Sudan: Debt relief has never looked closer

There is now real momentum in the international community towards normalising Sudan’s relationship with the West, and the ultimate prize of securing heavily indebted poor countries (HIPC) debt relief, two years after the ousting of long-time ruler President Omar al-Bashir in a popular uprising. Among recent developments, the US removed Sudan from its State Sponsors of Terrorism List (SSTL) effective 14 December 2020, a designation which hitherto was a key barrier to debt relief. The delisting was quickly followed by a US agreement to provide a bridge loan on 6 January to help clear Sudan’s US$1.2bn World Bank arrears and an agreement on a US$1bn loan from US EXIM on 7 January, while a new IMF Staff Monitored Program (SMP), which could help Sudan build a policy track record, was approved last year.

This series of positive developments brings Sudan closer to its goal of debt relief; indeed it has never looked closer. Sudan has long been in debt distress, suffering from a high and unsustainable debt position, and being eligible for debt relief under the HIPC Initiative, although it hasn’t yet met all the conditions to qualify due to technical and political considerations. Public debt is over 200% of GDP, there are arrears to IFIs and Sudan has been in default on commercial debt for over 35 years. We calculate HIPC debt reduction could amount to 85% in order to return debt to a sustainable position.

With recent advances, the first step of the HIPC process, reaching what is called Decision Point, could conceivably occur later this year if Sudan meets various conditions, some of which are in motion. In his statement confirming Sudan’s removal from the SSTL, US Treasury Secretary Mnuchin noted efforts to secure debt relief in 2021. That said, investors may be wary of excessive optimism given false dawns in the past. Indeed, in a case of two steps forward, one step back, the recent escalation of tribal and ethnic clashes in Darfur and a border dispute with Ethiopia could stymie progress.

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We encourage investors to do their own due diligence and check their compliance departments to ensure they are free to trade Sudan paper after the removal of Sudan from the US terror list, and are aware of other legal issues pertaining to the trading and settlement of the debt.