Sudan sharply devalued its currency on Sunday after a body of banks and money changers was tasked with setting the country’s exchange rate under a new system established by the government to tackle an acute shortage of foreign exchange.
The team set the Sudanese pound at 47.5 to the U.S. dollar on what was the new system’s first day, the head of the country’s bankers’ union said, down from 29 Sudanese pounds under the old system run by the central bank.
Dealers on the black market were offering to sell dollars at 48.5 pounds and buy dollars at 48.0 pounds even after the devaluation, although few transactions occurred.
Long queues of customers collecting salaries or withdrawing cash formed at banks and teller machines.
The new official rate for the pound was weaker than even the previous black market price of around 45.5 pounds per dollar, indicating the committee might be seeking to overshoot.
Some traders were unhappy with the new exchange rate.
Ahmed Saleh, an electrical appliances merchant in central Khartoum, said the new price would depress the market.
“Banks don’t provide dollars to import electrical appliances, and thus we have to buy them from the black market,” he said. “We expect sales to drop as prices go up.”
Sudan’s central bank recently expanded its money supply sharply as it tries to control a widening state budget deficit, causing the pound to drop.
Loose policy settings were fuelling inflation, the International Monetary Fund said in a staff report issued in December.
Sudan lost three-quarters of its output of oil, a crucial source of revenue and foreign currency, when the south of the country seceded in 2011.
The budget deficit widened to 14.06 billion pounds in 2017 from 11.20 billion pounds the previous year, according to central bank data.
Money supply surged to 278.3 billion pounds at end-March from 203.4 billion at end-December, an increase of almost 37 percent in three months.
Inflation hit a record 66 percent in August, one of the highest rates in the world.
Sudan’s central bank governor, Mohamed Kheir al-Zubeir, announced the new mechanism on Thursday ahead of the Friday-Saturday weekend. The committee from now on will set the exchange rate daily. The mechanism is part of a package of measures designed to tackle an economic crisis.
Zubeir said the Sudanese pound would likely lose value against the dollar initially before stabilising.
“The mechanism (team) met and set the pound rate at 47.5 pounds to the dollar,” Abbas Abdallah, head of the country’s bankers’ union, told Reuters.
Banks had expected the central bank to pump foreign currency into banks after the devaluation, but two bankers said no money was delivered.
Under the new mechanism, Sudan will set its gold price in line with international prices but payments would be made at the new exchange rate fixed by the body of bankers and exchange bureaus.
The move was intended to stem smuggling of gold, the country’s biggest single export commodity, and to encourage local producers to sell it through official channels.
Official gold exports fell to $212.1 million in the first quarter of 2018 from $367.3 in the fourth quarter of 2017.
Sudan is also cancelling import restrictions imposed last year on 19 food and other items to cut the deficit and prop up the Sudanese pound, Zubeir told reporters. (Reporting by Khalid Abdelaziz, writing by Sami Aboudi and Patrick Werr, editing by Susan Fenton and Dale Hudson)