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Tuesday 20th March 2018

Sudan’s Economic Freefall

Internal economic and political reforms in Sudan are crucial if Sudan is to benefit from US trade embargo lift.

Business

Yosra Sabir

Tue, 17 Apr 2018 16:04 GMT

On October 12th, 2017, the U.S. ended two decades of trade embargoes on Sudan. The lifting of U.S. sanctions had been on the agenda of the Sudanese government’s foreign policy for years. The government of Sudan blamed the economic crisis, air accidents and poor health facilities on the ongoing sanctions. Sudan’s delegation to various international platforms, including the UNHCR (UN High Commission for Refugees) sessions and the meetings to develop the UN Sustainable Development Goals (SDG), often made pleas against sanctions and trade embargoes. 

The decision in Obama’s administration to temporarily lift sanctions on Sudan, as well as the Trump administration’s decision to permanently lift them was welcomed by the government of Sudan, opposition figures and pressure groups.

The Enough Project, a U.S. based advocacy group, suggests that sanctions had failed in achieving their policy goals and done more harm to the average Sudanese citizen. The International Crisis Group (ICG), in a report published in June 2017, described economic penalties against Sudan as a failure and argued that the US administration should lift some sanctions. 

A rapidly collapsing economy

Soon after the lifting of U.S. sanctions, Sudan’s economic crisis escalated, and hopes for a flourishing economy quickly vanished. In the month following U.S. sanctions being lifted Sudan’s inflation rate rocketed from 33.1% in October 2017 to 52.4% in January 2018. Sudan’s inflation rate on the black market rocketed to 122%, the second highest in the world after Venezuela, according to Steve Hanke, Professor of Economics at Johns Hopkin’s University.

After lifting U.S. sanctions, the IMF urged the Sudanese government to impose austerity measures and float the currency in order to solve the economic crisis. They also described the lifting of sanctions as an opportunity to resolve the economic crisis. However these measures were not the solution to Sudan’s economic crisis.

In January 2018, Sudan’s government followed the IMF’s recommendations and devalued the currency and removed subsidies on wheat and fuel. These economic measures led to mass protests organised by opposition parties not only against the austerity measures but also against the 2018 budget. According to Reuters, the 2018 general budget was approved by cabinet and parliament with a deficit of 2.4% in the Gross Domestic Product (GDP).

Sudan’s Minister of Finance said the deficit would be met from taxation.

"Sanctions cannot be blamed for the deterioration of the economic conditions in Sudan", says Sudanese economist, Dr. Khalid Eltigani Elnour. As the editor in chief of Eilaf, an economic newspaper in Sudan, he argues that lifting US sanctions has not helped the Sudanese economy flourish. Sudan was not ready to benefit from the opportunities resulting from the lifting of sanctions.

He explained, "Efforts to rebuild its relations with economies around the world were few and mostly organised by the U.S. government. Sudan’s economic potential was poorly presented to the world. The responsibility for this misrepresentation lies with the government, whether the Ministry of Finance, Sudan’s central bank, or the general and private sectors".

He went on to say, "Sanctions were the excuse for Sudan’s economic failures. Sudan witnessed economic growth between 2000 - 2010 from its oil revenues in spite of being under economic sanctions and a U.S. trade embargo. The problem is, those oil revenues were not used to launch development projects and improve the production sector".

Sudan lost more than 75% of its oil revenues in 2011, because of the independence of South Sudan. Sudan’s economy has struggled since then.

Elnour further elaborates on the impact of sanctions in the past few years. "The major impact that sanctions have had on Sudan in the past few years is linked to bank transactions. Since 2014, banks struggled to handle money transfers related to Sudan because of the sanctions enforced by the U.S. on regional and international banks dealing with the Sudanese" he said.

In 2012, British banks HSBC and Standard Chartered were fined USD$ 1.92 billion and USD$ 667 million respectively for violations that included sanctions breaches with Iran and Sudan. Another investigative report revealed that Sudanese clients had kept USD$ 131 million in accounts at HSBC.

The escalating economic crisis is also a result of political upheaval, says Dr. Elnour. He explains that the economy does not operate in isolation from politics and that political priorities determine expenditure."Sudan, a country with armed conflicts, has public expenditure directed towards the army and security forces and buying political loyalty instead of improving productivity and public services". According to Elnour, public expenditure in the 2018 general budget increased by 88% compared to 2017. This increase is believed to be caused by the formation of the Government of National Unity and the increased number of MPs appointed as a result of the National Dialogue process.

The National Dialogue is an initiative initiated by President Al Bashir in January 2014 to resolve Sudan’s political and economic crisis. However, a process intended to resolve economic and political crisis has led to greater economic constraints, in part due to the number of new MPs and ministers in office. Major opposition forces and rebel groups have boycotted the process because Sudan’s government has failed to establish a conducive environment in which opposition parties are able to express their views freely.

Recent economic collapse is a result of accumulated mistakes

According to Dr. Elnour, "While expenditures increased in 2018, there were no resources or income to cover those expenses. Therefore the economy collapsed in the first month of the year. Lack of productivity is manifest in the deterioration in Sudan’s balance of trade, as Sudan’s exports are only one-third of its imports. Currently Sudan’s imports are estimated to be USD$ 9 billion, whereas its exports do not exceed USD$ 3 billion".

In addition, for Dr. Elnour, the collapsing economy is exacerbated by loans and grants from Gulf countries which, although intended to bail Sudan out of its economic crisis, simply contribute to its dependence. These provisions have not been enough to sustain the economy in the past few years. 

Following the lifting of US sanctions, the U.S. is considering removing Sudan from the list of state sponsors of terror. In a visit to Khartoum in November 2017, US deputy Secretary of State, John Sullivan, said the U.S. is ready to talk about removing Sudan from the list of State Sponsors of Terrorism if they have evidence of cutting ties with North Korea, improving their human rights record, and granting religious freedom. That being so, bilateral talks between Sudan and the U.S. are expected to start this year.

Dr. Elnour thinks that removing Sudan from the list of state sponsors of terrorism will help it raise funds from international financial institutions and will lead to debt relief. However, he stresses "This is a secondary element to reviving the Sudanese economy. The priority should be given to internal political and economic reforms, such as achieving political stability and peace, investing in production sectors and conducting major economic reform".

Removing Sudan from the list of state sponsors of terrorism will not benefit the country unless holistic political and economic reform is introduced.

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