The Sudanese council of ministers chaired by president Omer Hassan al-Bashir on Thursday approved recommendations put forward by the forum on financing state projects which included discussions on the controversial measure of accepting external loans with interest terms.
Sudan’s Islamic government asserts that it has a policy of rejecting any loan offers that involve interest, though some observers question whether that rule has always been adhered to.
Thursday’s meeting was attended by the Central Bank of Sudan’s governor, Mohamed Kheir al-Zubeir and head of the Islamic Fiqh (Jurisprudence) Council Esam Ahmed al-Bashir. The latter said that the decision was necessitated by the lack of domestic financial resources and therefore the need to resort to external avenues for loans.
However, he stressed that each loan will be reviewed on a case by case basis after exhausting all other Islamic-conforming options and that they are to be used only for defense needs and infrastructure projects.
Islamic law prohibits accepting the collection and payment of interest, also commonly known as ’Riba’. However, very few Muslim countries enforce this rule. The doctrine of necessity in Islamic legislation allows recourse to loans with forbidden interest in some conditions.
Esam said the ‘Riba’ is authorised when the state fails to borrow money through all the "acceptable" funding sources inside and outside Sudan. He also said that such loans should be used for a limited time and only for vital issues such as for defence purposes, and infrastructure projects.
The Fiqh council chief said that his body, along with the parliament and the board of Sudanese Islamic scholars approved the exception at the forum. He revealed that 43 scholars and experts from inside and outside Sudan signed off on it and that 19 studies were discussed regarding this issue.
The issue of loans with interest triggered during the past months a heated debate among the members of the Sudanese parliament.
Al-Bashir said that the government must work quickly to reverse the factors that caused the need for interest loans through increasing productivity, cutting spending, improving revenue collection and combating corruption.
Sudan’s finances have tightened since oil-rich South Sudan seceded from the north last year. A row between the governments in Khartoum and Juba over the transport fee of the crude oil through the pipelines led to suspending the production entirely earlier this year.
The country faces a budget deficit of 6.5 billion Sudanese Pounds ($1.4 billion) following South Sudan’s independence.
The government last month approved tough austerity measures which involved shrinking federal and local governments, raising some taxes, cutting petroleum subsidies and also allowed the local currency to float substantially against the US dollar. This further fueled inflation and did little to improve the availability of hard currency or the exchange rate.
The International Monetary Fund (IMF) has urged Sudan to launch emergency measures to overcome what it called "daunting" challenges.
Small demonstrations erupted in different parts of the country to protest against the measures but the government managed to swiftly quell them.
Sudanese officials argue that the economy will get better by next year, though they offer few details on the basis of their projections.
Khartoum hopes to make up to $3 billion from gold exports this year, double the amount from last year. It made $603 million by the start of April, according to the latest official data.
The targeted $3 billion in gold revenue for this year is still well below Sudan’s 2010 oil revenue of at least $5 billion. But the government hopes it will keep the economy afloat while it seeks a negotiated solution over oil export fees from South Sudan.
Because of US sanctions and a hefty $38 billion debt, few countries are willing to extend credit to Sudan. Officials in Khartoum revealed that China, with strong trade ties to Sudan, has stopped financing dozens of projects because of a lack of oil collateral as a result of oil-rich South Sudan seceding last year.