Sudan’s former central bank governor warns of post-secession shock
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May 25, 2011 (KHARTOUM) – The former governor of the Central Bank of
Sudan Sabir Mohamed al-Hassan sounded the warning bell on the impact
of the upcoming country’s breakup on the economy.
JPEG - 30.4 kb
Former governor of the Central Bank of Sudan Sabir Mohamed al-Hassan (Reuters)
Next July the South will officially become an independent state which
also marks the end of the interim period following the signing of the
2005 Comprehensive Peace Agreement (CPA) between the National Congress
Party (NCP) in control of the North and the Sudan People Liberation
Movement (SPLM) which rules the South.
A referendum was held last January in accordance with the CPA in which
Southerners voted on whether they wanted to remain united with the
North or establish their own state.
While most of Sudan’s proven daily output of 500,000 oil barrel is
extracted from oilfields in the south, the pipelines infrastructure
and refineries are based in the north. The South will therefore be
required to pay a fee to transport its oil and ship it abroad from
Port Sudan terminal.
Al-Hassan said at a workshop in Khartoum on the secession of the South
that the separation will result in an "economic shock" that will
surpass the effects of the global financial crisis which unfolded in
2008.
The former official projected a 20% drop in GDP and 50% decrease in
revenue for the central government as well as a sudden decrease in
hard currency supply available in the market.
He said that negotiations between the North and South on
post-referendum arrangements must lead to the emergence of two
economically viable states.
"If the two countries do not cooperate then they will both will be
affected negatively and there is no loser or winner in the case of
non-cooperation," Al-Hassan stressed.
He also called for the restructuring of the Sudanese economy and
emphasized the need for canceling Sudan’s external debt saying that
Sudan is heavily indebted and as such the cost of servicing it keeps
multiplying particularly after the failure of debt relief initiatives.
But today the Sudanese finance and national economy minister Ali
Mahmood Hassanein appeared to contradict Al-Hassan’s asserions telling
a visiting European delegation that the country, through its resources
and economic potential, will be able to overcome the effects of
separation.
The country’s state minister Al-Fatih Ali Sideeg was quoted by the
official news agency (SUNA) today as saying that a plan has been
drafted to reduce dependence on oil revenue in preparation for the
split.
Last month the International Monetary Fund (IMF) said that North Sudan
may lose 75% of oil revenues in a worst case scenario that would
result in domestic and external imbalances.
“With oil revenue constituting more than half of government revenue
and 90 percent of exports, the economy will need to adjust to a
permanent shock, particularly at a time when the country has little
access to external financing. The size and nature of the necessary
adjustment could have significant implications for growth and
macroeconomic stability”, said the report dated last January but
released in April.
Under that scenario, it is also assumed that North Sudan will witness
a 10% decline in non-oil GDP to reflect the share of the South in
total non-oil economic activity as well as a decline in oil related
services; an increase in service receipts to reflect the
transportation fees charged for the transportation of South’s share of
oil; a decline in both transportation payments and investment income
payments to reflect lower oil production; a decline in imports of
goods to reflect the shares of the oil sector and the South; an
increase in imports of petroleum products to reflect the shortfall in
domestic production..
To confront this scenario, the IMF stressed that North Sudan will need
to reduce spending, lift fuel subsidies, reduce tax exemptions and
enhance revenue administration.
(ST)
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