Home | News    Wednesday 20 April 2011

IMF says North Sudan must undertake measures to avoid post-secession "shock"

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April 19, 2011 (WASHINGTON) – The International Monetary Fund (IMF) this month drew out the possible scenario for North Sudan’s economy following the breakaway of the South next July and urged the government in Khartoum to implement swift measures to cushion its impact.

A view of the International Monetary and Financial Committee (IMFC) meeting at the IMF headquarters building in Washington April 16, 2011 (Reuters)

The oil-rich South voted last January almost unanimously to split from the Arab-Muslim dominated North but the new state becomes official only at the end of the interim period next July.

However, a number of key issues remains outstanding particularly the post-secession sharing formula for the oil wealth that is stationed mostly in the South.

There has been conflicting signs on how much the South is willing to offer the North from its oil exports. Most recently, the South Sudan International Cooperation minister Deng Alor dismissed any talk of oil sharing after independence.

The Comprehensive Peace Agreement (CPA) states that the North and South shall equally split the revenue from oil exports during the six years following the signing of the accord.

While most of Sudan’s proven daily output of 500,000 oil barrel is extracted from oilfields in the south, the pipelines infrastructure and refineries are based in the north. The South will therefore be required to pay a fee to transport its oil and ship it abroad from Port Sudan terminal.

But it is all but certain that the North will receive far less than the 50-50 split currently in place. The loss will cause a drop in inflow of foreign currency, impact public finances and balance of payments which could lead to additional pressure on the fiscal deficit and the country’s foreign exchange reserve which already at record lows.

The IMF said that North Sudan may lose 75% of oil revenues in a worst case scenario that would result in domestic and external imbalances.

“With oil revenue constituting more than half of government revenue and 90 percent of exports, the economy will need to adjust to a permanent shock, particularly at a time when the country has little access to external financing. The size and nature of the necessary adjustment could have significant implications for growth and macroeconomic stability”, said the report dated last January but released this month.

Under that scenario, it is also assumed that North Sudan will witness a 10% decline in non-oil GDP to reflect the share of the South in total non-oil economic activity as well as a decline in oil related services; an increase in service receipts to reflect the transportation fees charged for the transportation of South’s share of oil; a decline in both transportation payments and investment income payments to reflect lower oil production; a decline in imports of goods to reflect the shares of the oil sector and the South; an increase in imports of petroleum products to reflect the shortfall in domestic production..

To confront this scenario, the IMF stressed that North Sudan will need to reduce spending, lift fuel subsidies, reduce tax exemptions and enhance revenue administration.

Earlier this year, the Sudanese government approved an austerity package that partially removed subsidies on sugar and petroleum products with further cuts expected to follow.

The IMF welcomed these measures saying that it will narrow the gap between world and domestic prices and free up critically needed fiscal resources. It also recommended future subsidy reductions in the form of a gradual increase in the price of the crude oil delivered to the local refineries, in order to make the subsidy “more explicit and transparent”.

The report revealed that Khartoum plans to issue a supplementary budget during the second quarter of this year that would take into account agreements reached between the North and South on post-referendum issues particularly oil revenue sharing which remains under negotiations.

The Washington-based body pointed out that Sudan’s economic growth slowed down in 2010 to around 5% from 6% a year before.

Inflation rate on the other hand increased sharply from 10.0% in November 2010 to 15.4% the following month. The IMF attributed this to the surge in food prices, uncertainties in the run-up to the referendum, depreciation of the Sudanese pound and high money growth, as well as early speculation about possible removal of subsidies on petroleum products, sugar and other products.

Foreign exchange reserves held by Sudan declined significantly in 2010 due to heavy intervention by the Central Bank of Sudan (CBOS) to a little over $500 million last October.

Over the last year the Sudanese pound has dropped dramatically versus the dollar and black market flourished as a result while banks and Forex bureaus have been unable to meet demand. CBOS move to inject hard currency into the market did little to halt the trend.

In face of this, the authorities introduced the premium concept to encourage holders of Forex to come forward and sell their holdings at a generous rate close to that of the black market. The margin was initially set at 16.29% above the official price.

The IMF welcomed the de-facto depreciation by the Sudanese authorities but warned that this mechanism as opposed to an outright depreciation “could create some market distortions and could undermine transparency in the CBOS policy implementation”.

Further steps taken by Khartoum to curtail demand for foreign exchange such as imposing import limits “are likely to add price distortions and are unlikely to yield the intended objectives”, the IMF said in its report.

Sudan’s debt on the other hand reached $36.8 billion by December 2010 and will need relief soon from creditors in order to tackle this chronic problem. The figure is slightly lower than earlier projections of $37.8 billion.

"In the meantime, the authorities should minimize to the extent possible the contracting or guaranteeing of nonconcessional external borrowing, which would further weaken debt sustainability,".

The splitting of national debt is also a subject of discussion between North and South Sudan.

The North insists that the South should bear a portion of the debt saying that part of the money was used for development project in the semi-autonomous region.

But the South says that the money was borrowed to finance the northern army to fight southerners in the civil war.

The IMF said that the South pointed out that in case of debt apportionment, the debt should be allocated geographically, according to the ultimate beneficiary principle.

(ST)

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  • 20 April 2011 06:08, by Omoni jr

    IMF,
    Please avoid the term called"oil sharing" North sudan have their own resources. Lets talk River nile sharing instead of wasting time about another different south sudan resources.
    They had it enough since the discoveries of those oilfields.

  • 20 April 2011 07:33, by Madina Kebir

    The North Sudan will find the way to pay off the deb they own it from others world. There is no way for the North Sudan to ask Southern Sudan to share deb while, most of the money which Khartoum government borrows were used for Military purposed during the civil war and even after the peace agreement, still Khatroum government was buying weapons and war airplanes. They have to find their own way of paying off the debt they own from the lenders but the Idea of asking Southern Sudan to share debt relief is not going to happen, because they Old Sudan regime which is NCPof Khartoum government are responsible and not Southern Sudanese who were suffering in the SPLA Movement.

    The North Sudan dominate has builts their regions in North part with the resources which they were stolen it in Southern Sudan for years and the Southern Sudanese people are supposed to asked them to divided everythings including Airplanes,Banks, all Military equipments and many others things which were belonging to one nation must be divided in to two equally, but the debt relieve the ruler government own can not and will not be share with Southern Sudan. There was no development whatsoever; they wrongfully said, in Southern Sudan therefore, the debt relief should be answer by those NCP who borrow to used for war.

    • 20 April 2011 08:58, by monykuc, Southerner

      IMF,
      I think it would be the right time for Northern Sudan to suffer from all aspects of life because it was our turn but now it is for them. We were seriously deprived by war in a very negative way and it would be difficult for the people of South Sudan to recover from it.

      North must carry its own burden and should accept the fact that no any agreement that will be signed for the sharing of the resources. it will never ever happen.

      • 20 April 2011 10:12, by Thomas Andrew Hissen

        To Government of Khartoum its shame on the entire peoples of north now, they have been browing money from other country so that they will paid them back using the oil, at this time south sudan will not agree what ever NCP have debt outsie country to share the oil is total disagreement,
        They are talking about the money that been use to develop south sudan where is the development now in south, south have develop in these share of 50% of the oil with the north,

      • 20 April 2011 10:15, by mohammed ali

        With all your bad wish , the Sudan will not suffer and there will be no shock.

        Hatered is not going to help neither it will stop our progress.It will simply divert your attention from your own problems.

        We wish you all the best and good luck.

    • 20 April 2011 11:06, by Sudani Logik

      Jalaby, Mohammed Ali, Sam.Eto and Ahmed (the shimally bigots).

      Although the IMF is an imperialist tool, it has substantial influence over world economics and its warnings are something to read into.

      You racist fools have been shouting about not needing south Sudan’s resources and how you have cut off a parasite on your north Sudan economy, but this article details how economic cooperation should have been the order of the day for the em-betterment of all Sudanese.

      Sadly your kind of mentality occupies many positions within the NCP led government (among other civil society orgs) and rendering the process of mutual interest negotiations between north and south a joke, due to your imperialist and backward view of anything non-Arab and non-Muslim. The world is a place of self interest and cooperation on the basis of achieving those interests is paramount but not through manipulation, blackmail and dictatorship. The NCP led government has destroyed the old Sudan and continues to do so, just to please the pockets of its elite as well as not angering its conservative Muslim base (backward retards). Islam is not the problem but the practitioners of its NCP version is the real problem alongside the racist mindset of most of the north’s ruling Arabized fools.

      Instead of owning up to problems created by your leaders, you opt for continuing the status quo at the detriment of the impoverished majority population all over Sudan. Even when you had a golden chance of reconciliation for past deeds through the CPA, all you did was attempt to blind fold the marginalized in order to get the lion’s share. Darfur crisis could have been solved ages ago, but you continue to ignore the plight of the peripheral inhabitants of Sudan.. When will you people learn?

      Change begins within, unless you racist indoctrinated fools change your attitude, the marginalized and those who lack access to power will continue to suffer but so will you. And every time you claim that you’re only defending your region because of the hate thrown at you by a few angry southerners, maybe you should one day travel to the south, Darfur or Nuba mountains and speak to the surviving eye witnesses of the most horrific crimes committed against their people, maybe then you’ll truly understand and empathize, why some of them will never forget the atrocities committed by your like-minded individuals.

  • 20 April 2011 11:09, by Martin Muong

    Mohamed Ali stop patronizing Southern Sudanese to say that you wish them the best and good luck. Get ready to pay back the debt owing by international monetary fund from you without stating oil sharing.



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