Press Release No. 21/198

IMF Executive Board Approves Extended Credit Facility Arrangement for Sudan

June 29, 2021

• IMF Board approves new, 39-month Extended Credit Facility Arrangement (ECF) for Sudan in the amount of SDR1,733.051 million (about US$2,472.7 million).
• The three-year financing package will support the implementation of the authorities’ transformational reform agenda—anchoring reforms between the Heavily Indebted Poor Countries (HIPC) Decision and Completion Points needed to support inclusive growth and poverty reduction.
• Reforms will focus on a continued strengthening of public finances and the social safety net, improvements in governance to foster private sector-led growth, increasing central bank independence and putting in place a framework for effective monetary policy.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved a 39-month arrangement under the Extended Credit Facility (ECF) for Sudan in the amount of SDR1,733.051 million (about US$2,472.7 million or 275 percent of quota). The arrangement aims to support the authorities’ implementation of their ambitious reform agenda and catalyze concessional donor financing.

This will help the country build greater economic resilience, promote higher and more inclusive growth, and reduce poverty and raise living standards. The Executive Board’s decision will enable an immediate disbursement equivalent to SDR 991.551 million (about US$1,414.7 million).

At the conclusion of the Executive Board’s discussion, Ms. Kristalina Georgieva, Managing Director and Acting Chair, stated:

“Sudan has reached the HIPC Decision Point given the authorities’ sustained commitment to reform in an extremely challenging political, economic and security environment. The second review of the Staff-Monitored Program (SMP), which has been approved by the Management and endorsed by the Board as meeting the standards of upper credit tranche conditionality, has been completed and the authorities met the prior action for the new 39-month Extended Credit Facility (ECF) arrangement. The authorities’ strong policy commitment has helped strengthen public finances while channeling assistance to the most vulnerable; reduce distortions by moving to a market-determined exchange rate system; and improve governance. The authorities have also completed a Poverty Reduction Strategy Paper (PRSP) reflecting the shared view of key stakeholders on a national roadmap to alleviate poverty and identify priority sectors to achieve this objective.

“The authorities’ ECF is an ambitious and appropriate response to Sudan’s macroeconomic challenges. Continued reform commitment will be critical to achieve the program’s objectives, as well as to reduce poverty and secure higher and more inclusive growth.

“The fiscal framework under the program appropriately balances the need to reduce spending on regressive and distortionary energy subsidies while channeling new resources toward needed social and infrastructure spending. Additional tax measures and administrative improvements, including PFM reforms and actions to strengthen the Large Taxpayer Office, should also be deployed to raise domestic revenue. Improved debt management will help to avoid the re-accumulation of unsustainable debt.

“The recent approval of the revised Central Bank Act is an important measure, but additional steps are needed to strengthen central bank independence and its supervisory capacity. In particular, it will be important to enact a revised Banking Regulation Act which includes a comprehensive resolution regime for the banking sector in line with international best practice to lay the groundwork for restructuring the banking sector. Though the move to a market-determined exchange rate has gone relatively smoothly, the authorities should guard against the reemergence of multiple currency practices. While fiscal adjustment will be crucial to reduce monetization and resultant high inflation, the re-introduction of conventional banking will foster the development of more effective monetary instruments.

“Unlocking Sudan’s private sector potential will require significant steps to improve governance, reduce the role of the state in the economy, and mobilize private investment. The establishment of an independent Anti-Corruption Commission is key to reduce corruption, while a strategy for the SOE sector is needed to improve oversight and management of the sector, and determine those that are privatized and those that remain under state control.

“Sudan’s PRSP was designed after extensive consultations with domestic and international stakeholders, and provides a comprehensive set of sectoral plans and reform policy measures for reducing poverty and making progress toward the Sustainable Development Goals (SDGs). It is important that the international community increases its provision of financial and technical assistance to support the authorities’ reforms and the implementation of the PRSP.

“Sudan’s request for interim HIPC Initiative assistance on the debt service due to the Fund has been approved. The progress made in securing commitments from other creditors to provide debt relief in the context of the HIPC Initiative is welcome given the need for equitable burden-sharing across all creditors. The coverage and content of the HIPC floating Completion Point triggers, which focus on growth and the business climate, public financial management, domestic revenue mobilization, debt management, governance, social protection and statistics, is appropriate.”

Annex

Recent Economic Developments

The authorities’ have made progress toward economic stabilization, but significant challenges remain. The economy contracted for a third consecutive year in 2020, though less than expected, and growth is expected to pick up gradually starting in 2021 as economic stability is restored. The fiscal deficit has come down and is expected to narrow further in 2021, facilitating a reduction of inflation, but both it and the current account deficit remain large, inflation is very high (379 percent y/y in May 2021), and competitiveness is weak. Retail gasoline and most fuel subsidies were removed in December 2020 and electricity tariffs were increased, while progress has been made on bank stress tests and AML/CFT inspections of banks.

Program Summary

The reform priorities in the ECF arrangement have been closely coordinated with other donors and complement the proposed HIPC floating Completion Point (CP) triggers that will determine precisely when Sudan could reach the CP. These will focus on:

• fiscal sustainability via increased domestic revenue mobilization and reduced expenditure on regressive energy subsidies;

• increasing spending on health, education and other critical services to improve living standards and raise long-term growth;

• supporting exchange rate flexibility and the adoption of a reserve money targeting regime;

• increasing central bank independence, strengthening the financial sector by implementing a dual banking system, and reforming the bank resolution regime; and

• strengthening governance and transparency, especially in the SOE sector.