Sudan: Lifting subsidies puts the transitional government in new confrontation with the public
Lifting fuel subsidies in Sudan was met with a wave of criticism and angry reactions from ordinary citizens, components of the transitional government’s political incubator, and experts. Many foresee that the decision would put the transitional government in a new confrontation with the rebellious street and perhaps with influential political forces as well.
AlTaghyeer – Elfadil Ibrahim
Undoubtedly in Sudan, the transitional government’s decision that was announced last Wednesday, completely lifting fuel subsidies, will carry negative implications on the livelihood of citizens, and may carry political repercussions as well.
Some have labeled the government’s justifications as unconvincing, deeming that the new decisions could have been averted through various economic measures.
Observers however believe that it is the only way towards economic reform and –between this and that— the real test of resilience lies within the citizen’s ability to withstand these measures.
Political Provocation
The Forces of Freedom and Change (FFC) coalition leader and economic expert, Professor Muhammad Sheikhoun, described the transitional government’s insistence on the economic liberalization policy as both simultaneously provocative and shocking for citizens who were anticipating their patience and sacrifices made in deposing the National Salvation regime to be rewarded.
Unfortunately, the citizens were met with frustrations caused by a government currently implementing the same bygone-era policies.
Sheikhoun told <<AlTaghyeer>> that all the justifications given by the Minister of Finance in the press conference had been preserved for use since the previous era, declaring that the minister utters statements similar to the ones issued by previous ministers of the deposed government in their first period before the dispute that caused a rift between the Islamists.
He expects that these decisions would not go unnoticed at the political level because as they would bear a great cost for the average citizen, notwithstanding the other incoming decisions to liberate bread, electricity, medicine and gas, in addition to the price of the customs dollar.
World Bank Prescription
Sheikhoun stressed that the decisions of the complete liberalization of fuel prices do not stem from an economic and national vision, but rather an implementation of the international community’s “creditors’ prescription”.
The coalition leader believes that the government, through these measures, aspires to prove to creditors that it is on the path of economic liberalization.
“According to this policy, we will continue to chase after the dollar in the black market, and with so, the government would have provided a great service to the parasitic sector of black market traders,” Sheikhoun said.
Political Deception
Sheikhoun explained that the policy of economic liberalization would raise the price of the dollar and also affect Sudan’s external debt, which could multiply ten times as a result of the decline in the value of the Sudanese pound against foreign currencies.
“Unfortunately, the government’s decisions serve the interests of the international community and the private sector that controls the dollar. These decisions will completely wipe the floor with the Sudanese economy,” he added.
The FFC chairperson pointed out that the Minister of Finance’s promises to benefit from the funds accumulated for raising subsidies in service projects are tailored for political consumption, and the evidence for this is that the government, throughout all stages of the gradual lifting of subsidies, did not employ any funds for health, education and water, and that these funds will go to non-productive parties.
“The truth is that the budget for health, agriculture and infrastructure does not reach 8% of the budget.”
Prof. Sheikhoun stated that “30%” of the budget revenues amounting to “928” billion SDG come from the tax on fuel, which amounts to “300” billion SDG.
“The government is deceiving the people…” he added.
“…even when it said that it liberalized the price of the dollar, it did not implement a complete liberalization.”
“Do the measures taken by the Bank of Sudan with regard to foreign currency reflect the policy of the managed flexible exchange rate? The answer is certainly no!”
“In my opinion, if the government is serious about stabilizing the exchange rate, it must implement the Bank of Sudan’s decision to control the export of gold.”
Doubt
Sheikhoun was surprised by the Minister of Finance’s talk about the possibility of government companies affecting fuel prices— as they own half of the number of operating companies— stressing that there is a real of the market flaring up and private companies then regulating fuel prices.
“The government’s method of deception continues. Sudan’s production of gasoline covers a good percentage of consumption, but the government sells it to the citizen at the international price.”
Disputes
Within this context, a source at a fuel company said to AlTaghyeer that there had been differences between the ministry and petrol companies regarding the distribution of quantities.
The source expects that there will be differences in prices between different companies, citing that the current prices of “283” SDG per liter of gasoline and “290” SDG per liter of petrol are adjustable according to cost.
The source also pointed out that there are companies that will deal directly with the ministry, two of whom are Qadra and Nile, while stressing that the challenge is to save the dollar after having dissolved the strategic commodities portfolio.
Suspicions and Accusations
Professor Sheikhoun wondered how companies could obtain liberated currency for importing before answering his own suspicion by stating that “some companies may engage in suspicious activity in the gold market, or may resort to the parallel market. In both cases it will make matters worse.”
Sheikhoun accused some revolutionary political forces of acting identically to economic liberalization decisions.
“Some parties reject liberation in general but accept government decisions.”
The End of the Crisis
Economic analyst Dr. al-Fateh Othman Mahjoub however, considered the liberation of fuel prices as a sound decision, and stressed that it would completely put an end to the petrol availability crisis.
Dr. al-Fateh told AlTaghyeer that the complete liberalization of fuel is one of the most important conditions for Sudan’s partners within the system of reforming the Sudanese economy, and it is also an essential condition for exempting Sudan’s foreign debts.
He considered that fuel and electricity subsidies were one of the most important reasons in the downfall of al-Bashir due to the ousted president having caused an increase in fuel consumption, thereby increasing the rate of car imports and their accessories along with a steady increase in fuel imports.
Thus, the fuel and electricity subsidies caused the collapse of the exchange rate of the Sudanese pound, given that the budget was not sufficient to meet electricity and fuel subsidies.
Consequently, the government was then forced to print money to finance the subsidies, which led to a continuous collapse of the Sudanese pound’s exchange rate.
Courage
Dr. al-Fateh demanded the transitional government to show courage, stating that “the executive body must have courage and move forward in implementing economic reforms by fully implementing the lifting of subsidies on fuel and electricity, and even setting a value-added tax of no less than 60% on a liter of gasoline, directing it in support of health, education, public transportation, and financing infrastructure for public transportation including roads and bridges, as well as supporting petroleum production and agricultural and animal exports.”
No Exceptions
Dr. al-Fateh also called on the government to stop allocating subsidized fuel for agriculture, public transportation or government vehicles, and replace that by adopting focused prices for agricultural commodities and encouraging the use of electricity and solar energy.
With regard to public transportation, he considered that the best thing would be to support government-provided public transportation while adhering to a fixed ticket price, focus on long-distance routes, more efficient student and worker transports, and increase the proportion of their (the government’s) contribution to public transportation to 50% while making the rest of transportation operate according to a profitable system consistent with liberalized fuel prices.
He said that government institutions should buy fuel at the liberalized price to reduce fuel consumption of government cars.
Unemployment
Al-Fateh indicated that a large proportion of the Sudanese public suffer from unemployment, therefore making policies that support production a must along with investment and exports, which help reduce import and consumption, all in the interest of the people.
He gave the example that any taxes on gasoline could be transferred to support public transportation, health, education and production support, thus creating hundreds of thousands of jobs.
The economic analyst believed that subsidizing fuel helps facilitate the population’s unemployment, birthing people who are all too concerned with owning a vehicle, and believe that the government should provide them with fuel for free or almost free.
Fuel Tax
Dr. al-Fateh stated that, for added benefit, the liberation decisions should be accompanied by a tax on gasoline of no less than 60% per liter.
The justification was that the gasoline tax can serve the economy because it is a tax on consumption and thus encourages rationalization, reduces imports, preserves the environment, and provides the budget with large sums of money that can be used to improve and support the public transportation sector, roads, bridges, in addition to education and health.
He added that the liberation of fuel with the imposition of a tax of no less than 60% on gasoline will contribute strongly to reducing the exchange rate of the dollar against the Sudanese pound and will withdraw enough liquidity from the market to reduce inflation, although the increase in the price of fuel will lead to an inflationary wave at the beginning, but gradually the withdrawal of liquidity due to taxes and liberalization will reduce inflation.
Dr. al-Fateh also stressed on the abolition of the production tax recently imposed on factories and the reduction of taxes on all factories.
“Temporary Effects”
Ahmed al-Basha, a member of the economic sector in the Federal Assembly, said that the complete liberalization of fuel prices is carried out according to an equation that takes into account the dollar’s internal exchange rate in addition to the value of the local currency, international oil prices, and administrative costs, calculated together in a way that guarantees a profit margin, and thus fuel prices are determined.
In his statements made to AlTaghyeer, al-Basha considered that the decisions to lift the subsidy would induce “temporary political effects”.
He said that citizens are now in a state of anger, but will soon come to realize the importance of lifting the subsidy.
Al-Basha called on the government to expedite the implementation of treatment programs, especially the “Thamarat” program, pointing out that “slowness” has become an inherent feature of the government, often leading to limiting the usefulness of some decisions and projects.
Need for Currency
Al-Basha linked the lifting of subsidies to the price of the dollar.
“The government, through the Bank of Sudan, dried up the parallel market of currency after transfers through official outlets proved successful, but in return there is a need for currencies to import basic materials and commodities, including fuel, which has become a commodity like any other, and importers need currencies,” he said.
“The central bank may not provide it sufficiently at the right time, and therefore companies and importers will resort to the parallel market, which will cause speculations that may double prices, and thus we return to square one with two official and parallel prices.”
The economic reform program signed by Hamdok’s government, which he formed after signing the Juba Peace Agreement, will result in living pressures beyond the citizens’ ability to bear. Therefore, even economists and politicians who are convinced of the feasibility of economic liberalization policies and their practical importance in terms of reforming the economy in the long run affirm that they must be accompanied by programs to ease the economic reforms’ impact on the cost of living. There are programs funded by international donors headed in this direction, such as direct cash support programs for citizens (Thamarat).
However, frequent testimonies have described these programs as ineffective and very slow, as they reached a very limited number of their targets, in addition to the fact that the amount of cash support is low compared to the cost of living.
The livelihood program, which aims to provide basic food commodities at reduced prices, is still limited.
