Nearly a year after the partial pound floating policy enforced for the Sudanese pound, the Central Bank in Sudan issued a decision to standardize the pound’s exchange rate, so that banks and exchange companies could set and announce buying and selling rates for currencies without interference from the Central Bank in the price setting process.
AlTaghyeer: Elfadil Ibrahim
The floating decision came after a significant plummet for the Sudanese pound against foreign currencies, particularly the dollar, which amounted to over 550 pounds, negatively affecting prices in the Sudanese markets, which depend by “85%” on overseas transfers.
The decisions issued by the Bank of Sudan, according to observers, indicate great confusion among the the coup government’s Ministry of Finance, headed by Dr. Jibreel Ibrahim, who recently criticized the policies of the Central Bank due to the rise in the dollar.
After which, the central bank’s governor was dismissed and replaced with another one linked with the ranks of the ousted former regime.
The new governor’s first decision was completely floating he Sudanese pound; an unprecedented measure taken by the new governor despite him having spent several years in the Central Bank’s management without issuing such decisions.
The new directive has directly reflected on citizen’s pensions, raising prices in all markets in the country by 25%.
Excellent Decision
Analyst and economic expert Dr. Al-Fateh Osman Mahjoub labeled the central bank’s decision to give banks and exchanges the right to determine the exchange rate of the Sudanese pound without interference from the Bank of Sudan as “excellent.”
He told AlTaghyeer that the decision was long overdue, and that it was enough to help redirect the expat remittances, immigrants’ transfers, and exporters, towards Sudanese banks instead of the parallel market.
The decision however, as per Al-Fateh, requires support from several government agencies that monitor the parallel market and intervene by technical means to ensure that the parallel black market is curtailed, and to prevent any harmful competition between it and banks.
Accommodating Merchants
Dr. Al-Fateh called for accommodating most, if not all, parallel market traders in official exchanges and for their cooperation with banks to help determine a fair price for the Sudanese pound against the dollar, to ensure that immigrants, expatriates, and exporters would accept the exchange rate agreed upon.
Pound’s Free Fall
Contradicting Dr. Al-Fateh is Dr. Osman Bersi, who believes that the Bank of Sudan circular that was issued represents a declaration of the complete free fall of both the pound and the Sudanese economy, in reference to last year’s procedures issued by the Bank of Sudan.
The floating the pound decision, issued last year by the Central Bank, moved the price from 55 to 366 pounds per one single US dollar, at a time when the parallel market prices were equal to 370 pounds. The official price was higher than the parallel, and this put the government in competition with the black market.
“We have now reached the stage of explosive inflation, with an increase of up to 1000% in prices, in contrast to the data issued by the government through the Central Bureau of Statistics on inflation, which are incorrect numbers because the markets lie with the statistics body’s numbers,” Bersi said.
“Whenever currency values drop, prices increase, and now we have reached the stage of disaster after the decision to float. The term “flotation” simply means the highest price in the market, and the results are catastrophic for the market and the agricultural and industrial sectors, which declined in favor of the service sector due to the flotation.”
Cautions and Requirements
Bersi has warned against flotation unless specific requirements are met, the most prominent of which is that the inflation rate be a single digit, as well as a growth rate between “4-5%.”
The economic expert also added that there was no growth at the meantime, and that the government deficit should not exceed “1.5%” upon issuing the decision to implement flotation –which has also not been achieved– and that the government deficit currently represents 12% of the gross national product.
“The investment rate is supposed to be around 40%, but now it stands at zero, and the savings rate does not exist,” he continued.
Stressing that all these economic indicators are necessary to start floating the pound, it is forbidden, according to economic theories, to float without meeting the requirements.
He concluded that the Ministry of Finance and the Bank of Sudan had committed an unforgivable sin, which would lead to a real disaster
Speculation Increase
The Secretary-General of the Federation of Chambers of Commerce, Al-Sadiq Jalal Al-Din Saleh, rejected the decision.
He told AlTaghyeer “we were not consulted, even though we are an original party to the case.”
Saleh noted that the floating the Sudanese pound decision will increase speculation in the market, and consequently deepen the economic crisis and move the country quickly towards the abyss, in terms of the fact that the decision does not completely fit with the current situation, but rather complicates it.
Bewilderment
Currency dealers in the parallel market made it clear to AlTaghyeer that they are currently studying how to take advantage of the decision that will put them in competition with banks.
They said that the parallel market is currently witnessing confusion, and that the price was not stable, but during the next two days “the vision will become clearer.”
They pointed out the necessity of changing the term black market to the parallel market following the liberation decision that put at an equal footing with banks.
A Comparison
The economic researcher, Babiker Ahmed Abdullah, described the previous policy as “liberalization according to a free price” that was flexible and managed by the Bank of Sudan, which sets the indicative rate for banks with a profit margin between “-5% and +5%” from the advertised price.
Babiker added to AlTaghyeer that “the new policy completely liberated the exchange rate and left it to the mechanism of supply and demand, and removed the central bank from any role in managing the price, and granted freedom to commercial banks and money exchanges in setting prices, where the role of the central bank is limited to supervision only, and obligating banks to publish prices only, with the possibility of changing them daily.”
Requirements and Concerns
Babiker Ahmed Abdullah said that the free exchange rate, in the economic world, is looked at as the best option, but it needs a rational economic environment and a high monetary reserve of foreign currencies and gold.
“The problem with the free exchange rate in light of our economic conditions may end the parallel market, but it will divert speculation from the alleys of Khartoum’s Arab Market and the gold building to the offices of commercial banks.”
“It is possible for any bank to announce a high price to attract remittances and export earnings, and competition remains unrestricted to a certain ceiling, and official chaos occurs in the exchange rate, extending to the evaluation of the dollar of export earnings, especially if the Bank of Sudan obliges banks to buy at the fair price, or the exporters themselves may evade if the central bank obligates them to buy the dollar of issued proceeds at the rate of the outcome date,” he added.
“Despite what we have mentioned about the priority of liberalization, but according to the reality in Sudan, we say that the managed flexible exchange rate is the best under the current circumstances to prevent speculation among banks.”
Risk
Babiker also told AlTaghyeer that the governor of the Central Bank, Hussein Jangoul, took an uncalculated risk, in response to pressures from the Economic Emergency Committee, much like what his predecessor, the late Abdel Rahim Hamdi, did.
He ended by saying “If we accept the reality, despite our disagreement with editing in this form, it can be said that speculation in prices between banks is better than the black market in which speculations happen between the “Jockeys” (merchants) and do not take into account public interest.
