April 23 (Bloomberg) -- The International Monetary Fund urged Sudan to divert more than $3 billion in compensation it’s set to receive from South Sudan to back reforms that will provide the government with more reliable revenue streams.
Sudan will get the funds over three-and-a-half years as part of an agreement last year to help the country cope with the loss of oil revenue it suffered when South Sudan seceded in July 2011. The country will also collect transportation and processing fees from South Sudan, which exports its crude via Sudanese pipelines to a terminal at Port Sudan on the Red Sea.
“Given the temporary nature of some of these revenues for Sudan, it is critical that they be used wisely to support reforms that will put the economy on a sound long-term footing,” Paul Jenkins, the IMF’s representative in Sudan, said in an e-mailed response to questions on April 21.
Sudan’s economy contracted 4.4 percent in 2012 after South Sudan at independence took three-quarters of the formerly united country’s output of 490,000 barrels a day. The economy was also hit by a loss of revenue after South Sudan stopped oil production in January 2012 in a dispute over export fees that brought the two countries to the brink of war.
South Sudan restarted output this month after the two countries agreed to resume transfers and the first shipment may arrive at Port Sudan by the end of May, according to Suna, Sudan’s state news agency.
The agreement will unlock “sizable revenues for both parties” and boost foreign-exchange earnings, Jenkins said.
Oil in South Sudan is pumped mainly by China National Petroleum Corp., Petroliam Nasional Bhd of Malaysia and India’s Oil & Natural Gas Corp.
Brent crude for June settlement declined for the first time in four days, falling 1.3 percent to $99.07 per barrel by 10:33 a.m. on the London-based ICE Futures Europe exchange.
South Sudan is seeking alternative routes to ship its crude. The government last month signed an agreement with Ethiopia and Djibouti to move its oil by truck and it’s also in discussions on building two other pipelines through Kenya and Djibouti.
Sudan’s gross domestic product is expected to expand 1.2 percent this year and 2.6 percent in 2014, according to the IMF’s World Economic Outlook published on April 16. The forecasts were made before the agreement to restart oil exports, said Jenkins.
“The long-term challenge facing Sudan is to re-orient its economy away from reliance on oil and other extractive industries,” Jenkins said. “Reinvigorating agriculture, the source of the livelihoods for the majority of the population, is especially critical. Sudan should also focus on strengthening its tax system to boost government revenues.”
Sudan last year announced a range of measures to increase income including raising the value-added tax to 17 percent from 15 percent, doubling the tax on banking profits to 30 percent and phasing out subsidies for fuel and sugar, according to the IMF.
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