New era awaits Sudan after historic debt relief debt
Sudan could see up to $50bn of its debt written off following agreement with bilateral lenders, multilaterals and commercial creditors, potentially turning an important corner in its return to the international fold
The IMF and World Bank this week approved debt relief for crisis-hit Sudan on an unprecedented scale that will immediately cut the government’s debt from $56bn to $28bn and potentially sets the African country on the path to wiping out 90% of its total external debt.
Freeing Sudan from its debt trap could enable it to re-engage with multilateral lenders, including eventually the EBRD which has plans to move further into Africa, and the private capital markets
Sudan has reached the so-called decision point of the Heavily Indebted Poor Countries (HIPC) initiative, becoming the 38th country to do so since the IMF and World Bank launched the initiative in 1996. Under the HIPC operation, the country of 44m people will receive debt relief of $23.3bn in net present value terms — equivalent to 36% of the total debt relief granted to the previous 37 countries.
Some $17bn of the debt relief under the HIPC is from bilateral creditors, $4.6bn from multilaterals, and $1.7bn from commercial creditors.
A joint statement from IMF managing director Kristalina Georgieva and World Bank president David Malpass called the deal a “landmark achievement”, highlighting that other debt relief operations alongside the HIPC initiative would eventually take Sudan’s total debt relief to more than $50bn. This should leave the country with just $6bn in debt.
The deal opens the doors for Sudan’s return to the international financial system after 30 years as a pariah under the military dictatorship of Omar al-Bashir, who was ousted in 2019. The country has suffered decades of sanctions and shortages, and inflation is expected to near 200% this year. But there may be financing opportunities for adventurous investors.
“Debt relief removes a huge burden from Sudan’s back and fixes the balance sheet. Now the country must solve the income statement,” said the CIO of one US-based EM investment fund. “Sudan has the chance to turn a new leaf, and desperately needs new infrastructure investments.
“The country has oil and gas and other natural resources that it has not been able to exploit because it’s been outside of the international banking world, and the opportunity set for investors in a country of nearly 45m people is abundant.”
For now, the hope is that Sudan will begin to benefit from multilateral funding. In June 2020, the transition government requested a staff monitored programme with the IMF that has brought several reforms including subsidy cuts, a floating exchange rate, and measures to strengthen governance and social programmes. The government had already cleared its arrears to the International Development Association (IDA), part of the World Bank, in March — leading to $2bn of new IDA grants.
By reaching decision point, Sudan was able to receive a $2.473bn 39 month extended credit facility that the IMF also approved on Tuesday, with the fund saying the agreement should catalyse donor financing to the country. Sudan will benefit from the full $50bn debt relief if it continues its commitment to economic reforms and reaches the so-called completion point of the HIPC initiative, which the IMF expects to happen by June 2024.
Eritrea is the only country eligible for the HIPC programme that has not yet taken part.
30 Jun 2021