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      • Oil is still the burning issue in Sudan

Oil is still the burning issue in Sudan

Three months after the south seceded, Sudan's economy is floundering, with rampant food inflation, lost oil revenue and costly military campaigns becoming a serious crisis for veteran president Omar Hassan al-Bashir.

Mr Bashir has not faced a popular uprising like those that deposed other Arab leaders this year, but ordinary people are fuming as prices of sorghum, a staple food, have doubled.

 

The north lost 75 per cent of Sudan's oil production of 500,000 barrels per day when South Sudan became independent in July, which has sent the Sudanese pound into free fall, driving up the cost of imports.

 

Abda al-Mahdi, a former state minister of finance, said the economic crisis was very grave. "We're suffering from inflation. Urgent measures are needed," he said.

 

Annual inflation hit 21 per cent in August. On the black market, the pound is trading 60 per cent below the official rate despite central bank dollar sales to bolster the local currency.

 

Central bank monthly reports give no figures for foreign reserves. The bank has said it sold $500 million (£320m) in July alone.

 

Perhaps in desperation, the central bank governor asked his Arab colleagues in September to deposit $4 billion (£2.55bn) in the central bank and commercial lenders. None responded publicly.

 

Sudan is torn by instability in the border area with the south.

 

The army has battled rebels in South Kordofan for months. Fighting spread to Blue Nile state last month.

 

Mr Bashir, who seized power in 1989, has ruled out talks with insurgents, but the conflicts drain resources and stretch an army already fighting rebels in the western region of Darfur.

 

Sudanese households also feel the impact. Meat prices soared 41 per cent in August because fighting disrupted transport links to the cattle markets of South Kordofan.

 

The UN says grain harvests in the violence-hit states are now at risk.

 

"Blue Nile and South Kordofan are two of Sudan's main sorghum-producing areas. The latest fighting coupled with erratic rainfall means next month's harvest is expected to generally fail," the UN Food and Agricultural Organisation said this week.

 

"A 90kg bag of sorghum, which cost 70 Sudanese pounds (£16] earlier this year, is now 140 pounds (£32]."

 

The Sudanese Consumer Protection Society, which staged a meat boycott for a few days last month, plans more protests against food inflation.

Analyst Ali Verjee at the Rift Valley Institute said the economic crisis was worsening, but was not yet as dire as during the hyperinflation of the 1990s, adding: "As expected, the first quarter after secession has proved economically difficult for Khartoum.

The depreciation of the currency and accelerating inflation is increasingly concerning."

 

The International Monetary Fund expects Sudan's economy to shrink this year and next.

 

Experts had urged Khartoum to prepare for the loss of southern oil, but the government has been in denial, blaming a US trade embargo or insisting that all is under control.

 

After secession, Sudan's parliament approved a budget based on unchanged oil revenue. But diplomats say southern oil sales - worth $2bn (£1.3bn) until October - now go directly to Juba, while the small northern output mainly serves local consumption.

 

In September, the central bank governor said expenditures would have to be cut by more than 25 per cent this year.

 

Officials hope gold exports will compensate, predicting an output of 74 tonnes in 2011, a target analysts say is out of reach - Sudan's biggest mine produces just 2.3 tonnes a year.

 

Instead of pinning its hopes on gold, the government should focus on industry, agriculture and animal wealth, said Mohammed Siddiq, a Sudanese financial journalist.

 

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