Sudan: Why and how France’s President Macron ‘cancelled’ $5bn in debt

Sudan’s prime minister Abdallah Hamdok was satisfied when he left the International Conference to Support the Sudanese Transition, which was held on 17 May in Paris. Not only did the former diplomat and senior official obtain a $1.5bn bridge loan from France, but France’s President Emmanuel Macron also announced that Sudan’s $5bn debt to France would be cancelled.

The French head of state reiterated that this conference, which he had promised 18 months ago, was intended to “mobilise the international community” in order to “allow the return to the family of nations” of a country whose youth had “spread a message of hope and courage” by overthrowing Omar al-Bashir’s dictatorial regime in 2019.

Moving forward as quickly as possible

Sudan’s reconstruction momentum quickly sped up after the US lifted its sanctions and removed it from its list of countries supporting terrorism in December 2020. But, according to Macron, it is necessary to “act as quickly as possible to rid Sudan of its foreign debt”.

In order to achieve this, two conditions have to be met beforehand: Sudan has to settle its arrears with the International Monetary Fund (IMF), the World Bank and the African Development Bank (AfDB) as well as implement reforms. “These two conditions have been met,” said France’s President.

Why would France be so generous, considering the fact that Sudan had historically been in the British sphere of influence?

“Emmanuel Macron is trying to support the international movement in favour of Sudan,” says François Gaulme, a researcher at the Institut Français des Relations Internationales. “He did his internship for the École Nationale d’Administration in Nigeria and I think he now favours English-speaking countries, especially in East Africa where France had little presence. Its reconciliation with President Abdel Fattah al-Sisi’s Egypt, which is very concerned about what is happening in Khartoum, also explains Paris’ gesture.”

A transitional experience that can serve as an example

According to an Elysée source, this support should be assessed from four angles.

• The first is that this country has undergone a democratic transition that deserves to be emulated throughout Africa.
• The second is that a regional shift, just like the one that is taking place in Ethiopia, should be taken into account and supported.
• The third is the exemplary nature of a revolution that managed to get rid of not only a military regime, but also of Islamist control.
• The fourth, and the most recent, is that countries like Chad can follow Sudan’s good example.

It is also possible that Paris is contributing to the Western effort to prevent Russia from establishing itself on the Red Sea.

According to several Arab news sources, the contract that was signed in December 2020 between Khartoum and Moscow to install a Russian naval base in Port Sudan has been suspended.

Tens of billions of dollars in penalties

Moreover, Paris is Sudan’s second-largest individual creditor, with about 10% of the country’s $49.8bn debt stock at the end of 2019, behind Kuwait (19.7%), but ahead of Austria (8.2%) and China (4.3%).

A considerable part of Khartoum’s accumulated debt comes from late-payment penalties that have accumulated over decades.

According to IMF estimates, more than 60% of the total value of this debt corresponds to penalties.

Therefore, while only a few new loans were granted between 2009 and 2019, the value of the country’s public debt increased by almost $14bn (from $35.7bn to $49.8bn). In the case of Paris Club official creditors, this increase was $8bn.

Sudan’s outstanding debt is now estimated at around $60bn. It was already highly unlikely that such a sum could be repaid at this time given the country’s fiscal situation. However, it has become even more improbable given the fact that the Sudanese pound was devalued by 85% in February, which was accompanied by the introduction of a floating exchange rate.

Major economic reforms

Although this devaluation immediately increased the local-currency value of Sudan’s debt, this reform is nevertheless part of the major economic transformations initiated by the transitional government and which are enabling the country to benefit from a major debt-reduction programme.

The same applies to the reduction of subsidies for basic necessities, but at the sae time, the government has increased its support for the poorest families.

Sudan’s external-debt-reduction programme is part of a complex framework involving development banks such as the AfDB, the Arab Fund for Economic and Social Development and the World Bank Group, as well as the IMF and the Paris Club countries. The latter apply different criteria in addition to a common framework.

“[Sudan’s] arrears to the IMF are expected to be cleared in 2021 through a bridging loan from bilateral donors, which has yet to be secured. The IMF could then be in a position to approve a new three-year financing arrangement for Sudan,” said IMF staff back in March. France is providing its loan in an attempt to overcome a statutory hurdle, as the IMF severely limits its support to countries that owe it back payments.

But, based on previous experiences with countries such as Somalia and Liberia, the French bridge loan will need to repaid quickly (within a maximum of three years). And it will no doubt be paid off with money from the IMF.

Sweden, the UK and Ireland have all together pledged $425m to help with the Fund. Germany has pledged $90m. Similarly, the US has given Sudan a $1.2bn bridge loan to clear its World Bank debt.

These loans will allow the IMF to set a framework for restructuring Sudan’s debt in June. This will involve a delayed application of the Heavily Indebted Poor Countries (HIPC) initiative. Sudan was the only country that was unable to benefit from this initiative in the 2000s due to its diplomatic and economic isolation.

Germany announced that it would waive $90m of its bilateral debt. France will turn its nearly $5bn debt obligation – the largest in the Paris Club – into a grant. “We expect other countries to do the same,” said Macron.

Complex and differentiated mechanisms

In concrete terms, through HIPC, a significant part of Sudan’s debt (notably penalties) will be waived and its payments will be rescheduled, some of which will be over very long maturities (more than 40 years).

This “traditional” debt reduction will reduce the “net present value” of Khartoum’s debts by half (53% based on the debt stock at the end of 2019).

Second, and provided that Sudan meets several criteria established under the HIPC initiative, various other reductions will be applied. For example, all Paris Club member countries have set a “baseline” deadline of 1 January 1984. Therefore, all debts incurred before this date, which follows the outbreak of Sudan’s second civil war, should – in principle – benefit from the cancellation programmes.

Therefore, if the country reaches the “completion point” of the HIPC initiative, Belgium, for example, has committed to cancelling 100% of the official development assistance (ODA) loans issued by the end of 2000, which is 16 years after the “cut-off date”.

Denmark has extended this cancellation to all debts incurred outside of ODA, with a deadline at the end of September 1999. Spain has extended its deadline to 1 January 2004. The US and Italy, on the other hand, have committed to writing off all claims, regardless of their origin, provided they were incurred before 20 June 1999.

Operational flexibility

France’s procedure is more complex. According to an IMF memo, Paris intends to write off “100% of the servicing of pre-cut-off commercial claims on the Sudanese state as soon as they arrive. Once the country reaches the ‘completion point’, the government’s ODA debt relief will be paid into a special account and earmarked for specific development projects.”

This effectively means that France is free to convert the remaining debt that has not been erased by “traditional” debt reduction into “contrats de désendettement et de développement” (C2D, debt reduction and development contracts).

“The C2D is a tool that makes it possible to reconvert certain countries’ debt. In concrete terms, once a heavily indebted poor country has signed a C2D with the Agence Francaise de Développement, the country continues to honour its debt until it has been repaid and, at each repayment date, the AFD pays the corresponding sum to the country in the form of a grant. This money is then used to finance poverty-reduction programmes,” says the French public institution.

For example, nearly €2.3bn ($2.8bn) of Côte d’Ivoire’s debt to Paris has been converted into C2Ds over a period of about 15 years.