Sudan’s Dire Deployment Design

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By: admin

After ousting three-decade ruler Omar al-Bashir and beginning negotiations for civilian government transition with demonstrators loosely grouped under a “professionals association,” Sudan’s generals reverted to their harsh stance against opposition forces with widespread attacks and killings. Reports circulated of sweeping arrests and dozens of bodies dumped in the Nile River by the military’s notorious Rapid Deployment Force, also recruiting soldiers for Gulf allies’ fight against the Houthi rebels in Yemen. Saudi Arabia and the United Arab Emirates had pledged $3 billion in assistance to the interim regime before the crackdown, with the budget coffers empty from years of subsidies and underwriting the army and intelligence apparatus. The estimated deficit at 20% of gross domestic product was plugged by central bank lines, releasing a liquidity wave and 50% inflation.

The independence of South Sudan providing 75% of oil revenue, with China as a prized customer, and years of US sanctions imposed after Darfur atrocities otherwise decimated the economy. Banks are near collapse amid a draconian hard currency shortage, as the sovereign is cut off from traditional multilateral funding with its poor human rights record and accumulated $50 billion arrears. Commercial debt is in default trades on “exotic” secondary markets at pennies on the dollar. Holders envisioning eventual global financial reintegration under a peaceful post-Bashir succession had begun organizing a creditors’ committee, before the latest events pre-empted near term “Nile Spring” political and business reforms.

At the same time Khartoum confrontations worsened the International Monetary Fund came out with a dire Article IV consultation on South Sudan, which still must regularly transfer a portion of oil earnings north under the autonomy agreement. It has been in civil war along ethnic lines since 2013, with 40% of the population displaced internally or fleeing to neighboring countries as refugees. Since independence in 2011 real income is down 70%, and a tentative peace agreement signed in late 2018 for power-sharing between the President and Vice President and their rival factions has not yet been implemented under a May deadline. Output shrank over 20% the past three years, although oil production recovered to 150,000 barrels/day early in 2019. In fiscal year 2017-18 almost all petroleum earnings went to repay Sudan and collateralized loans from China and elsewhere. Central bank borrowing covered the budget deficit, as arrears increased an estimated 3% of GDP.

Exchange rate depreciation continues, as commercial banks must surrender holdings in multinational company and international organization “special accounts” to the central bank. The parallel market dollar premium over the official rate was 80% in April, and South Sudan is in “debt distress” with external and domestic backlogs. With peace and a national unity government growth could reach 3.5% this fiscal year, under the reopening of damaged wells that can increase output to 200, 00 barrels/day over the next five years. However the state oil company Nilepet has no financial statements so balance sheet and operating performance is unknown, according to the Fund review. It urges currency market liberalization, bank recapitalization, and economic diversification in agriculture/fishing, and officials agree in theory but insist on gradual moves to cushion volatility with the security situation likewise fluid. The South’s evolution may have presaged Khartoum’s backward slide, and argues against quick reform breakthroughs as Chinese and Gulf companies try to maintain investment values.

In Yemen where Sudanese forces enlisted for combat with the Riyadh-backed internationally recognized government in Aden, a May meeting in Jordan under UN auspices with Houthi representatives over budget and central bank conduct broke down in discord. The Houthis control Hudaydah port, where fierce clashes erupted until a cease-fire. It is a critical food import hub generating tens of millions of dollars in annual revenue. Aden authorities insisted they should be in charge of the money with better administrative capacity to pay overdue civil service salaries, and that Houthi central bank official appointments in the area were illegal. The sides tried to strike a compromise text, but in the end took no action other than to commit to further dialogue. The Sana’s Center for Strategic Studies, whose experts attended the Amman sessions, pointed out the meager result may have been a reflection of the UN Special Envoy having only one dedicated economic staffer amid broader conflict resolution demands, as both Sudans threaten to repeat the pattern.   

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