September 27, 2012 (WASHINGTON) – The International Monetary Fund (IMF) released figures on Thursday projecting that Sudan’s external debts will hit an all-time high next year, the latest evidence of a growing economic crisis engulfing the East African nation.
Sudan’s external debt are estimated to have grown by 27% since 2008 from $32.6 billion to $41.4 billion in 2011. The IMF forecast that the debt level will reach $43.7 billion in 2012 and $45.6 billion in 2013. The latter represents 83% of Sudan’s 2011 GDP, which was $55.1 billion.
In its annual review of the Sudanese economy, the IMF Executive board urged Khartoum to “step up their dialogue with creditors and donors to garner support for debt relief”.
Around three quarters of Sudan’s external debt are owed to the Paris Club of creditor nations and other non-member states. The remaining balance is equally divided between commercial banks and international and regional financial bodies.
Sudan’s economy was hit hard since the southern part of the country declared independence in July 2011, taking with it about 75% of the country’s oil output.
On Thursday the negotiating teams from the two countries signed an agreement in the Ethiopian capital by which Khartoum will “retain all external debt liabilities”. This will be in return for both countries working jointly on reaching out to international creditors to cancel the debt.
Should the two countries fail to secure a commitment from the creditors on debt relief, new negotiations would commence to split up the liability. This is believed to be a thorny issue as Juba asserted in the past that the loans taken by Khartoum were used primarily towards financing military efforts during the north-south civil war.
Several countries such as United States, United Kingdom and Germany expressed readiness to offer debt relief but political conditions attached will likely slow down the materialization of the pledges.
This year Sudan announced that China – a major investor in oil, construction and other sectors of the Sudanese economy – had agreed to extend Sudan’s debt maturity by an extra five years in light of the loss of revenues.
The loss of oil revenue severely curtailed Sudan’s foreign currency inflows putting pressure on the Sudanese pound and pushing inflation rates even higher.
Sudan’s low levels of foreign currency reserves held by the central bank also meant the latter could do little to intervene to support the pound against other currencies.
The IMF is expecting Sudan’s international reserves to drop from $1.3 billion in 2011 to $1.1 billion in 2012 before rising slightly to $1.2 billion in 2013. These levels are enough to cover a little under two months of imports according to IMF calculations.
Sudanese officials traditionally treated the amount of reserves held in foreign currency as a heavily guarded secret refusing to make it public.
In recent months there were news reports attributed to government officials saying that they have received billions of dollars from Arab nations namely Qatar and Libya.
But critics allege that the government intentionally spread the “false” news for the purpose of pushing the price of the dollar on the black market lower as the pound continued to slip.
A year ago, the Bank of Sudan governor called on Arab states to provide up to $4 billion in deposits to shore up the country’s foreign exchange reserves.
The nationwide Forex shortfall hammered the value of the Sudanese pound on the black market, causing it to fall to as low as 6.2 pounds to the dollar last April while the official rate has remained at around 2.7 pounds.
“In order to stabilize the domestic currency and stop the draw-down on the country’s foreign exchange reserves, the authorities introduced various administrative restrictions. These measures were, however, unsuccessful in preventing the depreciation of the exchange rate in the curb market” the IMF said in its assessment of Sudan’s handling of the deteriorating exchange rate.
Authorities in Khartoum decided last May to devalue the pound in a long awaited bid to stabilize the local currency and reverse the chronic shortage in Forex that has plagued the market and frustrated businesses.
However, the devaluation of the pound that was coupled with lifting other restrictions on Forex trade has yet to bear fruit which analysts attribute to the drop in exports and investment levels.
‘MORE ECONOMIC REFORMS NEEDED’
The IMF lauded Sudan’s austerity measures which included raising certain taxes, reducing fuel subsidies and cutting non-priority spending but said more is needed to achieve full potential.
“These measures are a positive step towards restoring macroeconomic stability and addressing Sudan’s macroeconomic imbalances. However, reaching fiscal sustainability and enhancing growth potential will require a determined continuation of the reform momentum. Stepping up structural reforms will also help address the underlying structural challenges facing the economy. Key reforms include: (i) a comprehensive civil service reform, (ii) banking sector restructuring, (iii) ambitious privatization program, and (iv) improving governance” the IMF statement said.
The measures triggered a rare but small outburst of protests in the country last summer demanding that the government rollback the new policies.
IMF figures project a sharp drop in revenue to 12.9% of GDP in 2012 compared to 18.7% last year. Expenditures however fell at a slower rate from 20.0% to 16.6% during the same period leaving a negative net balance that is expected to continue throughout 2013.
Last week the Sudanese finance minister complained that the government is facing a number of obstacles in slashing its spending as planned primarily due to non-responsiveness by state governments in adopting the measures and suggested that this may require an intervention by the central government to force compliance.
The government said it would downsize its bureaucracy through a reduction in the number of constitutional post holders in both federal and regional governments from 572 to 318. It also announced elimination of five ministries, mergers between others, sacking of six presidential advisers and reductions in official perks.
The IMF appeared critical of Sudan government for resorting excessively to the banking sector to finance its budget deficits saying it resulted in reserve money growing at 28% and subduing credit to other sectors of the economy.
But today’s agreements signed between Juba and Khartoum could offer a relief to the beleaguered economy since it will allow the landlocked South Sudan to resume oil exports though Sudan, which will provide both ailing economies with desperately needed cash.
Last January South Sudan suspended its entire output of 350,000 barrels a day over a dispute over transit fees.
The former central bank governor Saber Mohamed Al-Hassan said that the deal will provide Khartoum with $2 billion annually and will enhance trade between the two nations.