Real GDP growth was an estimated 4.1% in 2018, up slightly from 3.3% in 2017. On the supply side, mining (growth of 6.3%), agriculture (3.7%), and manufacturing (1.5%) were the main contributors to growth. On the demand side, private consumption was the main contributor to growth, while the current account deficit, an estimated 2.4% of GDP in 2018, detracted from growth. High inflation and the phasing out of energy subsidies stymied growth. Although unemployment rose to 18% as a result of rapid exchange rate depreciation and persistent inflation, poverty and inequality declined between 2010 and 2015. But limited data impair analysis of how the declines affected structural transformation.
Sudan is in debt distress, with external debt an estimated 62% of GDP in 2018. Lifting of US sanctions is expected to normalize relations with creditors and speed negotiations of debt relief under the Heavily Indebted Poor Country Debt Relief Initiative. Inflation soared to an estimated 43% in 2018, driven by a sharp devaluation of the Sudanese pound and fiscal deficit monetization. Foreign currency scarcity and an overvalued official exchange rate triggered a parallel market emergency.
Tailwinds and headwinds
Real GDP growth is projected to be 3.6% in 2019 and 3.8% in 2020, benefiting from a strong commitment to ongoing macroeconomic policy and structural reforms, including removing tax exemptions, reducing public spending, rationalizing imports while providing incentives to boost exports, a rebound in manufacturing, and high private consumption. Addressing debt distress will also be crucial for realizing the projected economic outlook. The peace agreement signed in September 2018 to end the civil war in South Sudan has encouraged the governments of Sudan and South Sudan to open four border crossings to facilitate the flow of humanitarian and commercial traffic and double oil output production. Downside risks include the continued civil conflicts and insecurity in the Blue Nile, Darfur, and South Kordofan states.
Key challenges include institutional and human capacity weaknesses, high youth unemployment, a high external debt burden, and climate change. Sudan remains a typical transitional state faced with institutional and human resource capacity deficiencies. More than 130,000 young people a year enter the labor market, but only 30,000 positions are available, posing a serious challenge for the country. External debt stock— which increased from $18 billion in 1995 to $53.6 billion in 2016 and to $56 billion in 2018— is unsustainable and thus constrains the country’s economic recovery prospects. And Sudan continues to experience prolonged serious environmental degradation caused by low rainfall, overcutting of trees, overcultivation, and overgrazing.
Key opportunities include huge unexploited agricultural potential, an improved national policy environment, and private sector potential. About 63% of Sudan’s land area is agricultural land, which is suitable for a wide variety of crop cultivation and animal husbandry. The government’s recent economic reforms, coupled with the opportunities arising from the lifting of US sanctions and the improved national policy environment, could create a conducive atmosphere for alignment with both the Sustainable Development Goals and the African Development Bank’s High 5s. Sudan also holds huge private investment opportunities in large-scale irrigated agriculture, dairy farming and animal husbandry, forest enterprises involving gum Arabic, and the leather supply chain for regional and global export, with the potential to increase national income and foreign exchange earnings by promoting exports of manufactured and semi-manufactured goods.