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Sudan to curb govt spending in 2011 budget
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Oct 27, 2010 - 6:42:50 AM


Sudan to curb govt spending in 2011 budget

Tue Oct 26, 2010 4:16pm GMT

* Sudan's 2011 budget aimed at curbing government spending

* Budget based on country still being unified in 2011

* Oil-rich south likely to secede in Jan. 9 vote

* Alternative budget prepared in case of secession -official


KHARTOUM, Oct 26 (Reuters) - Sudan's finance minister on Tuesday announced strict controls on government spending in the country's 2011 national budget, which was based on the assumption that the south would not secede in a Jan. 9 referendum.

In a joint news conference, Central Bank Governor Sabir Hassan said the bank would buy much of Sudan's 2011 increased production of gold to keep as part of its foreign currency reserves, which have come under pressure as the country struggles to control the depreciation of the Sudanese pound against the dollar.

The 2011 budget was passed by the cabinet on Monday but has yet to be tabled before parliament. Finance Minister Ali Mahmoud said he could not provide numbers before parliament passed it.

But he said the budget was aimed at encouraging Sudanese production and discouraging the import drive which has distorted Sudan's trade balance and helped cause inflation.

"There will be no rise in taxes and we will encourage domestic industry," Mahmoud told the joint news conference.

"All the ministries are being told: 'No spending over their budget'," he said, adding government bodies would have to buy Sudanese products before being allowed to import any goods.

Mahmoud said subsidies would continue on petrol for local consumption but that there would be no customs or taxes on key exports including gum arabic. He said Sudan would produce some 50 tonnes of gold in 2011.

Sudan is one of the world's largest producers of gum arabic, and the products are exempt from U.S. sanctions imposed in 1997.

Hassan said the central bank was continuing its injection of foreign reserves into the currency market, saying the rising dollar on the black market was because of political speculation ahead of the Jan. 9, 2011 referendum.

The dollar bought around 3 Sudanese pounds on the black market on Tuesday. The bank's indicative rate was 2.43.

Sudan runs a so-called managed float system, with the bank intervening if the rate goes 3 percent plus or minus the indicative rate, based on the previous day's transactions.

Hassan said the 2011 budget was based on an exchange rate of 2.70 to the U.S. dollar. He declined to say what level foreign reserves were at, saying: "It's not yet high, but it's much better than what it was before."

Sudan's foreign reserves reached less than 1 month of imports during the global financial crisis last year.

Hassan said the bank would replace some of the foreign reserves with gold production in 2011.

He added that he expected the annual 2010 inflation rate to average 13-14 percent.

Most analysts expect the south to become independent in 2011, and the state minister of finance, Marial Awour, told the news conference there was a second budget which would be published if the south decided to secede in the Jan. 9 referendum.

"We have a contingency plan, we have a budget ready and if today the south goes we can present it tomorrow," he said.

Both he and Mahmoud belittled any economic shock in a secession scenario as some sharing of the 470,000 barrels per day of oil was expected to continue until the south decided to build its own pipeline or refineries. They declined to give details of the contingency plan.

Most of Sudan's estimated 6 billion barrels of oil reserves are in the south but the refineries and port are in the north. Control of the country's oil was one issue that fueled a north-south civil war which ended with a 2005 peace deal.

The January referendum is the culmination of that peace process. (Reporting by Opheera McDoom; Editing by Hugh Lawson)

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