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Tuesday 20th March 2018

Will Decreasing Government Expenditure Solve Sudan’s Economic Crisis?

Business

Khalid Osman - 7Dnews Khartoum

Mon, 15 Oct 2018 17:00 GMT

Critical economic conditions in Sudan pushed the Sudanese President, Omar Bashir to dissolve his government in September and appoint a new Prime Minister, as well as reforming the Presidential Council. The recently appointed Prime Minister initiated intensive discussions about reducing government size in order to stop the dramatic deterioration in the national economy, a step that is considered the start of another austerity policy aiming at decreasing government expenditure.

Sudan’s economy received a heavy blow after the independence of South Sudan in 2011, losing most of its oil revenues which represented 95% of its public budget and decreasing the value of its national currency compared to foreign currencies. Inflation reached a rate of 64.6% in August, with a trade deficit exceeding $934m in the first three months of this year’s budget.

The economic deterioration caused shortages in the central bank's re foreign currency reserves, which made it impossible for government to subsidise vital imports, such as wheat and medicine. All of this contributed to the dissolution of the government.

Experts believe that the economic impact on the process of restructuring the government will be limited as the economic crisis is caused by structural issues and policies. Some argued that the effect of decreasing the cabinet’s expenditure will not decrease the deficit in the general budget currently estimated at $4.11bn.

There are no official statistics on the expected decrease in expenditure resulting from the formation of a new government. Some analysts suggest that it could save roughly 5% of general public spending. This argument is supported by a major increase in government spending in the 2018 budget with an estimated 173 billion Sudanese pounds compared with 96 billion Sudanese pounds in 2017. This 80% increase in government expenditure has resulted from increasing governmental structures as the number of ministers in the central government increased to 76 after the formation of the National Accord government in 2017, with the participation of representatives of the National Dialogue political parties.

The measures adopted in September included decreasing the federal ministries from 31 ministries to 21. Sources told 7Dnews the new Prime Minister, Mutaz Musa submitted economic reform proposals to the President before his appointment. The reforms included cutting the number of ministers to the minimum in addition to reducing the customs duties on exports, limiting imports and revising the taxes on the private sector that operates in the agricultural, industrial and mining sectors.

Sudanese economist Dr Haitham Fathi said to 7Dnews that the presidential decisions to restructure the government were based on an economic resuscitation plan (2017-2020) and a five-year programme of economic stability (2015-2019), as well as other recommendations based on the outcomes of the national dialogue conference in 2017. 

He said that evaluation of the expenditure of federal and local governance systems is needed as it constitutes the largest percentage of public spending. There are 18 states. Each one has a governor (Wali) and cabinet. The states are divided into 133 provinces, each one led by a commissioner.

Budget analyst Abdullah Al Ramadi suggests that the current governance system is impacting the general budget through public spending. The states’ contributions to the budget of 2018 is approximately 23.7 billion Sudanese pounds, while general spending in the states is 56 billion Sudanese pounds, of which 26.8 billion is government spending.

Fathi suggests that a "small government" is meant to be a team that is able to carry out reforms and control the spending flow that is represented by salaries, bonuses, social benefits programmes and governmental support in all its forms. He anticipated that the government will focus on spending its revenues on the primary sectors, such as infrastructure, education, health, housing, transportation and communications. Fathi thinks the government restructure is aligned with the World Bank reform proposals for Sudan.

Salah Karar, a retired brigadier and one of the army officers who carried out the 1989 coup that brought Al Bashir to power, was responsible for the economy in early 1990’s. He said the presidential decisions are wise, although they are late. He told 7Dnews that the decisions failed to abolish the positions of the four presidential aides and the three deputies of the Prime Minister, as the expenditure of their movement, security and allowance was a burden on the country while their contribution in resolving any issue that strikes the country was minimal. He also said that the country’s economy needs a change in its policies not in the people in the government. He believes the new government needs a bold programme that takes the current situation into account and prioritises reducing the deficit in the accounts which has led the government to borrow money from the banking system and caused inflation to exceed 64.6% in August.

Karar thinks the new government will be able to succeed if they manage to decrease the security and defence budget by 25%, which is 31 billion Sudanese pounds against an overall government budget of 173 billion Sudanese pounds . He called on government officials to reduce spending on travel and said ministers’ expenses should not exceed $250 per day and the number of their companions should be reduced. He said ministers are currently paid 500 Euros per day and this is increased by personal expenses, an office manager and guards.

He said previously that the Cabinet had rejected a minister’s request to participate in an international event, sending the local embassy to represent Sudan, in order to save on costs.

The Sudanese President announced in August a reduction in the size of diplomatic missions with the purpose of decreasing public expenditure.


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