Sudan gets much needed IMF debt relief
Sudan has secured much-needed debt relief from the International Monetary Fund (IMF), which will see most of its $ 60 billion owed to creditors settled and Khartoum will again be eligible for borrowing.
The decision announced by the IMF as part of the ‘decision point’ stage means that Sudan has become the 38th country in the world to obtain debt relief under a program known as Heavily Indebted Poor Countries (HIPC) Initiative by the IMF and the World Bank.
Khartoum initially qualified for debt relief of $ 23.5 billion, which could increase if all conditions set by the IMF are met.
The program is often granted to poor countries to enable them to maintain their debt while providing essential services to the public.
Protests erupt in Sudan after the IMF approved a $ 2.5 billion loan and debt relief deal.
Sudanese protesters say some of the economic reforms backed by the International Monetary Fund are too harsh. # NewNormal @Victor Kiprop_ pic.twitter.com/dVZshuH3WX
– NTV Kenya (@ntvkenya) July 1, 2021
External debt, for Sudan, has been a major obstacle to the recovery of the economy. The transitional government headed by Prime Minister Abdalla Hamdok inherited dilapidated sectors from the regime of Omar al-Bashir, which was overthrown in April 2019.
Under the sanctions of the United States as the sponsoring state of terrorism, debt had accumulated and Sudan was unable to borrow or attract investors because many feared that they would have problems with the United States. In December, Washington lifted these sanctions. But debt became the next hurdle.
Dr Hamdok, in a speech on Wednesday, told the country that achieving debt relief is a big step for Khartoum.
“Allow me in this speech to show that what this government has inherited is a structural defect in the macroeconomics, represented by a large budget deficit which has forced the banks to borrow at least 200 billion euros. [Sudanese] pound sterling [$444 million] per year, ”he told the country in a televised speech.
Hamdok said a “fundamental imbalance in the exchange rate and its diversity” had worsened the trade balances and growing and unserved debt did not help.
“The government has strived to completely remove these distortions with legislative and legal reforms, which have helped remove Sudan from the list of countries sponsoring terrorism, Sudan’s integration into the international community and our relations have become normal. with the countries of the world after our isolation, said the Prime Minister.
Sudan has worked hard to bring about the changes requested by the IMF in six months. These included regulations that would protect the Sudanese pound from black market rates, a uniform exchange rate, and controversial rules that would phase out subsidies.
The IMF previously approved a $ 2.5 billion loan for Sudan. But the happy news was not shared by ordinary citizens. As reports poured in, some towns have seen public protests against plans to remove subsidies on bread and fuel.
For years, Sudan has footed the bill for the true cost of commodities to protect the public from exchange rate fluctuations. The idea was to keep prices low. But Sudanese government officials themselves have admitted that the subsidies benefit wholesale importers more than consumers. When the IMF arrived, it demanded that Sudan put in place policies that stabilize revenue collection, fight corruption and suppress freebies.
“This first reflects the seriousness of the government, which has developed an integrated reform program that includes a poverty reduction strategy,” Hamdok said.
After the decision point, Sudan should expect most of its debt to be canceled within a year. In return, Sudan will immediately receive funding worth $ 100 million for the fight against Covid-19.
But it must now work towards the completion point, which the IMF will use to determine whether Khartoum has done everything to qualify for full relief. After that, Sudan will benefit from debt relief of up to $ 50 billion.