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Sudan's Economic Decay

4 MINS READNov 22, 2013 | 12:40 GMT
Sudan's Economic Decay
Sudanese protesters gather after the government suspended fuel subsidies in September.
(STR/AFP/Getty Images)
Summary

Sudan's descent into economic disrepair continues. Khartoum is struggling to lower its budget deficit and stabilize the exchange rate of the Sudanese pound against the U.S. dollar. Ever since South Sudan seceded in 2009, Sudan has also struggled to obtain foreign currency, which it needs for critical imports. These economic hardships, which include rising food and fuel costs, have disquieted the public and the political opposition. In fact, in September the country saw widespread protests against fuel subsidy cuts, and recent bread shortages likewise threaten to galvanize public unrest. Though no protests have taken place since September, social, economic and political pressure is mounting on Khartoum nonetheless.

Sudan's current hardships stem primarily from its political conflict with South Sudan, which disrupted the production and export of South Sudanese crude. From 2005 to 2011, the two countries shared oil revenue evenly. But South Sudan complicated the arrangement when it seceded in 2011 — after independence, the south controlled 70 percent of oil production, and there were no provisions in place to govern oil transport. Protracted disagreements ultimately prompted Juba to halt production from January 2012 to March 2013, when both sides agreed to a usurious transit fee agreement. Khartoum thus began to profit from South Sudanese oil again, but the transit fee agreement did not end the underlying political dispute.

The Cost of Living

Losses of oil revenue caused Sudan's dollar reserves to fall to a reported $1.6 billion. Khartoum spends roughly $800 million per month on imports, including foodstuffs. It currently imports about 80 percent of its wheat, or about 1.5 billion kilograms (3.3 billion pounds) annually. The recent food shortage reportedly was caused when the Sudanese Central Bank allocated insufficient amounts of money for wheat imports.

Sudan's Economic Decay

Devaluation of the Sudanese Pound

Meanwhile, the value of the Sudanese pound continues to drop. In September, the Central Bank had to adjust the exchange rate of the pound against the dollar by 22.6 percent in September. (One dollar now buys 5.7 pounds.) Since then, Khartoum has continued to devalue the pound to try to bridge the gap between the official exchange rate and black market bidding prices. In black market trading, the dollar can reportedly sell for as many as 8.2 pounds. However, Khartoum's dwindling dollar reserves afford the Sudanese government little leverage in curbing black market demand or halting inflation.

Currency devaluation has made food imports such as wheat more expensive. But government austerity measures, which have cut subsidies meant to keep basic living expenses low, have aggravated the situation. In September, Sudanese security forces killed some 200 protesters throughout the country who opposed fuel subsidy cuts. (The government claims only 70 people were killed.) Indeed, the regime of Sudanese President Omar al Bashir has seen several protests since 2011, but the government has been able to suppress protests relatively quickly.

More subsidy cuts are expected in 2014 as part of the government's larger austerity plan. Though the price of fuel probably will increase, the price of bread will remain low, according to Khartoum. But increases in the cost of living will create even more pressure on the Bashir regime.

Bashir, who is expected to leave office in 2015, has already been criticized and challenged over his dealings with South Sudan and over the economic hardships the country suffers. Further austerity and the plummeting dollar reserves could increase this pressure.

An Inextricable Relationship

Economic and political hardships notwithstanding, Sudan's broader challenges are brought about by geography. Sudan is a desert country with few natural resources other than gold, oil and gum arabic. The land is unsuitable for agriculture, forcing the government to support its population with food imports. Therefore, oil, foreign currency and food have a nearly inextricable relationship.

Sudan's Economic Decay

Sudan and South Sudan

But Khartoum is trying to remedy the situation. It hopes to halve the amount of wheat it imports through increased irrigation and domestic production. However, these plans could be threatened by the construction of Ethiopia's Grand Renaissance Dam, which could strain water availability.

Sudan has also been working on longer-term solutions to earn more money and replenish its dollar reserves. In November, Khartoum announced it would auction five currently undeveloped oil blocks before 2014 to increase its oil production. The government expects to produce as many as 300,000 barrels of oil per day (up from 150,000 per day) by 2014, but that may be an overly optimistic timetable. In addition, Khartoum has encouraged new agriculture and mining developments. But ultimately, these plans may not be in place quickly enough to ensure a stable succession in 2015.

In the short term, loans such as Qatar's $1 billion loan to the Sudanese Central Bank in October 2013 have helped Khartoum temporarily weather outstanding payments. But these loans are unlikely to solve the structural problem Sudan faces in obtaining dollars and funding government expenditures.

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