September 30, 2013 Leave a comment
A week of violent demonstrations across Sudan, sparked by the cancellation of state fuel subsidies, has culminated in calls for the removal of President Omar al-Bashir’s government by opposition groups.
Following a meeting between International Monetary Fund officials and senior government figures, the Sudanese government announced last Monday it would cancel state subsidies for fuel and cooking gas, almost doubling prices.
Petrol stations in the capital Khartoum raised the price of a gallon of fuel from 12 Sudanese pounds to 21, and cooking gas rose from 15 to 25 pounds. The minimum monthly wage in Sudan is about 330 pounds.
Protesters expressed their anger at the government announcement by holding demonstrations across the country, which led to attacks on police stations petrol stations.
Amnesty International said at least 50 demonstrators were killed on Tuesday and Wednesday alone by security forces, who were “shooting to kill”. Activist groups claim more than 100 protesters have died.
Sudanese Information Minister Ahmed Bilal Osman, defending the government response to the protests in an interview with Al Jazeera, said demonstrators were in engaged in “terroristic actions”.
Demonstrator calls for the immediate removal of al-Bashir’s regime are also finding support in the opposition National Umma Party.
“This government cannot be reformed, it has to be changed. A national transitional government should be put in place to put in a new constitution,” said Sadiq Al Mahdi, the party’s leader.
The NUP has called for a general strike and sit-ins. The activist Girifna movement is calling for all Sudanese people to take to the streets, and for the armed forces to support the uprising.
The government adopted an initial package of IMF recommended austerity measures in June 2012, but the National Congress Party had until Monday resisted its calls for the complete cancellation of fuel subsidies.
An IMF mission led by Edward Gemayel carried out its first round of meetings in July, holding consultations with Finance Minister Ali Mahmoud Abdul Rasool, and head of the Central Bank Mohamed Kheir Ahmed Elzubeir.
This month’s second round of talks, which appear to have led directly to the fuel subsidy announcement, formed the IMF’s Article IV consultation with Sudan, which is a prerequisite of IMF membership and access to credit.
Sudan’s economy has been in free fall since the secession of South Sudan in July 2011, when the country lost 75 percent of its oil reserves. Prior to the split Sudan experienced substantial economic growth driven by oil exports and foreign direct investment, with nominal GDP per capita more than quadrupling between 1999 and 2010.
But Sudan’s growth was too heavily reliant on oil. When oil export revenues dropped and austerity measures were introduced the country entered a depression, losing more than 15 percent of its GDP in 18 months.
Before the secession, China represented 58 percent of the country’s exports, with significant trade relationships with Japan (15 percent) and Indonesia ( nine percent). Those export deals are now gone, and countries such as the United Arab Emirates and Saudi Arabia, previously minor trading partners, account for most of the market. The total value of Sudan’s exports halved in a single year.
Despite 80 percent of the population working in agriculture – especially the harvesting of cotton and peanuts, and production of cereals such as sorghum and millet – Sudan has to import food.
Inflation sharply rose in Sudan last year, reaching 44 percent in December, with much of the rise coming from basic food items such as meat, fruit, and milk.
Three-and-a-half million Sudanese face “stressed or crisis” level food security, according to the Famine Early Warning System, leading to Kamal Omer of the opposition Popular Congress Party to refer to the protests as a “revolution of the hungry”.
Sudan’s industrial sector is also shrinking at a terrific rate. In 2010 its growth was in the top fifth globally; now it’s shrinking at a rate of 29 percent, second only to Syria’s. The budget deficit, meanwhile, was last estimated to be about $3.7bn (-6.2 percent of GDP).
Division of the kingdoms
“The removal of the fuel subsidies is a direct consequence of South Sudan’s secession, and Sudan’s economy has been reeling from this blow ever since,” James Copnall, author of the new book A Poisonous Thorn in Our Hearts: Sudan and South Sudan’s Bitter and Incomplete Divorce, told Al Jazeera.
“Inflation has soared and people are finding it harder and harder to make ends meet.”
While Sudan ‘s economy flounders, in South Sudan a 16-month shutdown of oil exports over a dispute with its neighbour to the north ended in April, and output has now reached 240,000 barrels a day.
South Sudan had its own IMF Article IV consultation last Wednesday, when Finance Minister Aggrey Tisa Sabuni met with IMF officials for advanced negotiations on support under the Fund’s Rapid Credit Facility.
While the IMG is insisting on more austerity in Sudan, for the South it is negotiating more loans and supporting some expansions in state spending.
The 2013/14 budget strikes the right balance between increasing spending on priority areas and maintaining economic stability. The mission also welcomes the authorities’ plans to lift fiscal austerity gradually as the oil revenue stream becomes more certain,” the IMF said in statement last week.
Copnall said authorities in South Sudan are likely monitoring the events in Sudan with great interest.
“The two Sudans have squabbled and fought over the last two years, including through economic means. There are still many in South Sudan who desire Bashir’s downfall, so Juba will be watching these events closely,” he said.
South Sudan’s economy is projected to grow at a rate of 49.2 percent in 2014, according to the World Bank.
History of IMF ‘adjustment’
Sudan’s first significant international credit programme, designed to counter economic problems not dissimilar to those Sudan faces today, came from the Arab Fund “Breadbasket” plan in 1976, which aimed to transform the country’s agricultural production.
Research from the University of Bremen’s Sudan Economy Research Group into the plan shows this first attempt at structured international investment had serious problems, particularly in its unequal approach to the territory. The plan assigned only 4 percent of the investment to the country’s south, harking back to the colonial British policy of separate development, and reinforcing ethnic tensions.
The Arab Fund plan failed, but in 1978 the IMF instituted a six year credit plan for Sudan contingent on extensive “structural adjustment” and austerity, including the “deferment of all new government projects”.
Five years of depression ensued, with a total of -3.9 percent growth over the six years. Sudan began to renege on IMF commitments and its membership was suspended.
In 1990, following a military coup that brought Omar al-Bashir’s government to power, Sudan returned to the IMF and began another round of austerity. Price controls were abolished, leading to high inflation, and unemployment soared as newly privatised sectors retrenched.
The number of general physicians declined by 35 percent between 1990 and 1993, and the percentage of the population below the poverty line rose sharply.
Once again the country built up arrears and ceased servicing its debt. Sudan became the world’s largest debtor to the World Bank and IMF in 1993.
‘Without major unrest’
The IMF based its case for the latest round of subsidy cuts on its being “fiscally costly and inefficient”, arguing the removal would “reinforce economic growth” in Sudan. It also argued the subsidies promoted inequality.
“A very large share of the benefits from universal price subsidies goes to richer households, further reinforcing existing inequalities of income and consumption. Overall, almost 50 percent of subsides accrues to the richest 20 percent of households,” the IMF noted in a report last year.
But some have argued the IMF is overlooking the scale of the impact subsidy cuts will have on ordinary Sudanese people.
“The IMF neglect the fact that the economic crisis in the short-run is inextricably linked with the current political crisis, and that the two must be solved simultaneously,” said Rick Rowden, former senior policy adviser for Action Aid.
“Cutting fuel subsidies as a way of addressing Sudan’s fiscal deficit may seem reasonable in the IMF’s abstract econometric models, but it is actually quite unreasonable when applied in the context when many people are already eating only one meal a day,” he told Al Jazeera.
The IMF identified in its November 2012 report that this latest attempt at liberalisation and spending cuts presented “policy challenges” for the government, particularly stemming from the “adverse impact on the poorest households”.
Moeketsi Majoro, then IMF executive director for Sudan, also noted it may be necessary to increase corporate income tax from 15 to 30 percent in order to pay for new social security programmes. No such policy has been forthcoming, however, nor has additional IMF funding for it been offered.
The IMF was nonetheless optimistic that the cancellation would not lead to the kind of public anger and protest seen across Sudan the past week.
“International experience shows that most subsidy reforms occur without major civil unrest,” it said.
But Sudan analyst Aly Verjee said the IMF failed to take into consideration the reality on the ground.
“Their economic models seem to have overlooked the cost of scores of destroyed businesses and petrol stations, the costs of [even more] repression and brutality and the blow to productivity with hundreds of thousands of days of school and work lost,” wrote Verjee.
This article was originally published with Al Jazeera on September 29th 2013.