The move responds to a key call from international financial institutions to help Sudan’s transitional authorities overhaul its struggling economy.
The Central Bank of Sudan severely devalued the currency, announcing a new regime to “unify” official and black market exchange rates in an effort to overcome a crippling economic crisis and access debt relief.
Sunday’s change is a key reform demanded by foreign donors and the International Monetary Fund (IMF), but has been delayed for months as commodity shortages and rapid inflation complicated a fragile political transition.
The central bank set the indicative rate at 375 pounds to the US dollar, several commercial banking sources said, against a previous official rate of 55 pounds. Recently, the dollar was trading between 350 and 400 Sudanese pounds on the black market.
The central bank will set a daily indicative rate in a “flexible managed float,” according to a circular sent to banks. Banks and money changers are required to trade within 5% above or below this rate.
The circular also set a profit margin between the buying and selling prices not exceeding 0.5%. The authorities would not control the rate, the central bank governor told reporters, although Finance Minister Jibril Ibrahim said unspecified foreign funds were on their way to Sudan and the central bank could intervene if necessary. .
“The decision is not a float, but a flexible management policy,” said central bank governor Mohamed al-Fatih Zainelabidine.
Steps had been taken to streamline imports of strategic products and limit imports of non-essential goods before the devaluation, officials said.
Ibrahim said Sudan’s customs exchange rate was not included in the devaluation and its reform was still under consideration.
Sunday’s decision was expected late last year as part of an IMF staff surveillance program that could lead to relief of Sudan’s external debt estimated at $ 60 billion, but has been delayed by political uncertainty.
In addition to paving the way for debt relief, the devaluation would help stabilize the currency, reduce smuggling and speculation, and attract remittances from Sudanese working abroad, the bank said. central in a press release.
It comes less than two weeks after Prime Minister Abdalla Hamdok appointed a new government to add the leaders of rebel groups that signed a peace deal in October, including Ibrahim.
Hamdok serves as part of a military-civilian council that came to power after the overthrow of veteran autocrat Omar al-Bashir in April 2019.
The success of the transition is seen as crucial for stability in an unstable region, as Sudan emerges from decades of international isolation.
Last year, the government lifted most fuel subsidies, responding to another key lender demand, and the United States removed Sudan from its list of “sponsor states of terrorism” as its leaders agreed to take steps to normalize relations with Israel.
However, an economic crisis that sparked mass protests against al-Bashir continued, marked by shortages of fuel, bread and electricity. Annual inflation has accelerated to over 300%, one of the highest rates in the world.
Unusually violent protests that authorities blamed on former regime supporters erupted in several areas earlier this month.
A donor-funded family support program intended to soften the blow of subsidy cuts has been delayed due to the exchange rate differential, although Zainelabidine said funds to be spent at the new rate would flow to the government. Ministry of Finance from Monday.
Some economists have said they expect the effect of the devaluation on inflation to be limited because almost all transactions are already done at the black market rate.