ICG briefing: ‘Financing the Revival of Sudan’s Troubled Transition’

In advance of the donor conference co-hosted by the European Union, Germany, the United Nations, and Sudan, which will be held by video conferencing from Berlin tomorrow, the International Crisis Group (ICG) calls on donors to finance a cash transfer programme to offset price rises following Khartoum’s decision in January to lift fuel subsidies.

Sudan’s Council of Ministers should introduce new controls to safeguard these funds and begin outreach to build popular support for such changes, the ICG stated in a new Sudan briefing on Tuesday.

The Berlin donor conference scheduled for June 25 has raised hopes that Sudan’s international friends will step up to help. Yet, without urgent donor assistance to provide economic relief to a suffering population, public support for the Cabinet’s reform agenda could collapse.

“If popular frustrations at living conditions grow, the ensuing protests could destabilise a civilian-military government that barely hangs together, with possibly disastrous consequences for Sudan and the region,” the ICG warns.

“The state budget is deep in the red, amid crippling shortages of basic commodities, extended power outages and soaring inflation. Many sectors of the economy remain captured by elements of the previous regime and some within the current security forces.”

Furthermore, donor assistance has not arrived yet. Despite progress toward rescission, Sudan’s US State Sponsor of Terrorism (SST) designation remains in place. The Covid-19 pandemic has heaped further restrictions on economic activity, the briefing states.

‘Wasteful spending’

The Sudanese government, headed by Prime Minister Abdallah Hamdok, an economist, and Finance Minister Ibrahim El Badawi “have sought to cut down on wasteful government spending that is bleeding the treasury dry.

“In so doing, however, they have been careful not to squeeze military expenditures too abruptly, lest they provoke a backlash. Instead, they have begun to reduce the country’s immense subsidy bill covering imported fuel, which lately has drained hundreds of millions of dollars from the treasury every month,” the ICG explains.

‘If popular frustrations at living conditions grow, the ensuing protests could destabilise a civilian-military government that barely hangs together, with possibly disastrous consequences for Sudan and the region’ – International Crisis Group

“A cut in fuel subsidies carries the added benefit of undercutting Bashir-era elites who had positioned themselves as designated importers and thus could take advantage of preferential foreign currency exchange rates available for fuel purchases while overstating the amount they imported, thereby profiting handsomely. Addressing fuel subsidies is thus a crucial step allowing Hamdok to save the treasury from bankruptcy and repair the broken economy.

“In taking these steps, however, the prime minister will need donors to step up, notably to help cushion the impact of lifting fuel subsidies, a policy that is already inflicting higher prices on a hungry street that could protest again if frustrations boil over.”

‘Friends of Sudan’

The Crisis Group further points to the divergent interests of international stakeholders, including the Friends of Sudan support group*, that differ over which actors in the transitional government they consider reliable partners. For instance, Egypt, the UAE, and Saudi Arabia have demonstrated a preference for supporting Sudan’s military since the ousting of former President Omar Al Bashir in April last year.

“The SST designation and Sudan’s $3 billion in arrears and existing debt burden also preclude the World Bank and IMF from lending, although the EU has been actively exploring ways to circumvent this restriction. Saudi Arabia and the UAE, by contrast, have provided $750 million to Sudan since the fall of Bashir, although most of this money was channelled into the hands of the RSF and other military actors before Hamdok took office,” the ICG states.

According to the international think-tank, the 25 June Sudan Partnership Conference “is thus a significant opportunity for the Friends of Sudan and other partners to shore up the country’s fragile transition by funding a social safety net, especially as citizens begin to face higher costs resulting from subsidy removal.

“The immediate priority for donors should be to take steps to cushion the impact of the subsidy reforms. “The ICG refers in this regard to the Family Support Programme initiated by the Sudanese government that provides cash transfers to vulnerable households in and around Khartoum, in tandem with the lifting of fuel subsidies.

‘If the prime minister wants funds for the cash transfer programme to flow through civilian ministries, he should improve bookkeeping and auditing of these funds’ – International Crisis Group

In April, the Finance Ministry increased the civil servants’ salaries by an average of almost six-fold to help them cope with rising prices. “But the extra cost of these increases has made it even harder for the state to simultaneously pay for the new Family Support Programme unless it receives external assistance.”

Improvements needed

Sudan itself should build more confidence among donors and its own supporters. “If the prime minister wants funds for the cash transfer programme to flow through civilian ministries, he should improve bookkeeping and auditing of these funds.”

Khartoum should also make a serious effort to inform the public about the downsides of fuel subsidies, and hold the delayed Sudanese economic summit in order to gather broad-based views from across society.

The Cabinet should restart preparations for these initiatives, the Crisis Group advises.

“Sudan's transition could easily veer off course without a reinvigoration of the country's economy. Its government should focus on meeting the expectations of a tired and frustrated population, demonstrate that it can deliver benefits to the people and ease the short-term pain caused by overdue economic reforms.

“But to succeed, the civilian cabinet will require international support to bolster its position within the hybrid transitional government. Donors should come together and back Khartoum’s efforts. Failure to do so could jeopardise the transition, with tragic consequences for the people of Sudan and the region,” the briefing concludes.

* Members of the Friends of Sudan are Canada, France, Egypt, Ethiopia, Germany, Italy, Japan, Kuwait, the Netherlands, Norway, Qatar, Saudi Arabia, Spain, Sweden, the UAE, the UK, the USA, the African Development Bank, the AU, the EU, the League of Arab States, the UN, the International Monetary Fund and the World Bank.

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