Macroeconomic policy reform options for Sudan

Policy brief 14 Apr 2021 State

Authors

Sudan is in an unsustainable economic position with high and rising inflation, fiscal and balance of payments deficits and negative GDP growth. The situation needs urgent intervention to stabilise the economy and reverse the deterioration.
One of the major causes of this instability is high and increasing subsidies, notably for fuel, which are unaffordable and are being financed by money printing, which is fuelling inflation and exchange rate depreciation. This is compounded by low collections of domestic tax revenues and an overvalued official exchange rate.
Intervention to address the problem requires that fuel subsidies are reduced, that fiscal deficits are not monetised, domestic tax revenues are increased, and the exchange rate is liberalised and unified. In terms of speed of implementation, a balance is needed between a gradual approach to manage any adverse impacts on the population, and the urgency of stabilising the economy. Increased social
welfare transfers can be used judiciously to offset the impact on the most vulnerable groups.
The government is dependent upon external support to help manage the transition. It is also essential that a well conceived and widespread information and communications campaign is undertaken so that the Sudanese population is aware of the rationale for the reforms, understand that the status quo is not sustainable, and are assured that, in due course, there will be benefits from lower inflation and economic growth.