Hopes rise for Sudan debt relief deal
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Emerging Markets

Hopes rise for Sudan debt relief deal

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Khartoum has reached a broad debt restructuring agreement with the IMF and other donors that will see it take on all of Sudan’s debt once Southern Sudan becomes independent, its finance minister said in an interview with Emerging Markets

A consensus is building among donors behind a debt relief plan and debt restructuring for Sudan despite concerns over continued conflict in Abiye, South Khordofan and Darfur.

Khartoum has agreed with the IMF and other donors on the broad outlines of a debt restructuring that would lead to Heavily Indebted Poor Countries (HIPC) relief.

Sudan needs to secure debt relief once the Government of South Sudan (GoSS) becomes independent on 9 July and takes the south’s oil reserves and revenues with it, said finance and national economy minister Ali Mahmoud Abdel Rasoul.

Khartoum has agreed to take on all of Sudan’s outstanding debt – the so-called “zero option” provided it gets adequate debt relief supported by the international community.

“Our total debt is around $38 billion, of which around 32% is owed to Paris Club governments, so we will need a [sovereign debt] rescheduling,” Adbel Rasoul told Emerging Markets.

Debt dating back decades is also owed to bilateral creditors and banks. “So we will eventually need a London Club rescheduling too,” Abdel Rasoul said.

He was speaking after a Sudan Forum meeting that also included GoSS Ministry of Finance and Economic Planning permanent secretary Aggry Sabuni Tisa, multilateral officials and governments leading the debt and other initiatives - the US, UK and Norway.

In a separate move, Idris Abdelgadir, state minister for presidential affairs, said yesterday in Khartoum that Sudan had agreed with Southern Sudan to share responsibility for the debt if there is no debt relief within two years. The two states will also set up a mechanism to pay fees on oil exports.

Sudan will need support “as we face the impact of losing our oil revenues”, with oil liftings by the north stopping when South Sudan gains independence, Abdel Rasoul said.

“The balance of payments will face the biggest shock with a serious shortage of foreign exchange resources,” he said, adding that it would mean Khartoum would have to cut essential imports, while the Sudanese pound came under heavy pressure.

Abdel Rasoul forecast that the government would have to cut development and social spending that could trigger “serious social unrest”.

Work on the debt restructuring is being undertaken by a technical working group led by the World Bank and the African Development Bank (AfDB).

Creditors include non-traditional lenders such as China, Gulf states and investment funds. “We are trying to bring them all to the table,” Abdel Rasoul said.

Ian Bannon, sector manager for fragile states, conflict and social development at the World Bank, said the diversity of the donor group added complications because “the non-traditional creditors are not so used to the process”.

Andy Baukol, US Treasury deputy assistant secretary, said Washington “welcomed” work by AfDB and the World Bank on new Poverty Reduction Strategy Papers (PRSPs) and debt relief with both governments, as well as assistance by Norway to Khartoum and Juba on managing debt and oil revenues.

This is despite US Treasury Office of Foreign Assets Control (Ofac) sanctions, first introduced by President Bill Clinton in 1997 and subsequently strengthened by the Bush administration, remaining in place.

GoSS has nearly completed its PRSP and donors are lining up more support. The World Bank board will this week be asked to provide a bridge financing facility for GoSS, Bannon said, “to help them until they join the Bank as a full member when they will get an IDA allocation”.

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