Outlook for 2011-12

• Southern Sudan is likely to become independent in July 2011, but the process is fraught with risks as the north and south need to agree on many contentious aspects of independence, including borders, oil and debt.
• The National Congress Party (NCP), headed by the president, Omar al-Bashir, will maintain control in the north, but the loss of the south will expose it to renewed challenges from opposition forces, including rebels in Darfur.
• The Southern People's Liberation Movement (SPLM) enjoys near total control in its region, but there is a risk that tribal conflicts may break out.
• We have revised our fiscal deficit forecast down to an average of 0.7% of GDP in 2011-12 owing to higher oil prices, but reliance on oil revenue is a concern.
• Real GDP growth is expected to ease from an estimated 5.2% in 2010 to an average of 4.2% in the forecast period as political uncertainty inhibits investment. Oil output will rise only marginally to 483,000 b/d in 2012.
• Foreign-exchange restrictions will be gradually eased, and we expect the Sudanese pound to continue to depreciate against the US dollar.
• Rising imports will cancel out any gains from the expected increase in oil prices, and the current-account deficit will widen to an average of 6.2% of GDP in 2011-12.

Monthly review

• Sudan's police have broken up protests in Khartoum and elsewhere, beating and arresting demonstrators. The government appears to be stifling opposition to prevent any mimicking of popular uprisings in North Africa.
• Southern Sudan's army have fought different tribal and political militias in several deadly outbreaks of violence in parts of Southern Sudan and Abyei.
• Sudan's national army has experienced heavy clashes with Darfuri rebels. The past three months have seen intensification in fighting in Darfur while international attention has been focused on the Southern Sudan referendum.
• The SPLM has stated that oil revenue sharing with the north will not continue after southern secession, preferring a transit fee arrangement. The north has not asserted its position yet, and prolonged negotiations are expected.
• Mohammed Khair al-Zubair, a finance minister during the 1990s, has replaced Sabir Mohammed al-Hassan as governor of the Bank of Sudan. This is unlikely to bring any great change in central bank policy or management.
• The Bank of Sudan is doubling the amount of hard currency Sudanese travelling overseas can buy, signalling a belief that pressure on the Sudanese pound has eased.