African Countries Hope to Secure Badly Needed Lending in Paris
The IMF is Expected to Decide in June on A massive SDR Issue of $650 Billion, Including $34 Billion for Africa and $24 Billion for Sub-Saharan Africa.
Khartoum — Sudan has been in the international spotlight at a high-level conference in Paris hosted by President Emmanuel Macron in support of its fledgling democratic transition. This important moment is intended to signal Sudan’s reintegration into the international community, following its removal from the US list of State Sponsors of Terrorism (SST) in 2020.
It is also an opportunity for Sudan to rebrand itself and tell the world that it is open for business.
Yet the difficulties of transitioning from authoritarian rule to democracy are enormous. Success will ultimately depend on the civilian-led government’s ability to address the continued economic crisis, which has caused widespread daily hardship for millions of Sudanese, as well as hindering sustainable development and the implementation of peace.
To achieve these goals Sudan will need to rely heavily on its international partners.
The Challenges of Transition
According to the African Report.com, Sudan’s democratic transition is moving in the right direction, though more slowly than had been hoped by many Sudanese, particularly the women and youth who drove the revolution and those who have suffered from decades of war, displacement, and marginalization in Sudan’s conflict zones.
One of the government’s top priorities is to stabilize the economy. Over the past three years, Sudan has seen a stark economic deterioration, with poverty doubling, crippling inflation reaching over 300%, continuing shortages of essential commodities such as fuel, electricity, and medicines, and frequent power outages.
These challenges have been exacerbated by the Covid pandemic.
Another priority is achieving a comprehensive peace. However, the implementation of the Juba Peace Agreement (JPA) is moving slowly due to a lack of resources and spoilers from the old regime who wants Sudan’s transition to fail.
Prime Minister Abdallah Hamdok is treading a fine line between responding to the demands of the street to accelerate change and accommodating the interests of the military, with whom civilian leaders share the transitional government. He has stressed the need to make the civilian-military partnership work but it is also vital to forming the Transitional Legislative Assembly as soon as possible to provide accountability and oversight.
The government is further constrained by having inherited a civil service and other institutions that are dominated by sympathizers for the Bashir regime.
The killing of two young peaceful protestors and injuring of others by security forces just before Eid has caused great anger. Dismantling the Islamist deep state, reforming the civil service and security sector, and delivering on the demands for justice are a must if the government is to have the institutional capacity and popular support needed to implement its transformative agenda.
Another priority is achieving comprehensive peace. However, the implementation of the Juba Peace Agreement (JPA) is moving slowly due to a lack of resources and spoilers from the old regime who wants Sudan’s transition to fail.
Stabilizing the Economy
One of the government’s most urgent tasks is to address the continuing shortages of basic commodities – which have led to frequent demonstrations across the country – and are caused by a variety of problems, including a lack of foreign exchange to pay for essential imports, years of underinvestment in basic infrastructure and suspected manipulation of the distribution network by supporters of the old regime.
Delivering rapid and tangible socio-economic benefits to the Sudanese people, together with better public communication of the government’s concrete plans for remedial action, is essential to create the political space and time required to implement the structural economic reforms needed to set Sudan on the path to inclusive economic growth.
Under an IMF Staff Monitored Programme (SMP), important reforms have been introduced to promote economic stabilization and to create fiscal space for more social spending – including the removal of fuel subsidies, unification and liberalization of the exchange rate, and an increase in electricity tariffs.
The impact of subsidy cuts has been cushioned by the Family Support Programme, a social safety net scheme that aims to give cash payments to 80% of the population. This ambitious scheme has attracted significant donor support, with efforts to roll it out and expand access ongoing.
Since the formation of the new Cabinet in February, the pace of economic reform has quickened. Exchange rate unification has reduced the scope for corruption, opened the door for international aid transfers, and encouraged Sudanese in the diaspora to begin channeling their remittances through the formal banking system, thereby helping to build up the country’s foreign exchange reserves.
Steps have also been taken to improve transparency by publishing more economic data, including the names of 600 state-owned enterprises, and bringing military-owned companies involved in civilian activities under the oversight of the Ministry of Finance.
Moving Towards Debt Relief
Sudan, which has over $50bn in external debt, is making progress in implementing key reforms under the IMF SMP and could be eligible for debt relief under the Highly Indebted Poor Countries (HIPC) Initiative.
If it maintains a credible track record of reform and clears its arrears to the international financial institutions, Sudan could reach the HIPC decision point to start the debt relief process by June 2021.
Thereafter it is likely to take two or three years to reach the completion point for full debt relief, subject to continued reforms. This would enable Sudan, the largest country to qualify for HIPC relief, to clear nearly all of its external debt and access large-scale funding for infrastructural and social spending.
The government is also trying to create a more enabling business environment, having enacted laws on investment and public-private partnership and the establishment of an anti-corruption commission.
Sudan used to be one of the few countries with an entirely Islamic banking system, but Sudanese banks are now able to operate a conventional banking window, which will make lending cheaper and widen the range of banking products available.
To increase foreign investor confidence, further reforms are needed to improve governance and resilience in the banking sector.
Ensuring Inclusive Economic Growth
Sudan has huge untapped potential, including 10% of the world’s unused arable land, the waters of the Blue and White Niles, abundant extractive resources, including gold, and proximity to important markets such as the Gulf.
A poverty reduction strategy, which is under preparation as part of the HIPC process, should increase spending on much-needed basic services, particularly health and education, and direct more resources to vulnerable groups.
The government will also need to live up to its commitments to increase women’s political participation and to give greater priority to women’s economic empowerment as well as expanding educational and employment opportunities for youth who make up two-thirds of Sudan’s population.
The Paris conference will provide a taster of the business opportunities available in Sudan. International support for Sudan has not yet translated into the level of external financing needed to meet its development and peace implementation challenges, The Africa Report said.
According to Africa News, Prime Minister Abdalla Hamdok hopes Sudan can wipe out its staggering $60 billion foreign debt bill this year by securing relief and deals at an upcoming Paris conference that could bring much-needed investment.
“We have already settled the World Bank arrears, those of the African Development Bank, and in Paris, we will be settling the International Monetary Fund arrears,” Hamdok told AFP at his office in Khartoum. Arrears due to the African Development Bank were cleared through a bridging loan worth $425 million from Sweden, Britain, and Ireland, while debts to the World Bank were paid off with a $1.1 billion bridging loan from the US.
Sudan’s debt to the Paris Club, which includes major creditor countries, is estimated to make up around 38 percent of its total $60 billion foreign debt.
The government has also embarked on tough measures including subsidy cuts and introducing a managed currency float to qualify for an IMF debt relief program.
Though widely unpopular, the PM says the measures were necessary to move towards debt relief “by the end of the year”. His government has been pushing to forge peace with rebel groups to end conflicts in far-flung regions. Simmering tensions with neighboring Ethiopia over a fertile border region and a gigantic dam on the Blue Nile pose another challenge.
Downstream Sudan and Egypt have been locked in inconclusive talks with Ethiopia seeking a binding deal over the filling and operation of its hydro-power barrage which broke ground in 2011. France is proposing to reallocate IMF Special Drawing Rights (SDRs) to Africa, foreign exchange instruments that can be used to finance imports.
The IMF is expected to decide on a massive SDR issue of $650 billion in June, including $34 billion for Africa and $24 billion for sub-Saharan Africa.
“These amounts will not be enough. We are thinking about how to use SDRs from advanced countries for low-income countries,” said the Elysée, also suggesting a sale of IMF gold to fund zero-interest loans for African countries.
Other avenues include debt relief by bringing together both public and private creditors around a table, a mechanism that Chad has already asked to benefit from.