Sudan’s transitional government is walking a tightrope as it seeks to revive the ailing economy while shielding citizens from the shocks of inflation through subsidies.
Khartoum passed the country’s post-revolution budget last week with a $1.62 billion deficit.
And while the budgetary proposals indicate increased spending on education and health, leaders have been haggling over what to do with subsidies on basic commodities.
Former president Omar al-Bashir’s administration ran the economy with subsidies on gas, fuel, essential medicine and wheat. But Prime Minister Abdalla Hamdok’s government faces a test on whether to continue with the same, amend the subsidies or abolish them altogether.
PM Hamdok hinted at direct cash disbursements to the poor to cushion them from the effects of ending subsidies.
“The discussion about subsidising consumer goods will involve all sectors of society and the choice will be for the people to refuse or continue supporting the subsidies,” he said.
But the proposal to abolish subsidies was opposed by the Forces of Freedom and Change (FFC), a coalition of activists and former rebel groups whose continued protests saw the departure of Bashir, and who have representatives in the transitional government.
The final budget dropped the idea to abolish subsidies, for the time being, with leaders saying the final decision will be made at a national dialogue forum due in March.
Economists told The EastAfrican that Sudan may have to make the unpopular decision to remove subsidies and free the money back into the economy.
Yet Bashir who led the country for 30 years became unpopular largely because the price of basic commodities like bread was beyond most people’s reach.
The experts argued Sudan’s ailing economy burdened by high cost of living, deteriorating currency and sanctions makes it unwise to continue with that policy that saw the government cover up to $2.250 billion annually in fuel subsidies and another $365 million for wheat.
Critics say the subsidies actually benefited the rich who carried out their business while being cushioned by the government and selling goods to the poor at high prices.
Adel Abdel Moneim, an economist in Khartoum told The EastAfrican that abolishing subsidies could help tame inflation—now at 57 per cent—shield the Sudanese Pound and actually save the poor in the long run.
“Delaying the lifting of subsidies until April and August (as the government has suggested) will have very bad economic effects, and I expect that if the subsidy is not lifted, the dollar will reach an exchange of 120 [Sudanese] pounds,” he said.
The official exchange rate is 47 Sudanese pounds to a dollar.
But, Khartoum—which has been under sanctions as a state sponsor of terror—lacks open access to the green buck, leading to hoarding and arbitrary rates in the streets.
“That will be dangerous. I propose lifting subsidies on gasoline completely or by a very large percentage to have any impact on the Sudanese Pound and increase revenues. In fact, it should have been done immediately the transitional council assumed duties,” said Mr Moneim.
However, whether subsidies should be blamed for all of Sudan’s woes is debatable.
Economist Abu Al-Gasim Ibrahim argued that abolishing them will only address a small part of the budget deficit, even though he agreed it would be an important step.
Sudan, in conflict for most of the past three decades, has suffered from weak regulations and Mr Ibrahim criticised the government's inability to block smuggling outlets especially in gold.
“There are those who fear that ending of subsidies could in fact bring unintended consequences; prices of basic goods rising further.
“The transitional government will not be able to remove subsidies for any necessary commodities because prices have risen significantly. If the government attempts to remove subsidies on gasoline, for example, the prices of services and other commodities could increase at record rates,” said Mohammed Al-Nair, an economic policy analyst in Khartoum.
“There is a large proportion of commuters that rely on gasoline, and there is currently no mechanism to stabilise the prices of necessary commodities in the markets,” he added.
Mr Al-Nair proposes, as a first step of stabilising the economy, tighter controls on the exchange rate and inflation, before removing subsidies.
According to figures from the Sudanese Ministry of Finance, the country’s revenues were worth $3.6 billion, dented by a subsidy programme.
The initial plan was to remove fuel subsidies from January this year, raising the price of a gallon (about 3.8 litres) to 98 Sudanese pounds ($2.17) from the current of 28 pounds ($0.62). The plan had already seen large crowds at fuel stations as citizens anticipate a shortage.
However, Finance Minister Ibrahim al-Badawi said the cushions could continue at least until June.
“The government will launch production projects in the budget for the year 2020, to add value to beef and oil seeds which have been exported as raw materials,” he said.