Sudan adopts Central Bank-regulated economic regime

Since the coup that overthrew dictator Omar al-Bashir in April 2019 after months of demonstrations, Sudan's economy has been plunged into a serious crisis, inherited from the old regime and threatening social peace and the fragile process of democratic transition led by a civilian-military junta.  

Several main roads in the east of the capital and in Ummdurman, a town east of the Nile, were blocked by protesters using stones, tree trunks, old car wrecks and burning tyres, AFP reported. Police used tear gas to disperse the protesters, the news agency's correspondent said.  

Sudan adopted a managed floating exchange rate regime on Sunday to meet the demands of the International Monetary Fund (IMF), with the risk of driving up prices and fuelling popular discontent.  

This measure is part of a series of reforms launched by Khartoum to attract foreign investment, but also to alleviate its crushing debt and facilitate access to loans from international institutions such as the IMF to support the country in its delicate political transition. 

The economic situation is dramatic, debt has escalated to 49.3 billion euros and inflation reached 269% in December last year. The COVID-19 pandemic has only made things worse.  

Shortages are the norm, no matter what type of commodity, and rationing is the daily routine for the Sudanese, who have to queue for hours in front of petrol stations, bakeries and pharmacies for basic necessities. Power cuts are also frequent.  

The transitional government last week approved the country's first budget since its removal from the US blacklist of terrorist-supporting countries it had been on since 1993, and hopes it will lead to an improvement in the economic situation. Former US Secretary of State Mike Pompeo signed the rescission on 14 December. The blacklisting prevented foreign countries and international institutions from trading and investing in Sudan on pain of sanctions.  

"The transitional government has decided to adopt a set of policies aimed at reforming and harmonising the exchange rate regime through a managed floating exchange rate," the central bank said in a statement. 

The official exchange rate is now determined by supply and demand, but the monetary institution retains a regulatory role. 

On the black market, the dollar was trading at over 400 Sudanese pounds, while the official - and previously fixed - exchange rate was 55 pounds to the dollar. 

But the adoption of a floating exchange rate could drastically reduce the value of the Sudanese pound against the dollar and thus push up prices, with the risk of further fuelling popular discontent in this country of 40 million people. 

Recent weeks have seen demonstrations against the high cost of living in Sudan, where the annual inflation rate exceeded 300% in January, sometimes with clashes. 

In 2018, it was the tripling of the price of bread that triggered the popular uprising that led to Bashir's ouster. 

The central bank also announced restrictions on foreign exchange movements, such as a ban on going abroad with more than $1,000 in cash. As for access to international finance and investment, in early January Khartoum signed a memorandum of understanding with Washington on debt repayment with the World Bank, currently chaired by US President David Malpass.  

Last week, Khartoum elected a new government, one of whose priorities is the recovery of a depleted economy weakened by the pandemic.