Prolonged Sudan conflict may have negative credit implications for multilateral lenders

If fighting descends into civil war, destruction of social and physical infrastructure would lead to lasting economic consequences, Moody's says

Black smoke rising above Khartoum International Airport as battles between the forces of two rival generals continue. AFP

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The military conflict raging in Sudan that killed more than 420 people in 10 days could have negative credit implications for neighbouring countries and multilateral development banks (MDBs) that have funding exposures to the African nation and the broader region.

Although the situation remains “fluid and unpredictable”, it could potentially develop into a prolonged conflict, Moody’s Investors Service said in its latest note on Sudan.

“The fighting has caused significant damage to major infrastructure in Khartoum, such as the international airport, hospitals and schools and has forced most economic activity and government business to halt as civilians shelter in their homes,” Moody’s analysts led by John Walsh said in the report.

“If the conflict descends into a prolonged civil war, destruction of social and physical infrastructure would have lasting economic consequences for Sudan.”

A prolonged conflict between warring parties fighting for dominance in Khartoum could also affect the asset quality of MDBs in Sudan, overall non-performing loans and may crimp their liquidity.

Any spillover to neighbouring countries, or a “general deterioration in the wider region's security environment”, would trigger broader asset-quality concerns for MDBs with a higher concentration of loans in countries such as Chad, South Sudan, Ethiopia and Egypt.

Sudan plunged into a deeper economic and humanitarian crisis this month after deadly street battles erupted in Khartoum between the army and the paramilitary Rapid Support Forces that are vying for control of the country.

Army chief Gen Abdel Fattah Al Burhan and his former deputy Gen Mohamed Dagalo, who heads the RSF, have turned a dispute over the integration of the paramilitary into the regular army into street warfare.

The situation has caused worldwide concern about the fate of the impoverished country of 44 million, as well as the safety of foreigners stranded there.

Foreign citizens and diplomats from countries such as the US, UK, Germany, Spain and Jordan have left Sudan and efforts are under way for more evacuations.

Sudan's economy was reeling even before the latest conflict. It relied heavily on the international community for funding, and was derailed after a 2021 military coup that halted an internationally backed transition to democracy.

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  A member of the Saudi Navy carries a child from a ship at Jeddah's port during the kingdom's evacuation of civilians from Sudan. Reuters

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  Indian nationals evacuated from Sudan arrive at Indira Gandhi International Airport in New Delhi. EPA

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  Sudanese refugees queue to receive aid from the World Food Programme near the border between Sudan and Chad in Adre, Chad. Reuters

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  Tunisian citizens evacuated from Sudan leave a military aircraft upon their arrival at Tunis-Carthage International Airport. AFP

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  Indians evacuated from Sudan arrive on a flight at the Indira Gandhi International Airport in New Delhi, India. AP Photo

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  Moroccan nationals, who have been evacuated from Sudan, arrive at Mohammed V airport in Casablanca, Morocco. EPA

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  A boat with 1,687 civilians from more than 50 countries fleeing violence in Sudan, arrives at King Faisal naval base in Jeddah, Saudi Arabia. AFP

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  RSF fighters in the East Nile district of greater Khartoum. AFP

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  Passengers disembark a plane from Djibouti at Roissy-Charles-de-Gaulle airport near Paris after being evacuated from Sudan. AFP

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  Buildings destroyed in recent fighting in Khartoum, Sudan. AP

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  Passengers fleeing the fighting in Sudan arrive at Wadi Karkar bus station in Aswan, Egypt. EPA

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  Ali Mazloum, a Lebanese citizen who was evacuated from Sudan, is welcomed upon his arrival at Beirut airport. Reuters

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  A woman helps another after fleeing clashes between the paramilitary Rapid Support Forces and the army in Khartoum. Reuters

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  Soldiers attend to Greek citizens evacuated from Sudan as they disembark from a military aircraft in Attica, Greece. EPA

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  People carry hibiscus juice and cold water for those being evacuated from Khartoum to Port Sudan. Reuters

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  Thais wait to be evacuated by boat at a port in Sudan. EPA

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  Greek citizens arrive from Sudan on a military plane in Elefsina, south of Athens. AFP

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  Japan's senior Vice Foreign Minister Shunsuke Takei welcomes his country's citizens in Djibouti after they were rescued from Sudan. AFP

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  A member of the Saudi Royal Navy carries a child who was rescued from Sudan, in Jeddah. Reuters

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  A military plane carrying evacuees arrives at Ciampino Airport near Rome, Italy. Reuters

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  Italy's Foreign Minister Antonio Tajani greets the country's ambassador to Sudan, Michele Tommasi, as he arrives at Ciampino Airport. Reuters

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  South Korea's ambassador to Saudi Arabia, Park Joon-yong, at a Saudi Air Force base in Jeddah, where he met diplomats from his country evacuated from Sudan by the kingdom's air force. Reuters

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  Having fled from Sudan, a South Korean nun disembarks from a military plane after landing at King Abdullah Air Base in Jeddah. AFP

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  People gather as they seek to escape the violence in Khartoum. Reuters

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  Spanish diplomatic personnel and citizens wait to disembark from a military plane after being evacuated from Sudan, in Djibouti. Reuters

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  A closed pharmacy and shops in the south of Khartoum as battles rage in the capital between the army and paramilitaries. AFP

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  Passengers from Sudan disembark from a Spanish Air Force plane at Torrejon Airbase in Madrid. AP

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  People evacuated from Sudan arrive at a military airport in Amman. AFP

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  Jordan was among those countries to have rapidly flown its citizens in Sudan to safety. AFP

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  This child was one of those to have arrived safely in Amman. AFP

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  A building in Khartoum burns as violence rages in Sudan. EPA

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  Italian citizens are flown out of the Sudanese capital on a military aircraft. Reuters

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  The fighting has caused heavy damage to parts of Khartoum. EPA

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  Indonesian citizens travel on a bus during an evacuation operation in Khartoum. EPA

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  A Spanish military aircraft takes off from Khartoum as European countries rescue citizens from Sudan. Reuters

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  Jordanians arrive at a military airport in Amman after their evacuation from Sudan to escape the fighting. AP

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  French troops arrive at an air base in Djibouti to prepare to evacuate about 100 people from Sudan. AFP

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  Smoke rises from buildings during clashes between the paramilitary Rapid Support Forces and the Sudanese army in Khartoum. Reuters

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  Saudis are met by Saudi Royal Navy staff as they arrive at Jeddah on the Red Sea after being evacuated from Sudan. Reuters

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  The streets of southern Khartoum bear the scars of fighting between two factions of the Sudanese military. AFP

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  A convoy leaves Khartoum for Port Sudan as fighting between military factions in the Sudanese capital continues. AFP

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  A civilian convoy leaving Khartoum for Port Sudan. AFP

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  Saudi citizens and people of other nations are evacuated by the Saudi Royal Navy from Port Sudan to escape the conflict. Reuters

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  A photo from October 2017 of the US embassy in Khartoum. AFP

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  Saudi citizens are met by Saudi Royal Navy staff as they arrive at Jeddah after being evacuated from Sudan. Reuters

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  Smoke hangs over Khartoum as factions belonging to the Sudanese Army and the Rapid Support Forces go back to trading gunfire after a ceasefire failed. AP

Major economic backers led by the US and the World Bank suspended billions of dollars' worth of debt forgiveness and aid.

The country is facing its worst economic crisis and is edging closer to the international isolation it suffered for most of the 29-year rule of Omar Al Bashir, who was overthrown in 2019.

Moody’s said the MDBs that are most exposed to Sudan and neighbouring countries include Trade and Development Bank (TDB) and Africa Export-Import Bank (Afrexim), which have 34 per cent and 31 per cent of their development-rated assets, respectively, in the region.

TDB had loans worth $931 million in Sudan, which equals 14 per cent of total development-rated assets it had at the end of last year. The vast majority — 95 per cent — of this exposure is in the form of trade finance facilities previously used to fund food and fuel imports.

However, the conflict is unlikely to have “immediate implications for TDB’s asset quality, NPL ratio or liquidity because no significant repayments are due until the second half of 2024", Moody’s said.

Islamic Corporation for the Development of the Private Sector (ICD) had an exposure to Sudan equalling 1.3 per cent of its total assets, or about 3.1 per cent of its development-rated assets at the end of the first quarter of this year.

Afreximbank had 2.4 per cent of development-rated assets in Sudan at the end of 2021.

Islamic Development Bank, African Development Bank and International Development Association have an exposure to Sudan of less than 1 per cent of their development-rated assets.