDP)

Revenue and grants

7.2

8.9

7.8

6.4

Of which: Oil revenues

0.7

1.1

1.2

0.7

Tax revenue

5.5

6.7

5.4

4.9

Expenditure

13.7

16.7

18.7

21.4

Overall balance

-6.5

-7.9

-10.8

-15.0

Primary balance

-6.0

-7.6

-10.6

-14.7

Monetary sector

(Annual change in percent)

Broad money

26.5

21.8

66.8

97.2

Reserve money

63.8

170.5

76.5

122.7

Credit to the economy

29.8

21.0

65.8

68.2

Balance of payments

(In percent of GDP, unless otherwise indicated)

Exports of goods (annual percent change)

31.2

-13.2

-1.6

-0.9

Imports of goods (annual percent change)

10.1

-10.3

-2.3

-3.3

Current account balance (cash basis)

-7.2

-8.7

-7.8

-9.2

External debt 1/

154.5

180.8

198.2

204.3

External debt (in billions of US$)

53.9

55.1

56.3

57.5

Gross international reserves (in billions of US$)

0.7

0.9

1.2

1.1

In months of next year's imports of G&S

1.1

1.3

1.7

1.5

Exchange rate (SDG/US$, period average) 2/

18.1

38.2

60.5

…

Balance of payments

Nominal GDP (in Millions of SDGs)

830,265

1,370,224

2,033,412

3,355,368

Sources: Sudanese authorities; and IMF staff estimates and projections.

1/ GDP estimated at the weighted average of parallel and official exchange rate.

2/ Exchange rate is calculated as the weighted average of official and parallel exchange rate.


[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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