Impact of lifting economic sanctions on poverty and growth

Question

What are the impacts and consequences of lifting economic sanctions on poverty and economic growth? With the purpose of informing policy in Sudan, use case studies with similar dynamics to formulate lessons from other countries that have had sanctions lifted.

Summary

This rapid review synthesises findings from rigorous academic, practitioner, and policy references, focusing on recent and seminal works with the aim of highlighting the impact of lifting sanctions on poverty and economic development. There is a further aim of helping to inform policymakers in Sudan in the event of sanctions being fully lifted. Therefore, an analysis of the impact of lifting sanctions in other countries – Myanmar and Iran – with an economy also reliant on hydrocarbons will form the basis of this review. Countries like Cuba (where tourism dominates the economy), who have also recently had their sanctions lifted, were discounted as the dynamics of their economies bore little resemblance to Sudan and therefore minimal lessons could be gained.

Key Findings

  • The structural, economic, and social damage caused by sanctions is immense, and thus significant investment is needed to rebalance the society.
  • For oil producing countries where significant income will be achieved in one area following the lifting of the sanctions, it is recommended that an independent sovereign wealth fund for investment is created in order to address the above imbalances.
  • Technologies and standards are developed during the time of the sanctions, leaving industries behind their international competitors when sanctions are lifted. Thus, investment is needed for modernisation in order to make them competitive again.
  • Following the lifting of sanctions, banks and businesses are often sceptical of the reputational risk and the lack of clarity of the sanctions lifted and these fears need to be eased in order to boost business and investment.
  • Sanctions result in the financial and banking sector falling behind in international standards of practise, thus they require considerable restructuring in order to attract international business.
  • In oil-rich countries, sanctions often lead to the rest of the economy being left behind and oil becoming the centre of the economy, upon the lifting of sanctions the influx of foreign currency can lead to considerable appreciation of the local currency, which further damages the rest of the economy as imports become cheaper.
  • Following the lifting of sanctions the pressure on the exchange rate needs to be balanced through expansionary monetary policies that allow the currency to appreciate within a reasonable limit.
  • Serious investment and resources are needed for the diversification of the economy following the lifting of sanctions.
  • Financial legislation and industrial and trade policies need to be adapted in order to create an attractive environment for foreign direct investment and increase access to capital, technology, and market opportunities.
  • The lifting of sanctions can worsen the income gap, as elites manage to take advantage of the opening up of the markets and cheap imports become available, thus funds must be spent on developing the wider economy and creating jobs.

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Suggested citation

O’Driscoll, D. (2017). Impact of lifting economic sanctions on poverty and growth. K4D Helpdesk Report. Brighton, UK: Institute of Development Studies.