Page 1 of 12

Journal for Studies in Management and Planning

Available at http://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 05

June 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 334

Injections into the Dutch Disease: Do IMF Packages and

Foreign Aids recover Sudan’s Economy?

Yagoub Elryah1 and Nai Qian Qian2

1PhD Candidate, Research School for Southeast Asian Studies, Xiamen University

2Postgraduate Candidate, Research School for Southeast Asian Studies, Xiamen University

No.422 Siming Nan Lu, 361005, P. R. China, Fijian, Xiamen

*Correspondent Author: yagoubelryah@hotmail.com, +8618559254130

Abstract

The secession of South Sudan has rendered the

political, security, economic and social situation of

Sudan fragile. Thus, the IMF packages and foreign

aids had yielded some positive returns on Sudan

economy recovery. This study focused on the foreign

aids and recent economic reforms which are conceived

to be relevant in the sustainable economic recovery in

Sudan. We analyzed the effects of foreign aids IMF

packages on Inflation and exchange rates using an

augmented Fischer-Easterly model for the panel data

from 1985-2014. The results show that Sudan will face

in upcoming five years gap in balance of payments and

debts crisis harder than current situation compared to

those of another country who adopted the same policies

becomes lower over time. The results also show that

shortage of foreign currencies is the main factors

affecting Sudan’s economy.

Keywords: Foreign Aids, Economic Recovery, Dutch

Disease, IMF Packages, Natural

Resources.

1. Introduction

Sudan experienced long civil wars which have

led to a huge of devastation of the human and social

capital. Thus, Sudan has lost both South Sudan and

high skilled workers. However, following the

secession of South Sudan in July 2011, there is

increasing interest in attracting Foreign Direct

Investment (FDI) and foreign aids to recover Sudan’s

economic decline and decrease in foreign

currency reserves to balance the budget deficit, trade

balance for financing the development. For instance,

both the IMF and Qatar target to rebalance the

economic situation and to stop the decline of foreign

currency reserves. In particular, the IMF introduces

the reform package, the non-oil real GDP growth

showed 4.6% reflecting a slowdown in economic

activity. Inflation rate reached 44.4% in 2012,

largely driven by the monetization of the fiscal

deficit and a weakening exchange rate. After

introducing the IMF’s package the consumer price

inflation rate fell to 27.1% on mid-2013 from 44.4%

in December 2012 (Addis Ababa, 2012). While the

reserve money increased modestly by 4.6%,

compared with end-December 2012, largely

reflecting the drop in gold purchase by the central

bank.

Sudan has advantages to attract Foreign Direct

Investment FDI. Recently, it classified as number

two of the most attractive for foreign investment in

Africa and as number three in the Arab region.

Sudan has initiated and adjusted new policies to

attract foreign finance to fill the gap of loss of about

75% of revenue due to the secession of South Sudan.

The real GDP is estimated to have grown by -0.6%

and is projected to rise respectively to GDP in 2014

to an estimated 5.1% (The World Bank, 2014).

However, the inflation rate was 36.0% in

2014, up from 20.0% in 2011 and the increasing

inflationary pressures coupled with a high fiscal

Page 2 of 12

Journal for Studies in Management and Planning

Available at http://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 05

June 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 335

deficit of 4.4% in the face of continuing United

States sanctions and the binding domestic borrowing

constraint could incur political instability and reduce

potential social development (African Development

Bank Staff, 2014).

In Sudan, more than 70% of its total

population working in agricultural industry, and

although the majority of people are engaged in

agriculture, it accounts only for 34% of gross

domestic product. It is one of the most agricultural

countries in the world with cultivable land estimated

to be around 200 million feddan (Kabbashi, 2010).

Thus, Sudan has suffered severe financial crisis with

the demise of 75% of its oil revenues that

represented over 90% of its foreign currency after the

secession of its Southern part after a constitutional

referendum (Elryah Y., 2014).

2. The Declining of Sudan’s Economy

In 2013, the Bank of Sudan (The Central

Bank) reported that after the secession of South

Sudan, Sudan has lost 75% of oil revenues, the

alternative policies is to develop the agricultural

sector, which becomes one of the growing sector,

where there are more than 60% of population work

in, which provides 90% of the national food

requirements, consists 70% of exports and 60% of

GDP in 2013 (Siddig and Mubarak 2013). However,

foreign aids, loans and IMF package were considered

important elements of the post-secession of South

Sudan development. Therefore, Arabic countries

promised to help Sudan through aids and invest in

the agricultural sector, this comes after the signing of

the Al-Doha peace in Qatar in 2010.

Sudanese economy has been plagued by large

budget deficits since the secession of the South

Sudan and lost 75% of oil revenues. The Sudan

experienced deficit budget, which lets the

government, borrows from foreign financial

institutions to recover it is expenditure on goods and

services and transfer payments exceeds tax revenues.

Thus, the expenditures are greater than its tax

revenues, the government policy are to borrow from

abroad, which causes increasing in the national debt

or by printing bank notes, which will increased the

inflation.

However, crude oil export has contributed

significantly to the Sudan’s GDP, which was account

for 90 percent of Sudan’s total export revenues in

years from 2005-2011 (Elryah Y. 2014) and it was

estimated around 65% of Sudan’s GDP (Almosharaf

and Tian, 2014). Thus, the oil revenues put the real

exchange rate on an appreciation path.

Despite the high revenues from the crude oil

at that time, the policy makers did not diversified the

GDP. The ignorance of the agricultural sector, which

Sudan has comparative advantages of many

agricultural products such as live stocks, Cotton and

Gum Arabic.

The Sudan’s economy is still suffering and

has to recover even further to play its due role in

foreign aids and structural program in economic

activity in Sudan. According to (Hassan, 2014)

Sudan still imports some foodstuffs with the

potential for production of these foodstuffs in the

country; one can say that agriculture has not met one

of the main contributions expected from it. The study

clearly specifies that it lagged economic activity. It

seems that the current IMF packages, economic

reforms and phenomenal growth in the foreign aids

do not seem to enhance the Sudan’s economy.

After South Sudan become independent,

Sudanese authorities agreed to share the oil ravenous

with South Sudan by 25% and 75% respectively. In

May, 2012, the first dispute has brought between the

two countries, due to the Sudan control the oil

revenues, the conflict erupted between the two

parties has caused the shutdown of oil production.

The shutdown of oil pipelines has contributed to

creating severe macroeconomic imbalances and

deteriorates considerably the economic conditions in

Sudan.

Page 3 of 12

Journal for Studies in Management and Planning

Available at http://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 05

June 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 334

Sources: World Bank and Bank of Sudan (Central Bank)

Figure 1: Sudan’s Economic Growth (GDPG %), 1999-2013

Fig. 1 shows that the average real GDP

growth was 5.4% during the period 2008-2010

compared with a growth rate of 2.8% in 2011. Real

GDP is projected to contract by -7.35% in 2012. The

falling oil revenue also contributed to a slight

deterioration in the fiscal deficit of 3.1% of GDP in

2010 to 4.3% in 2011, and is projected to decline

further to 8.6% of GDP in 2012. Similarly, the

current account deficit of 7.5% of GDP in 2011 is

projected to deteriorate further, with a deficit of

8.6% of GDP projected in 2012. The Figure bellow

shows that the GDP is recovered from -10% in 2012

to -5.5% in 2013, which reflects to the impacts of

Qatar aids and IMF packages.

The Bank of Sudan (BoS) issues bonds or

Musharaka Certificates (GMCs) and other debt

instruments to finance the deficit. As a result,

domestic debt increased from SDG18.67 billion in

2008 to SDG22.76 billion in 2011, which represents

an increase of about 22%. The domestic debt as at

December 2011 constitutes 12.7% of GDP.

Combined with the huge foreign debt overhang

(about USD38 billion), the financial situation of the

country remains very challenging.

Deficit financing and the pressure on the

exchange rate contributed to escalating inflation.

Average inflation surged to 15.3% in 2011 up from

13.0% in 2010, and is expected to increase to about

25% in 2012. The official exchange rate has been

kept at SDG2.7 per USD since April 2012, while the

parallel market rate was SDG5 per USD,

representing a difference of almost 50%. This

presents a serious challenge to the on-going

exchange rate anchoring.

This paper analyzes the impacts of foreign

aids, economic reforms, and IMF packages on

economic recovery in Sudan, using the data from

2006-2013. We assume there is a great effort to

recover the Sudan’s economy in order to distinguish

between the characteristics of foreign aids and

economic reforms. We consider three major factors

(i.e. foreign aids, economic reforms, and IMF

packages) as potential forces behind Sudan’s

economic recovery.

This paper is organized as follows: In section

2, we present an overview of Sudan’s economy and

develop a method for measuring the role of foreign

aids, economic reforms, and IMF packages. In

section 3, we explain the data resources and show the

estimated results for the impacts of foreign aids,

economic reforms, and IMF packages on recovery of

Sudan economy. Using the methodology suggested

in section 2. In section 4 we explain the factors

effecting Sudan’s economy. Finally, concluding

remarks are provided in section 5.