Delay in currency reform puts donor support for Sudan at risk

Aidan Lewis and Nafisa Eltahir -

Sudan’s new cabinet faces pressure to push through rapid currency reform or risk endangering its path to debt relief and to international financial support for its shaky political transition, diplomats and analysts say.

Failure to devalue the currency has already delayed hundreds of millions of dollars in aid for a flagship, donor-funded welfare programme intended to ease the pain of a long-running economic crisis and the removal of fuel subsidies. A ministerial overhaul was completed on Monday to include representatives of rebel groups that signed a peace deal with the government last year, an important step in the political transition after the overthrow of Omar al Bashir in 2019.

But a weak civilian administration is locked in an uneasy power-sharing arrangement with the military and has faced an array of challenges including record floods, instability on the border with Ethiopia, coronavirus and violence in the western region of Darfur where international peacekeepers are pulling out.

An economic crisis that contributed to Bashir’s downfall has deepened. Inflation stood at 254 per cent in December, one of the world’s highest rates, and the Sudanese pound has slid rapidly on the parallel market.

Informal currency traders were asking more than 400 pounds for a dollar on Monday, up from about 260 pounds on January 1 and against an official exchange rate of 55 pounds to the dollar.

Protests over living conditions broke out in Khartoum last month, and spread to other cities this week. There are frequent shortages of fuel, electricity, bread and medicine.

“The economy remains the number one political risk to the country’s transition’’, said Jonas Horner, Sudan analyst at the International Crisis Group. Failure to respond adequately “is likely to undermine the prospects for civilian rule”.

Sudan has removed fuel subsidies that cost the state several billion dollars per year, a key requirement of a 12-month Staff Monitoring Programme with the International Monetary Fund (IMF) endorsed last September.

DEBT RELIEF

But a delay in moving to a “unified market-clearing exchange rate”, another structural benchmark set by the IMF with a target date of September 2020, risks jeopardizing the programme, which Sudan must complete to get relief on $60 billion in foreign debt under the Heavily Indebted Poor Countries (HIPC) initiative and to unlock funding from international lenders.

— Reuters