Global Financial Crisis and Its Impacts on the Sudan Economy

This study aims at examining the impacts of the global financial crisis on the Sudanese economy. It finds that the crisis has deteriorated the terms of trade, lowered both exports and imports, slowed down foreign direct investment (FDI), caused remittances to drop, lowered aid and widened the deficits in the current account and the balance of payments. Growth declined by 4% of gross domestic product (GDP) in 2009, from 10.2% in 2007 and 6% in 2008. Budget revenues declined sharply by more than 50% in 2009 and government expenditures slowed with regard to service delivery, development and transfers to sub-national governments and to the Government of Southern Sudan (GoSS). Expected impacts on stock and financial markets were very low given the lack of direct links to international markets and the absence of foreign investors in the Sudanese market. The Government of National Unity (GNU) responded to the decline in oil revenues by swiftly increasing VAT, from 10% to 15% in 2007 and to 20% on telecommunications in 2008, introducing a development tax of 5% and scaling up customs duties on imported cars and luxuries. It also expanded internal borrowing through the sale of Government Musharaka Certificates and resorted to deficit financing to meet spending needs. Scarcity in foreign currency inflows led to a drawing down on the country’s foreign reserves to finance critical current and development spending. The government pegged local currency to the euro. This depreciated as a result of deep recession, which led to further depreciation of the Sudanese pound. In turn, incapacity and structural rigidities in the economy meant that Sudanese non-oil exports did not become more competitive.