Risk signal on Sudan – A sigh of relief
* This analysis was carried out by the Signal Risk team
The International Monetary Fund (IMF) recently affirmed that it is making progress towards finalizing a framework that will help mobilize the resources needed to cover its share of debt relief in Sudan.
The announcement in mid-May followed a March 26 meeting between the World Bank and the IMF, during which the two institutions deemed Sudan eligible for the Heavily Indebted Poor Countries (HIPC) Initiative. .
Sudan’s qualification for the HIPC Initiative comes as it seeks relief for its external debt of approximately US $ 56 billion to international financial institutions, official bilateral creditors and commercial creditors; 85 percent of this amount is past due. In terms of allocation, 2.8 billion USD is due to the World Bank, the IMF and the African Development Bank (AfDB); 19 billion USD to the countries of the collective of creditors of the Paris Club; $ 21 billion to non-Paris Club members; and the balance to commercial creditors.
Sudan’s pronounced eligibility for the HIPC Initiative is only the preliminary phase of the process. Then the country and its economic partners must work towards the actual start of the process (known as the decision point) and then towards the final completion point. To reach the decision point, at least four conditions must be met:
A history of at least six months of satisfactory performance under the current program monitored by IMF staff
Arrears clearance with multilateral creditors or agreement on a strategy to clear them
Agreement on the reforms needed to reach the completion point
Provision of debt relief assurances by creditors at the completion point
Once Sudan reaches the completion point, it would be eligible for debt relief under the HIPC Initiative and debt relief under the Multilateral Debt Relief Initiative ( MDRI) of the International Development Association (IDA) of the World Bank and the African Development Fund (ADF), with assistance beyond the IMF’s HIPC Initiative. Paris Club creditors are also expected to provide additional assistance beyond the HIPC Initiative at the completion point.
So far, so good
Sudan and its creditors have made significant progress towards reaching the decision point since March.
The IMF completed its first review of the Sudan Staff Supervised Program (SMP) in early March. The SMP was initialized in September 2020, with the objective of supporting the government’s reform program aimed at stabilizing the economy, strengthening social protection, boosting the private sector and strengthening governance. In this regard, the review concluded that “the Sudanese authorities have made tangible progress towards establishing a solid record of the implementation of policies and reforms”. The substantial reforms undertaken to date include the unification of the exchange rate, the removal of fuel subsidies, various tax measures taken as part of the 2021 budget and an increase in electricity tariffs.
Bridging the gap
Sudan’s creditors and the international community have also responded to Sudan’s need to settle its arrears as required by the HIPC Initiative.
First, on March 23, the World Bank announced that it had paid off Sudan’s debt following a $ 1.15 billion bridge loan from the United States government. Then Sudanese officials said on May 5 that the country had settled its arrears with the African Development Bank (AfDB) with a $ 425 million bridging loan – provided by the UK, Sweden and Ireland. .
More recently, French President Emmanuel Macron announced on May 17 that IMF member states had agreed to finance a $ 1.5 billion bridging loan to Sudan to clear its arrears with the IMF. Macron
an announcement was made at the Paris Conference on Support for Sudan’s Transition Period and the Summit on Financing African Economies, which took place from May 17-18. The French president also indicated that his government would write off 5 billion dollars owed to France by Sudan. Shortly after the summit concluded, the Sudanese foreign ministry also announced that Germany and Italy had agreed to liquidate the total of $ 1.5 billion Sudan owed them.
Some creditors were not so accommodating. During the summit, Kuwait – Sudan’s largest creditor with $ 9.8 billion – said it would support discussions on debt “resolution”, while Saudi Arabia – Sudan’s third largest creditor. Sudan with $ 4.6 billion – said she would be willing to reach a broad agreement.
Sudan is expected to reach the so-called decision point for debt relief by the end of June. This is what the International Monetary Fund (IMF) foresaw in its initial press release concerning Sudan’s eligibility for the Heavily Indebted Poor Countries (HIPC) Initiative in March. This timetable seems achievable given that Sudan has already fulfilled the majority of the conditions set out by the IMF. Meanwhile, negotiations between Prime Minister Abdullah Hamdok’s government and major delinquent creditors, such as Kuwait and Saudi Arabia, are expected to begin in the coming weeks. While this is unlikely to result in full debt relief, frameworks could be developed to reach this longer-term stage – an alternative to immediate debt relief. Although it is uncertain when Sudan will reach the completion point, the debt clearing process with the World Bank, IMF, and African Development Bank (AfDB) will nonetheless unlock various financing opportunities, especially for women. development projects and budget support. In fact, following the clearance of arrears with the World Bank and the ADB, Sudan was approved to receive a grant of USD 207 million from the ADB, USD 215 million in direct budget support and USD 420 million for a program of support to families from the World Bank. The finalization of the bridge loan with the IMF could lead to new disbursements in the medium term.
This support is expected to help Sudan achieve its expected economic rebound in 2021. After experiencing a 3.6% GDP contraction in 2020 – due to recessionary conditions in 2018/2019 and the externalities of the coronavirus pandemic – the IMF forecast Sudan to grow 0.4% in 2021. This outlook hinges on increased agricultural, mining and oil exports – amid a global commodity recovery – and increased domestic consumption. . Equally beneficial is the expected rise in foreign direct investment following the United States’ decision of December 14, 2020 to remove Sudan from the list of terrorist sponsor states. This, in addition to the processes related to the HIPC Initiative, should serve to strengthen investor sentiment in a context of improved political stability. As Sudan continues to fight crippling inflation levels (363% in April, year-on-year), the prioritization of public spending and the tightening of monetary policies in the coming year are expected to bring inflation down to 129, 7% in 2021, then to 57.5% by 2022, according to the AfDB.
Debt clearance should complement political transition processes. Prime Minister Hamdok announced in November 2020 that the country’s budgetary challenges hamper the government’s ability to finalize the Transitional Legislative Assembly – which is expected to prejudge elections in 2022 or 2023 – and to implement political, security, social and economic issues for the month of October. Peace Agreement 2020. According to Hamdok, these costs amount to around USD 7 billion. The clearance of arrears by creditors – such as the Paris Club, the World Bank, the IMF and the ADB – and associated service charges should free up fiscal space for the transitional government to speed up these processes. Therefore, the formation of the Transitional Legislative Assembly (with all full principles) can be accomplished in the last quarter of 2021 or the first quarter of 2022.
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