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As reported by www.trendsnafrica.com yesterday, Sudan has switched over to flexi exchange rate as against the fixed one to align the official rate with the rates in the black market for its pound against dollar. This was something the country agreed to the IMF to bring about macroeconomic stability and to avail funds from the IMF and other donors to find a solution to its perennial resource crunch and galloping inflation, which has touched 300%, one of the highest in the world.
Did the market react favorably to the decision? A few people say going by the market prices, the decision did not have much impact. They say prices of almost all products have gone up. Yet, it is too early to judge the impact since there would be a lag of several months to get the impact felt on the ground.
Protests were there in several regions over skyrocketing prices of essential goods. It is natural for the people to expect the succor at the earliest since they have gone out of their tolerance limit. The central bank governor said the exchange rate policy shift will be cushioned by international donors financing a project to support low-income families. The scheme offers US$5 per month each to around 80%of the country’s 45 million people. Sudan has also begun applying a dual banking system besides its traditional Islamic banking. This will encourage international banks to operate in the country bringing in funds and shoring up the local currency.
Analysts think that the positives are many for the currency float. Foremost is the increase in the foreign exchange supplies through expatriate remittances and increased flow of investments. US sanctions on the country, mismanagement and civil war and oil-rich South Sudan’s 2011 secession had had their toll on the country. The IMF mandated reforms — including reducing costly subsidies, aimed at securing debt relief and attracting investment are designed to salvage the debilitating economy of the North African country.
Sudan’s level of foreign currency holdings is reported to be approaching exhaustion. However, the quantum of reserves was not divulged by the authorities. In October, Sudan signed a peace deal with rebel groups that observers hoped would end long-running conflicts in the country’s far-flung regions. Last month, the government approved this year’s budget and it is aiming for inflation of 95% by the end of 2021.
