Sudan makes progress on reforms but economy remains 'extremely fragile', IMF says

The North African country will need international donors to support its transition to a well-functioning market-based economy

People wait outside currency exchange bureau in Khartoum, Sudan February 28, 2021. Reuters

Sudan's economy is making progress in implementing its reform agenda but the north-east African country remains "extremely fragile" and requires financial help from international donors to go through the difficult transition period, the International Monetary Fund said.

The track record in terms of Sudan’s home-grown programme of reforms that aims to boost social protection, support the private sector and strengthening governance – is a key requirement for the eventual debt relief the country seeks, the Washington-based lender said.

"Sudanese authorities have made tangible progress on their IMF-supported reform programme despite difficult economic conditions compounded by the Covid-19 pandemic and a challenging humanitarian situation," Kristalina Georgieva the IMF's managing director, said.

Ms Georgieva approved the first review of the fund’s Sudan staff-monitored programme (SMP) on March 5. Despite the progress made, Sudan needs to sustain its efforts under the SMP over the coming months, she said.

Sudan, which is implementing IMF’s 12-month SMP since September last year, faces multiple economic challenges following political upheaval that ended the rule of former president Omar Al-Bashir and the onset of the Covid-19 pandemic.

The country’s economy, which is estimated to have contracted 8.4 per cent last year, is expected to shrink another 2.3 per cent in 2021, according to the IMF. Inflation in the country soared to 304 per cent in January from 269 per cent in the previous month, according to the state statistics bureau.

In February, the country’s central bank also devalued the currency to “unify” official and black-market exchange rates, a key condition set by the IMF and foreign donors to grant it debt relief.

“The recent exchange rate unification, removal of fuel subsidies, tax measures taken as part of the 2021 budget, and increase in electricity tariffs will reduce distortions in the economy and facilitate fiscal consolidation,” Ms Georgieva said.

“This should reduce monetisation, help bring down the current high rate of inflation and create fiscal space for much-needed social spending.”

Such measures, she said, will also help boost the independence of the country’s central bank and incentivise financial flows.

In the short term, the economic situation remains extremely fragile, with low growth, high inflation and a weak external position, which threaten macroeconomic stability and poverty reduction efforts.

Sudan, whose debt-to-GDP ratio climbed above 259 per cent last year, will have to implement reforms of the customs exchange rate and avoid a return to distortionary policy measures to be able to fulfil the requirements of the IMF’s Heavily Indebted Poor Countries programme.

“Enhanced transparency and management of state-owned enterprises operations is vital to mitigate fiscal risks and bring more revenue on-budget,” Ms Georgieva said.

Prime Minister Abdalla Hamdok, a veteran UN economist who has been running the country since 2019, is trying to institute social, political and economic changes.

Significant financial assistance from the international community will be needed to “incentivise reform and to support the Sudanese population through the difficult transition to a well-functioning market-based economy, Ms Georgieva said.

“This must be accompanied by strong coordination among donors and IFIs [international financial institutions] on financial and technical assistance.”