Sudan aims to remove gradually all subsidies from sugar and petroleum products to increase government revenue as foreign exchange shortages hit the economy, the finance minister said on Thursday.
Analysts say years of overspending and oil dependency have caught up with Khartoum. Foreign investment has slowed because of the global financial crisis and a soaring import bill has caused inflation to rise and foreign exchange shortages.
On Wednesday, the parliament approved cutting one-third of the subsidies on petroleum products and raised the price of sugar as well as cutting the salaries of 149 top-level officials, all of which it said would free up some 2 billion Sudanese pounds.
But on Thursday Finance Minister Ali Mahmoud told reporters this was just the first stage.
"We will stop all subsidies gradually," Mahmoud said. Sudan only subsidises petroleum products and sugar.
He said subsidies on petroleum products cost 6 billion Sudanese pounds a year and the sugar subsidy was creating a huge import bill, adding much of it was not consumed locally but smuggled out to neighbours where prices were higher.
"Keeping subsidies in this area makes no sense," Mahmoud said. Two government finance officials told Reuters the removal of subsidies would likely be done in three stages with a second stage maybe in March/April, depending on how well the population absorbed the initial move.
Sugar is a strategic commodity in Sudan which produces around 750,000 tonnes of sugar a year, while consuming around 1.1 million tonnes.
But analysts criticised the step saying the government had not prepared the economy well enough before taking such a drastic measure which would hit the poorest in society.
"This is very serious because it will not help the economy at large - anything that is produced in Sudan in agriculture or industry uses petrol; production costs will go up," said economist Hassan Satti, a former finance ministry official.
Agriculture Minister Abdel Haleem al-Mutafi admitted agriculture would take a direct hit. Sudan's irrigation pumps use diesel and the government has said it could take up to three years to convert them all to cheaper electricity. Some 65 percent of Sudan's 40 million population are farmers.
"We have given $150 million in cash to an agriculture fund which also has a $100 million line of credit with the Islamic Development Bank," Mutafi told Reuters. "An industry fund has been given $100 million," he added.
But Satti said this was a paltry amount compared to the billions of investment needed to revive Sudan's decayed agriculture and industries, and would not offset the immediate hit of price rises on small producers.
A study done by economic consultancy UNICONS showed that between 75-80 per cent of Sudan's budget is spent on security and defence, even after a 2005 north-south peace deal.
The Finance Minister's package announced that low-level government workers and state pensioners would receive an extra 100 Sudanese pounds a month, but little else was announced to help the country's majority of vulnerable and poor.
Analysts said these salaries were already so low, the increase would not cover the rise in household expenditure.
State news agency SUNA said electricity prices would not rise.
Sudan's economic crisis comes as the south, which has around 75 per cent of its 500,000 barrels per day of oil production, looks to secede by July 9. Analysts say some oil sharing is likely to continue but how much has yet to be agreed.