International Monetary Fund, IMF, has granted a heavily Sudan government a massive debt relief to support economic reform, the multilateral agency said in a statement Tuesday.
The Executive Boards of the World Bank’s International Development Association (IDA) and the International Monetary Fund (IMF) have determined that Sudan has taken the necessary steps to begin receiving debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.
According to IMF, Sudan is the 38th country to reach this milestone, known as the HIPC Decision Point.
“Debt relief will support Sudan in implementing essential reforms to improve the lives of its people by allowing the freeing up of resources to tackle poverty and improve social conditions”, IMF added.
It said Sudan’s external public debt will be irrevocably reduced—through HIPC debt relief and other debt relief initiatives anchored to the HIPC initiative—by more than US$50 billion in net present value terms, representing over 90 percent of Sudan’s total external debt—if it reaches the HIPC Completion Point in about three years’ time.
In addition, as Sudan continues on its path towards peace, stability and development after more than 30 years of isolation from the international financial system, the normalization of its relations with the international community will enable access to critical additional financial resources to strengthen the economy and improve social conditions.
“Today marks an important milestone that will enable Sudan to significantly reduce its debt burden. This is a potentially transformative outcome for a nation of 44 million people that has suffered conflict, instability, and economic isolation for decades,” said World Bank Group President David Malpass following the World Bank Executive Board discussion on June 28, 2021.
“The World Bank has been providing pre-arrears clearance grants to Sudan and supporting the Sudan Family Support Program, and I am looking forward to further scaling up our engagement to improve the living conditions of the Sudanese people.”
“I would like to congratulate the Sudanese government and people for their steadfast efforts over the past year leading to this historic milestone under challenging conditions exacerbated by the COVID-19 pandemic,” said Kristalina Georgieva, IMF Managing Director.
“Successful reform efforts have laid the groundwork for fostering inclusive economic growth and addressing the needs of the most vulnerable people. Sudan needs to sustain and expand the implementation of these reforms—and in doing so it can count on the IMF’s continuous support to secure a more prosperous future.”
“This decision is an important milestone which will support Sudan’s reform and development agenda and our efforts to move away from the past and foster better lives for our people,” said Abdallah Hamdok, Prime Minister, Republic of Sudan.
“The journey leading to this decision required hard work, dedication and strong partnership with the international community. This is a big day for Sudan and reaffirms that all the efforts and sacrifices of Sudanese people are recognized and rewarded.
“The Government of Sudan expresses its appreciation to the IMF, the World Bank Group, and other partners for their unwavering support and to the Sudanese people for their resilience, patience, and dedication in these trying times.”
Sudan is committed to strengthening macroeconomic stability; implementing policies to reduce poverty; and putting in place a set of reforms focused on fiscal sustainability, exchange rate flexibility, expanding the social safety net, strengthening the financial sector and improving governance and transparency, in order to reach the HIPC Completion Point.
The World Bank and the IMF will continue working together to provide the technical assistance and policy guidance needed by the authorities to achieve these goals, including in the context of the new, 39-month IMF financial arrangement.
In addition, following the arrears clearance, the World Bank has unlocked substantial project financing through IDA, which will provide nearly US$2 billion in grants for poverty reduction and sustainable economic recovery.
This will focus on enhancing competitiveness, transparency and accountability; increasing investment in irrigation and agriculture to support sustainable livelihoods; supporting access to energy, water, health, and education; creating jobs; and creating entrepreneurship opportunities for women and youth.
The leaderships of the World Bank Group and the International Monetary Fund express gratitude to their member countries of all regions and income levels, in particular Canada, France, Italy, Malta, Saudi Arabia, Sweden, Switzerland, the United Kingdom, and the United States, together with the European Commission, whose interventions and additional grants helped catalyze international support and raise the necessary financial resources to help Sudan reach the Decision Point.
They would also like to thank other countries which went through their budgetary processes to contribute: Austria, Denmark, Germany, the Netherlands, Norway, Portugal, Spain, and Turkey.
Details of the Debt Relief Operation
At the start of the HIPC process, Sudan’s total public- and publicly guaranteed external debt was estimated at US$56.2 billion in NPV terms. Application of traditional debt relief mechanisms reduces this debt to US$30.9 billion.
Additional debt relief under the enhanced HIPC Initiative is estimated at US$23.3 billion in NPV terms. Of this amount, US$4.6 billion, US$17.0 billion, and US$1.7 billion are projected to be provided by official multilateral, bilateral, and commercial creditors, respectively.
Paris Club creditors have provided financing assurances for interim debt relief to Sudan. The largest Paris Club creditors for Sudan are France, Austria, the United States, Belgium, and Italy.
The IMF Executive Board has approved interim debt relief assistance on debt service falling due to the IMF in the period between the HIPC Decision and Completion Points. At the HIPC Completion Point, Sudan’s current debt due to the IMF will be paid with the proceeds of voluntary financial contributions that have been received from over 100 IMF members, including many low-income countries.
Multilateral Debt Relief Initiative (MDRI).
MDRI debt relief from IDA and the African Development Bank would cancel all remaining claims at the Completion Point. Altogether, Sudan’s external debt burden is expected to fall from about US$56 billion (163 percent of GDP) in NPV terms as of end-2020 to US$6 billion (14 percent of GDP) once the Completion Point is reached and with the participation of all creditors.
IMF and World Bank Arrears Clearance Operations
Arrears to IDA were cleared on March 26, 2021 through bridge financing provided by the United States, reimbursed with the proceeds of a Development Policy Grant primarily funded from IDA’s Arrears Clearance Set Aside in IDA19.
Arrears to the African Development Bank Group were cleared on May 12, 2021 through bridge financing provided by the government of the United Kingdom and contributions from Sweden and Ireland. The bridge loan from the UK was reimbursed via the proceeds of a Policy Based Operation Grant.
Arrears to the IMF were cleared on June 29, 2021 with the assistance of bridge financing from the government of France, which the authorities reimbursed using front-loaded access under the new IMF financial arrangement.
The HIPC Initiative
In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world’s poorest and most heavily indebted countries to ensure debt sustainability, and thereby reduce the constraints on economic growth and poverty reduction imposed by the unsustainable debt service burdens in these countries.
To date, 38 HIPC-eligible countries, including Sudan, have reached Decision Point, of which 36 have reached Completion Point.
Created in 2005, the aim of the MDRI is to further reduce the debt of eligible low-income countries and provide additional resources to help them reach their development objectives.
Under the MDRI, three multilateral institutions—the World Bank’s IDA, the IMF and the African Development Fund—provide 100 percent debt relief on eligible debts to qualifying countries, at the time they reach the HIPC Initiative Completion Point.
Sudan will receive additional debt relief under the MDRI from the World Bank Group and the AfDB Group, but it is not eligible for MDRI debt relief from the IMF because Sudan does not have any outstanding MDRI-eligible loans from the IMF.
Sudan, however, is expected to be considered by the IMF for “beyond HIPC” debt relief, as was done in the case of Liberia and Somalia, which would amount to 100 percent debt relief on eligible debt from the IMF.