INTERVIEW-Sudan can end economic crisis with cuts, better tax collection-IMF
Mon Sep 3, 2012 2:05pm GMT
By Ulf Laessing
KHARTOUM, Sept 3 (Reuters) - The outlook for Sudan's struggling economy has
brightened since the government passed a tough austerity package but it
still needs to improve tax collection to overcome the loss of oil revenues,
the International Monetary Fund (IMF) said on Monday.
Sudan lost three-quarters of its oil production when South Sudan became
independent in July 2011, worsening an economic crisis as oil was the
government's main source of revenue and of the dollars needed to pay for
food imports.
In June, the government launched a package of tough austerity measures
including scaling back fuel subsidies to close a fiscal gap, sparking
short-lived protests.
The central bank has also devalued the Sudanese pound, which had been in
freefall on the black market since the South's secession.
While some opposition figures have suggested the economy may be on the brink
of collapse, the IMF said the austerity plan, if fully implemented, would
largely offset the loss of oil which accounted for some 55 percent of state
income before the split.
"The picture is much, much brighter than it was in June (before the
austerity plan was launched)," Paul Jenkins, the IMF's resident
representative in Sudan, told Reuters.
"We are very encouraged by the direction of policies which go a significant
way towards resolving the challenges resulting from the loss of oil from
South Sudan."
But to close the fiscal gap, put by finance minister Ali Mahmoud at 6.5
billion pounds ($1.4 billion), the government also needs to improve tax
collection.
Sudan's tax yield, the ratio of revenues to gross domestic product (GDP),
was only 7 percent, Jenkins said.
"Sudan has a very low tax revenue yield compared to other countries in the
region and other countries with the same development level," he said.
"Kenya, another low income country, has a yield of 20 percent ... If they
moved half where a country like Kenya is they would have fully recovered the
loss of tax revenues from South Sudan's secession."
Analysts blame corruption and cronyism for lax tax enforcement with
authorities often granting tax exemptions for people with the right
connections.
INFLATION PEAKING?
Jenkins said scaling back of fuel subsides and other expenditures could
bring down inflation, which hit 41.6 percent in July, to levels seen at the
start of the year. In January, annual inflation was 19.3 percent.
"Contingent on firm implementation what they announced the inflation rate by
the end of the year could be where it was at the beginning of the year," he
said.
Jenkins said the IMF hoped for more steps, although a senior party official
has ruled out fully removing fuel subsidies until the end of 2013 to ease
social pressures.
"We encourage them continuing reforms. Fuel subsidies are very expensive and
benefit mainly wealthy people," Jenkins said. "Something (like) 60 percent
of the subsidies goes to the richest 40 percent of people."
Sudan's rising gold exports would help replace oil exports, which stopped
with southern secession as Sudan's remaining output is only serving domestic
consumption. The government hopes to sell gold exports worth $3 billion this
year.
Jenkins said boosting cotton exports would also help but would need time to
reform the agricultural sector, which analysts say has been mismanaged for
years.
"Sudan has a lot of potential for cotton," he said.
Sudan is unable to borrow from the IMF after failing to pay back loans.
Efforts to reschedule its bilateral debt of some $40 billion have been
complicated by the United States, which often criticises Sudan for human
right violations, diplomats say.
Washington has a trade embargo in place since 1997 over Sudan's past role
for hosting prominent Islamist militants. (Writing by Ulf Laessing; editing
by Ron Askew)
C Thomson Reuters 2012 All rights reserved
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Received on Mon Sep 03 2012 - 14:58:26 EDT
