Instability Exacerbates Chronic Problems of Sudan's Economy

The explosion of the situation in Sudan over the past weeks has increased the crisis of the crumbling Sudanese economy, warning of serious humanitarian and social crises unless a solution is reached that ends the conflict and prepares the ground for the start of a long recovery journey.

For years or decades, the Sudanese economy has been suffering from problems, most notably the ongoing trade deficit since the secession of the south in 2011 with its oil resources, which the IMF expected to continue until 2028 or later.

There is a severe shortage of foreign currency, as the reserves in 2021 did not exceed $ 1.85 billion, which leads to the repeated decline in the value of the Sudanese pound against the dollar, and weak economic growth rates in the last six years, of which the contraction dominated 4 years (2017-2022).

Inflation rates reached 63% last February, some due to imported goods and some due to domestic factors, and the value of external debt increased to $ 62.2 billion in 2021, and internal debt to $ 12.5 billion in the same year until the government debt ratio reached 128% last year, unemployment rates rose to 19.8% and poverty to 46.5%, and hunger rates rose with the continuation of tribal conflicts and the large number of refugees from neighboring countries.

The international blockade and the political and economic isolation initiated by the United States since September 1983, with the announcement of former Sudanese President Gaafar Nimeiri Islamic Sharia laws, as well as the trade and investment embargo imposed by the United States on Sudan from 1997 to 2020, and the repetition of civil wars for many years between the north and the south from 1955 to 1972, and then from 1983 to the beginning of 2005, played the most prominent role in Sudan's economic crisis.

The recurrence of military coups since independence in 1956 also played an important role in the economic decline, causing instability, the first of which was led by Ibrahim Abboud in 1958 and lasted 7 years, the coup of Jaafar Nimeiri that lasted 16 years, and the coup of Omar al-Bashir in 1989 that lasted 30 years, then the experience of army commander Abdel Fattah Al-Burhan and the Rapid Support Forces since 2019 until now, and punctuated by a coup against the civilian government in October 2021, before That is, in the 67 years since independence, Sudan has lived 58 years under military rule.

Economist Abdalla Hamdok, who took over the ministry in August 2019, tried to implement the IMF's well-known "prescription" to obtain international support, cutting partial fuel subsidies in October 2020, then announcing the unification of the exchange rate to overcome the black market for the currency in February 2021, and then liberalizing gasoline and diesel prices in June 2021.

Indeed, Army Commander Abdel Fattah al-Burhan met with Israeli Prime Minister Benjamin Netanyahu in Uganda in February 2020, and an Israeli delegation visited Sudan in October of the same year, which witnessed the announcement of the establishment of official diplomatic relations between Sudan and Israel on October 23, 2020, and on the same day US President Donald Trump signed the decision to remove Sudan from the list of sponsoring countries For terrorism.

This was followed in March 2021 by the visit of the US Secretary of the Treasury to Khartoum, and the agreement on the United States to repay the loan owed by Sudan to the International Development Association of the World Bank, as Sudan's access to the Fund's loans required repayment of its overdue loans to several international and regional bodies, and for this reason, major countries intervened to temporarily repay those loans, provided that they receive what they paid from the loan that Sudan will then receive from the International Monetary Fund.

Following in America's footsteps, the United Kingdom, Sweden and Ireland paid Sudan's arrears to the African Development Bank Group, and France settled Sudan's arrears in June of the same year to the IMF, thus making the field available for the Fund's announcement on June 29, 2021, that Sudan had granted a loan of $ 2.473 billion over 39 months, $ 1.415 billion will be disbursed immediately, and of course this amount went to the countries that paid the arrears.

Thus, after the payment of arrears, decisions to reduce fuel subsidies and exchange rate flexibility, both the International Development Association (IDA) and the International Monetary Fund (IMF) announced Sudan's qualification for external debt relief through the HIPC Initiative for Heavily Indebted Poor Countries (HIPC) by reducing its debt by $ 50 billion, representing more than 90% of its total external debt of $ 56.2 billion, if it manages to reach the completion point according to the HIPC initiative within 3 years.

However, the military's overthrow of civilian Prime Minister Hamdok and his ministry and the accompanying killing and wounding of peaceful protesters without holding the perpetrators accountable made major countries review their accounts regarding Sudan's forgiveness of such a large amount of its foreign debt, and the United Arab Emirates intervened in September last year by depositing $1.4 billion in the Central Bank of Sudan to support the weak exchange rate.

But what does the value of UAE assistance make in a country whose trade deficit last year reached $ 6.7 billion, which is the largest trade deficit witnessed by Sudan in 11 years since the secession of the south, where the rise in oil prices globally causes a high trade deficit, in a country that imports more than half of its oil consumption, where the value of imports of petroleum products last year amounted to $ 2.87 billion, in addition to imports of food commodities worth $ 2.89 billion, manufactured goods worth $ 1.4 billion, machinery and equipment 1.1 billion, medicines 572 million, other chemical products 648 million, transportation 571 million and textiles 435 million, and the total merchandise imports reached 11.1 billion dollars, compared to commodity exports amounting to 4.357 billion dollars, not more than 39% of imports, the lowest in 7 years.

The currency shortage predicament was compounded by the fact that service trade, which had been in short surplus due to tourism revenues between 2015 and 2021, returned to last year's deficit due to a deficit in the balance of transport, financial, telecommunications, computer and information services.

The Sudanese (small) banking system cannot play a major role in resolving these situations, as the value of its assets in 2021 did not exceed $ 9.3 billion, its deposits $ 5.5 billion and its loans $ 2.8 billion, which reduces its financing role for companies and individuals, which is the same situation suffered by the Khartoum Stock Exchange, which suffers from weak capital value, which reduces their financing role, whether through listing companies or increasing the capital of listed companies.

Sudan remains the proceeds of remittances of workers abroad, who number more than two million, but this outcome is difficult to go to the banking system in light of a black market for currency, and foreign aid remains that increased after the departure of President Al-Bashir, but both are not enough to pay the deficit in the trade balance, as evidenced by the continued chronic deficit in the current account account, which increased last year to 4.443 billion dollars.

Therefore, political and security stability is necessary in order for the Sudanese economy to gradually recover, even by providing a safe haven for the leaders of the conflicting military forces outside the country, as happened with Zine El Abidine Ben Ali, as this option seems less harmful than the Libyan model, in which two parties struggle with external support at the expense of the resources, stability and future of the people and the state.