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ONE DOLLAR MAKES A DIFFERENCE: Sudan’s Economic Recovery Hinges on Reforms

As the United States removed Sudan from its list of State Sponsors of Terrorism in December 2020, ending a two-decade trade and financial embargo, the country began to re-engage with international financial systems. However, despite this progress, Sudan’s economy remains fragile, with a nearly bankrupt treasury, high inflation rates, and a legacy of mismanagement.

BANKING SECTOR IN CRISIS

The country’s banking sector has been plagued by corruption, weak legal frameworks, and political influence over decision-making. Senior officials and their business associates have captured the sector to their advantage, leaving the broader economy and population suffering.

Structural Challenges

  • Corruption
  • Weak legal frameworks
  • Political influence over decision-making

The first transitional government, which took office in August 2019, inherited significant economic challenges, including a contracting economy, large fiscal deficits, high inflation rates, and depleted international reserves. The banking sector’s structural problems include severe deviations from international standards and widespread corruption.

CHALLENGES AHEAD

Reforming the banking sector is crucial for Sudan’s economic recovery. However, despite progress in recent years, the sector remains fragile, with several banks undercapitalized and reported non-performing loan (NPL) ratios significantly understating the true state of impairment.

Barriers to Recovery

  • Undercapitalization of banks
  • Widespread corruption
  • Lack of transparency in export/import activities

Large US penalties on international banks in 2014 contributed to a sharp decline in correspondent banking relationships with Sudanese banks. Most importantly, equity injections into several banks have failed to address the sector’s fundamental issues.

WAY FORWARD

To achieve sustainable development and political stability, Sudan must tackle these challenges head-on. This includes:

  • Addressing corruption
  • Strengthening legal frameworks
  • Promoting transparency in export/import activities
  • Integration with international banking systems

A Functional Banking Sector is Critical

  • Ensuring a brighter future for its citizens
  • Stabilizing the financial sector

As Sudan looks to rebuild its economy, one US dollar making a difference is imperative that the government prioritizes reforms to stabilize the financial sector.

SOURCES

  • International Monetary Fund (IMF) Staff Monitored Program, “Staff Report,” October 2020
  • IMF Press Release No. 21/199, “Sudan to Receive Debt Relief Under the HIPC Initiative,” June 29, 2021
  • The International Growth Centre (IGC), “Exchange Rate Reform in Sudan,” 2021

Image: A photo of a person holding a US dollar bill with a Sudanese flag in the background