Subsidization of Commodities was Incorrect Economic Policy that was not Changed Earlier, Interview
Dr. Sabir Mohamed Hassan, head of the economic sector of the National Congress Party (NCP), a sponsor of the market economy policy and former Governor of the central Bank of Sudan said in an interview conducted by Sudan News Agency reporters ms: Ishraga Abbas and ms Amani Gandoul, that subsidization of commodities was an incorrect economic policy that we continued practicing because the majority did not have enough courage to change it. The conversation with Hassan ran as follows:
SUNA: Lifting the fuels subsidization has received more concern than the other reformatory measures, why?
Dr. Hassan: After the secession and the larger protion of the petroleum proceeds went to the South and after the Higlig incidents, the local oil production covered only a small portion of the country’s consumption. The government now purchases oil from abroad and from the share of our partners- the Chinese and Malaysian companies at the international price which is changeable and now ranges between 100 and 110 US dollars a barrel, while the government sells the barrel to the public for 49 dollars, bearing a subsidy of more than 50%. This means that a motorist pays 8 Sudanese pounds and the government shoulders an equal 8 pounds for a gallon of benzene which costs 16 pounds. A motorist is usually well-off and therefore the beneficiary of this subsidy is the rich rather than the poor.
Q: Do you expect the removal of this fuel subsidization will be more conductive than other measures to the economic improvement?
A: It is incorrect to say that the lifting of the fuels subsidization by 33% alone will have a major positive effect. We have a package of reformatory measures which, together, are designed to decrease the general budget deficit to the limit of 3% of the general domestic product (GDP) and the inflation down to 25%, in addition to stabilization of rate of exchange of the Sudanese pound compared to other currencies and consequently to checking the economic deterioration and recovery of the economic stability.
Q: How much money can this 3% save?
A: All the reformatory measures caused a decrease of the budget deficit to 5.8% of the GDP, and if 1% of the GDP is equal to 2 billion Sudanese pounds, it will have achieved 7 billion Sudanese pounds.
Q: Has all the fuel subsidization been removed?
A: First of all, I must emphasize that subsidization is an incorrect policy and the countries which apply this policy will face economic difficulties, will pay high and will have to straighten this situation. It is, from a strict professional point of view, an erroneous policy, but unfortunately we have continued practicing it and subsidizing a number of commodities, including the fuels.
Q: Why have continued committing this mistake all these years?
A: Because it had an immediate impact on the people and did not cost them beyond their ability.
Q: You were a sponsor of the market economy policy and you were aware that this policy was erroneous and you had a chance to correct it during the economic stability era, why did you not do this to ward off numerous problems inflicted on the people?
A: Removal of the subsidization was long proposed but did not have the quorum required for passage and approval by the government and by the ruling National Congress party and other parties due to its immediate impact on the people.
Any reformation requires a reasonable government support or agreement; it is not possible for one or two persons to carry out an economic reform. There are people who long called for reform but they couldn’t convince the others because the overwhelming majority did not want, and was not convinced of the importance of the economic reform. I am not blaming others, but you need to have 80% or 85% support by the NCP or the Council of Ministers for applying any reform programme. After a lengthy debate, the economic reform programme was postponed for logical reasons, including security ones. They have their logic and you cannot do anything other than discussing the issue with them.
Q: Why has it now become possible?
A: Removal of the commodity subsidies is a necessary and objective solution that should have been adopted sooner or later because a continued subsidization means a continued implementation of an erroneous policy which harms the economy. Moreover, provision of a direct financial subsidy to the individuals is beneficial to the poor and needy which is better than subsidization of a commodity, like fuels, which is beneficial to all – rich and poor- but it was the rich who benefitted from the benzene subsidy in a twofold way.
The recent economic hardship has convinced many people to endorse the lifting of subsidies as the alternative will be sky-rocketing prices and a shrinking supply of all commodities, implying a return to the queues of purchasers and causing several economic problems. The majority is now in favor of the reformatory programme whereas the minority is against it for the reasons the people presently reject due to the negative effects, while conviction has now strengthened about the deterioration of the economy and reforms – whether contingent or structural- become imperative for the Sudanese economy to recover.
Q: For the second time, has the subsidization been entirely removed from the fuels?
A: The proposal that was discussed was lifting it by 33% during three years- during this budget and the following second and third budgets. But if production of the crude is raised by the Ministry of Energy in a way that covers the local consumption, there will no longer be a problem of subsidization because we now purchase the crude at a high price and sell it at a low price and when we produce the oil we will have no problems and we will no longer think of subsidization. We may consider other issues such as imposing a production tax.
|Dr. Sabir Mohamed Hassan|
Q: Why hasn’t the State taken precautions in the event of losing the petroleum proceeds since the signing of the 2005 Comprehensive Peace Agreement (CPA) and before the secession?
A: It is true that the State should have long taken such precautionary measures but the delay was for the same reasons the people now protest, arguing that the measures would be severe. At that time, the government did not want to pressure on the people and opted for delaying the reforms and this led to aggravation of the problem and deterioration of the economy. Again, those reasons made the government expedite imposition of the austerity measures and at this point I quote the President saying: “If we have found another alternative we would have adopted.
Q:What other measures that decreased the government expenditure?
A: Minimizing the government body by 30% of its current weight, removing the indirect subsidization of the commodities, particularly the fuels, restructuring debts, prevention of withholding the proceeds from the Ministry of Finance, improvement of the customs and taxes performance and expansion of the taxation sources.
Q: Can those measures bring in enough money for the government general budget?
A: We have decreased the deficit in the government budget. The Ministry of Finance, on one hand, has taken measures that have increased the expenditure, such raising the salaries by 100 pounds, the social support and pensions by 100 pounds and decreased the expenditure by minimizing the government body, spending of the State structure and lifted the subsidies, on the other. All those measures resulted in cutting down the deficit to the figure I have mentioned earlier.
Q: When do you expect those reforms will bear fruit on the economy and of the people’s living?
A: It is difficult to specify a certain period but in light of the reformation experience by former Finance Minister Abdul Wahab Osman in 1996-97, the first period will take three to four months during which we do not expect substantial improvement but such improvement will appear gradually. It is important to make the public aware that the improvement would not surface tomorrow or after tomorrow. A patient should not expect recovery immediately after swallowing the first pill. These measures should be given a chance for interaction. The expected results of the reforms may take one year or more, which is the period set for implementation of the contingency programme which coincides with a three-year structural reform and we will begin the austerity and then the structural measures which do not provide for removal of any subsidies.
Q: Why is the focus made only on lifting the subsidies? There are state-owned granted tax exemptions, why do you not dissolve them and give the private sector full chance of participation in the economic activity?
A: Dissolution of the government companies is part of the contingency reform programme, but the people are concentrating only on one measure- the lifting of subsidization from the fuels. It is a package of measures that, as I have indicated earlier, consist of contingency and structural programmes, including minimization of the government size; but the people are stressing their concern about lifting the fuel subsidies.
Q: Is the 100-pound increase of the salary and pension sufficient for meeting the horrific high cost of living?
A: It is unfair to confine the social security package to the 100-pound increment for the pensioners and government employees. This package provides for widening the social support from 500,000 to 750,000 families, reactivation of the micro-finance mechanism for fighting poverty and employing graduates, decreasing the custom rates on a number of commodities, continued student support and coordination with the Zakat (Islamic tax) Chamber and social funds; in addition to subsidizing sugar and wheat commodities. Moreover, each state has its own measures.
Q: Why haven’t the support policies been directed to the poor only?
A: It principle, support is, of course, part of the social justice which is required for the poor but it is necessary to change the present method of support into a direct support. I advise the state to intensify studies and statistics for reaching the poor classes for offering them the support in a direct way.
Q: What guarantees do you see for the success of these measures?
A: It is important that the government must be fully committed to the serious implementation of the recent reforms package in a way that makes these reforms useful and of a positive impact on the Sudanese economy in the near and distant future. Any default, deficiency or partition of implementation of these reforms will be helpless and will not solve the economic problem. These reforms require patience.
By Sudan News Agency (SUNA)- Sudanow.info, 08/07/2012