Slow and uncertain exit from the crisis

Sudan’s recession deepened in 2020, as the usual challenges were compounded by a health crisis, as well as a locust infestation and floods that hit agricultural production. The country is expected to recover only with great difficulty from this situation, recording very weak growth in 2021. Private consumption, which represents 70% of GDP, fell in 2020 (-8.3%) and will continue to decline in 2021, as galloping inflation and internal conflicts disrupt the ability of households to maintain income levels. Private investment also fell in 2020 and cannot be replaced by public investment due to the dilapidated public finances. However, FDI may return to extractive activities in the medium-term. The economy is suffering from hyperinflation, fuelled by monetization of the budget deficit and the reason for repeated devaluations of the Sudanese pound, as well as from low agricultural productivity. The shortage of foreign exchange intensifies downward pressures on the official exchange rate, which is largely overvalued and whose gap with the parallel rate has widened to a ratio of one to three.

The economy relies heavily on the agricultural sector (80% of employment and 30% of GDP), whose production fell by 5% in 2020 and is expected to grow by only 1% in 2021. The primary sector was also affected by the drop in oil prices, but may be revived by the expected rise in prices in 2021. It will, however, be supported by the country's gold production, which will be buoyed by the price of gold but hurt by insufficient productivity and smuggling. Services, which declined sharply in 2020 following the implementation of lockdown measures (-11%), will grow very slightly in 2021 (+0.5%). These sector developments negatively affected foreign trade, as 80% of the country's exports depend on the primary sector (oil, gold and agriculture in particular).

Perilous budgetary and external situation

Budgetary revenues, which represented 6.8% of GDP in 2020, one of the lowest rates in the world, fell because of the crisis. This, coupled with an increase in public spending (estimated at 1% compared to 2019), caused the already large public deficit to widen still further. Sudan's extreme indebtedness worsened consequently, but is expected to stabilize in 2021. Moreover, since nearly 90% of the public debt is external and denominated in foreign currency, it is increasing because of successive devaluations. However, with Sudan's removal from the U.S. list of state sponsors of terrorism, public finances should benefit from international budgetary aid in the form of participation in the Family Support Programme, which will compensate for the elimination of subsidies (12% of GDP), aiming to target aid more effectively.

The massive current account deficit improved in 2020 thanks to a reduction in the trade deficit. This was because imports (cereals, sugar, capital goods) declined by more than exports due to the drop in domestic demand. However, the decline in imports also led to many shortages of traditionally imported necessities. The reduction in the current account deficit is expected to continue in 2021. Moreover, the large public debt, which is essentially external and 90% in arrears, generates interest on top of the arrears. Despite the government's efforts to attract FDI, investment will remain too scarce to finance the current account deficit. Since foreign exchange reserves are very low (0.3 months of imports), international financial assistance will continue to be indispensable. As part of the USD 1.8 billion pledged in June 2020 by the Friends of Sudan Group (55 countries and international organizations), in October 2020, Sudan received USD 370 million in humanitarian aid and funding for development projects from the World Bank and the European Union, as well as EUR 555 million from the United Arab Emirates. Although the country has not had access to IMF resources since 1984 due to its arrears, in June 2020, Sudan and the IMF were able to sign a reform program, whose execution will pave the way for international aid and debt relief.

Fragile internal situation, ongoing diplomatic efforts

After 30 years in power, Omar al-Bashir was impeached and arrested by the army in April 2019, following a popular uprising in December 2018. The establishment of the Sovereign Council in August 2019 and the formation of a new interim government in September ushered in a period of greater stability for the country. This mixed government, torn between the interests of civilians and the military, will be headed by General Abdel Fattah al-Burhan until 2021 after which it will be led by a civilian. Several local groups have traditionally opposed the government, but in October 2020, a historic peace agreement between them and the government was signed and is expected to end 17 years of deadly conflict.

External relations improved in 2020. While sanctions against legal or natural persons are expected to remain in place, the U.S. removed Sudan from the list of state sponsors of terrorism after the country agreed to pay USD 335 million to U.S. victims of terrorist attacks blamed on Sudan. In addition, to pacify its relations with the United States, Sudan signed a normalization agreement with Israel in January 2021 and obtained in exchange a financial aid of more than one billion dollars from the United States.