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Presentation made by Lual A. Deng at a High Level Seminar 1: The Financial Crisis

and Fragile StatesThe 2009 ADB Annual Seminars

Dakar, Senegal, 12 May 2009

Sudan: The Challenges of Managing the Impact of Global Financial Crisis on a Post-conflict Economy

Sudan: The Challenges of Managing the Impact of Global Financial Crisis on a Post-conflict Economy

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Presentation Consists of Four Parts

SUDAN

1. The Context

2. The Impact on national economy

3. Impact on GOSS

4. Policy Response

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1. National Context

Sources of Fragility:

a) Political – just emerged out of protracted civilWar (1983 – 2005) in the south & continued

conflict in Darfurb) Economic – huge external debt of more than

US$30 billion, which has resulted in large arrears to Paris Club & multilateral institutions

c) Weak institutions of economic governance

2. The Impact on the National Economy

5

2.1 Sudan economy to grow at 4% in 2009, which is above SSA average & other developing countries, except East Asia

8.2

11.4

8.4

6.96.2 6.0 5.85.8

8

5.6

4.24.9

5.54.3

2.2

5.4

3.7

-2

2.43.3

-0.6

-3

0

3

6

9

12

All Dev EastAsia

SAR ECA SSA MENA LAC

2007 2008e 2009f

GDP growth, percent

Source: World Bank, DEC Prospects Group.

2.2 Sharp Fall in Oil Prices of Sudan’s two Blends

6

7

2.3 Weaker public finances likely to cause fiscal deficits to deteriorate sharply more than SSA & developing world, but

less than that of Europe & Central Asia

-1.5-2.1

-2.6 -2.6

-3.8

-5.6-6

-5

-4

-3

-2

-1

0

Middle-East& NorthAfrica

South Asia LatinAmerica &Caribbean

East Asia &Pacific

Sub-Saharan

Africa

Europe &Central Asia

Projected deterioration in fiscal balance, percent of GDP

Source: World Bank, DEC Prospects Group.

8888

Public Budgetary Impact:deteriorated GoNU’s Overall fiscal picture

2.4 Deteriorated GoNU’s Overall Fiscal Picture

9999

2.5a Worsening of Balance of Payments position due to lower foreign exchange inflows, partly explained by Lower Oil

Export Earnings

10101010

2.5b Worsening of Balance of Payments position due to lower foreign exchange inflows, partly explained by declining

FDI and slowing in Remittances

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2.6 a sharp decline (i.e. by 50%) in the foreign exchange reserves from its peak of US$2.0 billion in August 2008 to about U2S$1.0

billion at end-December 2008

March 2009 - reserves are less than 1 month import coverage.

12121212

Southern Sudan and Global Crisis

1.Fiscal impact especially strong in Southern Sudan

2.Implications for oil revenue transfers to GOSS

3. GOSS

13131313

3.1 Fiscal impact especially strong in Southern Sudan, which relies on oil revenues for more than

95%

141414Source: Ministry of Finance & National Economy

Implications for Oil Revenue Transfers from GoNU to GOSS

3.2

* Monthly transfers figures don’t include arrears and withdrawals from ORSA

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• Short-term Measures

– Increased VAT on telecom, tobacco & alcoholic beverages.– Strengthened customs & tax collection in Southern Sudan by

appointing SPLA officers into national customs and tax administration operating in the south.

– Reduced public expenditure (e.g. expenditure on purchase of goods & services was reduced by 51% during the 1st quarter of 2009).

– Allowed prices to adjust rather than impose quantitative restrictions in goods, money and factor markets (including foreign exchange within a “float-managed” regime).

– Strengthened microfinance policy framework as by way of enhancing local financial intermediation needs of the vulnerable group and rural communities.

– Established a ministerial policy group to monitor the global financial and economic crisis.

Sudan’s Policy Response to the crisis

Medium-Term Measures– Increased capital expenditure (i.e. development) on infrastructure in that

priority is given to upgrading roads, river transport and railway along the major north-south corridor and roads to key agricultural zones.

– Enhancing economic governance at all levels of government in Sudan.– Creating a clear policy framework for transparent and competitive

environment of transport services. – Focusing on agriculture as the engine of growth of Sudan economy and

a vehicle for diversification.– Encouraging broader private sector participation in all sectors of the

economy, e.g. infrastructure construction.

– Working toward strengthening inter-governmental fiscal and regulatory policy coordination between GoSS and GONU as well as with the 25 States of Sudan.

– Simplify state-level taxation system and improve accountability in revenue collection.

– In the process of creating a transparent, predictable, and less binding fiscal and regulatory policies toward the private sector.

THANK YOU