Sudan looks to tackle fuel subsidies

Because of the long-standing subsidy programme, Sudan has been one of the cheapest countries in the world for petrol.
Sunday 02/02/2020
Ambitious plan. Sudanese Finance Minister Ibrahim Elbadawi speaks in Khartoum, January 28.      (AP)
Ambitious plan. Sudanese Finance Minister Ibrahim Elbadawi speaks in Khartoum, January 28. (AP)

KHARTOUM - Sudan hopes to cut fuel subsidies over the course of 18 months and replace them with direct cash payments to the poor, Sudanese Finance Minister Ibrahim Elbadawi said, laying out a timetable for sweeping economic reforms sought by international lenders.

The plan comes as Sudan’s fragile democracy is slowly taking shape after the ouster last year of the country’s long-time autocrat, Omar al-Bashir. Elbadawi, interviewed January 29 by the Associated Press, said the decision was a “no-brainer.” The government previously said it would not change bread and flour subsidies.

Elbadawi’s comments came after the Sudanese government skirted the issue of slashing subsidies last year after the country’s pro-democracy movement rejected the move and included them in the 2020 budget.

Elbadawi said the plan is to gradually lift fuel subsidies, which take up 36% of the country’s budget, as early as March and following an economic conference with civil society groups and continue into next year. He said petrol subsidies would be removed before tackling those related to diesel in mid-year.

A former World Bank economist, Elbadawi was appointed to the country’s interim government last year.

Sudan’s new leadership is navigating a treacherous transition to civilian rule. Two-thirds of the country’s more than 40 million people live in poverty and reducing fuel subsidies could lead to destabilising protests reminiscent of the large-scale demonstrations that ended al-Bashir’s 30-year rule last April. However, sweeping economic reforms are required to integrate Sudan into the world economy and win support from international lenders.

Since al-Bashir’s ouster, an interim government made of civilian and military representatives has been leading the country and the economy, already in a severe downturn and battered by a weakening currency, shortages and inflation, has become the linchpin of the transition period.

Sudan became an international pariah after it was placed on the United States’ list of states that sponsor terror more than two decades ago. This largely excluded it from the global economy and prevented it from receiving loans from international institutions, such as the International Monetary Fund (IMF).

Sudan’s interim government also inherited a debt of $60 billion and a rapid inflation rate. It badly needs an injection of funds from foreign donors. The country’s currency, the Sudanese pound, is trading on the black market for double its official rate of 45.3 pounds to the dollar.

The uprising against al-Bashir began as protests over rising prices of key staples such as bread and frustration among young people about unemployment and the brutality of the country’s security forces. Many in the country’s civil society movement fear that lifting subsidies could make the country’s most vulnerable even poorer.

Elbadawi said a direct cash payment to poor families, through banks or mobile phone transfers, could ease the shock of the reforms. Such a programme could begin in six months, he said, although the government needs better data to reach all those in need. As part of a pilot group, Elbadawi said that some 4.5 million people would soon start receiving money.

“We think that, if we manage to do this, it will be a very viable and credible alternative,” Elbadawi said. “It will target the poor; it will promote the cause of peace and it will actually change the social contract.”

Because of the long-standing subsidy programme, Sudan has been one of the cheapest countries in the world for petrol. Cheap fuel prices encouraged fuel smuggling out of the country. Without changes to the 2020 budget, the government would spend more on subsidies than on health, education and internal security combined, Elbadawi said.

To pave the way for international loans, Sudan has been in talks with the United States to remove it from the list of terrorism sponsors, something Elbadawi hopes will happen in the next few months. In the meantime, he said the government is in negotiations with the IMF and is working on a reform programme that could lead to future debt relief.

The government is introducing a national dialogue to explain the necessity of the subsidy reforms but will tread carefully, aware of likely popular opposition, Elbadawi said. The Sudanese Professionals Association, the main organiser of last year’s demonstrations, threatened to mobilise protesters if the transition goes astray.

That means Sudan’s civilian stakeholders would have to be on board with the programme.

“If, for whatever reason, we are unable to reach a consensus, then I think it will be incumbent upon the government to explain the consequences and to allow the Sudanese people to take whatever decision and course they want to take,” Elbadawi said.

(The Associated Press)