*This Article was written a month before the break-out of armed conflict in Sudan. I still believe it to be an explainer of some value as to how we all got here*
Sudan is experiencing an economic crisis that is making Egypt’s economic apocalypse look stable in comparison. In case you were not following up on Sudanese economics, the Sudanese pound depreciated by 950% over the past four years, with the currency plunging to an average of 570 pounds to the dollar from 375 pounds to the dollar since it was floated in February 2022. Official inflation has eased from a high of 359% in 2021 to above the 150% last year , making basic good unaffordable. Experts state that acute hunger is now affecting around 9 million people out of the approximately 44 million population, and the country’s poverty level has reached 65%. Sudan’s economic freedom score on the economic freedom index is 32.0, which is a catastrophic 16.8-point overall loss of economic freedom since 2017, placing the country in the “Repressed” category. And repressed Sudan remains, in more than one way, especially since the October 2021 military coup, which removed the transitional civilian government from power.
Following the October 2021 military coup d’état, besides its currency and inflation woes, Sudan has witnessed a significant decline in petroleum production, denial of aid and debt relief, and the loss of traditional markets. Additionally, when the Central Bank of Sudan stated in its annual report for 2022 that the country’s exports amounted to $4.357 bln, the majority of which were in gold exports, mostly from gold mines owned by Sudan’s Security Apparatus.
Given their complicity in staging a coup, causing economic devastation, clashes that left many civilians dead, and their sole economic beneficiary status, one would expect the “Western community” to sanction those generals at the very least. Unfortunately, the opposite has been happening, with many of those democracy-supporting countries pushing a reconciliation /power-sharing agreement last December that would mainly protect the generals from any accountability, and hailing it an important step in supporting “Sudan’s transition to a civilian-led government”. The list of those hailers includes Special envoys from the European Union, Britain, France, Germany, Norway, and the U.S. as well as the Secretary-General of the United Nations, António Guterres, who called it a ‘positive development’ in the political situation in Sudan.
The framework agreement, according to all those envoys and parties, will be the first step toward the establishment of a civilian-led administration, which would get Sudan ready for elections in 2024 and, ideally, bring an end to the escalating “economic humanitarian catastrophe” there. This talking point is especially amusing considering the actions of democracy-loving Western countries and their institutions were also the largest contributors to this specific financial collapse. Let’s talk about it.
Before we get into it, it is important to state an important fact: Sudan has suffered decades of western sanctions that have led to the creation of an incorrigible shadow economy, with parallel currency markets and a smuggling-based black market. While the official terms would be an “inefficient market”, in practice this means that conventional economic indicators cannot be trusted to showcase the full picture economic picture, whether positive or negative.
In layman’s terms, if the official economy is officially growing, that means that the shadow economy is also booming, and if the official economy is shrinking, then the shadow economy can provide a buffer against the negative economic consequences. But in all cases, if the conditions that cause the shadow economy to cease existence, not only should the entire economy improve, but this could also lead to a more efficient market, one with more economic freedom, stability, and reliable indicators. And in 2021, Sudan had a once-in-a-lifetime opportunity to do just that.
In December 2020, the removal of Sudan from the US State Sponsors of Terrorism List allowed the Sudanese government to receive US financial aid and further normalize engagement with international financial institutions, mainly the IMF, the world bank, and the Paris Club of creditors. Sudan needed the IMF’s support, owed the World Bank some money, and the Paris Club for its $60 bln external debt relief, most of which it owes to the Paris Club.
The international community supported Sudan’s economic stability by initiating discussions in January 2021 on canceling Sudan’s $60 billion debt, reaching the ‘Decision Point’ in July 2021, when major lending stakeholders would confirm the start of the cancellation process. The IMF started the process by announcing a $2.5bn extended credit facility for a 39-month program to “continue economic and institutional reform, enhance economic governance, and provide a safety net” for the Sudanese population, to get the ball rolling.
It should be noted that Sudan’s external debt of $60 bln, the main burden facing its new government, is mostly an overblown figure due to arrears and interest that was contracted during the Jaafar Nimeiry’s dictatorship in the 1970s and 1980. The Paris Club itself estimated that more than 99% of Sudan’s external debt with its members consists of arrears and late interest and that it consolidates around $23.5 billion. Furthermore, the Paris Club promised to cancel a total of $14.1 billion from that amount and reschedules the remaining $9.4 billion, which would be Sudan’s new official external debt. These rescheduled amounts will be addressed for debt relief when Sudan reaches the elusive decision point in July. Sudan would have to do two small key reforms first: Pay back old World Bank debt and do a currency devaluation first. Easy Peasy. What could possibly go wrong?
Sudan’s government performed its part. On February 21, the Sudanese currency was devalued, and the central bank announced a new regime to “unify” official and black-market exchange rates to overcome a devastating economic crisis and secure debt relief. In theory, the devaluation would help stabilize the currency, reduce smuggling and speculation, and attract remittances from Sudanese working overseas. In practice, it was the beginning of the end.
The previous official rate for the Sudanese pound was 55 pounds per U.S. dollar on the day of the devaluation, and by the end of it, the new official rate was 375 pounds to the U.S. dollar. This dramatic drop in value led to a huge inflationary wave in the country, with Sudan’s economy stagnating, and inflation exceeding 380% year-on-year in 2021 by some estimates. Nevertheless, the Transitional government kept its eyes on the prize regardless, and on March 26, Sudan settled its debt with the World Bank, completing the two conditions and their part of the deal. Now all they had to do is wait till the decision point in July, debts would be relieved afterward, funding would pour in, appreciating the currency and lowering inflation and all of the pain would be worth it.
And as promised, by the end of July Sudan had cleared the Decision Point, and the Paris Club had formally reduced Sudan’s external debt to $23.5 billion. Regrettably, instead of providing immediate assistance to alleviate the crisis, the talks stalled, and no funding was provided, leaving the transitional government to bear the burden of the economic turmoil and civil unrest. All of these problems have been compounded by the Ukrainian Conflict, which has impacted Sudan’s wheat imports. Russia and Ukraine supply more than 80% of Sudan’s wheat imports, and the fighting has already disrupted shipments. By April 2021, the local price of wheat had risen beyond $550 per ton, a 180% increase over the previous year.
Meanwhile, the transitional government-led anti-corruption “Tamkeen” committee, which was created to investigate corruption and retrieve the illicitly gained assets of the previous administration, began to be too successful. They not only cleaned up the judiciary, but they also targeted and identified the NISS assets, the deposed Beshir’s intelligence service.
The Tamkeen committee’s continued success in reclaiming stolen assets and unwinding dubious operations began to threaten the military’s steadily increasing share of the national budget, in addition to military-owned firms that apparently run dodgy procurement procedures and tax exemptions. When the military refused to accept changes that would allow civilian oversight of its economic interests, the clash became inescapable. Viewing the administration’s declining popularity as an opportunity, the ground was prepared for a hostile takeover by the military, which it did in late October 2021, removing the civilian-led government.
The lending stakeholders and international community institutions, none of which had released a cent to the civilian government at this point, immediately announced an immediate halt to any financial arrangements they had with the Transitional government until the coup is over. The IMF suspended its program, and the Paris Club stated that the agreements to undertake the debt restructuring arrangement could not be signed until a civilian-led administration took control, making it possible to restart its program with the IMF. Western nations followed suit, and halted the creation of new bilateral projects with Sudan, with the exception of direct humanitarian support to disaster and conflict victims, and developmental assistance to civil society.
The rationale was that curtailing funding would put further pressure on the military by making the economy worse for the populace, producing even more turmoil and misery. Instead of limiting aid to the already suffering populace, the alternative solution of imposing sanctions on the individuals in the military who conducted the coup was never even considered seriously. If anything, it led to a clash in the Biden administration between Jeffrey Feltman, the U.S. envoy who favors sanctioning Khartoum’s generals, and Molly Phee, the U.S. assistant secretary of state for African affairs, who was dead set against any sanctions against the generals. Needless to say, Molly won. After all, we can’t risk upsetting the generals.
After the dust settled, it became clear that the political and economic situation had actually worsened due to Sudan’s government complying with requested reforms from international institutions. To add insult to injury, Sudan lost out on over $4.6 billion in much-needed foreign funding and assistance that was supposed to support projects in irrigation, agriculture, small-scale producers, energy, health, and water. Furthermore, their annual grant of 350,000 metric tons of wheat earmarked for the supply of subsidized bread to the urban poor was suspended. The most vulnerable in Sudan’s economic apocalypse were the first to pay the price and continue to until this day.
Nothing but Wins..
The major flaw of the western rationale of “regime change through economic pressure on its population” is that it can only work in democracies, and not in military states. With military states, it becomes a game of attrition with its population: who has the resources to survive longer? Sure, the economic pressure makes everyone miserable, but in the long run, they will be more obsessed with taking care of their family than revolting against the military. After all, the reason why people under military rule are under military rule is that they know that any clash with the state could and most likely will lead to their murder. Putting them under more pressure will not change that outcome; if anything, it will weaken their resolve and forces them to compromise to end their misery. Thus, the military had a vested interest in running the country as badly as possible for the population on every level, while increasing official financial taxes and fees on them to deplete their financial resources further. Leave them desperate and afraid.
The budgets allocated to ministries and state governments are running dry, and the quality of public services, such as infrastructure and water provision, has worsened. Income Taxes and fees increased, and the prices of public utilities like water, electricity, road tolls, and user fees for irrigation facilities have also increased, as well as custom tariffs on over 100 imported goods, which caused the prices of consumer goods to rise significantly. Same goes for medicines if they are to be found.
Strikes by civil servants demanding wage increases and improved working conditions became a common recurrence, and acts of extreme violence and horror commonplace. For example, the 15-year-old daughter of El Tayeb Yousef Osman, the former Secretary General of the Tamkeen committee was abducted and gang-raped from in front of her family home as a message for her father on the 7th of January in 2023 this year. This is a few weeks after December 5th, 2022, the power-sharing agreement that grants military immunity was signed. General AL Burhan, the head of the Junta, has been coy about his intention to run for President, while all the judiciary employees that were previously purged by the committee for corruption got reinstated, while many member of the committee got arrested instead. If you can’t tell, the western strategy has yielded nothing but Wins all around for the forces of democracy in Sudan.
Sudan’s economic crisis is far from over, and the most vulnerable in the country continue to suffer, needlessly and pointlessly. Given how the Western-hailed agreement protects the military’s interests and gives its leaders a chance of becoming the next rulers of Sudan anyway one has to wonder about the purpose of their strategy of cutting the funding to the population once the coup took place and exasperating this economic meltdown- and all the suffering it unleashed- in the first place.
All that this policy has accomplished, all that it did was devastate Sudan’s impoverished population further and denied them any accountability for their suffering, wasting their once-in-a-lifetime opportunity for an actual democratic civilian-led functioning state. And the worst part? The crisis that allowed all of this to happen could end with a snap of a finger, one that releases the western funding that Sudan needs, which would immediately lower inflation, help stabilize the economy, and appreciate the local currency. Why that didn’t happen in 2021 before or after the coup is beyond me. However, if one is cynically inclined, one would note that the current crisis and desperation it breeds has done nothing but benefit the generals, and we can not possibly upset the generals.