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Will Sudan’s government reshuffle thwart economic collapse?

September 11, 2018 at 12:35 pm

Sudanese banknote [Bank of Sudan/Wikipedia]

A day after Sudan announced plans to reduce the size of its government by over 50 per cent the extent of the economic deadlock has become clear. With the monthly inflation rate about to top 64 per cent and the consumer price index (CPI) already 50 per cent higher than the end of year forecast – neither opposition groups nor government supporters could avoid the need for presidential decrees dissolving the National Reconciliation Government and appointing a new Prime Minister tasked with forming a new 30 per cent down-sized government in the coming days.

It appears the decision to streamline the administration, reducing ministries from 31 to 21, followed an emergency bi-partisan meeting held after the conclusion of the South Sudan peace talks in which Sudan managed to secure a ceasefire deal and to kick start production from South Sudan’s oilfield; a move that is set to resurrect the export of crude oil from the South via Sudan’s petroleum pipeline from which Khartoum receives a percentage of South Sudan oil revenues. The success of the South Sudan talks comes at a time when production of an expected daily output of 300,000 barrels per day is about to begin in Sudan’s Kosti region. In addition, there is also unbridled optimism that the re-commencement of the Heglieg oilfield will add much-needed cash to Sudan’s beleaguered treasury and will pave the way for an economic recovery.

Last week, the Bank of Sudan was forced to issue a statement denying that one of the major high street banks – Bank of Khartoum – had gone bankrupt. It followed the release of dozens of videos on social media picturing chaotic scenes, mainly of government workers converging in their hundreds outside ATMs in a bid to withdraw salaries. Some workers felt compelled to write over cheques to impromptu money brokers who were exchanging large amounts of cash on the streets for 10-15 per cent commission and more. However, in the next few days, the Central Bank is expected to make an announcement about the money supply and banking liquidity arrangements. The Bank of Sudan has already devalued the currency on two occasions, but for the first time in months there has been a slight drop in the value of the US dollar and for now the economic indicators appear to be pointing in the right direction.

Read: Sudanese President Bashir dissolves government, appoints new PM

To make matters worse, Sudanese have been finding it more difficult to access funds sent from relatives working abroad. Partly because of the government’s crackdown on illegal foreign exchange outlets and partly because of the shortage of the money supply. Osman, a money exchange agency manager in London whose name has been changed to protect his identity, told me, “We remit thousands of British pounds a day, but despite having large amounts of cash in our bank accounts in Sudan, it might take two of three days for the bank to pay out.”

It must be said Osman’s exchange agency is undoubtedly part of Sudan’s problem and part of the solution. His agency has been operating “clandestinely” for more than 15 years and has escaped government attempts to control the foreign exchange markets by using “legitimate” offices in Khartoum and other parts of Sudan, trading as bone-fide travel agents and other small businesses, to pay out relatives of Sudanese living abroad. Osman’s precise commission rates are undeclared but it is clear that his business successfully avoids paying huge amounts of tax revenue to Sudan’s Chamber of Taxation.

This political news also comes as a welcome relief given this year’s rainy season which has caused dozens of deaths up and down the country and caused widespread damage and disruption to daily life. Throughout the bad weather, the country has been plagued by huge bread and fuel shortages forcing the average citizen to spend large parts of the day queuing for necessities. The situation had all but paralysed the government which has been unable to reverse the sharp deterioration of the country’s economy amidst electricity cuts of up to 14 hours per day, bakeries reducing production of bread by 40 per cent and raising bread prices in some cases by up to 60 per cent.

“In my view, the government has made a smart political and economic move. Up until now they seemed not to have any idea how to solve the crisis despite rolling out a range of policies that have targeted corruption and illegal foreign exchange vendors,” says political commentator, Yasir Abdullah Ali.

Read: New bread shortage crisis in Sudan

Ali is among a growing number of commentators fearful that the government may have lost the confidence of the Sudanese public. “If it was not for today’s news, I would be genuinely concerned that the economic conditions here may lead to unrest, but for the moment there’s bread in the shops and no queues at petrol stations,” he said.

Sudanese economic woes have continued unabated despite the lifting of US economic sanctions in October 2017 and American assurances that banking restrictions have been completely lifted. Faced with a balance of payment deficit of over $6.5 billion and a raising debt burden of £65 billion, there is a strong possibility – despite the new political measures – the economy may still come to a grounding halt unless petroleum and mining receipts are injected directly into the economy to reduce the balance of payment deficit.

“Sudan still has much to do to turn the country’s fortunes around. It’s concerning that last month the government could not pay for gasoline imports needed to power the irrigation schemes in the agricultural sector. This puts Sudan in grave danger of a failed crop production by the end of 2018,” said Dr Khalid Tigani the editor-in-chief of the Sudanese weekly financial newspaper Elaff.

Tigani, who has closely followed the economic situation in Sudan over the years, is acutely aware that much depends on real economic and political changes in Sudan. Unless the government’s reshuffle produces savings and the oil revenue begins to flow in, there remains a grave danger that the country – once termed “the bread basket of the world,” could have difficulties feeding its 40 million population. Nevertheless, Sudanese have again breathed a sigh of relief and appear to have new hope that an economic collapse has been thwarted.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.