Country’s Former Central Bank Governor Warns of Post-Secession Shock For North Sudan

 

The former governor of the Central Bank of Sudan Sabir Mohamed al-Hassan sounded the warning bell on the impact of the upcoming country’s breakup on the economy.

Next July the South will officially become an independent state which also marks the end of the interim period following the signing of the 2005 Comprehensive Peace Agreement (CPA) between the National Congress Party (NCP) in control of the North and the Sudan People Liberation Movement (SPLM) which rules the South.
A referendum was held last January in accordance with the CPA in which Southerners voted on whether they wanted to remain united with the North or establish their own state.

While most of Sudan’s proven daily output of 500,000 oil barrel is extracted from oilfields in the south, the pipelines infrastructure and refineries are based in the north. The South will therefore be required to pay a fee to transport its oil and ship it abroad from Port Sudan terminal.

Al-Hassan said at a workshop in Khartoum on the secession of the South that the separation will result in an “economic shock” that will surpass the effects of the global financial crisis which unfolded in 2008.

The former official projected a 20% drop in GDP and 50% decrease in revenue for the central government as well as a sudden decrease in hard currency supply available in the market.

He said that negotiations between the North and South on post-referendum arrangements must lead to the emergence of two economically viable states.

“If the two countries do not cooperate then they will both will be affected negatively and there is no loser or winner in the case of non-cooperation,” Al-Hassan stressed.

He also called for the restructuring of the Sudanese economy and emphasized the need for canceling Sudan’s external debt saying that Sudan is heavily indebted and as such the cost of servicing it keeps multiplying particularly after the failure of debt relief initiatives.

But today the Sudanese finance and national economy minister Ali Mahmood Hassanein appeared to contradict Al-Hassan’s asserions telling a visiting European delegation that the country, through its resources and economic potential, will be able to overcome the effects of separation.
The country’s state minister Al-Fatih Ali Sideeg was quoted by the official news agency (SUNA) today as saying that a plan has been drafted to reduce dependence on oil revenue in preparation for the split.

Last month the International Monetary Fund (IMF) said that North Sudan may lose 75% of oil revenues in a worst case scenario that would result in domestic and external imbalances.

“With oil revenue constituting more than half of government revenue and 90 percent of exports, the economy will need to adjust to a permanent shock, particularly at a time when the country has little access to external financing. The size and nature of the necessary adjustment could have significant implications for growth and macroeconomic stability”, said the report dated last January but released in April.

Under that scenario, it is also assumed that North Sudan will witness a 10% decline in non-oil GDP to reflect the share of the South in total non-oil economic activity as well as a decline in oil related services; an increase in service receipts to reflect the transportation fees charged for the transportation of South’s share of oil; a decline in both transportation payments and investment income payments to reflect lower oil production; a decline in imports of goods to reflect the shares of the oil sector and the South; an increase in imports of petroleum products to reflect the shortfall in domestic production..

To confront this scenario, the IMF stressed that North Sudan will need to reduce spending, lift fuel subsidies, reduce tax exemptions and enhance revenue administration