Sudan, a war-ravaged nation, is facing multiple challenges, including displacement and food insecurity. This catastrophic situation in the third-largest gold producer globally means the people of Sudan bear the severe consequences of the civil war and the attendant political instability that have bedevilled the country since the overthrow of El-Bechir in 2019.
Indeed, the menacing economic situation in Sudan predates the ongoing civilian war. For example, the elimination of wheat and flour subsidies in February 2018, coupled with consecutive devaluations of the Sudanese pound (SDG), caused shortages of essential commodities. In other words, an already depleting economy was only further exacerbated by the war. As a result, the economic crisis is at a critical point, disrupting public services, impacting agricultural activities, and resulting in dramatic price spikes.
Gold, oil resources, agriculture, and livestock are key sources of the country’s revenues. But the war has disrupted all facets of life in the country.
It is worth noting that the bad economic situation in Sudan is partly driven by the US financial sanctions that were imposed in 1997. In addition, the 2011 secession of South Sudan further affected the economy, as Sudan lost 75% of its oil production fields, its main source of revenue.
Displacement is a key implication of war
About 6.3 million people have been displaced inside and outside Sudan since mid-April, with over 5 million internally displaced, according to the latest data published by the UN Office for the Coordination of Humanitarian Affairs (OCHA).
“Inside Sudan, the humanitarian situation remains dire due to ongoing armed escalation and shortages of food, water and fuel, limited communications and electricity, and soaring inflation. Moreover, the civil war in the country has hit the health care services with significant shortages of medicines and vital supplies,” UNHCR said.
GDP growth projections
In October 2023, the International Monetary Fund (IMF) expected Sudan’s GDP to shrink by more than 18% in 2023 due to the war, highlighting that the conflict is destroying infrastructure and compromising access to basic services.
The IMF expects the country’s GDP growth to slightly recover by 0.3% in 2024, yet several factors could push the country’s real GDP growth to a further contraction, including supply chain disruptions, extremely high prices, lack of access to sound infrastructure, insecurity and unemployment.
“Extreme poverty (35.7% of the population) and hyperinflation will prevent demand from really picking up again in 2024. Inflation, fuelled by the war, will remain extremely high (in 3 digits), while the Central Bank will continue to monetize the public deficit.”
As an important economic indicator that reflects the overall health and performance of an economy, the reduction of Sudan’s real GDP growth will continue to translate into negative impacts on the country’s employment, people’s income levels, investment, government revenues, and ultimately public spending. This is a cause for concern for policymakers who closely monitor real GDP growth to assess economic trends, make informed policy decisions, and implement measures to stimulate growth if necessary.
Soaring inflation is a real threat
Inflation in Sudan has returned to its upturn after declining in 2022 to 138.8%, from its peak in 2021 of over 359%. In 2023, inflation in the country averages 256.1%. A high inflation rate means an eroding of the people’s purchasing power and an increase in the cost of living, with significant implications for the economy and people’s livelihoods.
Managing inflation is a key priority for the Sudanese government, and implementing effective monetary and fiscal policies, improving economic stability, and addressing structural issues are important steps in combating inflationary pressures. Yet, it could be a hard mission amid the raging war in the country.
Local currency depreciation is a colossal drag
As a response to the ongoing civilian war, the Sudanese pound significantly jumped from around 565/1 USD to almost 600/1 USD from April to December, with expectations that the Sudanese pound will maintain this downturn until the end of December of 2023.
Yet, amid the accelerated inflation, the country has decided to devalue the local currency against other hard currencies to stimulate demand and boost the economy.
Ironically, currency devaluation contributes to higher inflation, as it makes imported goods more expensive since it takes more units of local currency to purchase the same amount of foreign currency needed for imports. As a result, the prices of imported goods and raw materials rise.
Food Insecurity is a significant concern
In today’s Sudan, “violence continues to spread, which could plunge millions more into hunger while making it harder for farmers to produce key staple crops as prices of seeds, fertilizers, and fuel are soaring while supply chains and trade routes to transport goods are disrupted,” said the World Food Programme (FAO).
Meanwhile, food prices in Sudan in 2023 are 29% higher compared to 2022 and 228% higher than two years ago, which fuels the soaring inflation in the country. As of June 2023, 30% of the population could not afford the local food prices, and, unfortunately, further spikes are expected in the coming months.
The Integrated Food Security Phase Classification (IPC) indicates that approximately 9.3 million people in Sudan require humanitarian assistance and are food-insecure. This includes over 3 million children under the age of five who suffer from acute malnutrition.
About 15 million people – 31 per cent of the population – are expected to be acutely food-insecure between October 2023 and February 2024. This is almost double the 7.7 million people who were acutely food-insecure between October 2022 and February 2023. This implies that the conflict and other aggravating factors have made an extra 7.3 million Sudanese acutely food-insecure.
Sudan’s agricultural sector, which is vital for the country’s economy, has been negatively impacted by the crisis. Conflicts and displacement have disrupted farming activities and led to reduced agricultural production. This has contributed to food insecurity and increased dependence on food imports, putting additional strain on the economy and the currency.
In a nutshell, the dire economic situation in Sudan will remain, if not worsen, as long as the ongoing war continues. All the economic indices signal a worse situation for the people who suffer the consequences unless the war stops and the policymakers start to work on radically addressing the impacts of the war, chiefly on the real asset of the country: the population.