Sudan’s already depleted oil revenues have shrunk by a further 20 percent – more than $700 million – after its main oil field was damaged and shut down in fighting with invading Southern troops, an economist estimated Thursday.
The projection came as the government announced that state agencies in the bankrupt country must slash their use of petrol while civil servants have to donate part of their salaries to support the army in the fight against South Sudan, which occupied Heglig.
“My estimate of the fiscal impact of the loss of the Heglig oil production, my very preliminary estimate, is it’s about 20 percent of revenues remaining after the South left” in July last year, said the international economist who asked to remain anonymous.
“It’s a significant fiscal hole,” he said, estimating the gap at 2 billion Sudanese pounds (almost $741 million at the official rate).
Even before South Sudan’s April 10 occupation of Heglig, the north’s economy was in a dire condition, economists said. The South separated last July, taking with it about 75 percent of the formerly united Sudan’s oil production worth billions of dollars.
Southern oil represented more than a third of Khartoum’s revenues and its largest source of hard currency, leaving the government struggling for alternatives since the independence. “Compared to a year ago, they’ve lost 55 percent of revenues,” the economist said.
Border clashes between Sudan and the South began late last month, leading to fears of a wider war. The oil-processing facility and export pipeline in Heglig were burned and damaged during the 10-day occupation by South Sudanese troops. Both sides blamed the other for the damage.
Ibrahim Yousif Gamil, a manager at the facility, said it was unclear when production could resume after the shutdown that began when the South seized the field.
Sudan declared last Friday that its army had forced Southern soldiers out of Heglig, but the South said it withdrew of its own accord.
Gamil said Heglig area output was 50,000-55,000 barrels a day, accounting for about half Sudan’s crude production.
The shutdown represents a major loss for the government, since it had earned significant revenue by selling its share of the oil on the domestic market.
After weeks of border clashes, Finance Minister Ali Mahmud al-Rasul has instructed state institutions and companies to set aside a chunk of their budget to the war effort, the official news agency SUNA reported late Wednesday. The funds would be transferred to “the account of the Campaign for Repulsion of Aggression,” and state employees must contribute two days’ salary.
“The minister of finance also decided on decreasing the weekly fuel quota for government vehicles by 50 percent,” SUNA said.
The economist said he is still assessing these and other measures announced Wednesday. While they are “a step in the right direction,” they are unlikely to stabilize the economy.
“There may be added fiscal costs because of the need to import oil,” he said, adding it is impossible to know the military cost of fighting with the South.
While the military already accounted for “a big part” of the national budget, details are murky, the economist said.
Since last year, inflation has continued to rise, exceeding 23 percent year-on-year in March, and Sudan’s currency has plunged in value. On the black market, one U.S. dollar sells for roughly double the official rate of about 2.7 pounds per dollar.
Sudan has also lost out on potential fees from South Sudan for use of its pipeline and port. In a key dispute, the two sides were unable to agree on how much the South should pay, leading the Juba government in January to shut its production after Khartoum began seizing the oil in lieu of payment.
Roughly $38 billion in foreign debt, along with U.S. economic sanctions, limits Sudan’s access to external financing.
The economist said that he is not yet aware of Sudan receiving any significant external financing from its Muslim allies.
The International Monetary Fund forecast Sudan’s real GDP to decline by 7.3 percent this year.