Failure of Khartoum-Juba Talks Threaten Sudan's Economy

Failed negotiations with South Sudan have exacerbated Sudan's economic crisis, and led to a sharp decrease in the value of its currency, Azzaman reports.

al-monitor Sudanese stand in line in front of Central Bank of Sudan to exchange new notes in Khartoum, Aug. 27, 2011.  Photo by REUTERS.

Topics covered

sudanese economy, oil infrastructure in sudan, oil

Dec 14, 2012

The Sudanese pound dropped to a record low against the US dollar earlier this week [Dec. 11], just one day after the failure of talks between Khartoum and Juba to restart southern oil exports was announced.

The Central Bank of Sudan has allowed banks and currency exchange offices to adopt an encouraging exchange rate that can vary from one day to another depending on supply and demand.

The Central Bank of Sudan established in its bulletin [Dec. 11] the indicative price for the Sudanese pound against the dollar at 5.6992, and accordingly it estimated that its highest rate would be 5.9271, whereas its lowest rate would be 5.4712 [as of Dec. 12].

A dealer on the black market, who preferred to remain anonymous, said the reason behind the depreciation in the value of the pound is the failure of talks between Khartoum and Juba, which means that there is no hope of pumping oil and therefore foreign currency flow.

The dealer continued, saying that based on his experience the Sudanese pound is likely to be 7 against one US dollar on Thursday [Dec. 13].

The economist Dr. Muhammad al-Nair said yesterday that the increase and decrease in the value of the Sudanese pound depending on whether or not the agreement will be concluded indicated that the demand for dollars has been abnormally high, and dealers have speculated the price of the dollar and dealt with it as a commodity.

Rising commodity prices

Nair linked the stability of the Sudanese pound with the central bank’s capacity to pump foreign-exchange liquidity into the market, to meet the normal and abnormal demand. He believed that this cannot happen at this stage, because the central bank’s resources can only fund the minimum value of imports in the country.

Nair explained that one of the reasons behind the depreciation of the Sudanese pound is that citizens are saving the dollar to get a higher price or to maintain the sales value of their savings. He added that this step is leading to rising basic commodity prices. Thus, citizens are spending what they have saved. He pointed out that saving the dollar reflects a problem with the people’s economic culture.

Regarding the rapid decline of the Sudanese pound since the secession of the South in July 2011 — and since Sudan lost 75% of its oil fields, which represent more than 50% of its revenues — Nair said that there are signs that indicate that the year 2013 will be better, because the government is more interested in non-oil exports.

He continued that the value of livestock value was equal to $408 million until November 2012, and is likely to increase by the end of the year. He said that this figure is great compared to Sudan’s non-oil exports value from the previous years combined, which varied  between $400 and $600 million a year. Another good sign was the successful harvest season, which would limit the food gap and create food abundance, whereas importing food requires foreign currency.

Nair added that if oil production increased from 115,000 to 150,000 barrels a day by the end of this year, and to 180,000 barrels by the end of the first quarter in 2013, it would improve the value of the pound and the production of gold.

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