ANALYSIS-Sudan’s Bashir faces dire economic crisis
5 min readSource: reuters // Reuters
* North lost 75 pct of oil output when south seceded
* Fighting in southern border areas hits economy
* Food price inflation angers ordinary Sudanese
By Ulf Laessing
KHARTOUM, Oct 7 (Reuters) – Three months after the south seceded, Sudan’s economy is floundering, with rampant food inflation, lost oil revenue and costly military campaigns combining into a serious crisis for veteran President Omar Hassan al-Bashir.
Bashir has not faced a popular uprising like those that have deposed other Arab leaders this year, but ordinary people are fuming as prices of sorghum, a staple food, have doubled.
Khartoum lost most of its oil reserves when former civil war foe South Sudan became independent in July. The plunge in oil income, the mainstay of state coffers, has sent the Sudanese pound into free fall, driving up the cost of imports.
The north lost 75 percent of Sudan’s oil production of 500,000 barrels per day after South Sudan gained independence in July under a 2005 peace deal that ended decades of civil war.
Abda al-Mahdi, a former state minister of finance, said the economic crisis was very grave. "We’re suffering from inflation. Urgent measures are needed," he told Reuters.
Annual inflation hit 21 percent in August. On the black market, the pound is trading 60 percent below the official rate despite central bank dollar sales to bolster the local currency.
Central bank monthly reports give no figures for foreign reserves. The bank has said it sold $500 million in July alone.
Perhaps in desperation, the central bank governor asked his Arab colleagues in September to deposit $4 billion in the central bank and commercial lenders. None responded publicly.
Sudan is roiled by instability in the joint border area with the south. The army has battled rebels in South Kordofan for months. Fighting spread to nearby Blue Nile state last month.
Bashir, who seized power in 1989, has ruled out talks with insurgents, but the conflicts drain resources and stretch an army already fighting rebels in the western region of Darfur.
SOARING PRICES
Sudanese households also feel the impact. Meat prices soared 41 percent in August because fighting disrupted transport links to the cattle markets of South Kordofan. The United Nations says grain harvests in the violence-hit states are now at risk.
"Blue Nile and South Kordofan are two of Sudan’s main sorghum-producing areas. The latest fighting coupled with erratic rainfall means next month’s harvest is expected to generally fail," the U.N. Food and Agricultural Organisation said this week. "The price of a 90 kg bag of sorghum, which cost 70 Sudanese pounds ($26) earlier this year, is now 140 pounds."
The Sudanese Consumer Protection Society, which staged a meat boycott for a few days last month, plans more protests against food inflation.
Analyst Ali Verjee at the Rift Valley Institute said the economic crisis was worsening, but was not yet as dire as during the hyperinflation of the 1990s, adding:
"As expected, the first quarter after secession has proved economically difficult for Khartoum. The depreciation of the currency and accelerating inflation is increasingly concerning."
The International Monetary Fund expects Sudan’s economy to shrink this year and next.
Experts have long urged Khartoum to prepare for the loss of southern oil, but the government has been in denial, blaming a U.S. trade embargo or insisting that all is under control.
After secession, Sudan’s parliament approved a budget based on unchanged oil revenue. But diplomats say southern oil sales — worth $2 billion until October — now go directly to Juba, while the small northern output mainly serves local consumption.
In September, the central bank governor said expenditures would have to be cut by more than 25 percent this year.
Officials hope gold exports will compensate, predicting an output of 74 tonnes in 2011, a target analysts say is out of reach — Sudan’s biggest mine produces just 2.3 tonnes a year.
Instead of pinning its hopes on gold, the government should focus on industry, agriculture and animal wealth, said Mohammed Siddiq, a Sudanese financial journalist.
TRANSIT FEES
Mahdi said things would get worse unless north and south agreed on sharing of oil revenues by the end of the month.
The landlocked south should pay transit fees for using northern oil export facilities, but has paid nothing yet, in the absence of an agreement, diplomats say.
More trouble looms in November when 40,000 Sudanese will head for the Muslim pilgrimage in Saudi Arabia, fuelling demand for dollars and piling more pressure on the pound.
Instead of devaluing to bridge the gap with black market rates, authorities threatened to punish moneychangers, which only stalled the dollar’s rise for a couple of days.
"They should have learned from previous crises that you won’t end the dollar scarcity by rounding up black market dealers," said a local economist.
Sudan hopes a conference in December sponsored by Norway and Turkey will drum up investors and help with debt relief — South Sudan refuses to shoulder any part of the $38 billion debt pile acccumulated by Sudan when it was united.
But Western powers, irked with Khartoum for seizing the disputed border region of Abyei in May and for fighting in South Kordofan and Blue Nile, may be reluctant to help.
Nor are they well disposed towards Bashir, who has been indicted for war crimes by the International Criminal Court.
"I fear those conflicts in the border will hold back the West," said Chris Philips of the Economist Intelligence Unit. (Editing by Alistair Lyon)
http://www.trust.org/alertnet/news/analysis-sudans-bashir-faces-dire-economic-crisis
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