Sudan Cutting Expenditure Amids Economic Crisis and War

Sudan's economy
Sudan's economy has plunged since the separation

Government agencies in bankrupt Sudan have been ordered to slash their use of petrol and civil servants to donate two days of their salaries to support the army in the fight against South Sudan.

Following weeks of border clashes, Finance Minister Ali Mahmud al-Rasul has instructed state institutions and companies to set aside a chunk of their budget to the war effort, according to the country’s official news agency.

State employees must contribute two days’ salary, it added. The funds would be transferred to “the account of the Campaign for Repulsion of Aggression.”

“The minister of finance also decided on decreasing the weekly fuel quota for government vehicles by 50 percent,” SUNA reported.

The oil-processing facility and export pipeline in Sudan’s main oil region of Heglig were burned and damaged during a 10-day occupation by South Sudanese troops. Both sides have blamed the other for the damage.

A manager at the facility said there has been no production since the start of the South’s occupation on April 10 and it was unclear when the facility would reopen.

The occupation followed earlier clashes between the two nations late last month and raised fears of a wider war.

Sudan declared last Friday that its army had forced Southern soldiers out of Heglig. South Sudanese President Salva Kiir had already announced his troops would leave under “an orderly withdrawal”, which they completed on Sunday.

The manager said Heglig-area output was 50,000-55,000 barrels a day, accounting for about half the nation’s crude production.

Analysts believe essentially all of that was used for domestic consumption.

They said the loss of Heglig would worsen an economy already in crisis after South Sudan separated last July, taking with it about 75 percent of the formerly united Sudan’s oil production and billions of dollars in revenues.

Before separation, Southern oil represented more than a third of Khartoum’s revenues and its largest source of hard currency, leaving the government struggling for alternatives since then.

Inflation has risen month after month, exceeding 20 percent, and Sudan’s currency is plunging in value. On the black market, one US dollar sells for roughly double the official rate of about 2.7 pounds per dollar.

The Heglig occupation prompted an outburst of nationalist feeling in Sudan, where consumers and market traders struggling to cope with rising prices had earlier this year warned of social unrest over deteriorating living standards.

Under an emergency three-year programme announced last June, Khartoum plans to cut spending and widen the tax base.

Economist say both targets are difficult to achieve, partly because the military’s pre-Heglig share of the budget was estimated at up to 75 percent.

Sudan has also lost out on potential fees from South Sudan for use of its pipeline and port.

In a key dispute, the two sides were unable to agree on how much the South should pay, leading the Juba government in January to shut its production after Khartoum began seizing the oil in lieu of payment.

Sudanese President Omar al-Bashir declared last Friday that his country no longer wanted southern oil fees and would not reopen its pipeline to Juba’s oil.

The budget deficit is projected to reach about $8 billion between 2011 and 2015, according to an international economist.

Roughly $38 billion in foreign debt, along with US economic sanctions, limits Sudan’s access to external financing.

Analysts say the bankrupt nation could turn to Arab and Muslim nations for financial help in light of the crisis aggravated by fighting with South Sudan.

The International Monetary Fund has forecast Sudan’s real gross domestic product to decline by 7.3 percent this year, while consumer prices are seen rising 23.2 percent.