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Sudan sees growth rising but peace weighs on budget

5/11/2005 5:42am

By Lesley Wroughton

WASHINGTON, May 11 (Reuters) - Sudan said on Tuesday it expects its economy to grow by as much as 9 percent in 2005 but budget spending will rise as post-conflict expenses mount from a new peace between the north and south.

In a letter of intent to the International Monetary Fund, which outlines the government's economic plans for 2005, Sudan said federal transfers to states would climb sharply to about 8.4 percent of GDP from 1.6 percent last year.

The plan is the first under Sudan's newly-formed unity government, following a peace agreement in January between the Khartoum government in the north and rebels in the south, that ended Africa's longest civil war.

But tribal violence, which the United States has called genocide, still plagues Sudan's remote western region of Darfur where tens of thousands of people have been killed and more than 2 million driven from their homes.

Unlike other countries with conflict, Sudan's economy has averaged 6 percent annual growth in recent years due to its oil wealth and healthy levels of foreign business interests from Asia and the Middle East.

"We will continue to implement prudent economic policies in 2005 with the aim of maintaining macroeconomic stability and sustaining economic growth while meeting the demands of the implementation of the peace agreement and the expenditures associated with the situation in Darfur," the government said.

The foreseen rise in economic growth in 2005 will be mainly due to increased oil output in the second-half of the year when new oil wells come on-stream, it said, projecting oil revenues will rise by about 2 percentage points of GDP in 2005.

"We expect private inflows to remain strong and responsive to our policies, especially given the assumption of peace, and to continue playing an important role in funding the balance of payment," said the letter of intent posted on

The government said peacetime needs and a tapering off of oil export growth will cause its external current account deficit to rise about 6 percent of GDP in 2006 from 4 percent last year.

"The current account deficit will be financed, in part, by private capital flows, some project financing and on-going international humanitarian aid (for south Sudan and Darfur)," the government said.

It estimated it would need extra donor support of about $400 million to $500 million to finance the external current deficit in 2005.

The government said demands by the new peace would also make it more difficult to service its foreign debts.

At the end of 2003, Sudan's stock of public and publicly guaranteed debt was about $25 billion, of which about $21 billion was in arrears.

"Any shortfall (or even delay) in donor assistance or a negative shock in oil prices would further limit our capacity to service the debt obligations," the government warned.

It said it was making partial debt service payments to almost all of its multilateral creditors and to several bilateral Arab funds, that were contributing to social projects in Sudan.

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