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Update on Macroeconomic Developments in Sudan
March 2014 - Khartoum, Sudan
UNDP Sudan
Gama'a Avenue, House 7,Block 5
P.O.Box 913
Postal Code 11111
Khartoum – Sudan
Phone: (+249) 187120000
Fax: (+249) 183783764 (+249) 183773128
Sudan Talks Series
Authors:
Getachew Tahir, Economic Advisor
Abdalatif Hassan, Economic Analyst
| Update on Macroeconomic Developments in Sudan i
Table of Contents
Title Page
Table of Contents i
List of Tables ii
List of Figures ii
List of Annexes ii
List of Acronyms iii
Note on the Paper iv
Executive Summary v
Summary by Chapter vi
I. Trends in Real Sector (GDP) and Inflation
1.1. Developments in Real GDP
1.2. Trends in Inflation
1
1
5
II. Fiscal Situation 8
III. Exports and the Balance of Payment (BOP) Situation 13
IV. The External Debt Situation 17
V. Poverty Status and Human Development 19
VI. Employment/Unemployment Situation 21
VII. Private Sector Development and Business Environment 23
VIII. Conclusions & Observations 25
| Update on Macroeconomic Developments in Sudan ii
List of Tables
Table Page
Table 1: Trends in growth and Structure of GDP (%) 2
Table 2: Trends in Annual General Inflation Rate (%) by Rural and Urban Areas 7
Table 3: Trends in Inflation Rate (%) by selected Item Groups 7
Table 4: Recent Trends in Public Revenue and Expenditure Performance 9
Table 5: Recent Trends in the Balance of Payments 14
List of Figures
Figure Page
Figure 1: Trends in Overall Real GDP Growth Rate 2
Figure 2: Trends in Per Capita GDP 4
Figure 3: Monthly Trend in General Inflation (National) in 2013, January-October,
2013
6
Figure 4: Trends in Annual General Inflation 7
Figure 5: Trends in Domestic Revenue and its components 10
Figure 6: Trends in Public Expenditure and its Components 10
Figure 7: Trends in Total Revenue and its components as a ratio to GDP (%) 11
Figure 8: Trends in Public Expenditure and its Components as a ratio to GDP (%) 11
Figure 9: Trends in Annual Average Exchange Rate (SDG/$USD) 15
Figure 10: Trends in Sudan Human Development Indices (HDI) relative to SSA and
LDCs
20
Figure 11: Trends in Unemployment Rate in Sudan 22
List of Annexes
Annexes Page
Annex Table 1: Time Series Data on Selected Macroeconomic Indicators 30
Annex 2: Economic Reform Package, June 2012 32
| Update on Macroeconomic Developments in Sudan iii
List of Acronyms
BoP Balance of Payment
CPA Comprehensive Peace Agreement
CPI Consumer Price Index
EIU Economist Intelligence Unit
FDI Foreign Direct Investment
GDP Gross Domestic Product
GNI Gross National Income
HDI Human Development Index
HDR Human Development Report
HIPCs Heavily Indebted Poor Countries
IDPs Internally Displaced Persons
IMF International Monetary Fund
IPRSP Interim Poverty Reduction Strategies
LDCs Least Developed Countries
MDGs Millennium Development Goals
NBHS National Baseline Household Survey
NCSP National Council for Strategic Planning
NSDS National Strategy for the Development of Statistics
PICS Private Investment Climate Survey
PIP Project Initiation Plan
PPP Purchasing Power Parity
PRSP Poverty Reduction Strategy Paper
SSA Sub-Saharan Africa
VAT Value Added Tax
| Update on Macroeconomic Developments in Sudan iv
Note on Contents
This short report is an attempt to provide an understanding of Sudan’s
macroeconomic landscape over the course of the post secession period (2011-2013), as far as
available data permits. It is recognized that gaps in data collection across almost all
macroeconomic sectors have posed a major challenge for economic analysis. Despite this,
efforts have been made to draw together what is available for analysis in order to provide a
useful picture of macroeconomic trends in Sudan.
Rather than attempting to present the data at face value, this paper also attempts to
connect developments, undertake an analysis and propose development-related conclusions.
The graphs in this paper are based on time series data compiled from official
Government sources, as well as other credible sources, listed in the Annex Table 1. Although
every effort has been made to refer to official sources, these have been complemented with
information from independent think tanks and international financial institutions, as deemed
appropriate.
We would be grateful to receive feedback on the content and on the data used in this
report.
| Update on Macroeconomic Developments in Sudan v
Executive Summary
The secession of South Sudan in 2011 has had a severe impact on Sudan’s
economy and the country’s future development, and as the IMF has noted, it has left the
country facing “daunting challenges”. The sudden loss of oil income led to a dramatic
drop in the Government’s revenue, rising inflation, soaring food prices and a weakened
currency. Austerity measures brought in to help address this situation in June 2012 have in
turn, further fuelled inflation, forcing prices to rise further.
These austerity measures involved government cuts, including in federal transfers
to the regions, tax increases, and the gradual lifting of subsides on fuel, sugar and wheat.
Fuel-related subsidies have only partially been lifted to date.
Were these measures to be accompanied by the right mix of policies for revitalizing
the non-oil productive sector, particularly agriculture, in the medium to long term, they
should redress the domestic and external macroeconomic imbalances created by the loss
of oil income.
But in the short term, it is ordinary Sudanese people who have borne the brunt of
this economic crisis, as they struggle with an increasingly exorbitant cost of living. The
austerity measures, which have been deeply unpopular, have further fuelled inflation. This
partial lifting of fuel subsidies in September 2013 has added to price rises as transport
costs shot up as a result. By November 2013, monthly transport inflation reached 114.3
per cent. The potential of these austerity measures to cause rising social tensions and
instability was demonstrated during the protests that followed the partial lifting of fuel
subsidies in September 2013.
In the long term, the cuts in federal transfers to the regions, the cuts in the health
and education budgets, as well as an overall low level of development spending, is
affecting the provision of basic services and the future development of the country. The
cost of this crisis on the country’s human development is already evident: in the years
since South Sudan seceded, Sudan itself has slid almost twenty places down the Human
Development Index.
Although an increase in exports, particularly gold, coupled with the austerity
measures, in the last two years has helped ameliorate some of its economic imbalances,
Sudan is failing to attract the investment it needs to grow. Studies indicate that the
country experiences comparably high levels of corruption, which along with its uncertain
political environment, on going conflict in parts of the country, and a weakened currency is
making it increasingly hard to attract foreign or domestic investment.
| Update on Macroeconomic Developments in Sudan vi
Trends/Direction of Changes of Selected macroeconomic Variables (2004-2013)
Indicator
Average Trend/ Direction of Change in the Indicator
2004-2007 2008-2010 2011-2013 2013
Real Sector1 and Prices:
Overall GDP Growth
Strong increase (9.3)
Increased at a declining rate (5.3)
Steep decline albeit in a low positive
territory (2.1)
Slight increase (2.6)
Agriculture Growth Modest increase (7.2)
Modestly increasing Trend
declining (5.7)
Increased declining trend (3.6)
Increased declining trend (3)
Industry Growth Steep increase (14.3)
Increased declining trend
(4.2)
Steep drop in the negative territory
(-7.5)
Recovering (2.3)
Services Growth Steep increase (8.6)
Modest increase (7.4)
Flat (0) Recovering (2.8)
Structure of the Economy: sector share in GDP:
Agriculture Decline (34) Almost flat (35) Almost Flat (34) Flat (34)
Industry Increase (oil factor) (23)
Increasing at a decreasing rate
(24)
Declining trend (19.5)
Flat (20.4)
Service Increase (44) Almost flat (42) Increase (47) Almost Flat (46.5)
Per Capita Real GDP Growth
Steep Increase (25.5)
Marginal increase (1.1)
Steep Decline (-12.1)
Steep decline (-13.0)
General Inflation Increased at Declining rate (8)
Increase (13) Steep Increase (29) Increasing at declining rate (25.6)
Fiscal Sector:
Domestic Revenue as % of GDP
Increasing (16) Flat (15.9) Declining Trend (12) Declining (11.5)
Oil Revenue as % of GDP
Increase (7.1) Increasing Trend (8.9)
Steep Declining Trend (3)
Declining Trend (2.7)
Non-Oil Revenue Increasing (9.0) Almost flat (7.0) Increase (9.0) Almost Flat (8.8)
1 The period average for sector growth rates (Agriculture, Industry and services) and overall GDP refer to the three-year period, 2005-2007.
| Update on Macroeconomic Developments in Sudan vii
as % of GDP
Public Expenditure as % of GDP
Increase (16.9) Almost Flat (16.6) Declining Trend (15) Declining Trend (14)
Recurrent as % of GDP
Increase (13.1) Increase (15.3) Declining Trend (14.1)
Declining Trend (12.1)
Capital /Development as % of GDP
Flat at a low rate (5)
Declining Trend from a low rate
(2.5)
Flat (2.0) Flat (1.9)
Fiscal deficit/surplus as % of GDP
Surplus (2.2) Widening Deficit (-3.1)
Deficit Narrowing Trend (-2.4)
Deficit Narrowing Trend (-1.6)
External Sector & Balance of Payments(BOP):
Trade Balance as % of GDP
Small Deficit but stable (-0.4)
Surplus not stable (1.7)
Widening Deficit (-5.1)
Deficit narrowing trend (-7)
Current Account Balance as % of GDP
Deficit Narrowing trend (NA)
Surplus Declining Trend
Deficit widening trend (-7.8)
Deficit widening trend (-10.5)
Exchange Rate (SDG/USD)
Stable (2.3) Stable (2.2) Depreciation (4.0) Steep Depreciation (5.8)
Debt stock as a ratio to Nominal GDP
Increasing (74.3) Declining Trend (60)
Increasing (95) Steep increase (113)
Human Development Index (HDI)
Medium (0.53), Rank 147
th in 2005
Low (0.38), Rank 154
th in 2010
Low (0.41),
Rank 171st
in 2012
(NA)
Unemployment Rate
Increased (18) Modest Decline (17)
Increase (19) (NA)
NA: Data not available
| Update on Macroeconomic Developments in Sudan viii
Summary by Chapter
Growth Rates: The pre-secession Sudan was one of the fastest-growing oil-led
economies in Africa. After oil production began in 1999, Sudan underwent a boom that
lasted for more than a decade. But the global economic crisis of 2007, coupled with the
secession of South Sudan in 2011 has put an end to this period of rapid growth. Real GDP
growth, which peaked at 10.9 percent in 2007 dropped to 5 per cent in 2010, 2.5 per cent in
2011 and 1.4 per cent in 2012. In 2013, real GDP growth was estimated at 3.6 per cent, but
projections for 2014 suggest a decline to 2.6 per cent.
Inflation: The Sudanese economy has suffered from intense inflationary pressure since
the referendum of January 2011 when the South Sudanese chose to secede from Sudan
and it became clear that the country would soon be losing much of its oil income and the
hard currency that went with it. The official annual inflation rate for 2013 was 36.5 per cent
but for much of the year it was over 40 per cent, peaking in March 2013 at 48 per cent. The
food component, which accounted on average for 53 per cent of household expenditure,
drives overall inflation in Sudan followed by housing (14 per cent) and transport (8 per
cent). These three groups of consumer items together, on average, account for more than
70 per cent of household expenditure. Food price inflation has been compounded by
imported inflation as many food items are imported. Although general inflation dropped
from its peak level of 48 per cent in March 2013 to 23 per cent by the end of August 2013,
this declining trend was reversed following the suspension of fuel subsides in September
2013. The transport component of inflation was the major driver of this.
Fiscal: Sudan’s government estimates it lost 36.5 per cent of its revenue as a result of the
secession of South Sudan. This decline in oil revenue in the aftermath of secession has
caused a major adjustment to Sudan’s fiscal situation, prompting the introduction of a
financial austerity package in June 2012. This involved government cuts, particularly to the
regions, tax increases, and the gradual lifting of subsides on fuel, sugar and wheat.
In the longer term, the cuts have meant a drop in federal transfers to the regional
states, where many of Sudan’s poorest live, as well as a reduction in the budget for the
provision of basic services. Total expenditure as a percentage of GDP has declined from 19
per cent of GDP in 2009 to 15 per cent of GDP by the end of 2012. Even with the available
fiscal resources, allocation between recurrent expenditure and capital expenditure is
highly lopsided to the former. Such a low level of development expenditure (two per cent
of GDP for 2012) is detrimental for sustaining growth and achievement of the MDGs and
Human Development. This is even worse at the state level as the bulk of expenditure
(nearly 90 percent) is allocated to recurrent expenditure which mainly constitutes wages
and salaries. According to a recent study commissioned by UNDP Sudan, transfers to
| Update on Macroeconomic Developments in Sudan ix
states as a whole declined from nearly 2 per cent of GDP in 2011 to 1.6 per cent of GDP in
2012.
The widening fiscal deficit seems to be increasingly – and now almost entirely -
financed from domestic banking sources. This is likely to have a negative impact on
inflation. The Government lacks access to other official external sources to finance
development projects from traditional donors because of existing sanctions. Despite the
recent increases in tax rates, revenue raising efforts in Sudan are low even compared to its
comparators in Sub-Saharan Africa (SSA).
Balance of Payments: The impact of the 2011 secession of South Sudan and the
consequent sudden loss of oil income on the country’s economy is clearly seen in the
sudden drop in its export earnings and the knock on effect of this on its current account.
The year before secession, 2010, Sudan had a trade surplus of 2.6 billion USD. Two years
later it had an estimated trade deficit of - $4.8 billion USD. In the same period the current
account balance fell from a surplus of $500 million USD to a deficit of about - $6 billion
USD. A reduction in imports and an increase in exports, particularly gold, have helped
reverse this trend. Projections for 2013 suggest the trade balance deficit stood at - $2.7
billion and the current account deficit -$4 billion.
Foreign Direct Investment (FDI) has also declined in the post-secession period as it had
largely been related to the oil sector. Foreign exchange reserves have been on the decline
since the secession of South Sudan, triggering the depreciation of the Sudanese Pound
against the US Dollar. The premium between the official and the parallel rate reached 60-
70 per cent in February 2012 and has been widening since then.
External Debt: Sudan is a heavily indebted country. By mid 2013 its existing external
debt was estimated to have exceeded 43 billion USD. According to IMF projections, by the
end of 2013 Sudan’s debt will be running at 86.7 per cent of GDP up from in 82.2 per cent in
2012. When South Sudan seceded, Sudan retained the entire debt burden. This was
agreed in September 2012 between the two countries “on condition that Sudan obtains
debt relief within two years through the Highly Indebted Poor Countries Initiative (HIPC)
and remains in negotiation.
Poverty: Almost half the population of Sudan live in poverty. Since the secession of
South Sudan in 2011, Sudan has become poorer, a reality illustrated by its sudden drop on
the Human Development Index. In 2010 it was ranked 154th. Just two years later, in 2012,
it was ranked 171st place.
Unemployment: A high unemployment rate in a country with a rising population that
is increasingly urbanized remains one of the Government’s major challenges.
Unemployment is highest amongst the youth which is a cause for concern in a population
where more than half the population are under the age of 24.
| Update on Macroeconomic Developments in Sudan x
Business environment: Sudan’s economic and political instability; its undeveloped
physical infrastructure; and its lack of adequately qualified manpower, coupled with
existing levels of corruption made it difficult to attract either foreign or domestic
investment. The country was ranked 173rd out of 176 countries in Transparency
International's 2012 Corruption Perceptions Index and is in the bottom quartile of the
World Bank’s global “Doing Business” report from 2013.
| Update on Macroeconomic Developments in Sudan 1
1- Trends in Real Sector (GDP) and Inflation
1.1. Developments in Real GDP After oil production began in 1999, Sudan underwent a boom that lasted for more than a
decade. But two events, the global economic crisis of 2007 and the secession of South
Sudan in 2011 put an end to this period of rapid growth. The government estimates that
real GDP grew 2.5 per cent in 2011, and this dropped to 1.4 per cent in 2012 before
recovering to 3.6 per cent in 2013. Real GDP growth projections for 2014 suggest a modest
drop to 2.6 percent. The IMF’s assessment indicated that Sudan’s economy actually went
into negative growth during the year of secession. Its figures estimate that real GDP
dropped from 3.4 per cent in 2010 to -1 per cent in 2011. The IMF further estimated real
GDP growth to drop to -2.6 per cent in 2012 before making a marked recovery to 4.1 cent
in 2013.2
Sudan was one of the world’s fastest-growing oil-led economies until the onset of
the global financial crisis in 2007. A UNDP-sponsored study3 found that real GDP growth
slowed down from its peak of 10.9 per cent in 2007 to about 5 per cent in 2010. The period
of the oil boom (1999-2010) saw the service sector expand rapidly to surpass agriculture as
the leading sector of the economy. While the services and utilities sector played an
increasingly important role in the economy, the agriculture sector continued to employ
2 http://www.imf.org/external/np/sec/pr/2013/pr13387.htm
3 This study was conducted with the support of UNDP Sudan and the Ministry of Finance and National
Economy for the Economic Conference on Sudan, Istanbul, March 2012.
| Update on Macroeconomic Developments in Sudan 2
the bulk of the work force. On average, agriculture contributed to about a third of GDP,
while industry (dominated by the oil sector) accounted for about one-quarter of GDP
during the oil-boom period. The formal secession of South Sudan on 9 July 2011 brought
significant changes to the socio-economic landscape of Sudan. According to a World Bank
report (2011) secession resulted in Sudan losing 75 per cent of its oil reserves and 20 per
cent of its population. Before the secession of South Sudan, oil accounted for nearly 15
per cent of industrial value added, 90 per cent of export earnings and nearly 50 per cent of
revenue. The oil loss has triggered domestic (fiscal) and external (balance of payments)
imbalances that have threatened macroeconomic stability.
The positive (albeit low) growth in 2012 of 1.4 per cent is mainly a result of the
good performance of the agriculture sector, with an estimated growth of 5.7 per cent,
which was largely attributed to good rains. Notwithstanding the improved performance of
the manufacturing sector (sugar and cement), the industry sector as a whole dropped by
an estimated 6.8 per cent in 2012 owing to the significant drop in the oil sub-sector. The
deceleration of the service sector to an estimated growth rate of 3.2 per cent in 2012
reflects the slowdown in activities in the oil sub-sector. Despite differences in magnitude,
both Government sources and the IMF4 believe there was modest positive growth in 2013,
with IMF estimates putting the figure at 4.1 per cent up from -2.6 per cent in 2012 and the
government estimating it at 3.6 per cent up from 1.4 per cent in 2012 (see table 1).
Table1: Trends in Growth and Structure of GDP (%)
Sector 2006 2007 2008 2009 2010 2011 2012
(Estimate)
2013
(Projection)
Real GDP Growth Rates (%)
Agriculture 8.4 6.0 7.8 4.9 5.7 3.4 5.7 3.5
Industry 12.5 22.7 0.5 4.3 4.5 - 3.6 -6.8 6.5
Services 10.3 5.7 10.7 3.2 4.6 4.4 3.2 2.2
Overall GDP 9.9 10.9 6.4 4.5 5.0 2.5 1.4 2.6
Structure of GDP (%)
Agriculture 31.8 35 35.7 32.3 33.9 34.1 34.1 33.7
Industry 23.8 22.7 25.2 24.7 22.6 18.5 19.5 20.4
Services 44.3 42.2 39.1 43 43.5 46.5 46.5 46.5
Overall GDP 100 100 100 100 100 100 100 100
Source: Central Bureau of Statistics and Ministry of Finance and National Economy
4 According to IMF’s assessment in April 2013, the non-oil economy grew by 4.2 per cent in 2012 while overall
GDP dropped by 3.1 per cent (as a result of the significant drop in the oil sector). The full impact of oil loss is believed to have been felt in 2012. According to the IMF’s original prediction, real GDP was to drop by 8-12 per cent in 2012. However, the IMF’s recent assessment4 showed that the economy performed better than had been originally predicted.
| Update on Macroeconomic Developments in Sudan 3
At the same time, oil production reached 139000 barrels per day (bpd) in August 2013 up from 120000 average bpd for 2012, and is projected to have reached 180000 bpd by the end of 2013.5
The rise in oil production is expected to have contributed to growth in 2013 and
improved the outlook for 2014. In addition to oil, the mineral sector (gold) and
manufacturing (cement and sugar) are also expected to augment growth of the industry
sector in 2013. However, according to the Economist Intelligence Unit (EIU), despite the
effort exerted by the government to attract foreign investment in the mineral sector, not
much has been forthcoming so far. Agriculture is projected to grow by a modest 3.5 per
cent in 2013 while the service sector is expected to slow down (2.2 per cent) mainly owing
to the decline in the oil sector.
The changes observed in the structure of the economy in recent years have been
related to oil. As shown in Table 1 above, the share of industry declined by almost 5
percentage points from 25 per cent in 2009 (before secession) to 20 per cent in 2012. The
share of agriculture has remained constant during the same period, while the share of the
service sector increased by almost 4 percentage points during the same period. The fast
expansion of the service sector (surpassing growth in the non-oil productive sectors, i.e.
agriculture and manufacturing) is almost always a recipe for inflation, as has been
witnessed in Sudan in recent years.
According to the 2013 UNDP Human Development Report, GDP per capita in 2005
Purchasing Power Parity (PPP) terms was estimated at $1878 USD and population growth
estimated at 2.4 per cent in 2012. In 2012, after taking into account the loss of the
population of South Sudan, the population of Sudan was estimated at 35.16 million. The
sharp increase in per capita GDP up until 2006 was a result of the increase in oil income,
bolstered by the peace dividend following the signing of the CPA in 2005. The 2007 global
crisis then caused a downward turn, followed by a brief recovery before the anticipated
secession of the South lead to a sustained decline from 2010 onwards (see graph below).
5 The Sudanese Petroleum Corporation (http://www.spc.sd). 6 Population Projections by the Central Bureau of Statistics based on the 2008 Census
| Update on Macroeconomic Developments in Sudan 4
The shock caused by the oil loss could have been mitigated had the government
pursued diversification to the non-oil productive sectors during the oil-boom period. The
non-oil productive sector, especially agriculture, had been in decline during this period.
The launching of the Three Year (2012-2014) Programme for Sustainability of Economic
Stabilization, within the framework of the new Five Year National Development Plan
(2012-2016), is aimed at smoothing the transition from oil-led growth to agriculture and
manufacturing-led growth. It also includes relevant social safety measures. The revival of
agriculture is critical for sustaining overall economic growth and poverty reduction.
However, success of the programme depends on getting the right macroeconomic policy
mixes (fiscal, monetary and exchange rate) and then exercising prudence in implementing
them. In addition, the on-going armed conflicts in some parts of the country will continue
to compound the challenges of Sudan’s recovery and growth, at least in the medium term.
| Update on Macroeconomic Developments in Sudan 5
1.2. Trends in Inflation
The Sudanese economy has suffered from intense inflationary pressure since the
referendum of January 2011 when the South Sudanese chose to secede from Sudan. At this
point, it became clear that the country would soon be losing much of its oil income and the
hard currency that went with it.
The official annual inflation rate for 2013 was 36.5 per cent but for much of the year
it was over 40 per cent, peaking in March 2013 at 48 per cent. The partial lifting of fuel
subsidies in September 2013 has further added to driving up prices. Transport costs shot up
as a consequence reaching a monthly inflationary rate of 114.3 per cent, in November 2013.
In addition, imported inflation (through the depreciation of the Sudanese Pound) has
further compounded Sudan’s inflation rate. Food accounts for more than 53 per cent of
household expenditure in Sudan, and most food items, including wheat, are imported.
Underlying this aspect of Sudan’s inflation is the neglect of the agricultural sector which has
led to this shortfall in domestic food supply.
Following the referendum of January 2011 when the South Sudanese voted for the
independence of South Sudan, inflationary pressure in Sudan started rising. According to
data from the Central Bureau of Statistics (CBS), by 2012 inflation was running at 35.6 per
cent. Monthly inflation was 44.4 per cent in January 2013, and peaked to 48 per cent by
March 2013 before showing a modest decline in the months that followed reaching 37.3 per
cent by end May 2013, and further dropping to 24 per cent by July 2013 (see Table 2 below).
The food component of the Consumer Price Index7 (CPI) that accounts, on average, for 53
per cent of household expenditure, has driven overall inflation in Sudan. The next most
important items in the household budget are housing (14 per cent) followed by transport (8
per cent). According to computations based on the findings of the 2009 National Baseline
Household Survey of the CBS, these three groups of consumer items - food, housing and
transport - together account, on average, for more than 70 per cent of the household
expenditure budget.
Until July 2013 rural inflation was higher than urban inflation (see Table 2 below).
High transport costs, owing to the existing infrastructure deficit in rural areas, have been
seen as the major factor for this price differential. In November 2013, for example, the
transport component of urban inflation was running at 95.7 per cent whereas for the rural
economy it was 142.6 per cent. But by July 2013 the partial lifting of fuel subsidies had
resulted in a huge increase in to the transport component of urban inflation.
7 The base year for the Sudan Consumer Price Index (CPI) is 2007, i.e., 2007=100
| Update on Macroeconomic Developments in Sudan 6
Many factors may account for the high inflation during January-May 2013. Chief
among these is the continued currency devaluation in the free market following the de
facto devaluation introduced during May-June 2012. The continued weakening of the
national currency drove up domestic prices through imported inflation. Other domestic
factors such as supply constraints, as well as the impact of the June 2012 austerity package
(which included increased import taxes and VAT and introduced a phased lifting of fuel
subsidies) have led to increasing prices. These developments have also contributed to the
deterioration of expectations, which has also fuelled price increases.
As shown in Table 3 below, general inflation showed a declining trend from its peak
level of 48 per cent in March 2013 to 23 per cent by the end of August 2013. But this trend
was reversed following the further cut in fuel subsides in September 2013. Table 3 also
shows that the transport component of inflation, which stood at 104 per cent in October
2013, has been the major driver of the increase in general inflation. It further increased to
114.3 per cent by the end of November 2013. The food and housing components have also
shown modest increases in inflation from 20 and 16 per cent in July 2013 to 30 per cent and
26 per cent, respectively in October 2013. General inflation reached 40 per cent in October
and increased further to nearly 43 per cent by the end of November, 2013. The monthly
general inflation trend for 2013 is depicted in the graph below.
According to the Economics Intelligence Unit,8 average general inflation is expected
to show relative stability and to have reached around 32 per cent by the end of 2013. The
average annual rate of inflation is expected to settle at a higher rate than the
8 Sudan Country Report (July, 2013)
| Update on Macroeconomic Developments in Sudan 7
projection. This is because inflationary pressure has begun to pick up following the
September 2013 partial lifting of fuel subsidies that resulted in a nearly 80 per cent increase
in fuel prices.
Table 2: Trends in Annual General Inflation Rate (%) in Sudan by Rural and Urban Areas
Level 2008 2009 2010 2011 2012 2013
(March)
2013
(August)
2013
(October)
2013
(November)
National 14.3 11.2 13.0 18.1 35.6 47.9 22.9 40.3 42.6
Urban 11.5 12.1 11.8 17.2 33.5 47.7 23.6 41.2 44.0
Rural 17.3 10.5 14.1 19.0 37.4 48.1 22.3 39.5 41.6
Source: Central Bureau of Statistics (CBS)
Table 3 below depicts annual trends in inflation by selected item groups. It shows how the
partial suspension of the fuel subsidy has affected inflation through the significant increase in
transport prices. The housing group has also witnessed a modest increase in recent months as
shown in the table 3.
Table 3: Trends in Inflation Rate (%) by selected Item Groups
Items Expenditur
e Share (%)
Inflation Rate (%)
2010 2011 2012 2013
(March)
2013
(August)
2013
(November)
Food & Non-
alcoholic
Beverages
53 15.6 20.4 41.6 46.4 20.6 30.5
Housing 14 9.9 11.0 13.2 15.8 15.0 29.7
Transport 8 2.4 14.8 96.8 89.7 15.0 114.3
Source: Central Bureau of Statistics (CBS), various issues
| Update on Macroeconomic Developments in Sudan 8
2- Fiscal Situation
In 2011, Sudan’s Government estimated it lost 36.5 per cent of its revenue as a result
of the secession of South Sudan (World Bank, 2011). This decline in oil revenues in the
aftermath of secession has caused a major adjustment to Sudan’s fiscal situation and
prompted the introduction of a financial austerity package in June 2012. This included wide
ranging government cuts, with a reduction in transfers to states; tax increases; and a
phased lifting of subsidies on fuel, wheat and sugar. These measures, while arguably
economically prudent, have had an intensely negative impact on the daily lives of the
majority of Sudanese people. In the short term, cuts in fuel subsidies have triggered intense
price inflation in the transport sector at a time when people are already struggling with
soaring food prices. In the longer term, the human development of the country is likely to
be adversely affected: the cuts have meant a drop in federal transfers to the states, where
many of Sudan’s poorest live, as well as a reduction in the budget for the provision of basic
services.
In response to the sudden drop in revenue from the loss of South Sudanese oil, the
government issued an amended budget for 2011. According to the estimates used in the
amendment, total public revenue declined by 12 per cent compared to the original budget,
with a cut in total public expenditure of just 3 per cent. Most of the spending cuts were
federal transfers to states. Compared to the original budget, these transfers declined by 20
per cent, and development-related components of the transfers (as opposed to recurrent
expenditure related components) declined by 45 percent. The aggregate fiscal picture for
the Amended Budget put the overall fiscal deficit at 5.0 per cent of GDP compared to 3.2
per cent of GDP in the original budget for 2011. The budget assumed that 25 per cent of the
deficit will be financed by external borrowing, while financing from domestic borrowing
accounted for 75 per cent, with huge implications for macroeconomic stability - mainly the
consequent high inflation. The cut in spending was detrimental to future growth because of
the cut in development (capital) expenditure. The expenditure cuts could also have far-
reaching implications on service delivery, aggravating poverty and the challenge of
meeting the Millennium Development Goals (MDGs) as most of the spending cuts were
from federal transfers to states and development expenditures.
The Government’s austerity package included a comprehensive set of fiscal
measures on the revenue side such as an increase in Value Added Tax from 15 to 17 per
cent; an increase in the development tax from 10 to 13 per cent; and an increase in the
business profit tax in the banking sector from 15 to 30 per cent (see the Annex I Table for
| Update on Macroeconomic Developments in Sudan 9
details). On the spending side, the Government reduced subsidies from major fuel products
with an estimated saving of 1 per cent of GDP.9
The 2012 budget further witnessed significant cuts in expenditure in order to
balance the budget. The fiscal deficit, which stood at -0.4 per cent of GDP in 2010 had
widened to -4.8 per cent in 2011. The deficit in 2012 narrowed to -2.4 per cent. The
reduction in subsidies and tax increases seems to have helped to narrow the fiscal deficit in
2012.
Table 4: Recent Trends in Public Revenue and Expenditure Performance Million SDG unless otherwise specified
Item 2009 2010 2011 2012
(Estimate) 2013
(Budget) Domestic Revenue 19166 23536 21458 22168 25211
o/w- Non-Oil 9774 11454 14949 17928 19211
o/w-Oil Revenue 9392 12082 6507 4241 6000
Total Expenditure 23852 24162 28578 26272 30822
o/w- Recurrent 21026 20000 24964 22723 26636
- Capital 2826 4162 3615 3550 4187
Fiscal Deficit -4686 -626 -7120 -4104 -5611
GDP @ Current Market Prices 125770 154490 146920 173995 218905
As % of GDP
Total Revenue 15.2 15.2 14.6 12.7 11.5
Non-oil 7.8 7.4 10.2 10.3 8.8
Oil 7.5 7.8 4.4 2.4 2.7
Total Expenditure 19.0 15.6 19.5 15.1 14.1
Recurrent 16.7 12.9 17.0 13.1 12.2
Capital 2.2 2.7 2.5 2.0 1.9
Fiscal Deficit(% of GDP) -3.7 -0.4 -4.8 -2.4 -2.6
Source: Ministry of Finance and National Economy
Looking at revenue performance for the post-secession period (2011-2012), total
domestic revenue performance in 2011 dropped by nearly 9 per cent compared to its level
in 2010 (pre-secession year). As shown in Table 4 above, the oil revenue component
dropped by nearly 47 per cent while non-oil revenue showed about a 30 per cent increase in
nominal terms. The 2012 revenue performance estimate showed a 3.3 per cent growth
compared to its level in 2011. Non-oil revenue increased by nearly 20 per cent while oil
revenue dropped by nearly 35 per cent.
9 African Economic Outlook Report Sudan (2012)
| Update on Macroeconomic Developments in Sudan 10
On the expenditure side, although total public spending rose 18 per cent in 2011
over its level in 2010, this increase was largely attributed to the growth of the recurrent
component (24.8 per cent). In 2012, however, total public spending dropped by 8.1 per
cent, development expenditure dropped by over 13 per cent, and recurrent expenditure
declined by 9 per cent and capital by nearly 2 per cent as shown in Table 4 above.
According to a recent study10, tax revenues increased by 0.3 per cent of GDP over previous
projections for 2011. The implemented fiscal measures on the revenue side have
contributed to the growth in the non-oil component of domestic revenue, as shown in the
table above and the graph below.
In relative terms (as a ratio to nominal GDP), domestic revenue has been
consistently declining from more than 15 per cent of GDP in 2009 to 12.7 per cent by the
10 African Economic Outlook Report Sudan (2012)
| Update on Macroeconomic Developments in Sudan 11
end of 2012. This level of the revenue generation capacity of the economy (revenue effort)
is low even by the SSA average of 27 per cent for 2011 (African Economic Outlook, 2012).
Total expenditure as a percentage of GDP declined from 19 per cent of GDP in 2009 to 15
per cent of GDP by the end of 2012.
The decline in revenue was largely driven by the significant drop in oil revenue while
the decline in public expenditure was attributed to the significant cut in capital expenditure
and subsidy transfers to states.
| Update on Macroeconomic Developments in Sudan 12
According to the Federal Budget for 2013, total revenue including grants amounted
to 25.3 billion SDG while total expenditure stood at 30.8 billion SDG, which resulted in a
fiscal deficit of 2.6 per cent of GDP (last column of Table 4 above). According to the 2013
budget, domestic revenue as a ratio to GDP is projected at 11.5 per cent (oil share 2.7 per
cent and non-oil share 8.8 per cent). As noted above, such a low level of revenue generation
capacity is a cause for concern for the future development of Sudan and needs to be
reversed.
The oil deal, which was signed between the Governments of Sudan and South
Sudan on September 27, 2012 in Addis Ababa, agreed to pipeline fees at the rate of USD
$10/barrel and transitional financial mechanisms amounting to USD $3.028 billion to be
paid to Sudan by South Sudan over a period of three and a half years. This will help in
reducing the fiscal pressure. Although in February 2012 South Sudan shut down its entire
oil production in a dispute with Sudan. This was not resolved until March 2013 and oil was
not being exported again until May of that year by which time much revenue for both sides
had been lost.
Since the resumption of oil exports through Sudan uncertainties around their
smooth flow and, hence, earnings, from pipeline fees for Sudan have remained. Habitual
political tensions between Khartoum and Juba as well as new conflict in South Sudan as of
December 2013, have all added to the lack of predictability. According to the IMF, Sudan
earned USD $442 million from pipeline fees in 2013. This amount was not, however,
included in the 2013 budget. In 2014 the IMF estimates the country will earn $1.4 billion
dollars from pipeline fees, a figure it predicts will decline in subsequent years.11
Despite the renewed oil related income in 2013 - albeit on a much smaller scale than
pre secession - the intensification of armed conflicts and political discontent, coupled with
the creation of new states (the number of states increased from 15 to 17 in 2012), has meant
the fiscal deficit is expected to have widened further in 2013.
11 http://www.imf.org/external/pubs/ft/scr/2013/cr13317.pdf
| Update on Macroeconomic Developments in Sudan 13
3- Exports and the Balance of Payment Situation
The impact of the 2011 secession of South Sudan and the consequent sudden loss of
oil income on the country’s economy is clearly seen in the sudden drop in its export
earnings and the knock on effect of this on its current account. The year before secession,
2010, Sudan had a trade surplus of 2.6 billion USD. Two years later, it had an estimated
trade deficit of - $4.8 billion USD. In the same period, the current account balance fell from
a surplus of $500 million USD to a deficit of about - $6 billion USD. A reduction in imports
and an increase in exports, particularly gold, have helped reverse this trend. Projections for
2013 suggest the trade deficit stood at - $2.7 billion and the current account deficit at -$4
billion. The loss of oil income has also meant a depletion of foreign exchange reserves, a
drop in direct foreign investment and a weakened currency. The depreciation of the
Sudanese pound has further driven up food prices and thus increased inflationary pressure
as many food items, including wheat, are imported.
As shown in Table 5 below, merchandise exports declined from 11.4 Billion USD in
2010 to 9.6 Billion in 2011 (a fall of more than 15 per cent), then declined even further in
2012 to 3.4 Billion USD (a drop of more than 65 per cent). Meanwhile, merchandise imports
declined from 8.8 Billion USD in 2010 to 8.1 Billion USD in 2011 (a drop of more than eight
per cent) and then marginally increased in 2012 (0.4 per cent). The overall decline in
merchandise exports is largely attributed to the drop in oil exports. Accordingly, Sudan’s
trade balance worsened from a surplus of 2.6 Billion USD (3.8 per cent of GDP) in 2010 and
1.5 Billion USD (2.8 per cent of GDP) in 2011 to a deficit of over 4.8 billion ( 11 per cent of
GDP) in 2012. The current account balance deteriorated from a marginal surplus of nearly
214 million USD in 2011 (0.4 per cent of GDP) to a deficit of about US$ 6 billion in 2012 (13.3
per cent of GDP).
Based on the export performance for the first two quarters (January –June, 2013)
and pro-rating this for the whole year of 2013, merchandise exports are expected to
rebound by 79 per cent compared to 2012. Overall, the increase in merchandise exports is
largely attributed to non-oil exports such as gold. The trade balance is projected to narrow
down from more than 11 per cent of GDP in 2012 to 7 per cent of GDP by the end of 2013.
The narrowing of the current account deficit was made possible through limiting imports.
| Update on Macroeconomic Developments in Sudan 14
Table 5: Recent Trends in the Balance of Payments Million $USD unless otherwise specified
Item 2009 2010 2011 2012
(Estimate)
2013 (Projection)
Merchandise Exports 8,257.1 11,404.3 9,655.7 3,367.7 6034.4
Merchandise Imports - 8,528.0 - 8,839.4 - 8,127.6 - 8,160.4 -8691.0
Trade Balance -270.90 2,564.90 1,528.10 -4,792.70 -2656.6
Service Exports 392.0 254.1 838.5 1,166.5 651.2
Service Imports - 1,907.1 - 2,321.3 - 2,153.0 - 2,014.7 -1963
Service Balance -1,515.10 -2,067.20 -1,314.50 -848.20 -1311.8
Current Account Balance -1,786.00 497.70 213.60 -5,640.90 -3968.4
Nominal GDP (Million USD) 54683 66879 54918 42552 37851
As % of GDP
Trade Balance -0.5 3.8 2.8 -11.3 -7.0
Current Account Balance -3.3 0.7 0.4 -13.3 -10.5
With a drop in oil exports, foreign direct investment (FDI) is also believed to have
declined during the post-secession period, as most of the FDI is related to oil. Foreign
exchange reserves have been on the decline since the secession of South Sudan. As a result,
foreign reserves were depleted although the government has been making efforts to
compensate for the oil loss through expanding mineral exports such as gold. This depletion
resulted in the depreciation of the Sudanese Pound against the US Dollar with a parallel rate
emerging where the gap between the official and the parallel rate reached 60-70 per cent in
February 2012. The gap between the black market and official exchange rates has been
widening further after the adjustment in mid-2012. Foreign exchange rationing and
restrictions have started to emerge as a policy by the Central Bank of Sudan. This magnitude
of depreciation is likely to aggravate inflationary pressure driven by food inflation as most
food items are imported. However, the recent decline in general inflation, as noted in the
section in section 1.2 above, is not consistent with the widening gap between the parallel rate
and the official exchange rate, as such a trend is believed to aggravate inflation.
| Update on Macroeconomic Developments in Sudan 15
The Government managed to build up some reserves, based on grants and loans
mainly from Gulf States, China and India. According to an assessment by the IMF done in
2012 Sudan had 2.5 months of foreign exchange reserves to cover imports. The IMF
estimated that this remained the case for 2013 as well.
Outside the oil sector, Sudan’s economic growth is limited to rich non-oil
agricultural products for exports that accounted for around 5 per cent of export earnings
during the oil boom period (World Bank, 2009). Non-oil agricultural exports, such as Gum
Arabic, cotton and others have been on the decline following the advent of oil production at
the end of the 1990s. The major factors contributing to the insignificant share of non-oil
exports have been supply-side constraints; weak transportation systems; weak marketing
services of grading, packing and storing; and deficits in information, combined with
inadequate promotion efforts.
Challenges to the overall development of the trade sector are multi-varied, requiring
improvements in productivity, a reduction in the high cost of production and strengthening
of institutional capacities of human, physical and environmental resources. Macroeconomic
policies (fiscal and exchange rate) and marketing policies all remain to be reformed to
enhance the performance of the productive sector with a focus on agriculture. Thus,
diversification will be imperative for sustained growth and employment creation in the
future for Sudan. Sudan is endowed with rich natural resources, including oil, but also
natural gas, gold, silver, chromate, asbestos, manganese, gypsum, mica, zinc, iron, lead,
| Update on Macroeconomic Developments in Sudan 16
uranium, copper, kaolin, cobalt, granite, nickel, tin and aluminium, and has a significant
potential for growth in agriculture.
In the wake of the secession of South Sudan, Sudan is attempting to generate new
sources of export revenues from gold mining, while carrying out an austerity program to
reduce expenditure and thereby balance the budget. As noted already, the Government
has introduced measures to redress the external imbalance. The measures have been
aimed at narrowing the gap between the official rate and the parallel market rate of
exchange for which the premium on the parallel market has almost doubled since April
2012. Reforms aiming to adjust the exchange regime are well placed from a medium term
and long term perspective, provided these measures are accompanied by the right mix of
macroeconomic policies.
| Update on Macroeconomic Developments in Sudan 17
4- The External Debt Situation
Sudan is a heavily indebted country. Mid-2013, its existing external debt was estimated
to have exceeded 43 billion USD. It increased from 82.2 per cent of GDP in 2012 to 86.7 per
cent of GDP by the end of 2013.12 When South Sudan seceded, Sudan shouldered the entire
debt burden. This was agreed in September 2012 between the two countries “on condition
that Sudan obtains debt relief within two years through the Highly Indebted Poor Countries
Initiative”13. Known as “the zero option” under the agreement, after the two-year deadline
the division of liability for this debt would be up for review. As of February 2014, agreement on
the HIPC initiative is yet to be reached. The difficulty in reaching agreement has been
exacerbated by a mix of factors, including unmet conditions by creditor countries; US trade
sanctions; a need for unanimity on the principle of debt relief amongst the 55 members of the
Paris Club which holds about 75 per cent of Sudan’s debt; and continued tense political
relations with many of the key creditors.
Sudan’s debt problems can be traced to the 1960s, when the country embarked on
large-scale industrialization, financed in part by borrowing on non-concessional terms and
accompanied by heavy government regulation of the economy. According to the Central Bank
of Sudan, the existing debt stock, which stood at a little over 42 Billion USD by the end of
2012, has remained an important development challenge for Sudan. The debt stock, still on
the increase, reached nearly 43 Billion USD by June 2013. Given the significant drop in
merchandise export earnings from nearly 10 billion USD in 2010 to nearly 4 billion USD in 2012
(the bulk of which comes from oil), the ratio of debt service (both principal and interest) to
merchandise export earnings increased from about 4 per cent in 2010 to over 12 per cent of
merchandise exports in 2012 (EIU, October 2013).
For Sudan to embark on the road towards real recovery and development, it will be
important to make major progress on debt relief so as to address its unsustainable external
debt burden. While Sudan has had limited access to external financing from donors and
multilateral financial institutions over the last two decades, it has increased its ties with
emerging country partners, especially China, Malaysia and India. This has raised the possibility
of resource-backed loans for infrastructure and public services projects, as well as private
sector development.
The government has been pushing for large-scale debt relief as a reward for its
acceptance of southern secession. Following the submission of the Interim Poverty Reduction
12 IMF press release 4 October 2013 http://www.imf.org/external/np/sec/pr/2013/pr13387.htm
13 Sudan South Sudan Agreement September 2012
http://sites.tufts.edu/reinventingpeace/files/2012/10/Sudan-South-Sudan-Agreements-1.03.10.12-PO.pdf
| Update on Macroeconomic Developments in Sudan 18
Strategy Paper to the World Bank and IMF Executive Board in November 2012, the
Government through the Ministry of Finance and National Economy, has made repeated calls
to international partners claiming that Sudan had satisfied the conditions necessary for it to
obtain debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. The
Government of Sudan has a plan to undertake a fully-fledged Poverty Reduction Strategy
Paper (PRSP). It has not, however, yet made any formal announcement regarding the timing
of this.
The question remains as to whether, in line with the post secession agreement of
September 2012, South Sudan will end up taking on some of Sudan’s existing debt, if the two
sides fail to secure debt relief under the HIPC initiative for Sudan. In its 2012-2014 Country
Brief, the African development Bank said that Sudan had made “significant progress” towards
meeting the technical criteria for debt relief under the HIPC initiative.14 In a report in
December 2013, the World Bank struck a rather more cautious note. It said further reform
measures taken by the Sudanese government in September 2013, including the further lifting
of fuel subsidies and the unifying of the official and commercial exchange rates, “could
possibly form the basis for agreeing on a new SMP [Staff Monitored Program] with the IMF
and thus be a building block for the track record required for HIPC debt relief”15
In the meantime, while this debt issue remains unresolved, the Government will
continue to seek loans, notably from Gulf Arab states, as well as China and India, to finance
infrastructure and other development projects.
14
http://www.afdb.org/fileadmin/uploads/afdb/Documents/Project-and-Operations/2012-2014-Sudan-%20%20Country%20Brief.pdf par 5.1.8 15
World Bank, 19 December 2013, HIPC INITIATIVE AND MDRI STATISTICAL UPDATE , p. 8 http://www.worldbank.org/content/dam/Worldbank/document/Poverty%20documents/HIPC_Fall2013_EN_web.pdf
| Update on Macroeconomic Developments in Sudan 19
5- Poverty Status and Human Development
Since the secession of South Sudan in 2011, Sudan has become poorer, a reality
illustrated by its sudden drop on the Human Development Index. In 2010 it was ranked 154th.
Just two years later, in 2012, it was ranked 171st place. The cost of Sudan’s current economic
crisis, triggered by the loss of South Sudan, is being borne by those who can least afford it. In
the short term the poor, who make up half the population, are facing dramatic rises in food
prices and the daily cost of living. In the long term, the future development of the nation as a
whole is set to suffer because of cuts to both health and education budgets, and a reduction in
the funding of basic services - part of the austerity measures of 2012.
Notwithstanding the improved national economic performance during the oil boom
period, poverty remains deep and widespread in Sudan. According to the 2009 National
Baseline Household Survey (NBHS 2009) by the Central Bureau of Statistics (CBS), 46.5
percent of the population are below the poverty line. This means that nearly one out of two
people in Sudan do not have the necessary means to purchase the value of a minimum food
and non-food bundle in 2009. Those hardest hit by poverty are rural dwellers, particularly
women, as well as people internally displaced by conflict or natural disaster.
Poverty is significantly lower in urban than in rural areas, with only one out of four
urban dwellers considered poor, compared to nearly three out of five people in the
countryside. The poverty gap and the severity of poverty show similar patterns. Poverty levels
also vary greatly by state: the incidence of poverty ranges from a quarter of the population in
Khartoum, to more than two-thirds in North Darfur. Furthermore, poverty levels in the
country are aggravated by the large numbers of people internally displaced by conflict and
natural disasters who need to be supported in re-establishing sustainable livelihoods.
According to the additional poverty analysis work conducted in January 2012 based on
the 2009 National Baseline Household Survey, if per capita GDP increases or decreases by 1
per cent (inequality remaining constant), poverty head count decreases or increases by 1.5 per
cent. If inequality increases by 1 per cent, poverty head count increases by 0.58 per cent (if per
capita income remains constant). This indicates that economic growth is the key to poverty
reduction in Sudan. High growth elasticity of poverty means in times of positive economic
growth, it is possible to achieve faster reduction in poverty and, in times of crisis and declining
per capita GDP, poverty could sharply increase. Income inequality measured by the Gini
Coefficient was also computed based on the Sudan 2009 NBHS in this study. It was estimated
at 0.353 and is modestly high.
| Update on Macroeconomic Developments in Sudan 20
The deceleration of growth during the post-secession period (2011-2013) and the
significant increase in the cost of living, as reflected in the accelerating inflation rate, as well as
the lifting of subsidies on fuel, is expected to aggravate the poverty situation in Sudan.
There is already evidence that this has been happening. According to the Human
Development Report, Gross National Income (GNI) per capita in 2012 stood at 1848 USD (2005
PPP) for Sudan. Sudan’s rank based on GNI per capita was 152nd in 2012. This shows that
Sudan fares better on the income-based HDI than on the education and health HDI. According
to the UNDP HDR 2013, the HDI for Sudan was lower than the average for Sub Saharan
African (SSA) & Least Developed Countries (LDCs) for the period 2000-2013 (see graph
below). It is worth noting that even in the oil boom years; the HDI for Sudan has increased at a
rate of a little more than one per cent per annum. From 2000-2012, it rose from 0.364 in 2000
to 0.414 in 2012. According to the Human Development Report 2013, Sudan witnessed the
lowest annual average increase in HDI compared to the average for SSA (1.34 per cent per
annum) and all LDCs (1.7 per cent per annum) for the same period. The HDI for Ethiopia which
had a GNP per capita substantially lower than that of Sudan - US$1017 (2005 PPP) - in 2012
has increased at 3.1 per cent per annum during the same period (HDR, 2013). Ethiopia’s
performance has been consistently higher on the non-income HDI than on the income HDI.
Source: Global Human Development Reports
| Update on Macroeconomic Developments in Sudan 21
6- Employment/Unemployment Situation
A high unemployment rate in a country with a rising population that is increasingly
urbanized16, remains one of the Government’s major challenges. Unemployment is highest
amongst the youth, which is a cause for concern in a population where more than half the
population is under the age of 24.17 In the longer term, the diminishing funding of the
health and education sector will exacerbate the challenge of unemployment in Sudan. A
population deprived of education and healthcare means a population that is less fit and less
skilled – and ultimately one that will struggle to compete in a competitive global market.
Moreover, the continued “brain drain” means the availability of the professional skills
needed to build the capacity of the state is steadily diminishing. And this means that
addressing these problems will be even more of a challenge in the coming years.
According to the projection by the Central Bureau of Statistics based on results from
the 2008 Population Census, the population of Sudan is estimated to be 35.1 million in 2012
and expected to grow at an annual average rate of about 3 per cent to reach 42 million by
the end of 2018. The agriculture sector provides employment to more than 42 per cent of
the labour force, while the public sector and trade employ 19 per cent and 11 per cent,
respectively (African Economic Outlook, 2012). Some studies also indicate that an
estimated 60 per cent of the labour force is directly engaged in the informal sector.
Low rates of employment creation, increasing unemployment and low levels of
productivity remain at the core of high and persistent levels of poverty in Sudan. According
to a new survey report issued by the Ministry of Labour and Human Resources, overall
unemployment is estimated at 18.8 per cent in 2011. According to this new survey, the rate
of unemployment among the youth (15-24 year olds) is estimated at 33.8 per cent and
unemployment among adults (25 years and above) at 14.5 per cent.
Years of conflict and insecurity have taken a toll on employment rates. It has meant
skills have not been enhanced, and often been lost altogether; professional competencies
have not been built up; and population displacement and a lack of economic opportunities
have led to a “brain drain” that has deprived the country of essential capacity within the
public and private sectors alike. This is a real challenge for Sudan’s government in
managing its basic functions, including ensuring the delivery of services and taking
advantage of socioeconomic development.
16
http://www.tradingeconomics.com/sudan/urban-population-wb-data.html 17
http://worldpopulationreview.com/countries/sudan-population
| Update on Macroeconomic Developments in Sudan 22
Efforts to create employment opportunities and raising labour force participation
rates need to be urgently complemented by strengthening human resources. As
underscored in the Sudan IPRSP, creating employment also requires that the education and
knowledge systems produce the skills that employers need in order to be innovative and to
raise productivity. Thus, access to quality education and healthcare is crucial for enabling
more and more citizens to take advantage of the opportunities presented by a growing
economy, while adding value and escaping the poverty trap.
| Update on Macroeconomic Developments in Sudan 23
7- Private Sector Development and Business Environment
Sudan’s economic and political instability; its undeveloped physical infrastructure;
and its lack of adequately qualified manpower, as well as its reputation for having a corrupt
business environment, mean it struggles to attract either foreign or domestic investment.
The country ranks low in Transparency International’s most recent “Corruption Perceptions
Index” and is in the bottom quartile of the World Bank’s global “Doing Business” report for
2013.
The manufacturing and service sectors are the two key areas for modern private
business operators. According to the World Bank’s Sudan Private Investment Climate
Survey (PICS) of 2008, 36 per cent of Sudanese manufacturing firms are operating in the
food sector followed by non-metallic minerals sector (30 per cent). Those in the textile and
garment sectors accounted for less than 2 per cent of the manufacturing firms. The
majority of firms in the manufacturing sector have fewer than 20 employees. The PICS
highlighted the high concentration of manufacturing firms in certain areas, with Khartoum
state accounting for 75 per cent of manufacturing firms followed by El Gezira accounting
for 11 per cent, North Kordofan for nearly 8 per cent and Red Sea state for about 3 per cent
of the surveyed firms (World Bank PICS, 2008).
According to the PICS 2008, the private service sector is dominated by retail
services (about 80 per cent) and wholesale (12 per cent). The bulk of service sector firms are
small (96 per cent). The spatial distribution of service sector firms followed the same
pattern as that of manufacturing. As indicated in the PICS 2008, Khartoum state accounted
for about 86 per cent of service sector firms followed by El Gezira (7 per cent) and North
Kordofan (3 per cent). Red Sea state accounts for less than 1 per cent of service sector
firms.
Following the secession of South Sudan, efforts have been made to expand the
mining sector with particular focus on gold, in order to compensate for the oil loss in the
export sector. Some sources suggest that 500 mining licences were issued in late 2012.
Sudan is considered one of the most corrupt countries in the world to do business in.
It was ranked 173rd out of 176 countries and territories with a score of 13 out of 10018 in
18
A country’s or territory’s score indicates the perceived level of public sector corruption on a scale of 0 to 100, where a score of 0 means that a country or territory is perceived highly corrupt and a score of 100 means it is perceived as very clean. A country’s rank indicates its position relative to the other countries and territories included in the index.
| Update on Macroeconomic Developments in Sudan 24
Transparency International's 2012 Corruption Perceptions Index, which was released in
December 2012. In light of this, it is not surprising that the country is struggling to attract
major new investment in other sectors. Studies indicate that tackling corruption would
improve the business environment for private firms considerably.
According to the World Bank’s Doing Business (2013) report, Sudan was ranked
143rd out of 185 economies, three percentage points down from 2012.19 While the ranking
on the categories ‘dealing with construction permits’ and ‘starting a business’ improved by
8 and 6 points respectively, between 2012 and 2013, the deterioration in ranking on other
categories – such as ‘protecting investors’ (down 3 per cent); ‘getting credit’ and ‘trading
across borders’ (down 2 per cent each); ‘paying tax’, ‘enforcing contract’ and ‘resolving
insolvency’ (a drop of 1 per cent each) - outweighed these positive developments. Thus,
much remains to be done to improve prospects for private sector development, particularly
in protecting investors and property, getting credit, trading across boarders and paying
taxes.
A newly established Higher Council for Investment, headed by the President of the
Republic, is mandated to remove obstacles facing foreign investors in strategic sectors such
as agriculture. A new regulatory framework has been proposed to attract strategic Foreign
Direct Investment (FDI) from Arab states and other emerging country partners. These
reforms include amendments to the Investment, Companies, Custom, Taxation and Labour
and Migration Acts, as well as the establishment of a new arbitration entity for resolving
disputes.
19
Economies are ranked on their ease of doing business, from 1 to 185. A high ranking on the ease of doing business means the regulatory environment is conducive to the starting and operation of a local firm. This index averages the country’s percentile ranking on 10 topics.
| Update on Macroeconomic Developments in Sudan 25
8- Conclusions & Observations
1) Sudan needs to diversify its economy: The transition from reliance on an oil-led
economy to the non-oil productive sector is yet to come to fruition. This calls for a
diversification in the potential sources for growth (such as agriculture and
manufacturing) through the development of appropriate macro policies to enhance the
capacity of the non-oil productive sectors. The hitherto fast expansion of the service
sector relative to the productive sectors (agriculture and industry) is almost always a
recipe for inflation. The Government has to pursue the right mix of macroeconomic
policies that help to stimulate the non-oil productive sector in general and the
agricultural and agro-processing sectors in particular. This would help Sudan to
improve food supplies and diversify and expand its exports base in the coming period.
2) Sudan needs to increase its level of development expenditure: Even with the
available fiscal resources (revenue), allocation between recurrent and capital
expenditure is highly lopsided in favour of the former. Such a low level of development
expenditure (hovering around 2 per cent of GDP on average in recent years) is
detrimental for sustaining growth and achieving the MDGs and Human Development.
Moreover, transfers from the central government to the states need to be protected
from budget cuts to ensure equity and service delivery to the grass-root population. It is
important that the government pursues formula based, transparent and equitable inter-
governmental fiscal transfer systems for pro-poor growth, poverty reduction,
achievement of MDGs and human development in Sudan.
3) Sudan needs to narrow its fiscal deficit for macroeconomic stability: The widening
fiscal deficit seems to be increasingly financed from domestic banking sources
(monetization of the deficit-money printing). This has aggravated inflation which is a
threat for macroeconomic stability. But the Government’s choices have been limited
because of its lack of access to other financing options from official external financing
sources from traditional donors that could fund development projects. This is a
consequence of existing sanctions and the unsustainable external debt burden. Prudent
fiscal policy aimed at rationalization of spending from non-priority sectors to poverty-
oriented sectors is timely.
4) Sudan needs to diversify its export base: Sudan’s external sector has structural
problems following the shift in emphasis from agricultural exports to oil that resulted in
the decline of non-oil agricultural exports during the oil boom period (until secession of
South). This needs to be addressed through a holistic approach of promoting
| Update on Macroeconomic Developments in Sudan 26
diversification towards non-oil exports, enhancing private investment, overhauling the
exchange rate system and creating a business environment conducive to private sector
development.
5) Sudan’s exchange rate needs to be better managed: The gap between the parallel
and official exchange rate has still been widening. This is a cause for concern as it may
lead to a further depreciation of the official exchange rate which aggravates inflationary
pressure. Addressing the supply side of the economy through the revitalization of the
agricultural sector (food crops) coupled with prudence in exchange rate management
would help stabilize the economy.
6) Sudan’s slide down the Human Development Index needs to be halted. The
downward trend in recent years of Sudan’s global ranking on the Human Development
Index (HDI) is a cause for concern. Moreover, Sudan fares worse on the non-income
dimensions of the HDI than on the income dimensions. Inequality is relatively high and
could be a constraint for growth to reduce poverty. Expanding access to basic services
and infrastructure along with improving the quality of these services is an important
area of focus for improving the status of Human Development in Sudan.
7) Sudan needs to improve and streamline its revenue collection systems: Despite the
recent increases in tax rates, the revenue effort (domestic revenue generation capacity
measured by domestic revenue to GDP ratio) in Sudan is low even compared to its
comparators in Sub-Saharan Africa (SSA). It is of paramount importance for the
Government to consolidate its revenue mobilizing effort through streamlining revenue
sources, suspending the various exemptions, and improving tax administration
capacity.
8) Sudan needs a holistic policy approach to address the increasing levels of
unemployment: Overall the unemployment rate is high and on the increase in Sudan.
Unemployment among youth is particularly high (about 34 percent in 2011). A holistic
and pro-active approach needs to be pursued to address the challenge of
unemployment. The approach would include, inter alia, the creation of an enabling
business environment for private sector operations, expansion of technical and
vocational education/training programs, improvement of the security situation,
macroeconomic stability, and access to finance to small and medium-sized businesses.
9) The government of Sudan needs to find ways to halt the ‘brain drain’ in order to
enhance its own human capacity: Limited institutional and human capacity has been
aggravated by a ‘brain drain’ linked to conflict and insecurity, population displacement
| Update on Macroeconomic Developments in Sudan 27
and lack of economic opportunities. Sudan’s public administration therefore faces
serious capacity constraints in managing respective functions, including the delivery of
basic services and the promotion of socioeconomic development. A weak and less
efficient public sector is an impediment to private sector operations. Thus, it is of
paramount importance that coordinated donor support focuses on enhancing the
implementation capacity of public and private sectors alike.
10) Sudan needs to improve its socioeconomic data base: Access to up-to-date and
consistent time series data/information on key macroeconomic variables is a real
challenge in Sudan as experienced during the preparation of this Report. It is important
that the pertinent macro institutions (such as the Ministry of Finance and National
Economy, Central Bank of Sudan, Ministry of Labour And Human Resources, etc.)
provide up-to-date and consistent data of national scope on key macroeconomic
variables that will enable international organizations and non-state actors at large to
have a better understanding of the macroeconomic situation in Sudan.
Source: Compiled from various sources (World Bank, IMF, Economics Intelligence Unit, Government official sources). Data up to June 2011 are for the united country (Sudan and South Sudan); those from July 2011 onwards are for Sudan only. Sudan lost 20% of its population and 75 percent of its oil after the secession of South Sudan in July 2011.N/A= Not Available; E=Estimate; P= Projection
Item
Years
2004 2005 2006 2007
2008
2009 2010 2011 2012
(E) 2013 (P)
Population (Million) 27.4 28.2 29.0 29.7 30.6 31.6 32.6 33.7 35.0 36.4
GDP @ Const. Prices (Million SDG) 18866 20122.6 21662.4 22916.0 32797.8 24868.6 26482.7 26729.2 27092.7 27800.2
Agriculture Share in GDP (%) 34 33.2 31.8 35 35.7 33.9 33.9 34.1 34.1 33.7
Industry Share in GDP (%) 21.4 22 23.9 22.7 25.2 22.6 22.6 18.5 19.5 20.4
Services Share in GDP (%) 44.6 44.8 44.3 42.2 39.1 43.5 43.5 46.5 46.5 46.5
Real GDP Growth Rate (%) 5.1 5.5 9.9 10.9 6.4 4.5 5.0 2.5 1.4 2.6
Real GDP Per Capita(USD) 769.1 996.3 1253.3 1517.3 1401.8 1286.7 1533.9 1231.3 1185.3 1031.4
Nominal GDP (Million SDG) 68698.7 85707.1 98718.8 114017.5 127746.9 139386.5 160646.5 186556.3 173995 218905
Inflation Rate (%) 9.5 8.6 7.2 6.2 14.3 11.2 13.0 18.1 42.1 25.6
Nominal GDP (Million USD) 26533 35270 45493 56444 58033 54683 66879 54918 42552 37851
Exchange Rate (SDG/USD) 2.6 2.4 2.2 2.0 2.1 2.3 2.3 2.7 3.6 5.8
Unemployment Rate (%) 16.3 16.2 17.1 20.2 16.8 17.3 17.8 18.8 N/A N/A
Total Revenue 13223 11888 15375 18136 24708.2 19166 23536 21458 22168 25211
Oil Revenue 4131 5418 7413 9924 15996.7 9392 12082 6507 4241 6000
Total Public Expend. 10852 13771 17096 20806 22440.1 23852 24162 28578 26272 30822
Capital (Development) Expenditure 2475.14 3415.56 4031.92 3705 3720.04 2826 4162 3615 3550 4187
Development Exp. as % of Total Public Exp.
22.8 24.8 23.6 18 16.5 14.6 13.6 6.8 12.2 N/A
Development Expenditure as % of GDP 3.6 4 4.1 3.3 2.7 2.2 2.7 2.5 2.0 1.9
Total Current Expenditure as % of GDP
12.1 12 13.3 15.1 16.2 16.7 12.9 17.0 13.1 12.2
Fiscal Balance/Deficit as % of GDP 2.2 2.2 1.8 2.4 -4.9 -2.4 -2.0 -4.0 -1.7 -1.6
Debt Stock (Million USD) 26,784 27,006 28,457 31,873 33,542 35,687 37805 39,800 42,047 42,921
Debt Stock as a Ratio to GDP (%) N/A N/A N/A 67.1 58.1 65.3 56.5 70.3 93.3 108.5
International Reserves(Million USD) N/A N/A 1660 1378 1399 897 843 295 298 313
Annex Table 1: Time Series Data Base on Selected Macroeconomic Indicators: Values in Million SDG, unless otherwise specified
| Update on Macroeconomic Developments in Sudan 29
Additional note on data and data sources:
Data on Revenue and Expenditure (2004-2008) are based on the Report “The Sudan Economy in Figures 2000-2010”, General Directorate of Planning and Policies, Ministry of Finance and National Economy;
Data on Sector shares (% of GDP) and real GDP growth rate (2004-2008) are based on the report ‘The Sudan Economy in Figures 2000- 2010’, General Directorate of Planning and Policies, Ministry of Finance and National Economy;
Figures on debt stock are from the Central Bank of Sudan.
Population for the period (2004-2007) for a united Sudan, and for the period (2008-2013) for the Republic of Sudan (after the secession), are from the Central Bureau of Statistics;
Figures used in the analysis in the tables of the main body of this paper and the Annex are checked for consistency;
Data on GDP is at constant and current market prices (Million SDG) and checked for consistency with the series from the Central Bureau of Statistics.
| Update on Macroeconomic Developments in Sudan 30
Annex 2: Economic Reform Package, June 2012
Source: IMF Report December 2012
| Update on Macroeconomic Developments in Sudan 31
References
African Development Bank (2012), African Economic Outlook 2012, Promoting Youth Employment Central Bureau of Statistics (2008-2013), Monthly Consumer Price Index, Various issues Economist Intelligence Unit (2013), Sudan Country Report, various monthly issues International Monetary Fund (2013), Update to the International Community, EU Office, 11 April 2013 Ministry of Finance and National Economy (2012), Summary of the Three-Years Program for Sustainability of Economic Stabilization Program (2012-2014) Ministry of Finance and National Economy, Budget Documents, 2011-2013 National Population Council (2012), Millennium Development Goals (MDGs): Status, Challenges & Prospects for Sudan, paper prepared through UNDP support for Istanbul International Economic Conference on Sudan Siddig, Elfatih (2012), Review of a macroeconomic paper for Sudan Economic Conference in Istanbul-Turkey, Paper Prepared through UNDP support for Istanbul International Economic Conference on Sudan UNDP (2013), Human Development Report 2013, The Rise of the South: Human progress in a Diverse World UNDP Sudan (2012), Sudan: Land of Challenges and Opportunities: Seeing Hope in the Horizon, Background Paper prepared for Istanbul Conference on Challenges and Opportunities of Private Investment in Sudan UNDP Sudan (2013), Sudan Views: Contribution to the post-2015 Global Development Agenda World Bank (2009), Sudan Private Investment Climate Assessment, December 2009 World Bank (2011), Sudan Country Economic Brief, Poverty Reduction and Economic Management (PREM) Unit, Africa Region, February 2011
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