Home | News    Thursday 6 January 2011

Sudanese will start feeling the sting of austerity plan approved by parliament

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January 5, 2011 (KHARTOUM) – The Sudanese national assembly on Thursday hastily approved an austerity package sent to it by the cabinet that contained cuts in subsidies for crucial products that is expected to trigger a domino effect on prices of a wide variety of goods and services.

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Sudan national assembly (Miraya FM)

President Omer Hassan Al-Bashir presided over a meeting of the council of ministers late on Tuesday that was described by state media as "exceptional" and lasted until the early morning hours of Wednesday.

At the meeting, finance and national economy minister Ali Mahmood presented his plan that aims to curtail government spending, inhibit imports, shore up foreign currency reserves and contain the budget deficit particularly as uncertainty looms over the economic future in the likely event that the South will choose to secede in the referendum that starts Sunday.

Under a 2005 peace agreement ending a 22-year civil war, Africa’s longest conflict, southern Sudanese will vote from January 9-15 to determine whether to secede or to remain united with the north.

The country’s breakup is widely predicted but the north has promised to accept the outcome of the vote and tamped down fears of renewed conflict.

Among the measures introduced was an increase to the price of petroleum products which is subsidized by the government.

These included gasoline (from 6.5 Sudanese pounds per gallon to 8.5); diesel (from 4.5 Sudanese pounds per gallon to 6.5); cooking gas (from 12 Sudanese pounds to 13); jet fuel (from 4.5 Sudanese pounds per gallon to 6.5).

"The price of petroleum has been subsidized for a long time and this creates a gap in the state’s financial resources, so we decided to introduce some measures to change that," the finance minister said after the vote.

The direct impact of the increase in the price of petroleum products will likely be felt in public transportation which is a strategic service in the country and is heavily utilized by the poor and middle-class population of the country.

The governor of Khartoum state Abdel-Rahman Al-Khidir was quoted as saying that no increases in the bus fares will take place and that students will be able to ride for half the price.

However, the independent Al-Sudani newspaper reported on Thursday that fares of public transportation will go up by 25%.

Al-Khidir also pledged that there will be no no increases in the price of bread or chicken and that efforts are being made to contain the increases in cooking oil.

The government also announced today that the price of sugar will be raised by 20 Sudanese pounds per 50 kilogram (110 pounds) bag. Sugar is considered a crucial product in Sudan and people are extremely sensitive to any changes in its pricing.

"A change to these sugar and fuel prices will allow the ministry of finance to save 2.06 billion Sudanese pounds," Mahmood said before suggesting that more increases will follow and warned that these measures were necessary to prevent an economic collapse.

He pointed out that the country’s consumption of sugar and fuel exceeds its local production forcing the government to import both products.

Furthermore, Mahmood said that subsidies are given across the board meaning that undeserving parties such as foreign organizations benefit from it.

Mahmood also announced a 25% cut in salary for 149 ministerial-level government officials and a 30 percent reduction in foreign travel for the government, which analysts said would have limited effect.

Other policies to be enforced include prohibiting purchases of furniture and vehicles for most ministries unless for extreme necessity, stopping issuance of building permits for government agencies, reviewing government structure on state and federal levels and reducing budget of diplomatic missions abroad by 10%.

The minister announced lower-level state workers would get an extra 100 Sudanese pounds a month but little else targeting the poor majority of Sudan’s 40 million people. Gross national product per capita in Sudan was just $1,220 in 2009.

Ahmed Ibrahim Al-Tahir, speaker of the Sudanese parliament, said that the current phase is similar to the years of 1990-1992 and called on citizens to curb their consumption of electricity and food.

Representative Ismail Hussein from the opposition Popular Congress Party (PCP) was the lone vote against the bill saying that "it make no sense" for the finance minister to ask for these increases five days after the 2011 budget went into effect. He said that Bashir should dissolve the cabinet for what he described as its failure.

Mahmood acknowledged there was a budget deficit for 2011 but declined to say how much. Sudan, which operates an opaque economic policy, has kept its 2011 budget under wraps and has not declared any financial details. He revealed that the measures were crafted after consultation with trade unions, chamber of commerce, agricultural workers union and states.

The Sudanese minister said last year that the budget deficit may narrow to 3.2 percent of gross domestic product in 2011.

Around the same time, Sudan’s Central Bank Governor Sabir Al-Hassan had said that the government plans to fund the deficit with domestic borrowing including sales of Islamic bonds, and from external loans of 4.4 billion Sudanese pounds from such nations as China, Arab states and India.

Mahmood reiterated that privatization of public sector will proceed as planned and endorsed by the government late last year. Furthermore, ministries and agencies will be required to wire any hard currency in its possession to the treasury within a week of receiving it.

A list of prohibited items that are not to be imported will be prepared and duties on others would be increased, Mahmood added.

Sudan has spent heavily on government and defense while increasing its debt and imports to cover a fall in local production, leading to foreign exchange shortages, rising inflation and a weakening Sudanese pound. But government officials claim that deliverables of several peace accords signed in recent years have forced the jump in spending.

DIFFICULTY IN FUNDING BUDGET DEFICIT

The abrupt move was likely driven partially by failure of Sudan last month to sell notes to global investors in order to finance the budget deficit. As a result, Sudan resorted to selling 800 million Sudanese pounds ($336 million) of seven-year Islamic bonds to local banks.

Faisal Islamic Bank, Sudan’s oldest Shari’a-compliant lender, and Financial Investment Bank are among lenders that bought 570 million pounds of the bonds, according to Bloomberg.

Last November, Sudan raised 500 million Sudanese pounds from the sale of seven-year Islamic bonds with overseas investors buying 12.5% of the offering. The debt is backed by the government’s stake in Khartoum Refinery Co., a joint venture with China National Petroleum Corp..

The notes, which comply with the religion’s ban on interest, will pay a return of 14 percent annually.

Sudan’s difficulty in selling bonds outside is “aggravated by the fact that it has high political risk associated with Darfur and its incumbent president,” said Sergey Dergachev, who helps manage the equivalent of $8.5 billion in emerging-market debt at Union Investment in Frankfurt, in an e-mailed response to questions by Bloomberg last month.

In March 2009, the International Criminal Court issued a warrant for Bashir’s arrest on charges of war crimes and crimes against humanity in connection with his government’s conduct of the conflict in Darfur.

In July this year, it added a charge of genocide over accusations the Sudanese leader personally gave orders for the annihilation of the region’s Fur, Masalit and Zaghawa ethnic groups.

Sudan has “a very low level of transparency and it is extremely tough to get reliable and useful information to assess the macroeconomic, and the external and public debt situation,” Dergachev added.

The government delayed an overseas sale of $300 million of Islamic bonds originally planned for 2008 because of “political uncertainty,” Sudan central bank governor said last year. Sudan isn’t rated by Moody’s Investors Service or Standard & Poor’s (S&P), according to data compiled by Bloomberg.

“Sudan is one nation that we don’t consider at all,” Zeid Ayer, who helps manage $1.6 billion of Shariah-compliant assets at CIMB-Principal Islamic Asset Management Sdn. Bhd., told Bloomberg.

“It’s not investment grade, it isn’t rated, so its debt isn’t something we’d be interested in” he added.

“The country has quite a high debt to gross domestic product ratio,” Dubai-based Ahmad Alanani, head of Middle East fixed-income sales at Exotix Ltd., said.

“There’s also a question about the nation’s credit worthiness if secession in 2011 becomes a matter of fact”.

The International Monetary Fund (IMF) projected in its October Regional Economic Outlook report a 6.2% growth in 2011, from 5.5 percent last year.

Overseas borrowings stood at $35.7 billion in 2009, with more than $30 billion in “arrears,” or past due dates, the World Bank and the IMF said in a statement last December.

Sudan produces some 500,000 barrels per day of oil, but only 100,000-110,000 bpd are from wells in the north. The economy is dependent on oil for some 45 percent of its budget and most of its foreign currency revenues.

The 2011 budget estimated inflation would be 14 percent but analysts said it was likely to be higher.

In November Sudan temporarily devalued the Sudanese pound to match the black market, hoping to bring more foreign currency into official trade and destroy the parallel market. So far it has met with limited success with banks still unable to meet the demand for foreign currency.

(ST)

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  • 6 January 2011 09:24, by Aleu

    The bad thing in Arab culture is when they don’t want to ask leader seriously about misusing resources for the nation. The NCP of MP why not asking Omar Hassan Ahmed al Bashir immediately to returns 9 billion dollars which he had hiding in UK. Bank.? These money are for the Country Sudan why are you guys cover up this corruption man in Sudan history.?

    repondre message

    • 6 January 2011 10:02, by Maguangdit

      Aleu,
      You are right. This money should be returned to Sudan because it belongs to the people of Sudan. If Northern Sudan can not pay attention to their economic situation over the next years, then it will be a ’Failed State"! The Northern Sudanese have been talking about Southern Sudan has a failed State if it secedes. However, there is no doubt that the talking or blabbering is an obvious irony-the opposite is the reality!

      Yoou can see now the hike in prices of commodities in the Northern Sudan. More problems will follow soon and good planning will prove useful to them. The same problem could overspill into Southern Sudan because we are reliant on each other and failure in the Northern Sudan economy may affect us in some ways. The only bad thing is that the Criminals of NCP do not accept useful advice either from their own Northern Sudanese or Southern Sudanese but they should have avoided causing more problems especially the pending issue in Abyei which could cause trouble that may prevent oil production there quite for some time before the solution to bring it back to the Southern Sudan is achieved.

      It is becoming clear Bashiir is anyway interested in letting South Sudan go but there are lunatics misleading him to believe in lies that can take us back unless Northern Sudan decided to avoid these difficulties. Complicating things between us can bring problems but facilitating things and work for a better relations is the best way forward. We could not even have been thinking about building a pipe line from Southern Sudan to Kenya or so. However, we could even be thinking about using the same pipe line from Southern Sudan to Port Sudan if it not a racour built between Northern Sudan by those who believe absolute domination and suppression of other nationalities in Sudan is the life of the day.

      Now, given the fact that both sides are heavily armed, any problems that may occur this time is a disaster to both of us because weapons that have never been used in the Sudan history may be used and areas that have never witnessed gun powder could certainly smell it. This is not the way forward though there are some people who believe in this policy.

      repondre message

    • 6 January 2011 10:03, by Kolnyang youth

      Bashir when to run away thxs why he was sending money away from Sudan ,but unfortunately he was court through world tracker .

      NCP politicians are all thief they are not suppose to be politicians should be call political gamblers of Sudan .

      Anti-tribalism

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    • 6 January 2011 12:24, by hassan3

      When Salva ,and his clique plundered billions of dollars is this Arab Culture? Those who are shy become dead the Arab proverb goes. Who taught northerners the art of public money theft. I think Southerners are masters in this regard. So Bashir can attend lessons in public money theft sponsored by Salvakir, he is the chief architect in this craft.

      repondre message

      • 6 January 2011 13:52, by Kolnyang youth

        please do not spoiled the name of the great Kiir Mayardit liberator without doubt do not compared with your dictator bashir who killed his owned people with President .

        Arabs behaviors are not comparable with Africans please do not repeat that God may cured you .
        fxxxk u with bashir husband of mother
        we have remained with 2 days decided for our choice of freedom ,equality ,justice and transparency and leaving you with your dictatorship governance ,inequality ,rapping ,looting ,harassment ,humiliation ,unbalance development ,slavery and sharia laws .

        Anti-tribalism leaving tribalism for those in north Suffered and enjoyed freedom in the South .

        repondre message

      • 6 January 2011 14:13, by Victory

        Hassan 3,

        Talk with evidence please,i dont want to hear any articles written by confuesd people like you,1st of all is mr silver kiir mayerdit your brother or ur childhood friend?please have some respect to our president,do not be pushed by the language of fraustration to utter lies,i know what make you to said such thing,its because you know very well the concequences that will follow our secession.
        Hassen talk with your north sudan president first about the 9 billion $ he stol from sudan to Uk before talking about the president of Republic of South Sudan silver kiir,away with thiefs such as omer hassen albashir & likes.

        repondre message

        • 6 January 2011 14:18, by Victory

          Point of correction’’ i mean to read articles not to hear.

          repondre message

  • 6 January 2011 13:25, by Marco A. Wek

    Hasan III, you are deadly wrong to say Sourtherners are the ones who taught Northerners to stell public funds. I do not know where on earth did get this idea instead the reality is, most Northerners are either born to be pu lic thieves or they have their own secrete school they go to for that art of cunning. If Kiir happen to steal some public money from the South during the six years of being the first vice president of a Northern Sudanese president then how much money do you think his Northern boss might have stolen? Maybe 9 billion or thrice that when putting into account the money saved in fake names. Southerners like Kiir if they theives will stealing cows not money but yes Northerners sour be stealing money.

    repondre message

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