São Paulo – Sudan needs bold and comprehensive reforms to stabilize the economy and strengthen growth, according to a report by the International Monetary Fund (IMF) on the Arab country. An IMF team visited Khartoum from December 4 to 17. In a report made public last Monday (23), the Fund states that the economic conditions in the country remain challenging on the back of persistent fiscal deficits, high inflation, and low access to financing.
The financial institution suggests the expansion of social safety nets to the reforms and improvements in the business environment and governance as a crucial way to unlock growth. Daniel Kanda, who led the IMF team that visited the country, said that the political change provides Sudan with a window of opportunity to implement reforms that address major imbalances and create the conditions for an inclusive growth.
“However, the challenges facing the new government are daunting. The economy is shrinking, fiscal and external imbalances are large, inflation is high, the currency is overvalued, and competitiveness is weak. The humanitarian situation is dire with large numbers of internally displaced people and refugees. An expanded front-loaded social safety net will be key to help mitigate the impact of potentially difficult reforms on the vulnerable sectors of society,” Kanda wrote.
The report states that the country’s limited access to external financing continues to constrain the economy. Large arrears block financing from international donors while prospects for securing large external financing from bilateral donors remain uncertain.
“In 2018, economic activity of Sudan contracted by 2.3/5, and Gross Domestic Product (GDP) is projected to contract by 2.5% in 2019. The fiscal position has deteriorated because of ballooning fuel subsidies and weak revenue mobilization, and the fiscal deficit rose from 7.9% in 2018 to 9.3% of GDP in 2019.
“Discussions between the IMF team and the authorities focused on policies and reforms to re-establish macroeconomic stability and stronger broad-based economic growth. This requires the liberalization of the exchange rate, revenue mobilization, and gradually phasing out fuel subsidies. A substantial increase in social transfers will be needed to mitigate the impact of adjustment on vulnerable groups,” Kanda wrote.
IMF believes that the authorities have made strong progress in developing a comprehensive reform package and initiated dialogue with the public. Reforms should be carefully sequenced, preceded and accompanied by an extensive information and communication campaign that reaches a broad cross section of society and explains the rationale for reform, the cost of the status quo, potential adverse effects and mitigating measures, IMF reported.
Translated by Guilherme Miranda
