The Paris Club of creditors on June 18, 2022, suspend debt relief to Sudan which were the result of placing Sudan, in May of 2021, on the Heavily Indebted Poor Countries (HIPC) Relief Initiative. This decision will bring to a halt step to forgive Sudan’s estimated debt of approximately USD 64 billion, and came as a response to the military coup d ‘état against the transitional authority on 25 October 2021.  The Paris Club announced that it would continue to coordinate with the World Bank, the International Monetary Fund, and other international financial institutions, until Sudan returns to the democratic political transition under which it had obtained those exemptions.

Driving forces

The unanimous decision by member states of the Paris Club  was prompted by the following driving forces:

1. The military coup against the transitional government: the main reason behind the decision to suspend Sudan from HIPC debt relief is the military coup against the transitional government headed by the resigned Prime Minister Abdullah Hamduk. So far, efforts to settle this crisis have been hampered by the military’s refusal to hand over power to a civilian political regime. HIPC debt relief was the outcome of the Paris Conference in May 2021, whereby participating creditor countries announced their commitment to forgive a large share of Sudan’s external debt, and to allocate investments to establish economic and development projects within the country.
2. Aligning with US and European sanctions: the decision to suspend Sudan’s debt relief corresponds to US and European measures to address the political crisis in Sudan. The US was quick to suspend USD700 million of its planned economic assistance to Khartoum, threatened to impose individual sanctions on army generals involved in obstructing the handover of power to civilians, and recommended that US companies refrain from engaging with affiliates of the Sudanese military. In tandem, European countries decided to suspend their economic and development assistance as well, while international donor institutions announced the suspension of their financial pledges following the resignation of former Prime Minister Abdullah Hamduk.
3. Failure to respond to Western demands to handover power to a civilian government: The military has failed to respond to demands by US and European states to hand over power to civilian political forces, stop the use of violence against peaceful demonstrators, and release political detainees. To date, General Abdul Fatah al-Burhan has not fulfilled his pledge to rebuild trust with the Sudanese public, except for the cancellation of the state of emergency. Security authorities continue to use excessive violence against demonstrators to breakup demonstrations and protests against the coup d ‘état.  

Instead of sharing power with political forces, the army has selectively engaged with former members of the dissolved National Congress Party (NCP), Islamists groups, and Sudan’s Forces for Freedom and Change (FFC) to obtain legitimacy for its decisions and actions. This selective engagement further exacerbated the political crisis, and heightened US and European concern about the prospects for as Islamist return to power. The Head of the United Nations Integrated Mission to Support the Transition in Sudan (UNITAMS), Volker Peretz, explicitly expressed requests to exclude Islamists from the national dialogue. 

Important Indications

The decision to suspend debt relief by the Paris Club will have a series of important political and economic consequences, the most important of which are:

1. A return to international isolation: The suspension of foreign debt relief signifies Sudan’s return to international isolation after the transitional government succeeded in breaking through this isolation, and reintegrating Sudan into the international community. However, the army’s dissolution of the partnership agreement with political and civilian forces, and its determination to remain at the helm of the current government, has returned the country to international isolation, given the growing reluctance of Western states to provide economic aid to the current authorities, and the requirement that they make positive progress with regard to the handover of the military component of power to political and civilian forces.
2. Sudan’s continued economic deterioration: The suspension of international debt relief has the potential to aggravate already worsening economic crisis. The persistence of economic instability will lead to progressive deterioration in social and living conditions of the Sudanese people. A clear indication of economic deterioration is the devaluation of the national currency against the US dollar, which has reached SDP567 on the black market; the fall in GDP to just USD13 billion, down from USD108 billion in February 2021; and the drop in average per capita income to just USD 314, down from USD2,500.

Deteriorating conditions run parallel to the rise in external debt (SDP24.6 trillion, up from SDP3 trillion, equivalent to 400% of GDP in 2022). Economists expect Sudan’s debt to increase exponentially with higher interest rates, inflation, and absent FDI that typically provides financial resources for development projects that expand employment opportunities. FDI is especially important seeing as the country does not have sufficient capital to emerge from this current crisis.  

3. The need for UAE and Gulf support: The suspension of debt relief reflects the breakdown of state institutions, that are therefore unable to exploit Sudan’s natural resources, or to resolve economic issues. Sudan is now totally dependence on external support, which prompted Finance Minister Djibril Ibrahim to announce Sudan to be in a state of distress, calling on Arab funds to revive its crumbling economy. Within this context, the signing of a memorandum of understanding with the UAE on a massive agricultural project linked by a 450km highway from the Abu Hamad Agricultural Project under the auspices of the Nile River State, to the new port. The project is funded by the “Abu Dhabi Fund” for 25 years. The new port will be built on the Red Sea coast north of Port Sudan and is financed by the “Abu Dhabi Holding Company” as part of a USD6 billion agricultural and investment projects in partnership with “Group Dal”, and in coordination with both the Saudi Arabia and Kuwait Funds for investment in Sudan.
4. A rise in Sudan’s external debt: The economic situation in Sudan continues to deteriorate owing to the continuing political crisis that has lasted since last October. With the decision of the Paris Club to suspend debt relief, in addition to the US’s recent decision to raise the interest rate, Sudan’s external debt is expected to increase dramatically beyond Khartoum’s ability to pay.  The only way out of debt and internal crisis will be to comply with US and Western demands. 
5. Loss of international legitimacy of the current regime: The Paris Club’s suspension sends a clear message to the Sudanese military that it lacks international support and legitimacy to manage the country’s political, economic and security affairs. Without handing over power to a civilian government, the country will not be able to emerge from its current political and economic crisis.  Developments have demonstrated Sudan’s extreme dependence on external forces. This was highlighted by US clear messaging to the Sudanese military, that it has no alternative but to include civilians in managing the political transitional process. 

In summary, the Paris Club’s decision to revoke loan forgiveness, allows the international community to leverage external debt against the current military led government in Sudan. By exerting financial pressure, Western powers are hoping to compel the Sudanese military to respond to demands for a handover of power to political and civilian forces. Ignoring these demands will lead to a sharp deterioration in political, economic and social problems. Against this backdrop, a Western blockade against the Sudan is likely. However, too much pressure could prompt Sudan to resort to competing global powers, including Russia and China, who seek to expand their influence in the country.