The Sudanese government said that the decision aims to eliminate the current distortions in the Sudanese economy by bridging the large gap between the two official rates of 55 pounds per dollar and the equivalent of 370 pounds before the decision.
The government confirmed that the decision has great benefits, as it helps in attracting foreign grants and investments and helps exempt the country’s foreign debts estimated at $ 70 billion.
In response to concerns about the negative repercussions of the decision, the government clarified that the central bank has sufficient foreign exchange reserves to intervene whenever necessary.
It also referred to several measures, including imposing high taxes on importing luxury goods, establishing new trade and investment laws and facilities for exporters, and establishing a gold and strategic commodity exchange to curb smuggling.
The measures also include supporting poor families with a monthly amount to alleviate the burden of the decision, support farmers, producers and exporters, and providing the necessary commodities to the citizen through the My Commodity Program at non-burdensome prices for the citizen.
Benefits and risks
While former Finance Minister Ibrahim Al-Badawi affirms that the “floating” exchange rate system is the best available option to rebalance the national currency, reduce the structural deficit in the current account, unify the exchange rate and eliminate the parallel market, he warns that the float carries the risk of free fall of the exchange rate and inflation. The explosive event if it is not supported by fulfilling two basic conditions, the first of which is preventing the financing of expenditures and the budget deficit in general through indiscriminate and programmed borrowing from the central bank, and this requires reducing the budget deficit to the maximum extent as well as providing non-inflationary financing channels to manage liquidity.
The second condition is that the state must turn into a net seller of foreign exchange to finance imports of strategic goods by the private sector.
Al-Badawi points out that fixing the official exchange rate as an option means the continuation of the status quo, while adopting a managed exchange rate system will inevitably provide an ideal target for speculators who will work on killing it in its infancy just as it happened during the previous regime in 2018.
Al-Badawi believes that the combination of Sudanese imports makes it difficult to address the structural deficit in the trade balance by resorting to banning imports, given that more than 85 percent of imports are either strategic goods or necessary production inputs, and therefore the crisis of foreign exchange scarcity cannot be addressed and an end to the deterioration of the value of the national currency. Through this “structural” approach.
According to Al-Badawi, the only available option is to float the exchange rate to liquidate the parallel market and move the “real exchange rate” to revive exports and replace imports to bridge a gap estimated at about $ 5 billion that is currently being financed from the parallel market.
Al-Badawi said on his Facebook page that dealing with the decision and its repercussions requires strong political will and a solid community outreach plan that enjoys the support of the executive authority and its political incubators and gains credibility with the readiness of the economic authorities, especially the Minister of Finance and the Governor of the Central Bank, to assume full political and professional responsibility in the event of failure to achieve the agreed goals on her.
However, Sadiq Jalaluddin, the former Secretary General of the National Chamber of Importers, told Sky News Arabia that the decision was hasty, as the necessary foundations for its success were not laid, which would lead to greater chaos in the parallel market.
Jalaluddin explained that the decision should have been preceded by economic measures, fundamental adjustments in financial and monetary policies, and a structural reform of the technical and technical structures of local banks.
Jalaluddin considered the decision a leap in the darkness that would drive the last nail in the coffin of the Sudanese pound, which had already collapsed due to the wrong government policies, as he put it.
He pointed out that the step is to reduce the pound in the official market from 55 pounds to 375 pounds, and it has nothing to do with the float, which “has specific conditions and factors that are not currently available.”
Jalaluddin said that the decision taken on Sunday was the same step known by the failed market makers in October 2018, which reduced the value of the pound from 18 to 47 pounds (although its price in the parallel market at that time was 45 pounds).
He added that the Central Bank of Sudan statement talks about the flexible managed exchange rate, and this confirms that the move is just a move of the price, which raises an important question about how banks will price the dollar when they do not own it in the first place.
He pointed out that in practice, this means introducing commercial banks to buy the money of depositors, considering the move to increase speculation on the dollar, which leads to a further depreciation of the Sudanese pound, an act that will lead to depositors losing the purchasing value of their money, and thus the banks losing their credibility and depositors ’confidence in them.
Jalaluddin expressed his surprise at maintaining the policy of selling the source to the importer, making pricing in the hands of commercial banks, exporters, importers and currency dealers, which contributes to the expansion of the parallel market, especially in light of the lack of sufficient foreign exchange reserves at the Central Bank and the banks operating in the country.
Jalaluddin stressed the need to review the decision immediately and work to ensure government control over major exports, especially gold, agricultural products and livestock.
An American welcome
In the first external reaction, the US embassy in Khartoum welcomed the decision and considered it an important step for the transitional government, led by civilians, to move forward on the path of reforming the exchange rate.
The embassy said on its Twitter page that the decision paves the way for debt relief and significantly increases the impact of international aid, much of which should have been spent in the past at the official exchange rate, providing part of its potential value to the Sudanese people.
She also indicated that the decision will greatly help Sudanese companies and increase international investment, as local and foreign companies will no longer face difficulties in doing business in Sudan due to the double exchange rate.