Sudanese central bank changes currency regime
Central bank cuts official exchange rate sharply after years of major over-valuation
Sudan’s central bank has abandoned the country’s fixed currency regime, after years in which observers said official currency values were greatly inflated.
The central bank confirmed in a statement in Arabic on February 21 that it would unify the official and unofficial exchange rates. It said the measure was taken to tackle “structural imbalances” in the economy.
Central bank governor Mohamed al-Fatih Zainelabidine said the central bank would set a daily indicative rate for the Sudanese pound on February 21, Reuters reported. The first daily indicative rate was 375 Sudanese pounds to the dollar, a cut of more than 85% from the previous official value of 55 pounds.
The central bank website today (February 24) listed an indicative rate of 376.1 Sudanese pounds against the dollar. It also listed indicative rates for a wide range of other foreign currencies. The central bank sent a circular to banks setting a maximum profit margin between foreign currency buying and selling prices of 0.5%, Reuters said.
Zainelabidine said the measure was “not a float, but a policy of flexible management”, Reuters reported. Government officials said they had taken steps to streamline the buying of necessary imports and limit purchases of non-essential products, the news agency added.
The move may lead to an inflow of foreign aid to Sudan, a country suffering serious political and economic crises. Sudan has entered into an International Monetary Fund staff monitoring programme, which makes policy suggestions without supplying finance. The IMF staff strongly recommended that Sudan liberalise its currency regime.
Finance minister Jibril Ibrahim said unspecified foreign countries were going to supply funds to Sudan and the central bank could intervene on currency markets, Reuters reported. Sudan has had considerable financial support from Saudi Arabia and the United Arab Emirates in recent years.
The move appears to bring official currency rates in line with unofficial ones for the first time in many years. On February 22, inflation expert Steve Hanke said he estimated the Sudanese pound was trading at 365 to the dollar.
Hanke, a professor at Johns Hopkins University and a fellow at the right-wing Cato Institute, estimated the Sudanese currency had devalued by 72.9% since January 1, 2020. Using unofficial currency market values, he calculates that Sudan’s year-on-year inflation is running at 267%.
Officially, Sudan’s government says the country does not have a policy rate. But observers say the central bank’s Murabaha profits margin rate is used widely by Sudanese banks as a reference rate. That rate is extremely volatile, but is currently reported to be around 17.34%.
Sudan has long suffered from economic and political crisis, which has intensified in recent years. The country was ruled for 30 years from 1989 by Omar al-Bashir, an Islamist who took power in a military coup.
In April 2019, shortly after a military coup in turn removed al-Bashir, the UAE and Saudi governments deposited $500 million with the central bank.
The Sudanese government said the UAE and Saudis had promised it another $2.5 billion in aid. In October 2019, Sudan’s then finance minister Ibrahim Elbadawi said the government had seen only half of the promised $3 billion aid package.
Political upheaval
Zainelabidine was appointed central bank governor in March 2020 by Sudan’s prime minister Abdalla Hamdok, who also named Mohamed Ahmed Bushra Badawi as deputy governor. Zainelabidine replaced Badr Eldin Abdelrahim, who was appointed by the transitional government in December 2019.
Prime minister Hamdok is head of Sudan’s “sovereignty council”, an 11-person body with both civilian and military members.
The sovereignty council took power in August 2019, after a military regime had ruled Sudan for four months following the coup that overthrew president al-Bashir. Under a constitutional declaration issued in August 2019, the council is meant to end its rule in November 2022 and hand over to an elected government.
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