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Sudan

Sudan

Population 40.8 million
GDP 1,123 US$
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) 3.0 1.4 -2.3 -1.9
Inflation (yearly average, %) 17.8 32.4 61.8 49.2
Budget balance (% GDP)* -1.6 -1.5 -3.5 -3.3
Current account balance (% GDP) -7.6 -10.5 -14.2 -13.1
Public debt (% GDP) 99.5 121.6 167.5 165.1

(e): Estimate. (f): Forecast. *Including grants.

STRENGTHS

  • Strategically positioned between the Middle East and West Africa
  • Relative stabilisation of diplomatic relations with South Sudan
  • Fiscal adjustment effort undertaken as part of IMF monitoring
  • Easing of sanctions imposed by the United States in 1997

WEAKNESSES

  • Unsustainable external debt
  • Lack of investment in infrastructure
  • Significant business environment and governance shortcomings
  • Persistent human and food insecurity
  • High levels of unemployment (especially among young people) and poverty
  • Calls in the southern oil-producing regions to join South Sudan and tensions in the Darfur oil region

RISK ASSESSMENT

An ongoing recession

The economy entered a recession in 2018, despite the lifting of almost all US sanctions in 2017. Major imbalances – linked to the loss of three quarters of oil exports following South Sudan's independence in 2011 – continue to weigh on the economy. In 2019, growth is expected to be negative again. A lack of integration into international trade and a weak business environment will restrict private investment, while new austerity measures are expected to depress public investment. Inflation, which surged in 2018 due to the withdrawal of subsidies and devaluations of the Sudanese pound, is expected to remain at a high level and will continue to be a drag on private consumption, which accounts for almost 80% of GDP. This high inflation and devaluations, combined with low confidence in the banking system, have triggered a liquidity crisis, which could continue to hinder trade in a country where the majority of transactions are made in cash. However, the oil sector should benefit from stable oil prices, as well as from improved relations with South Sudan. Indeed, an agreement will make it possible to restart oil production in 2019 in the Heglig oil field, which is claimed by its southern neighbour. In addition, if successful, the oil exploration call for tenders which the authorities are planning in 2019 could support production in the future. The economy of Sudan, the world's largest producer of gum arabic, will continue to depend on the agricultural sector (30% of GDP in 2017). Meanwhile, gold production is expected to support the mining sector.

 

Laboured reduction in government and external deficits

In October 2018, the government announced a 15-month economic reform plan, which includes a number of fiscal austerity measures, such as the removal of customs tax exemptions and reductions in current expenditure. On the revenue side, the recovery of oil production in South Sudan is expected to support growth, as the neighbouring country pays royalties to use Sudan's oil facilities to export its production. Nevertheless, the government deficit is not expected to decline significantly in 2019. As current expenditure does not represent a significant share of total expenditure and the country has a large informal economy, the plan is not expected to have a significant effect. In addition, the recession will once again weigh on revenues. The government deficit will therefore remain at a level that requires central bank financing, which is an approach that will fuel inflation. The country, which does not have access to international markets, is also expected to take out concessional loans. The public debt burden will remain high, and could be increased by further devaluations, since a large portion of the debt is denominated in US dollars. However, China has said that it will cancel part of Sudan's public debt. External debts consists mainly of arrears.

Looking at the external accounts, the massive current account deficit is expected to narrow slightly. Despite the depreciation of the Sudanese pound, imports will remain significant, as they are made up of basic necessities. Non-oil exports (gold, gum arabic, livestock, sesame) are nonetheless expected to increase. The surplus in the balance of services will benefit from the increasing use of oil facilities by South Sudan. However, the high level of public debt, which is mainly external, comes with substantial interest payments that will have an adverse effect on the income balance. Although oil sector participants are keen to attract FDI, these flows will not be sufficient to finance the current account deficit. As foreign exchange reserves are already low, international financial assistance will be needed to finance this deficit, and the Sudanese pound is expected to remain under pressure.

 

The crisis is weighing on the social climate

President Omar Al-Bashir of the National Congress Party (NCP), who is engaged in a fiscal consolidation programme, will have to deal with social unrest, with protests already forcing the government to increase flour subsidies in November 2018. Nevertheless, a month later, demonstrations, triggered by the government’s decision to increase the price of bread, left several people dead, reflecting growing social tensions. More generally, they are the result of the lack of significant political change, austerity measures, and rising inflation. Even so, the President remains well placed ahead of the 2020 elections, since the fragmented opposition lacks the organisation to present a credible alternative. A constitutional amendment allowing him to remain at the head of the country for a third term is expected to be approved, since the NCP holds a majority in Parliament. Calls to join South Sudan will continue to generate armed conflicts in the Sudanese regions of South Kordofan and Blue Nile. The same will be true in the Darfur region, where the issue of the economic and social marginalisation of ethnic minorities persists.

In 2017, the United States lifted almost all sanctions, but kept Sudan on its terrorism blacklist. In 2018, the United States welcomed commitments on cooperation against terrorism and respect for human rights, but also said it expected democratic efforts to remove Sudan from the blacklist. Being kept on the list hinders the country, preventing international investors and financial participants from guaranteeing trade transactions.

 

Last update : Février 2019

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