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Tuesday, 19 January 2021

Sudan inflation soars, raising spectre of hyperinflation

Sudan is counting on a reform programme drawn up with the IMF to help get control of the deficit

Reuters , Sunday 29 Nov 2020
Sudan
FILE PHOTO: Sudanese residents shop in a bazaar in Khartoum, Sudan, May 4, 2019. REUTERS
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Inflation in Sudan has risen to one of the highest levels in the world, and the country risks slipping into hyperinflation unless it gets its budget deficit and money supply under control, economists say.

The runaway prices have worsened an economic crisis for millions of ordinary Sudanese and imperilled a political transition under a military-civilian power sharing deal.

The government has run up enormous budget deficits by subsidising the cost of fuel, then financed the deficits by printing money.

This has debased the currency, weakening it against other currencies and driving inflation up to annual 230% in October, according to the state statistics bureau.

The skyrocketing prices have led many consumers to spend their salaries quickly, particularly on durable items that hold their value.

Idrees Abdelmoniem, who works in marketing at an engineering company in Khartoum, said he had snapped up car spare parts and furniture, but was not as quick with food and drink, whose prices were not increasing as fast.

"If I have something I want to buy outside of the monthly house supplies, I buy it as soon as I get money, and I won't even try to haggle because tomorrow it could be double the price," he said.

Central bank figures show the scale of money printing by the authorities with the M2 money supply measure increasing by over 50% in the year to end-September. In September alone M2 rose by 7.13%.

Steve Hanke, a hyperinflation specialist at Johns Hopkins University, calculated that on a monthly basis, the inflation rate has accelerated to about 24% a month, dangerously high, but still below hyperinflation, generally defined as 50% a month.

He placed Sudan among the five countries with the highest inflation.

"It's pretty scary," he said, adding that it was hard to predict what direction inflation would go from here.

SUBSIDIES

A U.S. decision to remove Sudan from its list of state sponsors of terrorism has provided little immediate relief from the economic crisis and the country has turned to the International Monetary Fund for help.

Sudan is counting on a reform programme drawn up with the lender to help get control of the deficit, exacerbated by decades of U.S. economic sanctions and by economic mismanagement under President Omar al-Bashir, who was ousted in a popular uprising in April of last year.

Gross domestic product (GDP) contracted by more than 2% in both 2018 and 2019 and is expected to shrink another 8.5% in 2020 after being walloped by the coronavirus pandemic, Sudan told the IMF in September.

The one-year staff-monitored programme signed with the IMF commits the transitional government to reforming energy subsidies and reducing government borrowing from the central bank, among other reforms.

The programme is designed to provide a track record that would qualify Sudan for debt relief from its official creditors.

"The issue of hyperinflation is real, and it requires serious attention," said Ibrahim Elbadawi, who stepped down as Sudan's finance minister in July.

"The starting point should be the subsidies, because that will have unquestionable implications for the finances of the government."

Fuel subsidies, which account for 71% of all subsidies, were equivalent to 10.6% of GDP in 2019, according to the IMF.

The government this year began allowing private companies to import petrol and diesel at near market prices and has gradually reduced the number of stations where subsidised fuel is sold.

Last month it doubled the price of locally produced petrol to 56 Sudanese pounds a litre, still among the lowest levels in the world. It says it stopped subsidising petrol and diesel altogether as of September.

The reforms should reduce fuel subsidies to 2.2% this year, the IMF said, but imported fuel will further stretch people's resources as a collapsing currency pushes up its local price.

This week one U.S. dollar bought 255 Sudanese pounds on the black market, up from about 85 pounds a year ago. At the official rate a dollar fetches 55 pounds.

"Because of the gas situation, I’ve literally stopped going further than a 9 kilometre radius," said Huda Khalid, who considers herself relatively well paid as a primary school teaching assistant at a private school. A 50% salary raise has done little to help.

"Electricity, gas money, internet, and groceries for a week and my salary is basically gone. For the rest, my dad sends money from Oman."

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