VZCZCXYZ0021
OO RUEHWEB

DE RUEHKH #1403/01 2481523
ZNR UUUUU ZZH
O 051523Z SEP 07
FM AMEMBASSY KHARTOUM
TO SECSTATE WASHDC IMMEDIATE 8420

UNCLAS KHARTOUM 001403 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR AF/SPG, EEB/IFD/OMA AND EEB/IFD/ODF 
DEPARTMENT PLEASE PASS TREASURY FOR OIA 
WORLD BANK FOR USED 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV PREL IMF IBRD SU
SUBJECT: IMF RESREP BRIEFS SUDAN DONOR COMMUNITY ON CURRENT 
OUTLOOK AND 2007-2008 PROGRAM 
 
 ¶1.  (SBU) Summary:  IMF ResRep described 2006 as a 
&challenging8 year for Sudan, as the government, with only 
limited success, wrestled with a combination of growing 
expenditure commitments and disappointing revenues.  As a 
whole the economy grew by a robust 12%.  A one-time, 300% 
jump in inflation significantly moderated by year end.  A 
surge in FDI and imports has eased upward pressure on the 
Sudanese pound.   The 2007-2008 Staff Monitored Program will 
seek to strengthen the GNU,s fiscal management and tax 
policy.  The IMF calculates that Sudan,s $27 billion foreign 
debt is unsustainable in the long term and the country will 
require debt relief at some point.  End summary. 
 
¶2.  (SBU) On August 30, IMF Resident Representative K. Wabel 
Abdullah briefed the Sudan Donors Group on the Fund,s 
recently completed discussions with the government on a 
follow-on Staff Monitored Program (SMP) for 2007-2008, in 
advance of Executive Board consideration of the program on 
September 7.  The new SMP covers the period July 
2007-December 2008.  Because of debt arrears to the IFIs, 
Sudan is not eligible now for IMF financing, but has engaged 
in a series of SMPs with the Fund, intended to pave the way 
for eventual debt relief. 
 
----------------------------------- 
Recent Performance: A Mixed Picture 
----------------------------------- 
 
¶3.  (SBU) Abdullah gave the Sudanese economy a mixed review 
for 2006.  On the one hand, GDP grew by 12% last year and is 
forecast to increase by 11% in 2007.  (Note:  While this 
economic boom is clearly evident in Khartoum and the 
surrounding Nile Valley, it does not extend to much of the 
rest of the country.  End note.)  The decontrol of many fuel 
prices in 2006 led to a one-time, 300% jump in overall prices 
levels, but inflation had stabilized at around eight percent 
in the first months of 2007, and is forecast to end the year 
in the single digits. 
 
¶4.  (SBU) At the same time, the Government of National Unity 
(GNU) confronted a serious fiscal crunch in 2006, caused by 
conflicting expenditure requirements and revenue constraints. 
 According to Abdullah, financial clauses in various peace 
agreements ending internal conflicts (e.g. the Comprehensive 
Peace Agreement and Darfur Peace Agreement) required sizable 
disbursements by the GNU. 
 
¶5.  (SBU) Simultaneously, government revenues fell 
significantly short of forecasts, due to delayed disbursals 
of donor commitments and oil revenue shortfalls, caused by 
technical problems in initiating exports of Dar Blend crude. 
As a result, the GNU ran up a four-percent-of-GDP fiscal 
deficit in 2006. Sudan,s Oil Stabilization Fund, intended to 
serve as a buffer in case of emergencies, also was largely 
spent over the course of the year.  Abdullah did note that 
the GNU had demonstrated better control of expenditures in 
the first trimester of 2007 and the Oil Fund is slowly being 
replenished. 
 
¶6.  (SBU) A significant surge in Foreign Direct Investment 
(FDI), along with rising oil revenues, has fueled an import 
boom.  This surge in imports has eased the appreciation of 
the Sudanese Pound since late 2006, but Sudan,s current 
account deficit is now 13% of GDP. 
 
------------------- 
Medium-Term Outlook 
------------------- 
 
¶7.  (SBU) Abdullah stated that the GNU,S response to its 
financial crunch had exposed major weaknesses in fiscal 
management, with the government unable to adjust its 
expenditures in the face of constrained revenues.  A major 
feature of the new SMP will be strengthening Khartoum,s 
financial controls.  A second feature will be to reduce 
Sudan,s dependence on growing, but volatile, oil revenues by 
strengthening tax policy.  The Fund also plans to assist 
Sudan in drafting a Poverty Reduction Strategy Program (PRSP) 
in 2008. 
 
¶8.  (SBU) While Abdullah characterized the GNU,s 2006 fiscal 
dilemma as beyond its control, this was challenged by the UK 
representative, who noted that significant expenditures had 
gone to discretionary budget items that had nothing to do 
with the peace agreements, including government salary 
increases, security spending, and capital investments in the 
Northern (GNU-controlled) part of the country, e.g., the 
Merowe Dam.  Abdullah did not disagree with this 
 
characterization and noted a lack of transparency in the GNU 
finances as a serious problem.  He also cited a critical need 
for institution building, noting that many key interagency 
relationships in Khartoum now are based solely on personal, 
rather than any institutional, ties. 
 
------------------------- 
Unsustainable Debt Burden 
------------------------- 
 
¶10. (SBU) As part of its SMP discussions, the IMF conducted a 
Debt Sustainability Analysis.  Sudan,s year end 2006 debt 
was US$27 billion in nominal terms, triple the year end 2000 
level.  Of this, US$6.3 billion is arrearages to official 
creditors.  Another US$520 million is new lending from China, 
India and from Arab lenders.  The IMF concluded that, even 
with its increased oil revenues, Sudan is not able to sustain 
this debt overhang and will require debt relief at some point. 
 
¶11.  (SBU) Comment:  Abdullah,s generally upbeat assessment 
is in tune with the IMF,s amicable relationship with the 
central government.  Khartoum values the technical assistance 
the Fund provides and the foundation it hopes it is laying 
for future debt relief and IMF financing.  Meanwhile, the IMF 
has avoided irritating the often prickly GoS by focusing 
strictly on technical-economic issues and avoiding sensitive 
political topics. 
FERNANDEZ