A team from the International Monetary Fund (IMF) led by Daniel Kanda visited Khartoum from September 13–September 26 to hold discussions on the 2016 Article IV Consultation with Sudan. At the conclusion of the visit, Mr. Kanda issued the following statement:
“Economic conditions in Sudan remain challenging six years after South Sudan separated, with the bulk of oil production and exports remaining in its territory. Since then, the authorities have embarked on reforms to help stabilize the economy and reestablish growth, including by allowing for greater exchange rate flexibility and reducing energy subsidies. While these reforms are important steps in the right direction, more needs to be done to turn the tide toward sustained macroeconomic stability and broad-based growth. A difficult external environment, including limited access to external financing, trade and financial sanctions, and withdrawal of correspondent bank relations has continued to constrain the economy. Thus, unsustainable fiscal deficits persist, inflation is high, and economic growth remains below potential.
“In 2016, economic activity grew at a modest rate of 3.5 percent while inflation increased to 17.8 percent. The fiscal deficit was stable at 1.6 percent of GDP despite shortfalls in oil related revenues, and the external trade deficit moderated owing largely to the depreciation of the real exchange rate. In 2017, weaker domestic demand—partly due to a reduction in energy subsidies by the government in late 2016—is expected limit growth to 3.2 percent. The impact of higher energy prices and rapid monetary expansion to help finance large remaining subsidies pushed inflation to 34 percent in July. The fiscal deficit is expected to widen to 2 percent of GDP. While the external current deficit is moderating due to the impact of higher energy prices and a depreciated real exchange rate, international reserves remain low.
“The medium-term outlook hinges on implementing bold and broad-based reforms and improvements in the external environment. The team encouraged the authorities to accelerate reforms to restore macroeconomic stability and promote inclusive growth. Greater exchange rate flexibility should help reduce the external trade deficit, increase competitiveness, and encourage much needed foreign direct investment. Increasing fiscal revenue is needed to create space for investment in public infrastructure and human capital, while reducing the deficit to curtail its monetization. Tighter monetary policy is needed to reduce inflation and would be greatly facilitated by phasing out costly and untargeted energy subsidies. The expansion of social safety nets to support the most vulnerable and reforms to improve the business environment to engender strong, broad-based growth are also critical. These reforms and positive decision on the permanent revocation of economic and financial sanctions would significantly improve Sudan’s economic prospects.
“Sudan is in debt distress and is eligible for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. The large external debt and arrears and economic sanctions hinder access to external financing and weigh heavily on development. The team encouraged the authorities to continue to engage with international partners to secure comprehensive support for debt relief and the lifting of sanctions, which would pave the way for foreign investment and financing for growth and poverty reduction. The team 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 hospitality and cooperation.