Economic Developments

Humandev_SudanPhoto Credit:Mohamed Nour Eldin

With the declaration of independence of the Republic of South Sudan in July 2011, Sudan total area was reduced from 2,500,000 square km to 1,881,000 square km. According to the Central Bureau of Statistics (CBS), the population of Sudan is projected to grow to 38,435,252 people in 2015.  After the secession, Sudan lost 75 per cent of the oil resources, 90 percent of export earnings and nearly 50 percent of revenue. In Sudan, Oil accounts for nearly 15 percent of industrial value added. Thus, the Sudanese economy started to suffer losses from the withdrawal of oil revenues and annual percentage of growth rate of GDP at market prices based on constant local currency. (Aggregates are based on constant 2005 U.S. dollars) decreased from 7.8% in 2008 to 3.1% in 2014. Moreover, the unemployment rate reached 19.2 per cent in 2014. (Ministry of Labour).

 

According to the International Monetary Fund, the Sudan’s external debt stood at $45 billion at end - 2013 which is Equal to 691 percent of exports and to 64 percent of GDP. Almost 88 percent of debt in arrears and IMF & World Bank has classified Sudan as a country in debt distress, and in need of debt relief. The debt burden continues to be a significant development constraint as arrears to the World Bank and other development partners constrain access to concessional financing. Thus, a solution to the debt problem has been seen by many as a means to improve prospects for growth and poverty reduction.

 

Although the International Monetary Fund (IMF) stated that the economic outlook for 2015 has improved, it is subject to domestic and regional risks. Real GDP growth is projected at 3.4 per cent supported by a good harvest, robust gold production, and the recovery of oil production (IMF). Notably, growth in Sudan is negatively affected by the restrictions on international financial transactions. Monetary policy is tightened, and food prices decline owing to the expected good harvest. The fiscal deficit is expected to narrow to about 1.0 per cent of GDP in 2015. However, the Sudanese economy could be adversely impacted by the drop in worldwide oil prices and the conflict in South Sudan. In fact, Oil production for export in South Sudan has fallen to 130,000 barrels per day compared to 240,000 barrels per day before the conflict broke out in December 2013.

 

To address these challenges, the IMF called for continued focus on macroeconomic stability through prudent fiscal policies, while prioritizing social and growth-enhancing expenditure and raising tax revenues. It also recommended limiting the growth of liquidity to a pace consistent with low inflation; allowing greater exchange rate flexibility; and implementing structural reforms to improve the business environmentThe 2015 budget has a target inflation rate of 25% which is close to the IMF projections of 19%. The inflation rate fell from 25.7 percent at the end of December 2014 to 13.4 percent at the end of October 2015 (CBS). The IMF Attributed the decline in the inflation rate to Fiscal consolidation and tight monetary policy. However, Double-digit inflation has been one of the most visible features of the Sudanese economy in recent years. High inflation and depreciation of the Sudanese Pound (SDG) continue to put upward pressure on food prices and expected to aggravate the poverty situation in Sudan. The IMF warned that expansionary fiscal policies of Khartoum in support of agriculture which injected considerable liquidity in the economy could put upward pressure on inflation and the exchange rate.  

 

Trade Balance for the 1st halve of 2015: Exports in the 1st halve of 2015 decreased by an estimated 26.6 percent compared to the same period in 2014 while imports growth increased sharply by 8 percent. Consequently, the trade deficit grew to $2,161 Million compared to $1,218 Million in the same period of 2014 (77 per cent increase approximately). Trade deficit could put upward pressure on inflation and the exchange rate. Underlying these developments, the budget deficit increased to SDG 2,937 Million compared to SDG 2,181Million in the same period of the first Halve of 2014. Sustained implementation of policies for the remainder of the year has been seen as a requirement in order to re-establish macroeconomic stability.