Troubled Economy does away with Subsidies to recover

Sudan will lift subsidies on petroleum products, a senior ruling party official said yesterday, as the government tries to stabilise a troubled economy which last year sparked protests. “What is confirmed is the subsidies will be lifted,” Rabbie Abdelatti Ebaid of the ruling National Congress Party (NCP) told AFP. Ebaid said Finance and Economy Minister Ali Mahmud al-Rasul informed the party’s political bureau earlier yesterday of the move, which could see prices at the pumps rise within days after a formal decree is issued. Ebaid said all remaining subsidies will be eliminated, leaving the government to pay the world price for oil. It currently buys crude at about US$ 51 a barrel, he said, less than half the global price. Anti-regime demonstrations spread last year after President Omar al-Bashir announced austerity measures including tax hikes and an end to cheap fuel.

h3. Petrol at the Pump

The cost of petrol at the pump roughly doubled at that time when fuel subsidies were partly lifted. Sudan lost billions of dollars in oil receipts when South Sudan gained independence two years ago, taking with it about 75% of the formerly united country’s crude production. Since then the north has been plagued by inflation, a weakened currency and a severe shortage of dollars to pay for imports. Another senior ruling party official, who declined to be named, told AFP that the economy is the country’s biggest problem. “No one, even those in the government, denies the fact that the economy is in trouble, to put it mildly,” he said earlier. “The inflation rate is high and this affects the downtrodden.” The Sudanese pound has lost about 40% of its value on the widely used black market over the past two years. Inflation exceeded 40% last year but has since eased to about half that, official figures show.

h3. Arab Spring-inspired Rallies

In June and July last year Arab Spring-inspired rallies, often involving groups of 100 or 200 demonstrators, spread around the country and became the longest-running challenge to Bashir who seized power in an Islamist-backed coup 24 years ago. The protests flickered out after a security crackdown. El Shafie Mohammed El Makki, a political scientist at the University of Khartoum, said it was uncertain whether people will accept another fuel price rise. “It is unbearable because it is not just fuel for the cars,” since rising petrol costs affect transportation prices and agriculture, making other goods more expensive, he said. The government has wanted to reduce subsidies for a long time, but “if they think this will push them to confrontation with the people they will try to wait,” Makki said last week. The NCP’s Ebaid said that other measures are planned to accompany the subsidy reduction. A key exchange rate will be revalued, government wages increased, “and a lot of funds will be directed to the poor people”, he said.

h3. Wheat Subsidies

Lifting subsidies on wheat will be delayed until next year, Ebaid added. Sudan was importing close to one million barrels a month of diesel and other products to meet its needs, a senior oil ministry official told AFP in April. The International Monetary Fund (IMF) strongly supports the reduction of fuel subsidies because they add to the deficit and inflation while disproportionately benefiting the wealthy, an IMF official told AFP earlier this year. “And in a country like Sudan, especially facing difficult choices, the priority should be on protecting the poorest and most vulnerable people in the society,” the official said. Confirmation that Khartoum will lift fuel subsidies comes after Sudan and South Sudan, at a summit last week, averted the shutdown of economically vital oil flows. South Sudan pays fees to the north for shipping its oil through Sudanese pipelines to the Red Sea export terminal. The IMF estimated that Sudan’s economy would get a boost of about $1.5bn in 2014 under the fee deal and a package to compensate for the loss of the South’s oil at separation.

If used wisely, the money would help contain Sudan’s rising cost of living, the IMF official said.

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