The recent relative stability shown by the Sudanese pound against foreign currencies has led to questions regarding the reality of this stability, the factors leading to it, and the factors that could once more lead to its fall.
AlTaghyeer: Elfadil Ibrahim
Foreign exchange markets in Sudan have recently witnessed a more stable Sudanese pound that has managed to maintain the exchange price between it, the dollar, and other foreign currencies, especially in the parallel “black” market.
Its price has decreased compared – not exceeding “445” pounds – at a time when most observers predicted the dollar would continue its meteoric rise against the pound.
Some attributed this relative stability to the policies of the Central Bank of Sudan, especially the currency auctions, while others believe that it was caused by security measures taken against currency traders.
Some others however, do not see it as a sustainable stability and expect the dollar to rise again.
Economic researcher Babiker Ahmed Abdullah rules out the role of chance in facilitating the current stability of the exchange rate, claiming it was the result of a strategic goal set by the transitional government since arrival and worked on with determination, with previous finance ministers Dr. Ibrahim al-Badawi putting the “building block policies” an Dr. Heba Muhammad Ali continuing on his path, to the current minister Dr. Jibreel Ibrahim putting the finishing touches.
Babiker told AlTaghyeer that the security campaigns are not considered part of the country’s financial policies, but are a required measure due to many currency dealers still attempting to earn black market money and attract part of the exchange process beyond the banking system, taking advantage of the lack of complete preparation by banks to receive all external transfers.
Babiker added that the Central Bank of Sudan’s currency auctions were not part of the country’s liberalization policies, but came as a measure necessitated by circumstances pertaining to the flow expatriates’ remittances and the citizens exchanging their savings for foreign currency.
“Therefore, there was an accumulation of hard currency in commercial banks, which was countered by signs of apparent scarcity in national money, because of the central bank’s arbitrary policies in the sale of foreign currencies, in addition to the fact that the Ministry of Commerce set strict controls on imports and identified luxury goods,” Babiker said.
“The Central Bank had to intervene to reconcile the conditions of commercial banks by selling currencies in auctions directly under its supervision to kill two birds with one stone, including managing banks’ liquidity by compensating for the losses of buying foreign currency by selling them according to public policies and without the need to pump national currencies, strengthening controls on the import of goods.”
The economic researcher sees that the stability of the current exchange rate can be sustained if the state abides by import policies and controls, because the balance of cash payments is currently in a very ideal position compared to the country’s conditions.
Banking expert Dr. Louay Abdel Moneim however, described what is being said about the stability of the Sudanese pound against the dollar as “fake” and unreal.
He pointed out that the decline and stability is taking place thanks to the increase in production and exports.
The banking expert believes that “as long as the trade balance is imbalanced – our imports exceed our exports – and there is no increase in the gross national product, we cannot dream of stability to the exchange prices for the Sudanese pound against foreign currencies.”
Calm Before the Storm
Abdel Moneim painted a bleak picture of the country’s future, and predicted that once the security campaign carried out by the Empowerment Removal Committee stops, the dollar will commence its meteoric rise once more.
“This is the calm before the next storm,” he said.
“The situation is now at a stalemate, after which an economic collapse will occur.”
He explained that dealings outside the banking system following the security campaigns of the Empowerment Removal Committee were still happening.
Abdel Moneim pointed out that a large number of citizens began selling their home and settling outside Sudan, signaling that there are currencies that went abroad, which would therefore contribute to the dollar’s supposed rise, and the government may resort to more currency printing, especially since banks do not have reserves.
Abdel Moneim described the Bank of Sudan’s currency auction as “politicized,” with currencies being handed out disproportionately, thereby reducing imports and increasing market prices, leading to a greater reliance on abroad “goods and raw materials.”
“Currently, there is a noticeable shortage of some commodities in the markets to the extent that some of their prices have started to rise, and this contradicts what is said about the stability of dollar prices,” he said.
“Factories themselves have reduced production lines due to their inability to purchase currencies and import, and thus resort to reducing quantities and increasing prices instead of laying off workers or shutting down production.”
Abdel Moneim stressed that the hypothesis of stability requires knowing its impact on the volume of liquidity and the amount of foreign exchange among the public, and if the stability of the pound does not affect these two sectors, then it means that it is temporary stability, followed by an increase after the end of the effect represented in the security measures, and then the government itself will resort to those traders it is fighting to buy from them, and conflicting with raising prices in order to form a cash reserve.
He pointed out that the government did not benefit from gold, most of which was smuggled out of the country, which previously belonged to the treasury with “10” billion dollars.
The banking expert believes that currently, there is a significant weakness in revenues, and the government relies mostly on foreign aid.
On the other hand, economic analyst Dr. Haitham Mohamed Fathi told AlTaghyeer that any paper currency is negatively or positively affected according to the state of the local and international markets in which they are dealt in on a daily basis.
“It is also affected by the state of economic recession and stagnation and the reduction of activities related to providing services to people, such as the public tourism sector, religious tourism, Hajj and Umrah, and entertainment,” he said.
“There are also influences represented in internal and external trade, as well as travel and land and sea transport, which raises unemployment rates and decreases sales, purchases, and revenues.”
Fathi stressed that there are various factors for the recovery of the Sudanese pound’s “real” recovery, the most important being the increase in foreign exchange flows, and noted that expat remittances from abroad can contribute with strong effectiveness, in addition to reducing the country’s trade deficit, leading to an increase in Sudanese exports.
“These are among factors that can contribute to strengthening the Sudanese pound, in addition to political and security stability, as it is the backbone for maintaining the status of the Sudanese pound.”
He added that the exchange rate of the pound in Sudan is determined based on the forces of supply and demand, and the demand for money is derived from the services or functions performed by the currency, and therefore the exchange rate is also determined on the basis of the volume of foreign trade represented in the demand for exports and imports, in addition to direct and indirect investments.
According to Dr. Haitham, the value of the Sudanese pound can also rise or “stabilize” against all foreign currencies if there is an influx of aid from grants and loans coming into the country.
“But as we mentioned, the stability of the price of the pound against foreign currencies will only be achieved by increasing production and improving the quality of production so that it can meet the needs of the local market in a way that helps reduce import requests, reduce import bills from abroad, and increase exports. All these factors should help stabilize the pound against other currencies.”
Despite the divergence of views on the reasons possibilities of maintaining the relative stability of the national currency, it is noticeable that the current period of stability has lasted longer than its predecessors, what is now required is deep study and real tools that can help maintain its sustainability so that the Sudanese pound can regain some of its lost recovery.