IMF Remedy Doing More Harm Than Good in Sudan
Bread prices in Sudan have been rising since the Parliament’s passing of the government’s 2018 Budget. This Budget eliminated wheat subsidies which have in turn caused a sharp increase in the price of bread and other basic living expenses. The price of bread nearly doubled within the first week of the new budget passing. In addition, the Sudanese government devalued its pound from 6.7 pounds to the dollar to 18 pounds to the dollar.
Unsurprisingly, this suddenly-added cost of living has brought protests as the price of bread rises. Some of these changes have been fatal: a student died during one of the protests in early January. The Sudanese people are now struggling to survive with basic living expenses so high, and are outraged that the government is allowing, and even forcing, these price increases to happen.
Sudan’s economy has been largely closed off from the rest of the world since South Sudan’s secession in 2011. South Sudan took a majority of the oil reserves and foreign direct investment with them when they left. Consequently, Sudan’s economy is in ruins- no oil, no investment, and no new incentive for outsiders to invest. Even before the 2018 Budget was passed, the inflation rate was nearly 25%. There is also an extreme lack of hard currency which has contributed to the decline in Sudanese imports.
The Sudanese government is making efforts to reform the economy and create the possibility for growth. By slashing artificial subsidies and allowing bread to take its market value, it is following policies promoted by the International Monetary Fund (IMF). In addition, the budget was passed just months after the U.S. decided to lift sanctions which many believed would mean an increase in investment in Sudan. These IMF suggested policies have sometimes worked in the past, but with some notable failures as well, notwithstanding the devastating initial shock of the changes.
An example of success was in Bolivia, where there was extreme hyperinflation in the 1980s. On the advice of the IMF’s policy regarding economic stabilization, the Bolivian government increased the price of oil. The Bolivian government previously got much of its tax revenue from taxes on oil. With hyperinflation, the prices of items were increasing daily whereas the price of oil was increasing only every few months. Thus, the price of oil was relatively low during this hyperinflation period and was contributing to more inflation. To combat the inflation, the Bolivian government increased the price of oil, which majorly decreased the hyperinflation with the Bolivian economy eventually stabilizing.
Similar tactics have been used in Germany and Poland and have met with success. Nevertheless, similar mandates have failed, for example in Yugoslavia and Russia, suggesting that this policy cannot simply be applied to any country in a similar condition. There are also a few key differences between the previously successful policies and that being used in Sudan. To begin with, Bolivia raised the price of oil. Sudan, on the other hand, has raised the price of bread, a survival staple for its people. Evidence already suggests that the policy might not be successful in Sudan. In Bolivia and Poland, hyperinflation largely subsided within a week. In Germany, it declined massively in just one day. Sudan eliminated the subsidies for wheat over a month ago and has not yet seen successful improvements.
Hence, from what we have seen so far, the elimination of wheat subsidies is not taking Sudan on the road to stabilization. It has led to an increase in the price of bread, an increase in the price of other basic living necessities, discontent with the Sudanese government, conflict, violence, and political instability. Such conflict and instability are very unlikely to attract outside investment; the original goal of the 2018 Budget.
For now, it would seem that the best policy for the government is to work towards making bread and other necessities affordable to reduce the conflict and instability in the country. Only after making these short-term corrections will they be able to focus on long-term stability and eventual growth. Therefore, while there may be instances where IMF policies will result in success; this targeting of bread prices with no immediate success suggests that bread is not the correct good to be targeting. Bread is a survival staple for the people of Sudan and by increasing its price, the government hurts not only the people of Sudan but also the economy of Sudan and its chances for FDI.