IMF Executive Board Concludes 2010 Article IV Consultation with Sudan
KARTHOUM, Sudan, July 30, 2010/African Press Organization (APO)
On June 23, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Sudan.1
Background
Economic growth weakened in 2009, in line with the global recession. Overall real gross domestic product (GDP) growth is estimated to have decelerated to 4.5 percent compared to nearly 7 percent in 2008, with the non-oil GDP growth dropping by half to about 5 percent. The deterioration in growth was broad-based, with the exception of a small increase in oil production. Average inflation fell to about 11 percent, from over 14 percent in 2008.
The underlying fiscal performance improved in 2009. The overall non-oil commitment deficit narrowed from 8.7 percent of GDP in 2008 to 7.7 percent in 2009. Tax revenues improved significantly as expected, reflecting stronger revenue collection efforts by the tax and customs administration. However, non-oil non-tax revenue remained constant in relation to GDP due to weaker than expected parastatal profits. Most expenditures (with the notable exception of transfers and fuel subsidies) were contained.
Monetary policy was expansionary in 2009. Reserve and broad money increased by 28 percent and 23.5 percent, respectively, in 2009. These were to ensure sufficient credit to the private sector to partially offset the impact of the liquidity shortage created by the global financial crisis. However, despite the increased credit from the central bank to commercial banks for onward lending, credit to the private sector increased by about 20 percent (slightly higher than nominal GDP growth).
The balance of payments position deteriorated in 2009 due to the global crisis. The current account deficit reached 11.5 percent of GDP as the decline in imports (by about 6 percent) and the rebound in oil prices in the second half of 2009 were not sufficient to compensate for the fall in oil receipts. In addition, weaker than expected remittances and foreign direct investment kept the foreign exchange position under pressure. The guinea depreciated by 13 percent against the U.S. dollar through August but subsequently appreciated as the central bank increased the sale of foreign exchange to the market. As a result, the overall depreciation of the guinea against the U.S. dollar in 2009 was about 3 percent. The central bank’s net international reserves (NIR) remained low.
Important structural reforms were completed in 2009, though some with delay. In the fiscal area, several measures were implemented to improve tax compliance and strengthen fiscal management and administration. These included modernization of the taxation chamber, centralization of taxpayer identification numbers, and the extension of the Government Finance Statistics (GFS) 2001 budget classification to 5 Northern states. However, the comprehensive review of the tax policy regime is expected to be completed by July 2010. The delay in completing the review was due to the reorganization of the Ministry of Finance and National Economy (MoFNE). A restructuring plan for Omdurman National Bank was prepared in February 2010, in line with the recommendations of an independent audit report.
Executive Board Assessment
They welcomed Sudan’s progress on key structural reforms under the staff-monitored program (SMP), while noting that macroeconomic performance has been affected by the global crisis. Going forward, Sudan will continue to face large and complex challenges in view of the slow recovery from the global crisis, the projected decline in oil receipts over the medium term, and the large development needs. Directors urged the authorities to maintain prudent macroeconomic policies and to accelerate fiscal, financial sector, and structural reforms.
Directors stressed the importance of fiscal prudence, and commended the steps taken to reduce tax exemptions and improve tax administration. They called for further efforts to rein in the non-oil primary fiscal deficit and widen the tax base. Directors looked forward to the completion of the comprehensive review of the tax regime, which should lead to further reductions in value added tax (VAT) and income tax exemptions, and the resolution of tax jurisdiction issues with sub-national governments. They underlined the importance of introducing a targeted safety net and gradually phasing out fuel subsidies. Directors welcomed the authorities’ intention to adopt a medium-term budget framework using non-oil indicators.
Directors supported the authorities’ recent steps to tighten the monetary stance, which will help reduce pressures on inflation and the exchange rate. They noted the staff’s assessment that the real exchange rate appears to be near its equilibrium level. Directors emphasized the need to accelerate structural reforms to enhance competitiveness. They commended the recent increase in exchange rate flexibility, which is essential to help rebuild foreign exchange reserves and mitigate the impact of external shocks.
Directors noted that sustained economic growth requires a strengthening of the financial sector. They welcomed the authorities’ renewed emphasis on enforcement of prudential regulations, reducing nonperforming loans, and increasing provisioning and capital. They called for full implementation of the measures in the restructuring plan for Omdurman Bank and preparation for its eventual privatization. Directors welcomed the authorities’ intention to implement structural reforms aimed at diversifying the sources of growth, especially in the agricultural sector.
Directors noted that the SMP meets the standard of upper credit tranche conditionality, except for the allowed level of non-concessional borrowing. They generally welcomed Sudan’s record of cooperation on economic policies, and strongly encouraged the authorities to significantly increase their arrears payments to the Fund as the country’s payment capacity improves. A few Directors reiterated their call to allocate payments to charges falling due rather than to principal in arrears. A number of Directors felt that Sudan’s broadly satisfactory performance under the successive SMPs should be reflected in a clear and timely path for normalization of Sudan’s relations with the Fund and debt relief. At the same time, Directors acknowledged that resolving Sudan’s debt and arrears problems would require broad support from the international community. Directors took positive note of the authorities’ request for a stocktaking of Sudan’s progress under successive SMPs over the past 13 years.
While recognizing Sudan’s reconstruction and development needs, Directors urged the authorities to minimize nonconcessional borrowing in view of Sudan’s unsustainable external debt burden. This would also give a strong signal of Sudan’s cooperative effort and avoid complications in the event of any future debt-relief operation.
SOURCE: International Monetary Fund (IMF)
On June 23, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Sudan.1
Background
Economic growth weakened in 2009, in line with the global recession. Overall real gross domestic product (GDP) growth is estimated to have decelerated to 4.5 percent compared to nearly 7 percent in 2008, with the non-oil GDP growth dropping by half to about 5 percent. The deterioration in growth was broad-based, with the exception of a small increase in oil production. Average inflation fell to about 11 percent, from over 14 percent in 2008.
The underlying fiscal performance improved in 2009. The overall non-oil commitment deficit narrowed from 8.7 percent of GDP in 2008 to 7.7 percent in 2009. Tax revenues improved significantly as expected, reflecting stronger revenue collection efforts by the tax and customs administration. However, non-oil non-tax revenue remained constant in relation to GDP due to weaker than expected parastatal profits. Most expenditures (with the notable exception of transfers and fuel subsidies) were contained.
Monetary policy was expansionary in 2009. Reserve and broad money increased by 28 percent and 23.5 percent, respectively, in 2009. These were to ensure sufficient credit to the private sector to partially offset the impact of the liquidity shortage created by the global financial crisis. However, despite the increased credit from the central bank to commercial banks for onward lending, credit to the private sector increased by about 20 percent (slightly higher than nominal GDP growth).
The balance of payments position deteriorated in 2009 due to the global crisis. The current account deficit reached 11.5 percent of GDP as the decline in imports (by about 6 percent) and the rebound in oil prices in the second half of 2009 were not sufficient to compensate for the fall in oil receipts. In addition, weaker than expected remittances and foreign direct investment kept the foreign exchange position under pressure. The guinea depreciated by 13 percent against the U.S. dollar through August but subsequently appreciated as the central bank increased the sale of foreign exchange to the market. As a result, the overall depreciation of the guinea against the U.S. dollar in 2009 was about 3 percent. The central bank’s net international reserves (NIR) remained low.
Important structural reforms were completed in 2009, though some with delay. In the fiscal area, several measures were implemented to improve tax compliance and strengthen fiscal management and administration. These included modernization of the taxation chamber, centralization of taxpayer identification numbers, and the extension of the Government Finance Statistics (GFS) 2001 budget classification to 5 Northern states. However, the comprehensive review of the tax policy regime is expected to be completed by July 2010. The delay in completing the review was due to the reorganization of the Ministry of Finance and National Economy (MoFNE). A restructuring plan for Omdurman National Bank was prepared in February 2010, in line with the recommendations of an independent audit report.
Executive Board Assessment
They welcomed Sudan’s progress on key structural reforms under the staff-monitored program (SMP), while noting that macroeconomic performance has been affected by the global crisis. Going forward, Sudan will continue to face large and complex challenges in view of the slow recovery from the global crisis, the projected decline in oil receipts over the medium term, and the large development needs. Directors urged the authorities to maintain prudent macroeconomic policies and to accelerate fiscal, financial sector, and structural reforms.
Directors stressed the importance of fiscal prudence, and commended the steps taken to reduce tax exemptions and improve tax administration. They called for further efforts to rein in the non-oil primary fiscal deficit and widen the tax base. Directors looked forward to the completion of the comprehensive review of the tax regime, which should lead to further reductions in value added tax (VAT) and income tax exemptions, and the resolution of tax jurisdiction issues with sub-national governments. They underlined the importance of introducing a targeted safety net and gradually phasing out fuel subsidies. Directors welcomed the authorities’ intention to adopt a medium-term budget framework using non-oil indicators.
Directors supported the authorities’ recent steps to tighten the monetary stance, which will help reduce pressures on inflation and the exchange rate. They noted the staff’s assessment that the real exchange rate appears to be near its equilibrium level. Directors emphasized the need to accelerate structural reforms to enhance competitiveness. They commended the recent increase in exchange rate flexibility, which is essential to help rebuild foreign exchange reserves and mitigate the impact of external shocks.
Directors noted that sustained economic growth requires a strengthening of the financial sector. They welcomed the authorities’ renewed emphasis on enforcement of prudential regulations, reducing nonperforming loans, and increasing provisioning and capital. They called for full implementation of the measures in the restructuring plan for Omdurman Bank and preparation for its eventual privatization. Directors welcomed the authorities’ intention to implement structural reforms aimed at diversifying the sources of growth, especially in the agricultural sector.
Directors noted that the SMP meets the standard of upper credit tranche conditionality, except for the allowed level of non-concessional borrowing. They generally welcomed Sudan’s record of cooperation on economic policies, and strongly encouraged the authorities to significantly increase their arrears payments to the Fund as the country’s payment capacity improves. A few Directors reiterated their call to allocate payments to charges falling due rather than to principal in arrears. A number of Directors felt that Sudan’s broadly satisfactory performance under the successive SMPs should be reflected in a clear and timely path for normalization of Sudan’s relations with the Fund and debt relief. At the same time, Directors acknowledged that resolving Sudan’s debt and arrears problems would require broad support from the international community. Directors took positive note of the authorities’ request for a stocktaking of Sudan’s progress under successive SMPs over the past 13 years.
While recognizing Sudan’s reconstruction and development needs, Directors urged the authorities to minimize nonconcessional borrowing in view of Sudan’s unsustainable external debt burden. This would also give a strong signal of Sudan’s cooperative effort and avoid complications in the event of any future debt-relief operation.
SOURCE: International Monetary Fund (IMF)