Sudan needs $4 billion in forex reserves, calls on Arab states to make deposits
September 15, 2011 (Sudan Tribune)
The Bank of Sudan (BoS) governor Mohamed Khair al-Zubeir on Thursday made a subtle acknowledgment of the country’s shortage in hard currency.
Al-Zubeir told Reuters in an interview from the Qatari capital that he asked his Arab peers for deposits to shore up Sudan’s foreign exchange reserves.
"I have requested the governors to deposit some reserves in the central bank and also in Sudanese commercial banks," he said following a meeting of Arab central bankers in Doha.
While he did not specify an amount al-Zubeir said that Sudan needs about $4 billion for this year. He did not say if any pledges were received at the Doha conference.
Khalid al-Tigani, a Sudanese political analyst, wrote in the independent Al-Sahafa newspaper on Thursday that two senior Sudanese officials were dispatched to a “major Arab rich nation” over the last few months have failed to convince it to provide financial support or invest in the agricultural sector.
The remarks contrasted with al-Zubeir’s is the latest Sudanese official to give a more upbeat assessment of the Sudan’s economy over the next few months. Al-Zubeir asserted that the country will be able to overcome the loss in oil revenue after the South’s secession which became effective last July.
The local currency continued its downward trend in recent days with the US dollar buying 3.9 to 4 Sudanese pounds on the key black market, compared with around 3.7 previously. This is well above the official rate of around 3.
This year the Sudanese government adopted amendments to the foreign exchange law which stiffened punishment on black market traders.
Travelers are also restricted in the amount of hard currency they can buy and carry with them abroad. They are also required to submit documentation on the reasons for their travel to qualify for buying hard currency.
BoS has kept injecting hard currency into the market but it is believed that the central bank’s low level of foreign exchange reserves is hampering its ability to make a meaningful intervention. The highest financial authority in Sudan refuses to disclose how much it has in foreign exchange reserves.
Last year, Sudan temporarily devalued the Sudanese pound to match the black market, hoping to bring more foreign currency into official trade and destroy the parallel market. So far it has met with limited success with banks still unable to meet the demand for foreign currency.
Observers say that these steps do not address the heart of the problem which is the drop in exports and investment levels. They blamed the situation on expanded government spending and neglecting the industrial and agricultural sectors and focusing instead on extracting oil and selling it abroad to fund security and army apparatuses.
Khartoum said it will boost oil and gold production which would become the primary source of the desperately needed hard currency. The Sudanese presidential adviser Mustafa Osman Ismail said this week that he expects revenues of up to $3 billion from gold exports alone.
The North has lost 75 percent of the country’s oil production of 500,000 barrels per day after South Sudan gained independence.
Ismail said he expects Sudan’s oil production to reach 150,000 barrels per day in 2012.
Many analysts say that the Sudanese economy suffers from structural problems and recent measures taken by the government such as cutting spending and banning certain imports does not go far enough.
Earlier this year the government partially removed subsidies on sugar and petroleum products in a bid to tame the growing budget deficit.
The BoS governor reaffirmed Khartoum’s determination to move ahead with plans to put the country’s finances in order.
"We are now having a three-year emergency programme, which will basically address this problem. Within three years I think we can adjust our economy again" he said.
"We are going to make fiscal monetary policies, and also diversification of production particularly in the agro and industrial sector for import substitution and export promotion," Zubeir said.
"On the fiscal side there will be a drastic cut in government expenditures, more than 25 percent for this year…..there will be a change in the priorities of development" he added.
Last week, the Sudanese finance and national economy minister Ali Mahmood Hassanein said that $1.5 billion is needed in foreign aid to cover the budget deficit.
"According to our estimate we need not less than at least $1 billion, 1.3 billion, 1.5 billion a year," Hassanein said.
"We are still under sanctions from the African Development Bank, the IMF... our efforts are within Arab countries and the others like China, India, Turkey," he said, adding there was no imminent agreement.
Sudan has been hoping that transit fees for oil produced in South Sudan could provide a reliable source of revenue.
But the two sides have failed to agree on the figure to be assessed for using the pipelines in the North.
It has been reported that Sudan asked for $32 per barrel for the service, something which South Sudan vehemently rejected.
Despite the disagreement, Sudan has continued to allow the South to export its oil through Port Sudan which some attribute to fear of angering China which buys most of the country’s oil.
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