November 10, 2010 (KHARTOUM) – The Sudanese parliament today approved the 2011 budget as the country moves towards a likely breakup of Africa’s largest country into North and South in the self-determination referendum due to take place in early January of next year.
Sudan’s official news agency (SUNA) quoted finance and national economy minister Ali Mahmood Hassanein as saying that the enacted budget focused on increasing production and supporting the agricultural and industrial sectors. He also said that the goal is to boost livestock imports and bring inflation to below 12%.
The GDP should also grow at a 5% rate while preserving the exchange rate, Hassanein added.
Oil exports represent 65% of revenue for Sudan and helped fuel its unprecedented economic growth despite US economic sanctions imposed since 1997.
However, fluctuations in crude prices particularly during the global financial crisis in 2008 created a shock in the Sudanese economy and forced the government to increase taxes in order compensate for lost revenue.
The Sudanese official noted that oil output is projected to be between 480,000 and 500,000 barrels per day (bpd) at about $60 a barrel. The budget deficit will account for 3.2 percent of economic output and will be financed through the sale of Islamic bonds and external borrowing. No new taxes have been introduced however.
Hassanein stressed that should South Sudan secede following the referendum there will be no economic collapse in the North given the established infrastructure and other non-petroleum sources of revenue such as gold, agriculture and livestock.
The governor of the Sudan central bank Sabir Mohamed Al-Hassan on his end echoed the sentiment saying that there are contingency plans in place for this scenario.
"They will not be worse than the shock of the [global] financial crisis," Al-Hassan said. He reiterated that even though most of the oil reserves lie in the South, the infrastructure for the petroleum industry is in the north which requires cooperation of the two sides for mutual benefit.
He also predicted resumption of foreign investment into the country after the political uncertainty is over.
“We expect after the referendum that foreign direct investment will resume,” Al-Hassan told Bloomberg. Currently, it’s “almost halted because of political uncertainties,” he said.
Sudan will soon pass legislation easing conditions for foreign investors, President Omer Hassan Al-Bashir told parliament on Oct. 12. The country expects more than $3 billion of foreign investment in non-oil industries next year, up from $2 billion in 2010, Hassanein said today.
Both officials did not address the chronic shortage in hard currency which caused deterioration in the exchange rate of the Sudanese pound in recent months. The central bank has failed to inject enough forex into the market to bring the price on the black market in line with the official one.
Sudanese authorities blamed the crisis on unfounded rumors that the economy would collapse following South’s separation. Many Sudanese say they have moved money into foreign currency and stashed it at home ahead of the independence vote.
The government introduced a set of measures last September that bans certain imports while increasing tax and duties on others to reduce the outflow of hard currency.
In 2011 the people of South Sudan will vote in a self determination referendum in order to decide whether they want to remain as part of united Sudan or create their own state. It is widely expected that secession will be the overwhelming choice of Southerners.
The separation of Sudan into a two states will deny the North billions of dollars in revenue generating from vast oilfields in the south of the country. Currently the North and the South are splitting the proceeds of crude in accordance with the Comprehensive Peace Agreement (CPA) signed in 2005.
About 75 per cent of Sudan’s proven reserves of 6.3bn barrels are in the south but the pipeline that carries the oil to export terminals and refineries runs through the north. The south needs Khartoum’s co-operation to sell its oil; the north needs revenues from its neighbor’s resources.