Sudan: IMF advises Sudan to dialogue with partners on support for debt relief

Khartoum, Sudan (PANA) – Sudan needs a tighter monetary policy to reduce inflation, but at the same time the country should 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.

According to an International Monetary Fund (IMF) staff team that has just concluded discussions on the 2016 Article IV Consultation with Sudan in Khartoum, economic conditions in the country remain challenging in the face of persistent fiscal deficits, high inflation and economic sanctions.

“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,” said Mr. Daniel Kanda, who led the IMF team, observing that “unsustainable fiscal deficits persist, inflation is high, and economic growth remains below potential”.

In a statement released on Thursday by the IMF, following the 13-26 September staff visit to Sudan, Mr. Kanda pointed out that the country’s large external debt and arrears, combined with economic sanctions, hinder access to external financing and weigh heavily on development.

He said that six years since South Sudan separated from Sudan, with the bulk of oil production and exports remaining in its territory, authorities in Khartoum embarked on reforms to help stabilise the economy and reestablish growth, but they should do more “to turn the tide toward sustained macroeconomic stability and broad-based growth”.

The IMF team suggested that greater exchange rate flexibility should help reduce the external trade deficit, increase competitiveness, and encourage much needed foreign direct investment.

In addition, the team said that increasing fiscal revenue is needed to create space for investment in public infrastructure and human capital, while reducing the deficit to curtail its monetization.

In 2016, Sudan’s 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 to 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.

“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,” Mr. Kanda remarked.
-0- PANA AR/MA 28Sept2017

28 september 2017 09:36:40

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