The International Monetary Fund said the introduction of reforms, including a gradual exchange rate liberalisation as well as phasing out fuel subsidies for fiscal consolidation, will help Sudan boost economic growth.
“The monetary policy framework needs to be enhanced, and the banking system’s ability to sustain shocks needs to be reviewed and strengthened prior to the unification of the exchange rate. Moreover, there is a need to upgrade the central bank law to boost its independence and effectiveness, and curb fiscal dominance,” IMF said late Tuesday, after its staff concluded consultations with Khartoum last month.
The central bank should continue to upgrade its capacity to supervise and mitigate financial stability risks, the Washington-lender said. It called for the strengthening of banking regulations and supervision and continuing to address AML/CFT (anti-money laundering and combating the financing of terrorism) deficiencies.
The recommendations come following the exit of long-time president Omar Al Bashir last year. The IMF said the "regime change" in Sudan opens up opportunities for major reforms but many daunting challenges remain including the economy's contraction, large macro-economic imbalances as well as concerns pertaining to governance, corruption and the humanitarian situation.
Sudan’s listing as a state sponsor of terrorism by the US also blocks progress toward HIPC (Heavy Indebted Poor Countries) debt relief and the clearance of large arrears to the IMF, it said.
Sudan’s economy is estimated to have contracted 2.5 per cent in 2019 and the fiscal deficit increased by almost 3 percentage points to 10.8 per cent of GDP due to ballooning energy subsidies and weak revenue. Inflation rose to 60 per cent in November 2019 and is set to reach 66 per cent this year, while a parallel market exchange rate continues to depreciate strongly.
The external position is also weak, with the current account deficit standing at 7.8 per cent of GDP in 2019 and low international reserves of $1.4 billion (Dh5.1bn) in October. Limited forex for fuel imports has led to rationing, persistent shortages, and disruptions to electricity and food supplies, according to IMF.
“With large imbalances and loose policies, the outlook is alarming without policy reforms. Absent reforms, the weaknesses in competitiveness and in the business environment will persist.”
“GDP growth would then likely remain negative in the near term, with minimal investment and subdued consumption, while bank fragility will rise. High inflation, continued exchange rate depreciation, and pervasive shortages will continue to aggravate social tensions.”
The IMF encouraged the Sudanese authorities to continue to engage with international partners to secure comprehensive support for debt relief and avoid selective debt service payments and non‑concessional borrowing.
