IMF Says Sudan Can Ease Austerity on Poor With Social Funds

Sudan could cut back on tax breaks for businesses and delay investment in “non-priority” public projects to create more revenue for social services that help low-income earners, the International Monetary Fund said.

Protests against the removal of fuel subsidies in September that caused prices to almost double and lifted public-transit tariffs led to clashes with security forces that left about 200 people dead, according to Amnesty International. President Umar al-Bashir’s government maintained the policy, saying the subsidies fanned inflation and hurt the economy, which lost most of its oil-producing areas and 75 percent of revenue when South Sudan gained independence in July 2011.

Sudan “could do reforms that do not necessarily create hardship on the poor,” Edward Gemayel, the IMF’s mission chief to Sudan, said by phone from the capital, Khartoum, on Oct. 29.

“There are a lot of tax exemptions that they give to a lot of businesses that they don’t need,” he said. “Even on the spending side you have non-priority spending, like refurbishing buildings, it could postpone these and focus on the more important development, the social side.”

Budget allocations could increase for “expanding and strengthening social safety nets,” said Gemayel.

Recurring conflicts since Sudan gained independence in 1956 have undermined economic growth with almost half the country’s 37 million people living in poverty, according to data from the United Nations and the World Bank.

Economic Contraction

Sudan’s economy shrank 3.3 percent in 2012, according to the IMF, after newly independent South Sudan took three-quarters of the formerly united country’s oil output of 490,000 barrels a day. Sudan also lost revenue with the 15-month shutdown of oil production in South Sudan from January 2012 over a dispute about pipeline-export tariffs.

Sudan collects transportation and processing fees from South Sudan, which exports its crude via pipelines to Port Sudan on the Red Sea. Inflation accelerated to an average 35.5 percent last year and the rate is expected by the IMF to fall to 32.1 percent in 2013. The economy is forecast by the IMF to expand 3.9 percent this year and 2.5 percent in 2014.

Sudan’s plan to phase out fuel subsidies, which also sparked protests when introduced in June 2012, can occur over three to five years while the government pursues more non-oil income sources to ensure the economy grows rapidly over the long term, Gemayel said. Gold exports are expanding from a low base and agriculture is being reinvigorated, he said.

“It’s important to focus on the non-oil economy to ensure a more sustainable and more inclusive growth,” he said. “The focus should not be on the oil economy as it is temporary and will disappear at some point.”

Before it's here, it's on the Bloomberg Terminal.