The Bleeding Economy and the Tough Options

Obviously, the Sudanese economy has been bleeding excessively. Throughout the past year, in which everybody thought that peace would prevail between the North and the South after the independence of South Sudan, hostilities were stepped up between the two states and more pressure was put on North Sudan by the creation of the so-called the Sudanese Revolutionary Front backed by the South Sudanese Government, which culminated in the occupation of Heglig and the staging of a series of bloody attacks on the Blue Nile, South Kordofan and parts of Darfur. This situation compelled the State to spend more to maintain strong armed and security forces to preserve social order and protect the Country against external threats by the new State and allied rebels.

Regrettably, there were no alternative sources of revenues to compensate for the loss of funds, especially as a sizable part of oil revenues had irreversibly gone with the secession of the South. Revenues from other economic sectors were insufficient to make up for the lost oil, and the promise of the gold bonanza still needed time to come to fruition. Reluctant to approach the unfriendly international donors for fear of adding more foreign debt to the existing $39 billion, the Government alternatively came up with the so-called Trilateral Relief Program to come to grips with the undesirable consequences of the separation of the South by increasing the productivity of animal wealth, agricultural, and mining sectors.

In fact, austerity was part and parcel of the Trilateral Relief Program, but it was singled out for upfront implementation only after the occupation of Heglig when the issue of financing military operations became a priority. Observers suggested other options, such as public borrowing, that could go in tandem with austerity, and accused the Government of taking shortcuts to casually handle the situation. True or not, the motives behind prioritizing austerity was to bring down spending in certain areas and push up revenues in others. With respect to the former, necessary actions were already up and running against the oversized state apparatus (more job cuts), political extravagance (fewer benefits), and corruption (to prevent embezzlement). As to the latter, austerity focused on lifting subsidy from petroleum, oil and lubricants (POL), so that the funds accruing from the lifted subsidy could be diverted to shore up the Government budget by 7 billion pounds. More revenues were also expected to accrue from high tax and augmented customs fees.

Economic considerations apart, it is believed that austerity has been intelligently manipulated to achieve an important political end: the Government did not want to appear in bad shape in the eyes of enemies, whether in ongoing peace talks or at the battle front. In fact, the patience with which the people in the North have reacted to austerity measures indicate that the Government is economically resourceful and politically supported in its effort to safeguard the integrity of the Country! That is why the Government has been amply transparent and reassuring to the public, giving them the impression that it is self-confident and taking full responsibility for the feasibility of the plans it has adopted to save the economy.

However, the problem with the austerity is that it should not be overloaded; otherwise, it will hurt the public beyond tolerance, and may strain vital economic activities and services, giving rise to uncalculated socio-political complications. Furthermore, austerity means less spending and less employment of human and material resources, which eventually leads to economic stagnation. And unless real domestic production is increased, attendant fiscal and monetary policies will remain ineffective and the uncovered local currency will continue to fall. Aware of this, the NCP official Dr. Ibrahim Ghandour told the press last week that Sudan will not completely remove POL subsidy before the end of 2013 and that any reverse decision will be politically and economically imprudent; however, he was skeptical that, for the moment, the Central Bank of Sudan will be able to stop the free fall of the pound against the US dollar despite the huge devaluation of the Sudanese currency this month.