IMF says Sudanese economy could face fiscal gap on oil price fallout
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June 30, 2015 (WASHINGTON) – The International Monetary Fund (IMF)
warned that the Sudanese economy could be adversely impacted by the
drop in worldwide oil prices and that inflation rate could surge
upwards because of excess liquidity.
JPEG - 36.7 kb
International Monetary Fund headquarters in Washington D.C. (AFP
Photo/Brendan Smialowski)
“Remarkable progress has been made toward restoring macroeconomic
stability and strengthening economic growth following the shock of
South Sudan’s secession. In particular, fiscal consolidation and tight
monetary policy helped reduce inflation below 20 percent in May 2015,
narrow the external deficit, and support growth at about 3.7 percent
in 2014,” a visiting IMF delegation said in a statement released on
Monday.
“The outlook remains challenging, however, as lower international oil
prices and the conflict in South Sudan are adversely affecting
oil-related revenues, which could possibly lead to fiscal and external
financing gaps.
Sudan has been reclassified by the IMF in 2012 from a net exporter to
a net importer after the oil-rich south became an independent state,
taking with it 75% of the petroleum reserves that existed in the
united Sudan.
However, landlocked South Sudan is paying its northern neighbor a cut
of the oil it exports through pipelines that run through Sudanese
territories to the coastal city of Port Sudan.
Earlier this year, it was announced that the two countries have
started renegotiating the oil transit fee agreement signed in 2012 to
account for falling crude prices.
Juba pays Khartoum approximately $25 per barrel for oil transported
through the latter’s territory. The former’s oil production have also
diminished owing to armed conflict in oil-rich states thus
complicating its economic situation.
The IMF also noted that restrictions on international financial
transactions “continue to weigh on growth”.
Dozens of financial institutions worldwide including those in Arab
Gulf states and China have suspended any dealings with Sudan for fear
of potential hefty US fines which has imposed economic sanctions on
the East African nation since 1997.
Furthermore, the IMF said that expansionary fiscal policies of
Khartoum in support of agriculture “injected considerable liquidity in
the economy”.
“These developments could put upward pressure on inflation and the
exchange rate,” the IMF warned.
Sudan has been struggling with double-digit inflation since secession
of the oil-rich south in 2011 but it has succeeded in bringing it down
from a high of 46.8% in July 2014 to 19.8% in May 2015.
The 2015 budget has a target inflation rate of 25% which is close to
the IMF projections of 19%.
The IMF team also said it is discussing the initiation of a new
Staff-Monitored Program (SMP) for Sudan which has expired in December
and has yet to be renewed.
“The IMF staff team had productive discussions with the Sudanese
authorities on economic and policy developments. These discussions,
including on a new Staff-Monitored Program for 2015-16 to support the
authorities’ economic reform efforts, will continue in the coming
weeks.
The SMP is an informal agreement between country authorities and IMF
to monitor the implementation of the authorities’ economic program.
SMPs do not entail financial assistance or endorsement by the IMF
executive board.
In 2009, Sudan agreed to SMP to help it achieve a set of economic and
financial policies and objectives which include sustaining economic
growth, controlling inflation, reforming the banking sector and
reducing budget deficit among others.
(ST)
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