Sudan deficit forces subsidy cuts, price rises

Jan 6

KHARTOUM (Reuters) – Sudan announced emergency measures on Wednesday to redress a budget deficit, raising prices of key goods and gradually reducing subsidies on petroleum products in moves that could stir unrest.

Khartoum has spent heavily on government and defence while increasing its debt and imports to cover a fall in local production, leading to foreign exchange shortages, rising inflation and a weakening Sudanese pound.

Sudan’s Finance Minister Ali Mahmoud said petroleum products — which the government subsidises — including diesel and jet fuel would increase by 2 Sudanese pounds a gallon and sugar would rise 20 pounds per 50 kilogram bag. Sugar and bread are staples in Sudan.

Mahmoud also announced a 25 percent cut in salary for 149 ministerial-level government officials and a 30 percent reduction in foreign travel for the government, which analysts said would have limited effect.

Mahmoud acknowledged there was a budget deficit for 2011 but declined to say how much. Sudan, which operates an opaque economic policy, has kept its 2011 budget under wraps and has not declared any financial details.

“This was caused by rising global prices,” he told parliament as it passed the budget measures.

He also blamed the economic crisis on speculation ahead of a January 9 referendum on secession for the oil-producing south — which is expected to separate.

Mahmoud said the new measures would raise an extra 2 billion Sudanese pounds. The budget was calculated on the unlikely premise that south Sudan would vote for unity in the plebiscite, so the south’s secession would require him to present a new budget to parliament.

The minister announced lower-level state workers would get an extra 100 Sudanese pounds a month but little else targeting the poor majority of Sudan’s 40 million people. Gross national product per capita in Sudan was just $1,220 in 2009.

Mahmoud said subsidies on petroleum products and other goods would be reduced “gradually” beginning with this first stage, indicating more price rises would follow.

Sudan produces some 500,000 barrels per day of oil, but only 100,000-110,000 bpd are from wells in the north.

Sudan also has the potential to be the agricultural bread basket of the region, with an abundance of Nile water and arable land. But decades of war, mismanagement and neglect has left agriculture and local industry in decay.

The economy is dependent on oil for some 45 percent of its budget and most of its foreign currency revenues.

The 2011 budget estimated inflation would be 14 percent but analysts said it was likely to be higher.

In November Sudan temporarily devalued the Sudanese pound to match the black market, hoping to bring more foreign currency into official trade and destroy the parallel market. So far it has met with limited success with banks still unable to meet the demand for foreign currency.

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