Wednesday, February 24, 2021

Sudan: a brutal devaluation of 85% of the value of the pound with incalculable consequences


#Other countries : Very indebted and going through an acute economic crisis, Sudan was forced, on injunction of the International Monetary Fund (IMF), to devalue its currency, the Sudanese pound, by 85% of its value. The consequences of this shock therapy could be disastrous for the Sudanese.

The Sudanese Central Bank announced on Sunday, February 21, 2021, the adoption of the regulated floating exchange rate regime with, as a key, a unification of the exchange rates of the official and parallel markets. “The transitional government has decided to adopt a set of policies aimed at reforming and harmonizing the exchange rate regime by applying a managed floating exchange rate”, underlines the institution.

However, behind this term hides the political decision of a very strong devaluation of the Sudanese pound.
Indeed, by deciding to align with the exchange rate of the parallel market, the Central Bank increases the exchange rate of the Sudanese pound from 55 pounds for 1 dollar to 375 pounds for the same dollar. Clearly, against the US dollar, the value of the Sudanese currency has been divided by 6.82.

This is a radical measure aimed at stabilizing the economy. And the Central Bank will control the evolution of the exchange rate.

>>> READ ALSO: Sudan: the Sudanese pound jumps very strongly against the dollar on the black market

This is a radical decision, taken following injunctions from the International Monetary Fund (IMF) and donors including the United States and Great Britain. These partners had decided not to grant financial support until the Sudanese authorities adopted a “monetary truth”.

This devaluation is part of a series of measures supposed to help attract foreign direct investment to Sudan, making the destination more attractive to investors. But, for the time being, it mainly meets the requirements of the IMF and the country’s donors. Thus, and in the wake of this devaluation, the IMF has undertaken to restructure the important debt of Sudan which exceeds 60 billion dollars. For their part, the United States and Great Britain, which are the country’s main partners, have decided to release more than $ 1.5 billion in assistance. Of this amount, 450 million dollars must be allocated to poor families.

>>> READ ALSO: Sudan. Demonstrations: Bashir declares state of emergency and dismisses the government

It remains to be seen whether this devaluation will concretely give a new boost to the Sudanese economy. Two African countries had previously made significant devaluations, Nigeria and Egypt. Nigeria has failed to reap the expected effects, as exports are mainly composed of hydrocarbons. As for Egypt, it was able to take advantage of this by combining the devaluation with a series of reforms not always popular, including the elimination and / or reductions in subsidies, the tax reforms often resulting in more taxation, the freezing of certain public expenses,…

However, this strong devaluation will have negative consequences, including the rise in the prices of many products. All those imported, but also those whose manufacture requires imports of semi-finished products or raw materials will experience significant increases. A situation that will considerably reduce the power of Sudanese lawyers, especially the most vulnerable families.

>>> READ ALSO: Sudan: new demonstrations against the high cost of living

This devaluation therefore risks inflaming even more the discontent of the Sudanese who have multiplied the demonstrations in recent weeks, in several cities of the country, to cry out their fed up with inflation and shortages of basic necessities. The population is frustrated by the lack of change in their daily life, two years after the fall of former President Omar al-Bashir.

And it is with the cry “No to high prices, no to hunger”, that the demonstrators denounce the galloping inflation. Annual inflation which reached a record level of 269% last December.

>>> READ ALSO: Normalization with Israel: the United States withdraws Sudan from its blacklist

In addition to this inflationary pressure which will worsen, this strong devaluation of the Sudanese pound will also greatly increase the burden of debt service expressed in local currency. Indeed, the country has a colossal debt of 60 billion dollars, equivalent to 201% of the GDP (the GDP having fallen to 32.5 billion), the highest rate at the level of the African continent. The increase in debt is explained by high and extra-budgetary expenditure. This situation of over-indebtedness reduces the country’s ability to mobilize financial resources on international markets. However, with the lifting of US sanctions, the country could benefit from debt relief under the HIPC initiative (Heavily Indebted Poor Countries).

Clearly, faced with this tense economic and social situation, it is not certain that a devaluation of this magnitude of the Sudanese pound will be the panacea to revive an economy in collapse.



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