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Humanitarian crisis in Sudan spurs regional economic challenges

According to the latest IMF report, the ongoing conflict in Sudan may have a particularly negative impact on Ethiopia, South Sudan, Chad, Eritrea, and the Central African Republic

International Monetary Fund’s deputy director for Africa, Catherine Pattillo, said that the war in Sudan is likely to have a significant negative economic impact on neighbouring countries.

“What is going on there for the people in Sudan is just so heart-wrenching and devastating. For all of the neighbouring countries too,” she said in an interview in Washington ahead of the publication of the International Monetary Fund’s regional outlook for Sub-Saharan Africa.

“A number of these countries that are neighbours are also fragile countries with their own challenges,” she said, while continuing, “And then to be confronted with the refugees, the security issues, the trade issues, is very challenging for their growth.”

According to the latest IMF report, the ongoing conflict in Sudan may have a particularly negative impact on Ethiopia, South Sudan, Chad, Eritrea, and the Central African Republic.

The conflict in Sudan began in April 2023 and involved the army under General Abdel Fattah al-Burhan and his former deputy, General Mohamed Hamdan Dagalo, also known as Hemedti, and his paramilitary Rapid Support Forces (RSF).

The United Nations reports that tens of thousands of people have died in the conflict. There are over 10 million displaced people in the nation, and another two million have fled to neighbouring countries.

Also, the pipeline that carries about 70% of South Sudan’s oil exports has been inoperable since February 2024 and the decline in oil revenues has resulted in a slowdown of economic activities, depreciation of the South Sudanese Pound, rise in inflation, and poor budget execution.

Additionally, the conflict has made food insecurity worse. In July 2024, a famine was declared in the Zamzam camp for displaced people in Darfur, which is close to the town of el-Facher. Disruptions to freight traffic in the Red Sea have increased insurance costs for the oil cargo supplied through South Sudan’s other pipeline, and the war in Sudan has also resulted in a large influx of refugees to South Sudan.

“You could think of Sudan (and) also some of the security issues in the Sahelian countries, also affecting growth. Those are the internal conflicts,” Pattillo concluded, amid the reports of the IMF reviewing the preparedness of the South Sudanese government to benefit from a new financing plan ahead of the November 15 compliance deadline, highlighting the fund’s commitment to Juba’s economic, governance and political reform agenda.

An IMF team led by Mame Astou Diouf visited Juba from September 25 to October 2 to hold discussions with the authorities on the third review under the Staff-Monitored Programme with Board Involvement (PMB).

“The mission discussed performance towards the PMB quantitative targets at end-June 2024 and progress in implementing the structural benchmarks. Discussions to underpin the completion of the third review of the Staff-Monitored Programme with Board Involvement will continue in the coming weeks,” Ms Diouf said recently.

The PMB framework was developed by the IMF in 2022 to benefit countries that are subject to an ongoing concerted international effort by creditors or donors to provide substantial new financing or debt relief or have significant outstanding IMF credit under emergency financing instruments.

“IMF staff monitored programmes are usually used when an IMF member country is not able to implement an IMF-supported programme. In February 2023, the IMF put South Sudan on this programme with several targets, including a requirement that authorities publish all signed oil production-sharing agreements with oil-extracting companies as well as quarterly reports on the oil sector,” reported The East African a couple of weeks back.

The PMB programme will support South Sudan’s reform agenda to maintain macroeconomic stability, ensure debt sustainability, and improve governance and transparency, aiming to build a track record for an upper credit tranche financial arrangement.

“The mission focused mainly on performance and policies underpinning the third review of the PMB. Discussions covered recent macroeconomic and policy developments, programme performance, and near-term prospects and policy plans,” Ms Diouf stated.

The “PMB for South Sudan” has been extended twice by three months each previously, and Juba requested another six-month extension to November 15, 2024, to implement the outstanding structural reforms targeted under the PMB and bring macroeconomic policies back on track.

“The extension is expected to give the government time to implement corrective actions on salary arrears, monetary financing, exchange rate policy, strengthen the macroeconomic policy framework to respond to recent external shocks and take steps toward improving the transparency of oil revenue and its use, especially for spending under the oil-for-roads programme,” The East African noted.

South Sudan’s policy and reform agenda aims to recalibrate near-term macroeconomic policies to cope with the oil production shocks while maintaining economic stability and debt sustainability; and further improve governance and transparency.

Juba is grappling with a shortage of dollars as a result of declining revenues from oil production, the nation’s chief revenue earner, on depleted wells and military conflict in Sudan.

Its reduced foreign exchange flows as a result of the collapse in oil exports since February 2024 have put pressure on the foreign exchange market, and reserves have declined since then.

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