NOTE from Sudan Watch Editor: Here is an interesting thread of tweets by Sudanese economist Yousif Elmahdi posted on his Twitter page 02 August 2019 @Usiful_ME.
Note, in the final tweet Yousif reveals the source of his data is as follows: Macro data is from IMF; agriculture productivity estimates come from a private sector study commissioned by government; export data is from a mix of sources.
Yellow highlighting is mine for future reference. I have used green to highlight Yousif's sense of humour.
The incoming #Sudan government will be inheriting an economy highlighted (as of 2018) by:
— $8.7-9.2bn trade deficit
— Fuel subsidy of 8% GDP (over $3bn)
— Wheat subsidy of around $500m, on top of $800m import bill
— 60% power coverage deficit (4,000 megawatts)
- Yousif Elmahdi
Alongside this: - — International reserves were as low as $1bn gross by end-2018.
- — In reality, there are no reserves because the budget deficit meant Central Bank was financing a parallel budget. On-budget expenditure was covering roughly:
- Yousif Elmahdi
- All of Chapter 1 (wages and salaries), of which 20-25% security sector wages. - - 30% of Chapter 2 (capital expenditure)
- Yousif Elmahdi
— Tax to GDP ratio was 6%. For reference, sub-Saharan Africa average is around 18%. - Yousif Elmahdi
— Oil production declined from 160,000 to 70,000 barrels, all of it consumed locally (w/ deficit imported) covering around: - - 30-40% diesel needs. For reference, total diesel consumption composition is est: 50% transport sector; 10% industry; 10% agriculture; 5% general)
- Yousif Elmahdi
- 40-50% gasoline needs. For reference some of locally produced gasoline is exported to Ethiopia in exchange for 100-200 megawatts power. - - 70-80% LPG needs.
- Yousif Elmahdi
— Gold production estimated at 100 tonnes ($4bn), but only 20/30 tonnes ($1.5bn) accounted. 80% artisan produced. - Yousif Elmahdi
— Agriculture sector v. low productivity and high cost of 45 million cultivated acres: 44m rain-fed; 1m irrigated (against 5m capacity). - Some examples:
- - 8 million acres sesame: 100kg/acre ($300m exports). For comparison, Turkey produces around 1,700kg/acre.
- Yousif Elmahdi
Another example: - - 2 million acres sorghum: 3 sacks/acre ($20-60m exports).
- Yousif Elmahdi
— Business environment beset by corruption, especially around natural resources. - - State-owned enterprises completely off-budget, no forensic audit etc.
- Yousif Elmahdi
To fill gap: - — Govt. monetized (printed money), especially as couldn’t sell debt due to lack of credit worthiness of Govt. bonds.
- -> Inflation 73% by end-2018.
- — KSA and UAE also provide $100m monthly in fuel, wheat, medicine, fertilizer etc.
- Yousif Elmahdi
In the backdrop you have: - — Real exchange rate that’s hugely overvalued. This of course:
- - renders the whole economy uncompetitive
- - while different exchange rates create distortions (80% transactions in parallel market).
- Yousif Elmahdi
Given this context, the new government’s priorities must necessarily include: - 1. Competitive exchange rate
- 2. Tax reform
- 3. Business climate reform (including banking sector)
- 4. Infrastructure (especially energy sector)
- 5. Agriculture
- 6. Health and Education
- Yousif Elmahdi
The key priority, however, for new #Sudan Govt. will be to find the resources to finance all of this; to fill the budget deficit; and to cushion the poorest. - Yousif Elmahdi
On the latter, previous government social safety net program reached 500-600,000 families against 800,000 target. - With poverty rate currently estimated around 36%, about 3 million families (today) need same level of support.
- Gap is around 1% GDP (based on $5/month support).
- Yousif Elmahdi
Above all, any reform measures need to be grounded in citizen engagement, trust and awareness building, and transparency. - Yousif Elmahdi
A few additional points to this thread: - — Any serious & sustainable reform package would have to include (as priority) removal of fuel & wheat subsidies, esp. fuel.
- - #Sudan fuel prices are amongst lowest in the world and the country simply can’t afford to maintain these
- Yousif Elmahdi
Difficulty with fuel is that once the subsidy is removed, even if gradually or partially, prices will sky rocket across the entire economy. - We would be dealing with the sorts of numbers (in the 000s) you hear in some other countries across the continent.
- Yousif Elmahdi
Exchange rate competitiveness would also entail initial inflationary pressures, but ultimately helps private sector development by improving competitiveness. - Yousif Elmahdi
Ramifications in the short to medium term would be severest on those whose incomes are not inflation adjusted (public sector especially), and on the poorest. - In theory, some of the savings could be directed towards expanding social safety nets and adjusting public sector wages
- Yousif Elmahdi
Ultimately the public sector is severely bloated due largely to excessive administrative structure. - This would need to be reformed at some point but I won’t get into this rabbit hole right now.
- Yousif Elmahdi
Basically, the medicine will be very bitter, for very long before it’s positive effects can start to be felt. - Postponing it only exacerbates magnitude of problems to be addressed. This is what previous regime did, ironically because of regime sustainability considerations.
- Yousif Elmahdi
Previous regime structured economy in this way also for regime sustainability considerations (and perverse incentives) and could afford it while it had substantial oil revenues. - Yousif Elmahdi
What works in incoming transitional government’s favor is that it won’t be encumbered by election mandate or future election campaign. - In terms of resourcing it would potentially have many friends.
- Yousif Elmahdi
So in theory provides an ideal platform to initiate difficult and politically divisive reforms. - However, this assumes the coalition remains stable, Cabinet is well constituted, and public trust can be quickly gained and sustained.
- Yousif Elmahdi
On wheat imports (approx. $800m), I’ve heard that the major mills believe actual import needs are around $500m i.e. substantial amount of smuggling when you add on the subsidy (approx. $500m). - It’s believed Khartoum consumes 65% of actual wheat needs.
- Yousif Elmahdi
Staying on agriculture, livestock is a significant export source, generating around $800m from 5 million heads. - But when you consider total livestock population, this is paltry, and largely due to lack of transport infrastructure.
- Yousif Elmahdi
Value could also be significantly increased by exporting as meat (instead of live) but at present the infrastructure and value chains don’t exist. - Yousif Elmahdi
I sincerely hope those that assume power will recognize this and will be bold, empowered and supported to initiate reversal. We will need a significant leap in transparency and citizen engagement. - Yousif Elmahdi
@Fahad55121907 @Omer58606983 Macro data is from IMF. Agriculture productivity estimates come from a private sector study commissioned by government. Export data is from a mix of sources. - To visit and view the above series of tweets at Yousif's Twitter page click here: https://twitter.com/Usiful_ME/status/1157545777243316227
