Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Sudan approved for debt relief, $2.5 billion funding by IMF

EconomyJun 29, 2021 09:15PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Sudanese residents shop in a bazaar in Khartoum, Sudan, May 4, 2019. REUTERS/Umit Bektas/File Photo

By Nafisa Eltahir, Karin Strohecker and David Lawder

(Reuters) -Sudan received approval from the International Monetary Fund on Tuesday for relief on more than $56 billion in debt and new IMF funding of $2.5 billion over three years.

The IMF has accepted the East African country into the Highly Indebted Poor Countries (HIPC) initiative based on the country's commitment to macroeconomic reforms, it said, meaning Sudan can finally access debt forgiveness and new funds. Sudan is the penultimate candidate for the IMF-World Bank programme and by far the largest debt holder.

Now at the programme's "decision point," Sudan will see its external debt drop to about $30 billion relatively soon. It will then fall to $6 billion when Sudan achieves irrevocable debt relief after an estimated three years, at the "completion point," IMF mission head Carol Baker said.

Analysts said the HIPC decision came unusually quickly, a product of international goodwill toward Sudan's civilian leaders sharing power with the military during a fragile political transition and acknowledgement of rapid, painful economic reforms.

"It's not over yet but this is a really significant milestone on the country's path to a more prosperous future," said Ian Clark, partner at legal firm White & Case, which is advising the government on debt restructuring through the HIPC with financial adviser Lazard (NYSE:LAZ).

Deepened by decades of isolation and sanctions, Sudan's economic crisis includes inflation approaching 400%, shortages of basic goods and services and a spike in food insecurity.

Recent economic reforms include the removal of fuel subsidies and a sharp exchange rate devaluation under an IMF-monitored programme required to enter HIPC.

Another condition for accessing HIPC was removal from the U.S. list of state sponsors of terrorism, achieved last year after Sudan agreed to provide compensation to victims of attacks and normalize relations with Israel.

"This is a big 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.

NO PANACEA

Under Omar al-Bashir, ousted as president after a popular uprising in April 2019, Sudan accumulated massive arrears, or unpaid interest and penalties, that grew to account for 85% of the country's total debt. Its power-sharing deal is due 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 $19 billion to Paris Club countries and the same to non-Paris Club countries, including Kuwait, Saudi Arabia and China as of the end of 2019. Its large commercial debts of at least $6 billion are roughly matched by what it owed to multilateral organisations.

Sudan's arrears to the World Bank and African Development Bank were settled earlier this year, and the IMF announced on Tuesday that its arrears were also resolved with help from a French bridge loan.

Next month, the Paris Club will decide on the proportion of debt it will forgive, expected around 70%, and a comparable agreement is expected to apply to other creditors, subject to individual negotiations.

The HIPC programme has been far from a panacea: Three of its graduates – Ethiopia, Zambia and Chad – are currently applying for debt relief under the G20 common framework programme launched in 2020. Others such as Mozambique and Congo have also been forced to restructure.

NEW FINANCING

The $2.5 billion in new funding is a combination of grants and cheap loans that the IMF calls an "extended credit facility." This will provide Sudan much needed direct financing but requires that Sudan push ahead with reforms also required for permanent debt relief.

Some $1.4 billion of the total was dispersed immediately, the IMF said, in order to repay France. The remainder will be disbursed over the next 39 months.

"We are looking to make space for private sector-led growth to create jobs," including by reducing the country's need to print money, said Baker.

Sudan must demonstrate it has achieved macroeconomic stability and improved governance and that it has used the new "fiscal breathing space" to reduce poverty, finance ministry senior adviser Magdi Amin told Reuters. Khartoum cannot fall back into arrears on its remaining debt for the relief to be made permanent, he added.

That is crucial for Sudan's over-burdened government, which Baker said inherited reserves at less than a week's worth of imports from the Bashir regime. It routinely struggles to import fuel, causing frequent power cuts.

The IMF estimated in April that Sudan needs more than $7 billion in external financing over the next two years.

The reforms so far have caused food and transportation costs to surge, forcing Sudanese people to make sacrifices. There are frequent protests, including demonstrations planned on Wednesday.

"It's imperative that (the government) communicate properly to the population ... on this so people don't look up and just see the pain," said Jonas Horner, Sudan analyst at the International Crisis Group.

Sudan approved for debt relief, $2.5 billion funding by IMF
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email