Bloomberg News

Sudan’s Budget Gap Likely to Swell to 5% of GDP This Year

July 19, 2011

(Updates with finance minister comments starting in second paragraph.)

July 19 (Bloomberg) -- Sudan’s budget deficit will swell to 5 percent of gross domestic product this year, more than originally forecast, after oil-rich South Sudan seceded on July 9, Finance Minister Ali Mahmoud Abdel Rasoul.

To prevent the shortfall widening further, the government plans to slash spending in the second half of the year, Abdel Rasoul told lawmakers in the capital, Khartoum, today, six months after an austerity package triggered protests.

The deficit compares with the 3.2 percent shortfall envisaged in the original budget approved by lawmakers in November. The government is amending that budget after South Sudan gained control of about 75 percent of Sudan’s daily oil production of 490,000 barrels when it became independent.

“Political, economic and social changes in the country since July 9 have become the focus of everyone’s attention,” Abdel Rasoul said. The country needs a “comprehensive program to face the fiscal and economic ramifications for the loss of revenue.”

Fiscal spending will decline to 11.68 billion pounds ($4.4 billion) in the second half of the year from 15 billion in the previous first six months, Abdel Rasoul said, without giving the original spending plans. Revenue and grants will decline to 10.7 billion pounds from 12.5 billion over the same period.

Austerity Package

An austerity package passed by parliament in January spurred protests against President Umar al-Bashir’s government that were put down by security forces. The package included the partial removal of fuel subsidies and increasing the price of sugar.

No additional taxes or fees were imposed in today’s budget, Abdel Rasoul said. The government will try to keep the inflation rate below 18 percent, he said, compared with the 12 percent target in the original budget.

Abdel Rasoul also said that Sudan will start to introduce a new currency early next week. South Sudan released its own currency to banks in the capital, Juba, yesterday.

Sudan’s $68 billion economy will grow 3 percent this year, Abdel Rasoul said, less than the original budget’s target of 5 percent. The economy grew by 3 percent last year, half of the government’s target of 6 percent, al-Zubair said on June 13.

Oil Law

The finance minister also presented a new law for the transport of oil from South Sudan through its territory. Abdel Rasoul didn’t give details on the law to the press.

The two sides used to split proceeds from oil pumped in the south on a 50-50 basis, as agreed on in a 2005 peace accord which ended a two-decade civil war between the north and the south. They haven’t agreed on the amount of the new fees.

South Sudan currently has no other way to export its oil, and it relies on the crude export for 98 percent of its budget.

The crude, pumped mainly by China National Petroleum Corp., Malaysia’s Petroliam Nasional Bhd and India’s Oil & Natural Gas Corp. day, is exported through a pipeline that runs to Port Sudan on the Red Sea.

--Editors: Philip Sanders, Digby Lidstone

To contact the reporter on this story: Maram Mazen in Khartoum at mmazen@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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