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* U.S. expected to make sanction decision Wednesday
* 20-year U.S. restrictions have hamstrung Sudan's economy
* Sudan to remain on state sponsors of terror list
By Khalid Abdelaziz
KHARTOUM, July 11 (Reuters) - Sudan has complied with all U.S. demands for lifting sanctions, it said on Tuesday, a day before the United States is expected to decide whether to permanently lift 20-year restrictions that have hobbled the country's economy.
Former U.S. President Barack Obama temporarily lifted the longstanding economic sanctions for six months in January, suspending a trade embargo, unfreezing assets and removing financial sanctions.
The relief could become permanent on Wednesday if Washington decides Sudan has complied with a list of demands that include resolving internal military conflicts in areas such as war-torn Darfur, cooperating on counter-terrorism and improving access to humanitarian aid.
"The natural and logical step is that America's economic sanctions are lifted from Sudan because Sudan has implemented what was asked of it entirely," Foreign Ministry Undersecretary Abdul Ghani al-Naim told Reuters.
"The two sides have had monthly joint meetings to follow up on implementation and there doesn't remain anything left to be done. Positive progress was achieved," Naim said.
Sudan this month extended a unilateral ceasefire until the end of October with rebels it has been at war with in the southern Kordofan, Blue Nile, and Darfur regions.
The U.S. State Department did not respond to a request for comment on whether it planned to lift the sanctions.
Sudan is looking to win back access to the global banking system, potentially unlocking badly needed trade and foreign investment that could help it manage soaring inflation of about 35 percent and a shortage of foreign currency that has hampered its ability to purchase from abroad.
The economy has been reeling ever since South Sudan, which contains three-quarters of former Sudan's oil wells, seceded in 2011.
With revenue drying up, the government last year was forced to usher in austerity measures, announcing cuts to fuel and electricity subsidies.
The sanction relief would not change Sudan's designation as a state-sponsor of terrorism, and President Omar Hassan al-Bashir remains wanted by the International Criminal Court (ICC) for crimes against humanity.
At the end of June the United State said it was "very concerned" about Sudan's human rights record, in particular about religious, political and press freedom.
This status could still make investors and banks hesitant to do business, at least initially, even if sanctions are permanently lifted, said Magnus Taylor, a Sudan analyst at the International Crisis Group (ICG) conflict prevention think-tank.
"There will be an economic impact but it wont be instantaneous," said Taylor. "It's the beginning of the process of normalisation."
Taylor said that it is likely, but not certain, that the United States will choose sanctions relief on Wednesday.
"The State Department wants it to happen and the people working on Sudan within the State Department want it to happen, but ultimately it's kind of a political decision after that," he said. (Reporting by Khaled Abdelaziz; Additional reporting by Lisa Barrington and Eric Knecht in CAIRO and Yeganeh Torbati in WASHINGTON; Writing by Lisa Barrington Editing by Jeremy Gaunt)