January 9, 2011 (KHARTOUM) – The central bank of Sudan on Sunday issued a directive containing the list of products that will no longer be imported in a bid to save the desperately needed hard currency from being spent on products deemed as luxury or are have readily available alternatives domestically.
The list included furniture of all kinds (metal, wood or aluminum), imports of live animals and birds (excluding chickens, cows and goats imported for breeding), soda drinks, mineral water, fresh and frozen meat, fish, sweets, paints, molasses, biscuits, vermicelli and noodles, raw leather, processed silk and its products, feather artifacts, artificial flowers, umbrellas, sticks, straw, hay and cane products, baskets, dairy products (excluding milk powder), eggs, manufactured plastic products, trees, plants, flowers, (except seedlings and saplings) and other animal products.
The local banks have been banned from financing any imports of these products or issuing letters of credit for them.
While prohibiting imports might help reduce foreign exchange usage it could provoke anger among businessmen who profited throughout the years from sale of imported goods. It will also alleviate competition and allow local manufacturers to create a semi-monopoly situation.
This week the Sudanese parliament approved austerity package forwarded to it by the cabinet which incorporated significant increases to the price of petroleum products and sugar. The finance and national economy minister Ali Mahmood said that the government wants to completely end subsidizing these two items in order to contain the soaring budget deficit.
Many analysts blamed the situation on the expanded government spending and neglecting the industry and agriculture sectors and focusing instead on extracting oil and selling it abroad to fund security and army apparatuses.
A study done by economic consultancy UNICONS showed that between 75%-80% of Sudan’s budget is spent on security and defence, even after a 2005 north-south peace deal.
The International Monetary Fund (IMF) projected in its October Regional Economic Outlook report a 6.2% growth in 2011, from 5.5 percent last year.
Foreign investment has slowed because of the global financial crisis and a soaring import bill has caused inflation to rise and foreign exchange shortages.
To quell likely public anger the government also announced a 25% cut in salary for 149 ministerial-level government officials and a 30 percent reduction in foreign travel.
The new policies coincide with the referendum that is taking place in South Sudan that is expected to create the world’s newest state.
Sudan produces some 500,000 barrels per day of oil, but only 100,000-110,000 bpd are from wells in the north. The economy is dependent on oil for some 45 percent of its budget and most of its foreign currency revenues.
The loss even if partial of oil revenue will cause a drop in inflow of foreign currency, impact public finances and balance of payments which could lead to additional pressure on the fiscal deficit and the country’s foreign exchange reserve which already at record lows.
Today the governor of Sudan’s central bank governor Sabir Mohamed Al-Hassan said that the exchange rate against the U.S. dollar is improving as more hard currency is becoming available.
He said that the exchange rate of the U.S. dollar in the black market dropped from 3.36 Sudanese pounds on December 26 to 3.15 two weeks later. The target rate is 2.70 per dollar, Al-Hassan added.
In November 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.