Stabilizing the economy: implementing a near-term action plan
Sudan’s near-term economic focus should be on implementing urgent fiscal reforms and containing inflationary pressures, notably stopping the excessive printing of money by the central bank. The transitional government has the legitimacy and trust necessary to reform the budget and cut spending. Sudan’s official budget deficit is 3.7 per cent of GDP,9 although many estimates place it much higher. The national budget should be restructured, with a particular focus on the military/security apparatus, state transfers and subsidies, which together make up 70 per cent of the official budget,10 and realigned to give greater priority to health, education and social welfare, which together are currently allocated less than 10 per cent.11
The Bashir regime securitized the budget, with security sector wages accounting for approximately 60 per cent of all government salaries.12 Reducing military personnel and costs while maintaining a capable security sector will be a politically sensitive and difficult process requiring support from the armed forces and its leaders in the transitional administration.13 (It should be noted, however, that the policy challenges presented by the broader issue of security sector reform in Sudan were largely beyond the scope of the Sudan Stakeholder Dialogues series).
The issue of subsidy removal is also highly sensitive, and an immediate reduction in expenditure across the board could potentially be counterproductive. This is due to a mix of factors including the likely hindering of growth and creation of additional hardship for the most vulnerable, which would erode trust in the transitional authorities. But the current system is a major drain on public revenues, benefiting wealthier citizens and fostering corruption, while also being an inefficient way to help the poorest members of society. Subsidies reduce the resources available for social expenditure and investment in the future, as well incentivizing informal exports to neighbouring countries. A gradual process of subsidy reform will be required in order to mitigate the impact of price shocks arising from the removal of subsidies; one way forward could involve instituting a two-tier pricing system for essential foods like bread, with the aim of protecting the most vulnerable, although this needs further detailed examination. Sudan’s government should, as a signal of intent, start by imposing austerity measures on itself – by cutting back on ministerial remuneration, travel costs and extravagant public celebrations, for instance – while ring-fencing development spending.
Priority actions in the medium term should include the protection of the central bank’s independence from political interference, and restoring its status as a lender of last resort. A unified exchange rate policy is needed to establish a conducive and competitive environment for productive investment that does not stifle agricultural production and industry, or have a negative impact on citizens’ savings. Once these measures are in place, Sudan can move towards a flexible exchange rate system that will gradually reduce the gap between the official and parallel market rates.
In the near term, there is a need to identify a set of viable economic interventions – that are relatively less vulnerable to political pressures – in order to keep Sudan’s economy moving and set the country on the path towards reform. Identifying first steps to recovery could be carried out by an economic taskforce established by the ministry of finance and including the central bank, international financial institutions and representatives of the private sector. Focusing on well-sequenced interventions, such as establishing essential working capital facilities that can pave the way for bridging finance, help to reset the clock on debt, and assist with longer-term reforms.
9 Alamin, M. (2018), ‘Sudan Plans 39% Spending Boost in 2019 Budget as Inflation Soars’, Bloomberg, 19 December 2018, https://www.bloomberg.com/news/articles/2018-12-19/sudan-plans-39-spending-boost-in-2019-budget-as-inflation-soars (accessed 23 Aug. 2019).
10 In the 2019 budget: military, security and police 23 per cent; state transfers 22 per cent; subsidies 25 per cent). Figures provided during Sudan Stakeholder Dialogues Roundtable 3, 27–28 March 2019, Nairobi, Kenya.
11 Figure provided during Sudan Stakeholder Dialogues Roundtable 3, 27–28 March 2019, Nairobi, Kenya; Also Radio Dabanga (2017), ‘Large spending on army: Economists criticise 2018 budget’, 27 December 2017, https://www.dabangasudan.org/en/all-news/article/large-spending-on-army-economists-criticise-2018-budget (accessed 10 Aug. 2019); and Baldo, S. (2019), ‘Sudan: Hidden Economic Stakes in Ongoing Power Struggle’, Enough Project via Medium, https://medium.com/@EnoughProject/sudan-hidden-economic-stakes-in-ongoing-power-struggle-384d169b7245 (accessed 19 Sept. 2019).
12 Ibid.
13 The Sovereign Council, Sudan’s highest decision-making authority, includes five military members, as well as six civilians. For the first 21 months of the transition, this body is being led by General Abdel Fattah al-Burhan, the head of the armed forces.