- Sudan’s unusually high debt burden
- A country in the throes of a deep economic crisis
- Government struggles to finance imports
- Prime Minister welcomes “big day”
June 29 (Reuters) – Sudan on Tuesday received approval from the International Monetary Fund for more than $ 56 billion in debt relief and new IMF funding of $ 2.5 billion over three years.
The IMF accepted the East African country into the Heavily Indebted Poor Countries (HIPC) initiative based on the country’s commitment to macroeconomic reforms, he said, which means that Sudan can finally access debt cancellation and new funds. Sudan is the penultimate candidate for the IMF-World Bank program and by far the biggest debt holder.
Now at the “decision point” of the program, Sudan will see its external debt drop to around $ 30 billion relatively soon. It will then drop to $ 6 billion when Sudan obtains irrevocable debt relief after about three years, at the “completion point,” said IMF chief of mission Carol Baker.
Analysts said the HIPC decision came exceptionally quickly, a product of international goodwill towards Sudanese civilian leaders sharing power with the military during a fragile political transition and recognition of swift and painful economic reforms.
“It’s not over yet, but it is a really important step on the country’s road to a more prosperous future,” said Ian Clark, partner at the law firm White & Case, which advises the government on debt restructuring via the HIPC with financial advisor Lazard. .
Compounded by decades of isolation and sanctions, Sudan’s economic crisis includes inflation approaching 400 percent, shortages of basic goods and services, and increasing food insecurity.
Recent economic reforms include the removal of fuel subsidies and a sharp devaluation of the exchange rate under an IMF-controlled program required to access the HIPC Initiative.
Another condition for joining the HIPC was the removal from the US list of states sponsoring terrorism, obtained last year after Sudan agreed to compensate victims of attacks and normalize relations with Israel.
“This is a great day for Sudan and reaffirms that all the efforts and sacrifices of the Sudanese people are recognized and rewarded,” Prime Minister Abdalla Hamdok said in a statement.
Under Omar al-Bashir, ousted as president after a popular uprising in April 2019, Sudan has accumulated massive arrears, or unpaid interest and penalties, which have reached 85% of the country’s total debt. His power-sharing deal is expected to last until the end of 2023.
Sudan is still calculating its full debt, but in a March report the IMF said the country owed Paris Club countries $ 19 billion and the same amount to non-Paris Club countries, including Kuwait. , Saudi Arabia and China at the end of 2019. Its significant trade debts of at least $ 6 billion are roughly what it owes to multilateral organizations.
Sudan’s arrears to the World Bank and the African Development Bank were settled earlier this year, and the IMF said on Tuesday that its arrears had also been settled with the help of a French bridging loan.
Next month, the Paris Club will decide how much debt it will write off, expected to be around 70%, and a comparable deal should apply to other creditors, subject to individual negotiations.
The HIPC program is far from a panacea: three of its graduates – Ethiopia, Zambia and Chad – are currently seeking debt relief under the G20 Joint Framework Program launched in 2020. Others like Mozambique and Congo were also forced to restructure.
The $ 2.5 billion in new financing is a combination of grants and cheap loans that the IMF calls an “extended credit facility.” This will provide Sudan with much-needed direct financing, but requires Sudan to push ahead with the reforms also necessary for permanent debt relief.
Some $ 1.4 billion of the total was immediately dispersed, the IMF said, to repay France. The balance will be paid over the next 39 months.
“We are looking to make room for private sector-led growth to create jobs,” including reducing the country’s need to print money, Baker said.
Sudan must demonstrate that it has achieved macroeconomic stability and better governance and that it has used the new “fiscal breathing space” to reduce poverty, senior finance ministry adviser Magdi Amin told Reuters. Khartoum cannot fall back into arrears on its remaining debt to make the relief permanent, he added.
This is crucial for the overburdened government of Sudan, which Baker says inherited reserves within a week of imports from the Bashir regime. It regularly struggles to import fuel, causing frequent blackouts.
The IMF estimated in April that Sudan needed more than $ 7 billion in external financing over the next two years.
So far, reforms have driven up food and transportation costs, forcing Sudanese to make sacrifices. Protests are frequent, including protests scheduled for Wednesday.
“It is imperative that (the government) communicate properly with the people (…) about this so that people do not look up and see only the pain,” said Jonas Horner, analyst in Sudan at the International Crisis Group.
Reporting by Nafisa Eltahir in Cairo and Karin Strohecker in London and David Lawder and Andrea Shalal in Washington; Additional reporting by Khalid Abdelaziz and Alaa Swilam; Writing by Aidan Lewis and Karin Strohecker Editing by Sonya Hepinstall, Aurora Ellis and Cynthia Osterman
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