Sudan's Fiscal and Monetary Policy

       "Agriculture is central to the issue of rural poverty in particular and poverty in
general. Stressing agricultural and rural development helps to avert famines and
food insecurity, boost non-oil exports and  provide inputs to manufacturing, in
addition to producing wage goods. The issue of efficient allocation of such inputs
as credit, pesticides, fertilizers and energy is important, as the modern mechanized
sector claims most of the resources while the traditional rain-fed sector lags
behind. The World Bank Sudan Country Economic Memorandum (World Bank, 2003)
notes that in spite of the fast growth of output in agriculture by some 20 per cent
during the 1990s, there is evidence that poverty is on the rise, especially in the rainfed sector. This highly conspicuous jobless growth calls for an explanation. Critical
issues here include infrastructure and institutions (monopolies, credit, etc.).
      The federal/state fiscal nexus is also important. States are denied the authority to
levy taxes, yet they are expected to provide for social services (education, health,
etc.) out of meagre federal transfers  through the State Support Fund (SSF).
Although the level of public expenditure was cut drastically in an effort to reduce
budget deficit and to stabilize the economy, the structure of public expenditure
needs to be scrutinized to ensure effectiveness in combating poverty. Expanding
the revenue base is also an important issue.
       Sudan partially introduced Islamic banking  in 1984, and completely in 1992. It is
one of the very few countries in the world where the financial system is based
completely on Islamic principles. In this case, it poses the challenge of conducting
monetary policy on the basis of interest-free instruments. An interesting question is
how the cost of Islamic finance compares to the cost of finance according to the
traditional banking practices. Another issue is whether banks were restructured in a
way suitable for providing financial services according to Shari’a principles – an
issue which is very relevant to poverty reduction.
       Oil is starting to be an important factor  in the economic equation of Sudan. Oil
revenue (on account of crude oil exports, net profits from local sales, income from
Sudapet and bonuses) jumped from $63.5 million in 1999 to a yearly average of
about $700 million during 2000-2002. It should increase more dramatically starting
2005, reflecting the increase in the government’s actual share beyond the costrecovery phase. Oil exports now are four  times greater than  non-oil exports, and
government revenue from oil exceeds non-oil revenue. Attention needs to be
given to macro management in the medium term to avoid currency appreciation
and associated Dutch disease symptoms.
        The prospects of an end to the civil war in Sudan, the longest internal conflict in
Africa, present both opportunities and challenges. The mere end of this strife
should enhance the fortunes of the Sudanese economy, which currently hangs in 4
the balance. On the other hand, the eruption and intensification of the conflict in
Darfur recently has a clear and strong bearing on issues of growth, wealth sharing,
income distribution and poverty. It further underscores the regional/geographical
and ethnic dimension of poverty in the Sudan."
http://www.sd.undp.org/publications/Macroeconomic.pdf