IMF says Sudan crosses last hurdle towards debt relief
(Reuters) -The International Monetary Fund’s executive board has decided that Sudan has reached the decision point for the Highly Indebted Poor Countries (HIPC) initiative, it said in a statement on Tuesday, meaning the country can begin receiving relief on its more than $56 billion in debt.
A quarter of a century after the IMF and World Bank launched their HIPC debt relief program, Sudan is the penultimate economy to come through the process, and “by far the largest case in absolute terms,” an IMF official said last month.
As part of the so-called decision point, the IMF announced a 39-month $2.5 billion extended credit facility for Sudan – one of Africa’s largest and most populous countries – which will arrive in the form of grants and cheap loans.
The IMF board was scheduled to meet on Monday and expected to publish its decision by the following day. The fund did not immediately respond to a request for comment.
Analysts say the decision has come at a historically fast pace, a product of international goodwill toward the country’s civilian leaders and acknowledgement of its rapid, painful economic reforms.
“It’s been a long journey for Sudan, it is 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 advises the government on debt restructuring through the HIPC process together with financial advisor Lazard.
Spurred on 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.
Following the overthrow of former President Omar al-Bashir in April 2019, a fragile power-sharing deal was struck between the military and civilians. Over the past year, the transitional government has pushed through several major economic reforms, including the removal of fuel subsidies and a sharp exchange rate devaluation under an IMF-monitored programme required for debt relief.
WHAT NEXT?
Decision point confirmation clears the path for immediate interim relief on some of Sudan’s debt. To get comprehensive, irrevocable reduction in debt, Sudan must meet conditions for “completion point,” which many predict Khartoum can hit within three years.
“We need to demonstrate that we have achieved macroeconomic stability, continue to improve institutions and are using the fiscal breathing space created by debt relief for poverty reduction,” finance ministry senior advisor Magdi Amin told Reuters, adding that Khartoum could not fall back into arrears on remaining debt during that time.
Of Sudan’s at least $50 billion debt burden, $19 billion is owed to Paris Club countries and the same to non-Paris Club countries, including Kuwait, Saudi Arabia and China. 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 cleared earlier this year, and the IMF announced on Tuesday that the full debt it was owed have also been cleared.
The debt has yet to be reconciled in full and past due interest calculated, meaning the sum could well be larger – some estimate closer to $60 billion.
Next month, the Paris Club will decide on the proportion of debt it will forgive, expected at around 70%.
“The U.S. is pleased to join other Paris Club members in providing both immediate and future debt relief,” the U.S. Treasury said in a statement on Tuesday.
Traditionally, a comparable agreement is expected to apply to other creditors.
NO PANACEA
Of 39 countries eligible for HIPC programme, only Sudan and Eritrea were left of the ones that took part.
The programme has proven 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 or Congo have also been forced to restructure.
The extended credit facility will provide Sudan much needed direct financing as long as it pushes ahead with reforms, an IMF official said.
That is crucial for Sudan’s over-burdened government, struggling to finance imports of fuel and medicines. The IMF estimated in April that Sudan needs more than $7 billion in external financing over the next two years.
For many Sudanese, reforms needed to get to this point have been costly, with many families forced to cut down on food and transportation as prices soar.
“It’s imperative that [the government] communicate properly to the population the sequencing and arc on this so people don’t look up and just see the pain,” said Jonas Horner, Sudan analyst at the International Crisis Group.
Source: Read Full Article