The government would need to accompany a market-determined exchange rate with other tough reforms such as expanding the country’s tax base if Khartoum hopes to benefit from sanctions relief, the IMF said in a report published on Monday.
The Sudanese pound has weakened against the dollar since Washington lifted sanctions encouraging traders to step up imports, putting pressure on scarce hard currency.
It hit an all-time low of 27 pounds against the dollar on the black market in November but strengthened to 23 pounds per dollar after a raft of emergency measures that included capping currency transfers and cracking down on currency traders.
The IMF said the end of sanctions was an opportunity for Sudan to strengthen its economic outlook but it required a currency float.
“Fiscal policy should be tightened to eliminate the monetization of deficits, thus helping to reduce inflation and buttress macroeconomic stability,” it said. It projected GDP growth of 3.25 percent for 2017, down from 3.5 percent in 2016.
The weakened pound has contributed to surging inflation, which reached 33.08 percent year-on-year in October, according to the Central Statistics Office.
The central bank has held the official exchange rate at 6.7 pounds to the dollar but currency is largely unavailable at that price.
“The tax base should be broadened, energy and wheat subsidies phased out and replaced by increased cash transfers to the poor, and capital investment increased,” the IMF said.
The import-dependent country has suffered both from the sanctions and from the secession of South Sudan in 2011, when it lost three-quarters of its oil output, its main source of foreign currency.
One of its largest other sectors is agriculture.
Sudan sorely needs a financial lifeline from donors but it is unable to borrow from the IMF after failing to pay back previous loans and efforts to reschedule debts it owes other countries have faltered.
Sudan’s external debt, which the IMF described as unsustainable, is expected to reach $54.1 billion in 2017 and $56.5 billion in 2018, the report said.