As they move their country toward democracy and elections, Sudan officials are hoping that a massive economic boost the international banking community provided this week will wipe out decades of debt and bring stability.
“The transitional government has now secured a way to relieve Sudan’s debt so that the burden is lifted in a very short time,” Sudan Prime Minister Abdalla Hamdok said in a nationwide address Tuesday night after the International Monetary Fund had approved $50 billion in debt relief and $2.4 billion in funding.
The decision signals Sudan’s full reengagement with the international community and multilateral financial institutions — including the World Bank, the African Development Bank and the IMF — for the first time in decades.
Carol Baker, IMF mission chief for Sudan, Middle East and Central Asia, called Tuesday’s decision historic.
“Sudan did indeed reach the HIPC (Heavily Indebted Poor Countries) Decision Point. What that means is that it has now cleared its arrears to IMF, the World Bank and the African Development Bank,” Baker told South Sudan in Focus.
Sudan owed roughly $3 billion total to the three agencies, which has been paid off through bilateral and multilateral loans. The IMF estimates Sudan’s total debt was $56.6 billion at the end of 2020 — accumulated mostly in arrears and penalties over several decades. The IMF’s portion of the debt was $1.4 billion, which has just been paid off with contributions from some of the 120 member countries.
New Sudan program
Sudan’s new Extended Credit Facility (ECF) Arrangement, which started Tuesday, will put the country on a path to debt relief through inclusive growth and poverty reduction.
The IMF approved $2.4 billion in financing to Sudan, $1.4 billion of which had already been used toward clearing Sudan’s arrears with the IMF. The remainder will be used to catalyze concessional donor financing, according to an IMF news release.
The World Bank also announced Tuesday it has $2 billion in project finance grants available to Sudan over the next two years.
The next step in the HIPC process is to confer “traditional relief,” which will see bilateral and commercial creditors provide debt relief for Sudan on more typical terms.
Baker said Sudan should now reach out to its creditors in the Paris Club, a group that owns more than 40% of Sudan’s debt, and start negotiating terms of its debt relief with them. Sudan is also expected to reach out to other creditors to achieve favorable terms in the interim period between what the IMF calls “the HIPC Decision Point,” announced Tuesday, and “the HIPC Completion Point.”
Ready to negotiate
Magdi Amin, senior economic adviser at Sudan’s Ministry of Finance and Economic Planning, tweeted on his page that “Sudan will proceed to negotiations with the Paris Club in July.”
He welcomed Sudan’s entry into the HIPC debt relief initiative and called it “the result of the patience and strength of the people of Sudan in responding to its economic challenges with reform.”
Under HIPC, which Sudan has been implementing for the past six months, Sudan’s transitional government has enacted a reform program that has devalued the Sudanese currency against the U.S. dollar, eliminated its customs exchange rate, and lifted subsidies on diesel and gasoline, which led to sharp increases in commodities prices and sparked street protests against the government in the capital Khartoum. Sudan’s inflation rate is soaring at more than 370%, one of the highest in the world.
The immediate benefit is that Sudan has gained access to $4 billion to finance urgently needed social and development programs, said Hamdok. The World Bank International Development Association will provide $2 billion of that amount. The money will be spent on electricity, water, and basic services such as education and health care.
Under HIPC, Sudan’s total debt relief is expected to be $50 billion, leaving Sudan with only $6 billion in debt at the end of the process, which is expected to happen in June 2024, said Baker.
Sudan would have to fulfill IMF “completion triggers,” policies aimed at strengthening Sudan’s economy, ensuring that it does not go back into debt, and creating strong poverty reduction and growth programs.
Sudan is the 38th country to be accepted into the IMF’s HIPC initiative since its inception in 1996.
Source: Voice of America