Sudan

major macro economic indicators

(e): Estimate (f): Forecast

RISK ASSESSMENT

A bumpy road to political normalisation

Sudan has been plagued by political instability and protests for four years. After popular protests and the removal by the army of Islamist President Omar al-Bashir, in power since 1989, a "Sovereign Transitional Council" mixing civilians and military was installed in 2019. In October 2021, its president, General Abdel Fattah al-Burhane, dissolved the interim government, expelled the Sovereign Transitional Council from its pro-civilian bloc, placed Prime Minister Abdallah Hamdok under house arrest, declared a state of emergency, and suspended the constitutional charter that organised power sharing. The military at the time feared (as it does today) losing their economic interests and being prosecuted for their actions against the population. Facing this, the Coalition of Forces for Freedom and Change, which brings together political parties and associations, and the Popular Resistance Committees, which are spearheading the 2019 revolution, are demanding the withdrawal of the military from political life. Paralysed by protests throughout 2022, Sudan appears to be stuck in a political stalemate as the military continues to repress civilian protests, banking on the movement's exhaustion. A new (preliminary) agreement between the Coalition and the military was signed on 5 December 2022. This compromise sets out the principles of the return of an interim civilian government, a two-year transition followed by elections and the placing of military-owned companies under administrative control. However, the path to a negotiated transition seems narrow. A reappearance of the vice squad marks a concession to the Islamists ousted by the 2019 revolution, while the popular resistance committees, challenging the Coalition's legitimacy, continued their mobilisation after the compromise was announced.

Confirmed in November 2022, the (long-standing) presence of the paramilitary Wagner Group in gold mining operations confirms Moscow's continued support in providing military equipment and training. Moreover, Russia accounts for half of Sudan's wheat imports.

Foreign aid essential to moderating imbalances

With a lack of external financing (albeit mitigated by inflows from the Gulf), deficit monetisation is fuelling hyperinflation. Before the freeze on aid, concessional loans and grants should have accounted for a third of revenues over 2021-22. Since the coup, loans of USD 2 billion from the World Bank (Thamarat family allowance programme) and USD 700 million from the US have been suspended. However, budget revenues are expected to rise to about 10% of GDP by 2023 and expenditures to 12.4%. To achieve macroeconomic stability, Sudan therefore still depends on financial assistance from foreign partners (US, IMF, World Bank, France, US, Saudi Arabia, UAE, Egypt), which, itself, depends on their acceptance of the new institutional arrangements. Budgetary support was cut after the coup and, in the absence of a return to civilian rule, the Paris Club suspended its debt reduction and restructuring programme in June 2022. In a sense, the agreement reached at the end of 2022 was therefore probably motivated in part by the country's financing needs. A gradual resumption of international budgetary support is expected by the end of 2023 if the transition proceeds smoothly.

High food commodity prices are increasing the import bill, putting pressure on the balance of payments and the currency. Having depreciated sharply since 2018 and especially in 2021, the Sudanese pound should begin to stabilise, helped by a resumption of external financial support. It seems likely that the trade balance will move towards balance due to the government's difficulties in financing deficits and the subsequent compression of imports. Through their investments, the Gulf countries bring in foreign currency and make up for a failing state.

A slight rebound expected in 2023

Household consumption (~70% of GDP) will continue to be pinched by very high unemployment, violence and insecurity. However, after stagnating, spending should rebound slightly in 2023, thanks to a decline in inflation and better weather conditions that will improve the purchasing power of farmers (38% of the active population). Nevertheless, in the wake of the floods of summer of 2022, social fragility is set remain high at least in the first half of the year, with 39% of the population living a state of food insecurity according to the World Food Programme. Any improvement will depend on the resumption of aid and logistics.

Private investment will remain limited to the cities. Conversely, foreign investors should continue to develop the oil fields to increase production between 2024 and 2026, while a fund backed by Saudi Arabia and the Emirates will continue its development work in transport and agriculture. An agreement was signed in mid-December 2022 with the Emirati group AD Ports for the construction of a new port on the Red Sea and for the economic development of the region at an estimated cost of USD 6 billion.

Last updated: April 2023