Ibrahim Elbadawi
Nine months after April 2019's toppling of Sudan’s long-standing president, Omar al-Bashir, following a popular uprising, the country remains politically and economically fragile. A bloody crackdown by the military on protest leaders was followed in August 2019 by a power-sharing deal between the two factions, paving the way for a transition to full civilian rule by 2022.
While the agreement between civilian authorities and the military continues to hold, the legacy of decades of corruption and economic mismanagement – exacerbated by conflicts in Darfur and the secessionist south – continues to make life a misery for much of the country’s 44 million strong population.
Taking on poverty
While down from a peak of 70% in 2019, inflation remains sky-high, with the price of food and other basic commodities beyond the reach of much of the population. The Ministry of Finance estimates that about two-thirds of the country lives in poverty.
“The economic situation on the ground doesn’t seem to have improved markedly; of course this can hardly be expected in such a short time,” says Murithi Mutiga, project director for the horn of Africa at the International Crisis Group. “The new administration will have to signal that it has a programme to reform but that [people on] the street will take time to feel the benefits.”
Such high prices come despite enormous subsidies on petrol, food and other basic goods, which led the previous government to run up enormous budget deficits. As a result, Sudan is one of the world’s most indebted countries, owing $60bn, with annual debt payments amounting to about $3bn.
Terrorism list hopes
Underlying the economic situation is Sudan’s classification by the US as a state sponsor of terrorism in 1993, which makes the country ineligible for debt relief and financing from the International Monetary Fund (IMF) and World Bank.
US assistant secretary for African affairs Tibor Nagy said in November 2019 that the US was engaging with the new government on removing Sudan from the list of state sponsors of terrorism, but cautioned that such a move would follow a long process, with any removal subject to approval by the US Congress.
“Sudan faces significant challenges, compounded by past sanctions and the legacy of conflict,” IMF managing director Kristalina Georgieva said following a meeting with Sudan’s prime minister, Abdalla Hamdok, in early December 2019.
Ms Georgieva urged the new government to pass long-needed economic reforms and to increase social transfers to the population, while she stressed that the support of international donors is crucial for the country’s development.
Ibrahim Elbadawi, an economist whose CV includes a 20-year stint at the World Bank, was appointed minister of finance in September 2019. The Banker spoke with Mr Elbadawi about the government’s immediate reform priorities, its strategy to tackle unemployment, and plans for a digital ID system to improve the distribution of basic services in the country.
Q: What are the priorities for Sudan’s new government in the short term?
A: As you know, we have inherited a very bad legacy. The predatory bunker mentality-type regime that ruled Sudan for 30 years has destroyed many institutions, including [those] of economic management. Essentially the [new] government has been left with empty coffers.
There are very major distortions affecting the macro economy for fiscal policy. Inflation, which was about 70%, has come down slightly now but is still very high. We have very weak fiscal efforts at 6% – one of the lowest in the world – because the government was running a parallel budget.
The first thing we’ve tried to do is move forward in terms of closing all the loopholes and exemptions in the tax system, that is, not increasing the tax rate but broadening the tax base. Hopefully, in the next budget we can realistically target a fiscal effort of 12% of gross domestic product [GDP], doubling the current fiscal effort.
Hopefully, this will allow us to spend more in education, health and the social sector, as we are using [the UN’s] Sustainable Development Goals as a framework, which means significantly increasing the [budget] allocation to these areas.
In the coming months, we would like to build the foundations for major macroeconomic reforms. This will include reviewing and restructuring the banking system, addressing problems associated with our thinness of resources and limited capital, and restructuring the banking sector, as well as looking at the investment climate. We are planning a host of institutional reforms, including establishing an investment authority and a commission to review and reform the civil service.
We also want to establish an identity authority for biometric ID, which will assist us in terms of service delivery. It is very important that we use digital platforms and technology in order to improve our service delivery, and help us leapfrog our very debilitated civil service system with an advanced, state-of-the-art approach for delivering services.
Q: There are about 2 million unemployed youth in Sudan, a quarter of them university graduates. How do you plan to tackle this issue?
A: We have plans for short-term measures and interventions, such as urban services in the area of garbage disposal and recycling done by small and medium-sized enterprises led by the youth, and also in the area of resolving transport problems in the cities.
We also envisage engaging the youth in major projects related to the population census, which is essential for the elections [scheduled for 2022] and also needed for planning, [along with] an agricultural census, a major households survey and labour market and industrial surveys. So this will all provide opportunities for the youth to be trained, as well as building the information base for better planning and decision making.
Q: How do you plan to stimulate the investment climate?
A: We hope soon to start the process of reviewing the investment code, simplifying it and improving the overall investment climate, hopefully developing a one-stop shop when it comes to investment licences. We’ll be holding national policy dialogues about the direction that the reform should take.
Q: What are your plans for subsidies on goods such as petrol and fuel, which have proved difficult to reform in the past without sparking unrest?
A: We do hope to transit [away] from the commodity subsidies, because it is not sustainable, to directly empowering Sudanese families who need support and deserve it.
This will be [conducted] through an expanded social safety net by way of a partial universal basic income. That would also help not only mitigate the consequences of the exchange rate unification that we want to do in the second half of 2020, but it will also help financial deepening, because we would like to directly transfer the monies – whatever the monies that will be feasible and available to us – to the needy population.
Q: What sectors of the economy are you looking to develop in the short term?
A: We are looking at the low-hanging fruit: adding value on agriculture, a range of agricultural products, including animal exports; support for the leather industry and the refined processing of oil seeds; opening markets on horticultural experts; and the processing of gum arabic. From there, we hope to move towards more complex investments involving the Sudanese private sector, as well as with foreign partners.
Q: Can you talk about some of the external funding you’re seeking to assist you in such projects and plans?
A: Sudan needs to overcome some hurdles related to a clearance of the arrears with the World Bank, the IMF and the African Development Bank. We have already started the conversation. For the reform that we need to do in terms of financing, we’re relying much more on the bilateral donors for this critical stage before Sudan can hopefully get rehabilitated into the standard financial system. We hope to seize this window of opportunity to translate that into real financial support for our programme.
