By the time Dhahab seized power, Sudan's economy was in shambles. The country's international debt was approximately US$9 billion. Agricultural and industrial projects funded by the International Monetary Fund and the World Bank remained in the planning stages. Most factories operated at less than 50 percent of capacity, while agricultural output had dropped by 50 percent since 1960. Moreover, famine threatened vast areas of southern and western Sudan. 

The TMC lacked a realistic strategy to resolve these problems. The Dhahab government refused to accept IMF economic austerity measures. As a result, the IMF, which influenced nearly all bilateral and multilateral donors, in February 1986, declared Sudan bankrupt. Efforts to attract a US$6 billion twenty-five- year investment from the Arab Fund for Economic and Social Development failed when Sudan mismanaged an initial US$2.3 billion investment. A rapid expansion of the money supply and the TMC's inability to control prices caused a soaring inflation rate. Although he appealed to forty donor and relief agencies for emergency food shipments, Dhahab was unable to prevent famine from claiming an estimated 400,000 to 500,000 lives. He also failed to end hostilities in the south, which constituted the major drain on Sudan's limited resources. 
 

Shortly after taking power, Dhahab adopted a conciliatory approach toward the south. Among other things, he declared a unilateral cease-fire, called for direct talks with the SPLM, and offered an amnesty to rebel fighters. The TMC recognized the need for special development efforts in the south and proposed a national conference to review the southern problem. However, Dhahab's refusal to repeal the sharia negated these overtures and convinced SPLM leader Garang that the Sudanese government still wanted to subjugate the south. 

Despite this gulf, both sides continued to work for a peaceful resolution of the southern problem. In March 1986, the Sudanese government and the SPLM produced the Koka Dam Declaration, which called for a Sudan "free from racism, tribalism, sectarianism and all causes of discrimination and disparity." The declaration also demanded the repeal of the sharia and the opening of a constitutional conference. All major political parties and organizations, with the exception of the Democratic Unionist Party (DUP) and the National Islamic Front (NIF), supported the Koka Dam Declaration. To avoid a confrontation with the DUP and the NIF, Dhahab decided to leave the sharia question to the new civilian government. Meanwhile, the SPLA kept up the military pressure on the Sudanese government, especially in Aali an Nil, Bahr al Ghazal, and Al Istiwai provinces. 

The TMC's greatest failure concerned its inability to form a national political consensus. In late April 1985, negotiations between the TMC and the Alliance of Professional and Trade Unions resulted in the establishment of a civilian cabinet under the direction of Dr. Gazuli Dafalla. The cabinet, which was subordinate to the TMC, devoted itself to conducting the government's daily business and to preparing for the election. Although it contained three southerners who belonged to the newly formed Southern Sudanese Political Association, the cabinet failed to win the loyalty of most southerners, who believed the TMC only reflected the policies of the deposed Nimeiri. As a result, Sudan remained a divided nation. 
 

The other factor that prevented the emergence of a national political consensus concerned party factionalism. After sixteen years of one-party rule, most Sudanese favored the revival of the multiparty system. In the aftermath of Nimeiri's overthrow, approximately forty political parties registered with the TMC and announced their intention to participate in national politics. The political parties ranged from those committed to revolutionary socialism to those that supported Islamism. Of these latter, the NIF had succeeded the Islamic Charter Front as the main vehicle for the Muslim Brotherhood's political aspirations. However, policy disagreements over the sharia, the southern civil war, and the country's future direction contributed to the confusion that characterized Sudan's national politics. 

In this troubled atmosphere, Dhahab sanctioned the promised April 1986 general election, which the authorities spread over a twelve-day period and postponed in thirty-seven southern constituencies because of the civil war. The Umma Party, headed by Sadiq al Mahdi, won ninety-nine seats. The DUP, which was led after the April 1985 uprising by Khatmiyyah leader Muhammad Uthman al Mirghani, gained sixty-four seats. Dr. Hassan Abd Allah at Turabi's NIF obtained fifty-one seats. Regional political parties from the south, the Nuba Mountains, and the Red Sea Hills won lesser numbers of seats. The Sudanese Communist Party (SCP) and other radical parties failed to score any significant victories