In its boldest economic move yet, the military junta that has governed Sudan on a transitional basis since the overthrow of Omar al-Bashir in 2019 succumbed to pressure from international financial institutions and freely floated the pound on Sunday. It had been trading at over 350 pounds to the dollar on the informal market, while its official rate was only 55 to the dollar. Following the massive devaluation, local media reported that banks were selling the dollar at an average of 375 and buying at 390, in order to attract those trading on the unofficial currency market.
The pound will now fluctuate according to supply and demand and the Central Bank of Sudan said it will announce a daily indicative rate in a ‘flexible, managed float’ that banks and other exchange bureaus are required to trade at within a 5% range, according to the weekly bulletin produced by AZA, Africa’s largest non-bank currency broker by trading volume.
The devaluation came after Prime Minister Abdalla Hamdok announced a Cabinet reshuffle to add rebel ministers. This formed part of a deal the transitional government struck with a rebel alliance last year.
The American Embassy in Khartoum, the capital, welcomed the move and said it will help Sudanese companies to attract foreign investment, as local and foreign companies will no longer face the obstacle of a dual exchange rate. The country has a $32.4bn economy and a population of 45.5m people, according to the International Monetary Fund. It has been in recession since 2018; GDP shrank by almost 8.4% last year. The Fund expects the economy to return to positive territory this year, expanding at 0.8%. The nation is suffering from major economic issues including consumer inflation estimated at 130% by the IMF. The government’s primary deficit stood at an estimated 6.8% last year and almost 11% in 2019. General government gross debt has jumped from 200% in 2019 to an estimated 250% today.
The devaluation marks a milestone on the country’s path to economic normalisation. It will help the country improve ties with international and regional financial institutions and should encourage remittances into the country.
In another development, Tanazania’s Shilling appreciated from the range of 2,311 to 2,329 to the dollar last week to 2,304.59/2,309.95. This came after Tedros Adhanom Ghebreyesus, the director-general of the World Health Organisation, urged Tanzania to start reporting Covid-19 cases this week and to take “robust action” against the coronavirus pandemic, amid warnings that the country is witnessing a resurgence in infections. The international pressure on the government seems to be having some effect, as speaking at St Peter’s Parish in Dar es Salaam on Sunday, President John Magufuli urged citizens to take precautions against Covid-19 and wear masks. He signalled a major U-turn on his previous stance that the country is Covid free.
In other news, the OPEC Fund for International Development (OFID), the development finance institution of the Organisation of Petroleum Exporting Countries, signed a $50m loan agreement with Tanzania to finance the ‘Fourth Tanzania Poverty Reduction Project.’ This initiative aims to build rural infrastructure to boost economic opportunities and improve access to social services for more than 900,000 people. Improved connectivity will help increase agricultural and tourism-related activities, and facilitate trade with neighboring Burundi and the Democratic Republic of the Congo.
In a boost for the outlook for crop production, Tanzania Meteorological Authority’s climate forecast for the next couple of months shows that there should be enough long rains in the country. On this basis, we foresee continued support of the Shilling from agricultural inflows. We also expect investor inflows to support the currency, in particular because the government has raised its economic forecast to 6% growth this year from its original forecast of 5.5% that it made last year.
For the coming week, we expect a stable outlook for the Shilling, as inflows into Tanzania – for example the loan from OFID – balance increased end-of-month
