Sudan: IMF Staff Completes 2019 Article IV Mission to Sudan

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End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

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."

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