Event

In October the US administration decided to permanently revoke a number of economic sanctions that were first imposed on Sudan in 1997 and were temporarily relaxed by the Obama administration in December. This is because of Sudan’s cooperation in combatting terrorism and its reduction of military activities in Darfur and against South Sudan. At the same time, US sanctions related to Darfur will remain in place and the country remains on the list of countries the US considers to be state sponsors of terrorism.

Impact on country risk

In recent years, there has been a modest improvement in the economic situation in Sudan. Average inflation has fallen (17.8% in 2016) compared to 2012, when it was around 36.5%, and the economy has been growing again in recent years (3% in 2016) compared to 2012, when the economy was in recession. The government has also implemented a number of limited economic reforms such as the reduction of fuel subsidies and has made attempts to diversify the economy. Nevertheless, the economic challenges for Sudan remain enormous. Due to the split with South Sudan in 2011, the country lost 75% of its oil reserves. The fiscal measures taken by the government therefore cannot compensate for the loss in oil income. Inflation remains high given that the central bank has helped to finance the large remaining energy subsidies. The exchange rate also remains strongly overvalued. Additionally, there are currently two very worrying factors concerning the state of the country’s economy. First of all, the country’s central bank holds only very limited foreign-exchange reserves, which indicates a major shortage of foreign currency. Sudanese foreign-exchange reserves have been under severe pressure for quite some time due to the structural current-account deficit combined with low FDI and the inability to borrow externally. Secondly, the largest part of the external debt stock remains in arrears, notably to the IMF, the World Bank (WB) and the African Development Bank (AfDB). Given their preferred creditor status, this is very problematic. There are currently no indications that Sudan is able or willing to pay back its external debt. Sudan’s external debt is marked as unsustainable by the IMF. Therefore, Sudan is eligible for debt relief under the HIPC (‘Heavily Indebted Poor Countries’) initiative but has not yet met all the requirements. For this, Sudan would have to repay its debt to the multilateral institutions and have a track record of performance with the IMF and there are also political obligations relating to the peace agreement of 2005 that was drafted to end the civil war. This makes debt relief very unlikely in the coming years. The lifting of the US sanctions is expected to lead to increased levels of trade and investment. This could over time help improve the country’s economic outlook. Nevertheless, Sudan’s economy currently remains in such a dire state that no upgrade of the political risk classification (currently in category 7) is expected in the medium term.

Analyst: Jan-Pieter Laleman, jp.laleman@credendo.com