Sudan Taps Gulf Allies as Donor Cuts Worsen Economic Outlook
Sudan Taps Gulf Allies as Donor Cuts Worsen Economic Outlook
(Bloomberg) -- Sudan has asked its Persian Gulf allies for financial support as it weighs tax increases and subsidy cuts to shore up the economy after foreign donors severed funding following this year’s coup.
The oil-producing country scrapped its growth targets for next year and is preparing for a sustained period of limited external support, Finance Minister Gibril Ibrahim said in an interview on Friday. The state had forecast earlier this year the economy would expand 3% in 2022.
“We are building a worst-case scenario and we are planning to depend on our internal resources,” he said by phone from the capital, Khartoum. “We are not going to have the growth we were planning for.”
The military takeover in October undermined hopes for a smooth transition to democracy in Sudan after three decades of autocratic rule under Omar al-Bashir. The putsch led international donors like the U.S. and development agencies to suspend hundreds of million of dollars of aid and budgetary support, while also hampering Sudan’s eligibility for $50 billion of debt relief under the International Monetary Fund’s Enhanced Heavily Indebted Poor Countries Initiative.
The U.S. cut off $700 million in emergency assistance, while $500 million in direct budgetary support that had been expected in late November from development agencies never arrived, Ibrahim said. A further $150 million from the IMF’s so-called special drawing rights, which are used to bolster official reserves, also didn’t come through.
Among budget cuts being considered by the government are a reduction in wheat and electricity subsidies, the minister said. That may trigger renewed instability: the removal of state support to offset the cost of fuel earlier this year triggered protests and contributed to a surge in the inflation rate to more than 400%.
Gulf Support
October’s coup left more than 40 protesters dead and injured hundreds more amid widespread discontent over the decision by Sudan’s top general to topple the civilian government. It had been installed after a revolution in 2019 ousted the Bashir regime.
While some officials in Sudan’s military had hoped regional heavyweights such as Saudi Arabia and the United Arab Emirates -- two nations that have historically pledged economic support and investment projects in Sudan -- would back the coup, that never came to pass. A new government formed by reinstated Prime Minister Abdalla Hamdok has approached Gulf nations about financial support, Ibrahim said.
“We have no guarantees up to this moment that they will support the transition in Sudan,” he said. “We are trying to talk to them. We are looking forward and very optimistic of having some support from the Gulf, but of course the Gulf of today is not the Gulf of the early 2010s or early 1990s” and they cannot be as generous as they were previously, the minister said.
The establishment of the new government may help pave the way for Sudan to resume talks with the World Bank, IMF and other donors to resume aid, Ibrahim said. That prospect was played down by an IMF spokesperson in Washington, who cited heightened uncertainty in Sudan after the coup and the impact of donor-support shortfalls on the economy.
©2021 Bloomberg L.P.