The government devalued the Sudanese Pound yesterday with immediate effect. The official Central Bank of Sudan (CBoS) exchange rate of the US Dollar has been increased from SDG55 to SDG375 for purchase and SDG376 for sale at commercial banks.
At the parallel market the dollar traded at between SDG350 and SDG400 in the past weeks. The CBoS decision led to an exchange rate of the dollar at the parallel market of more than SDG380 yesterday. The official exchange rate on the website of the Central Bank of Sudan has not been adjusted yet.
Last week, economic expert Sidgi Kaballo expected the US Dollar exchange rate to rise to SDG600 by May “unless the government takes urgent measures”.
Finance Minister Jibril Ibrahim said at a press conference in Khartoum yesterday that “unifying the currency” (setting the official exchange rate at the parallel market exchange rate) will bring Sudan stability, stimulate remittances from Sudanese living abroad, and attract foreign investments.
The decision will also stimulate exports, help to receive revenues through official channels, and make sure Sudan can be included in the Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, he added.
According to Ibrahim, the new financial measures will not result in a floating currency. “A flexible exchange rate is being managed. The CBoS can intervene in case there are any difficulties.” He claimed that foreign currency reserves are available to intervene, however he declined to disclose the size of these reserves.
The Finance Minister stated that the decision was “not dictated by any external party”, but taken by the Sudanese government in consultation with experts. International donors and institutions as the International Monetary Fund (IMF) have repeatedly demanded economic reforms as a precondition to settling Sudan’s $65 billion foreign debt.
At the beginning of January, the Sudanese Ministry of Finance and the US Treasury Secretary Steven Mnuchin signed a Memorandum of Understanding to liquidate Sudan’s arrears to the World Bank and enable Sudan to obtain more than $1 billion.
Finance Minister Ibrahim stressed at the press conference yesterday that the government has taken measures to control the supply and demand of foreign currencies and has ensured an uninterrupted flow of certain commodities for a sufficient period of time.
He stated that the financial decisions “do not include an increase of the customs dollar”. He also noted that the government will work to raise the customs tariff for luxury goods, which include private cars.
The Finance Minister expects the measures “to lead to stability, improvement of the exchange rate, and elimination of all causes of inflation”. In January the inflation rate was 304.3 per cent, in December 2020 it was 269.3 per cent.
Ibrahim stated that the government is ready to face the implications of the devaluation. He explained that the government has set out a programme to support poor families at a rate of five dollars per person per month (with a maximum of $13 per family). This programme will cover 80 per cent of all Sudanese. He also mentioned the ‘My Goods Programme’, which guarantees the provision of basic commodities at reasonable prices and supports cooperatives.
The prices of basic commodities will not be affected by the unification, he said, “because the government still controls their import and sets their prices”.
The governor of Central Bank of Sudan, Mohamed Zeinelabidin, announced yesterday that funds from donors for social support will be allocated as of today.
He also said that commercial banks and money changers will be allowed to determine daily exchange rates within a limited range set by the CBoS.
He added that CBoS will launch an electronic payment system with international financial institutions and banks such as MasterCard.
At the same press conference, Ibrahim El Sheikh, Minister of Industry and Trade announced customs duties will be raised to limit the import of luxury goods. International agreements agreed upon in the past will be adhered to.
Ibrahim El Badawi
Ibrahim El Badawi, the former Minister of Finance, supports the decision taken by the Ministry of Finance. He also said that “random borrowing from the CBoS” must be prevented as it can lead to a budget deficit, an explosive inflation, and an economic collapse. The government should also provide foreign currencies to the private sector so that companies can import strategic goods.
El Badawi questioned the feasibility of a managed exchange rate system, explaining that it would provide an ideal target for speculators who could kill it in its early stages, as happened during the era of the previous regime in 2018.
The head of the new UN Integrated Transition Assistance Mission in Sudan (UNITAMS), UN Special Representative of the Secretary-General for Sudan, Volker Perthes, reacted positively on Twitter. “Courageous decision by government of #Sudan to float the exchange rate. This will bring foreign support and enhance investments. As importantly: it demonstrates that the transitional authorities can reach consensus, take difficult decisions and carry them through.”
The US embassy in Khartoum was positive as well: “We welcome the Sudanese government’s courageous decision to move forward today with exchange rate reform. This decision paves the way for debt relief and significantly increases the impact of international assistance, much of which had to be spent before at an official exchange rate, delivering a fraction of its potential value to the Sudanese people. This decision will also help Sudanese companies and attract international investment, as both local and foreign companies will no longer encounter difficulties doing business in Sudan because of the dual exchange rate.”