Sudan is mired in a structural governance crisis which threatens the stability, viability and unity of the state. Addressing this crisis will require both significant political change and a series of extensive reforms within the key functions of the state, including in political governance, the rule of law and the economy. Over the past few months, Sudan Democracy First Group has engaged a wide range of Sudanese academics and civil society actors in a debate on the reforms needed for a viable, peaceful and democratic Sudan. Today, we release the third and final in a series of discussion papers which analyze the status of each sector and identify key reforms.
This third paper tackles Sudan’s deep economic crisis. The secession of South Sudan and the resulting decline in oil revenues, coupled with the high costs of the continuing conflict in the peripheries, has had an enormous impact on the Sudanese economy, creating high inflation, shortage of foreign exchange and rising prices of basic commodities. However, these events are underpinned by structural distortions, including the neglect of the agricultural and manufacturing sectors, dependency on key imports, and a weak tax base. Political factors have also had a negative impact on development and poverty alleviation, including the high costs of spending on the security sector, widespread corruption, tax exemptions and privatisation processes which have favoured a politically connected elite, and international economic sanctions and unsustainable debt because of poor relations with international creditors, which has in turn exacerbated inflationary domestic borrowing. .
In this paper, Towards Institutional Reform and Economic Policies Supporting Stability (After Political Reconciliation), Dr Siddig Umbadda contends that widespread economic reforms are needed to stabilise the economy, address the root causes of conflict and reorient policies towards poverty alleviation. However, these reforms will depend first and foremost on significant political change, and will take time and entail enormous practical challenges and difficult decisions. The challenge will be to create an environment conducive to structural economic and fiscal changes and to avoid expensive populist programs which would risk high inflation and further instability.
The paper highlights a range of areas for reform, including:
- Fiscal policy reform to increase revenue and reduce expenditure, especially review of current tax exemptions and expenditure on the security services and various levels of federal government, in order to raise revenue to invest in priority services for poor and rural populations;
- Monetary policy reform to curb inflation and establish stable exchange rates, including through reintroducing a dual banking system and greater control on public expenditure and internal money supply;
- Reorientation of economic policies and government expenditure towards poverty alleviation, in particular to benefit the rural poor and the regions most devastated by conflict, including increasing spending in the education and health sectors;
- Political and policy changes to normalise relations with international creditors, in particular the USA, and international financial institutions in order to obtain the removal of sanctions, access to debt relief and, consequently, access to soft loans, foreign investment and development assistance;
- Review and gradual revision of subsidies in a manner that places the greatest burden on the wealthiest of society, who currently benefit the most, as opposed to the poor;
- Investment in the agricultural sector both to benefit the largest and poorest proportion of the workforce and to address the reliance on imports and the balance of trade deficit; and
- Reviewing legislation and building the capacity and the independence of civil service institutions related to the economy and fiscal policy, in particular the Central Bank of Sudan and the Ministry of Finance.
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