Sudan: 2013 Article IV Consultation

KEY ISSUES

Context: The July 2011 secession of South Sudan led to the buildup of large economicimbalances in Sudan. The authorities responded in June 2012 with a comprehensivepackage of corrective measures, which laid the ground for a much-needed adjustmentprocess. The reform process was expected to continue in 2013, through a secondpackage of measures, which the authorities recently put together, but has yet to beimplemented. The March 2013 agreement with South Sudan on oil and security mattersis offering an opportunity to continue the adjustment process by implementing boldreforms to address the post-secession challenges.

Outlook and risks: Risks are mainly to the downside and risks include domestic politicalinstability and volatile security conditions, notably tensions at the border with SouthSudan. Strong and steady implementation of reforms is crucial for improvingmacroeconomic stability and enhancing medium-term growth prospects.

Focus of the Article IV discussions: Discussions focused on: (i) near-term policies forrestoring macroeconomic stability; and (ii) a medium-term strategy for rebuilding theeconomy and implementing policies for sustained and inclusive growth, higheremployment, and poverty reduction.

Policy recommendations: Action is needed on the following fronts: (i) fiscal adjustmentgrounded in a sound medium-term framework, including a gradual phase-out of fueland wheat subsidies, and strengthening of social safety nets thus making way for higherquality spending; (ii) a tighter monetary stance to address high inflation and exchangerate pressures; (iii) unification of the exchange rates and markets together with furtherexchange rate flexibility; and (iv) further liberalization of the economy and improvementin the business environment in order to boost private sector-led growth.

Staff-Monitored Program: Strong corrective policy measures to address the largeeconomic imbalances and reforming the economy are needed to serve as the basis for asuccessor staff-monitored program.

Debt relief: Relief is predicated on reaching out to creditors, normalizing relations withinternational financial institutions, and establishing a track record of cooperation withthe IMF on policies and payments.