Sudan rules out devaluation despite black market gap

KHARTOUM (Reuters) - Sudan plans to close the gap between official and black market exchange rates through higher earnings from resources like gold and oil instead of devaluing the pound again, a vice-president said on Wednesday.

Sudan has been in economic crisis since South Sudan seceded last year, taking with it three-quarters of the once unified nation's oil output. This had been Sudan's main source of revenues and the dollars it needs to pay for imports.

Inflation hit 45 percent in October. This week Sudan's pound fell to a historic low of 6.5 pounds against the dollar on the black market as hopes faded that Sudan would soon collect revenues from South Sudanese oil exports.

In an interview with Reuters, Second Vice President al-Haj Adam Youssef said authorities were trying to get the rate down to about 4.5 pounds to the dollar, close to the official rate of around 4.4 pounds.

"There are some efforts to have the price of the dollar around 4.5 as an average in the next few months, and that will be appropriate for our economy, for export and import as well," he said in his office in Sudan's Republican Palace on the Nile.

Youssef said the government would not devalue the pound, as it did in July when it nearly halved the official value.

Instead, it hoped the pound would get a boost from previously announced plans to increase foreign currency earnings through higher output of gold and oil from Sudan's own resources.

"We want things to be normalised by the natural mechanism," he said.

There is little foreign trade in the pound, but listed firms like cellphone operator Zain, German airline Lufthansa and Bank of Khartoum, co-owned by Dubai Islamic Bank, watch the rate closely because they sell products in pounds and then struggle to convert profits to dollars.

CUTTING SUBSIDIES

Sudanese officials blame economic problems largely on tensions with South Sudan, which was supposed to pay Khartoum fees to pipe oil through Sudanese pipelines to a Red Sea port.

But the two fell out over the fees, and South Sudan shut down its 350,000 barrel-per-day output in January. Flows have yet to resume, although the two signed economic and border security deals in September that officials say could see oil exports restart by the end of the year.

Sudan says it aims to increase oil production in its remaining fields from 115,000 barrels per day to 150,000 bpd next year. It had planned to boost output to 180,000 bpd this year but failed to reach the target.

The country's gold exports reached between 47 and 48 tonnes this year and were expected to rise above 50 tonnes annually, bringing in more than $2 billion a year, Finance Minister Ali Mahmoud said this week.

Even before South Sudan seceded - the result of a 2005 peace deal that ended decades of civil war - Sudan's economy was weakened by years of conflict, corruption and U.S. trade sanctions.

The government was forced to scale back its costly fuel subsidy programme in June to plug a budget deficit left by the loss of oil revenues, sparking small anti-government protests.

Youssef said the government still aimed to eliminate subsidies for all commodities but declined to give a timeline, saying only that subsidies would be phased out gradually.

The country's cabinet approved the country's 2013 budget on Monday, putting the budget gap at 10 billion Sudanese pounds - roughly $1.5 billion at current black market rates.

Even without earnings from the South's oil - which are not included in the budget - Youssef said the government could draw about half the deficit from the central bank and make up the rest with increased tax collection and other measures.

Support from friendly countries could also help, he said, although this was not included in the budget. "There is no problem as far as the deficit is concerned," he said.

Source: http://news.yahoo.com/sudan-rules-devaluation-despite-black-market-gap-060041732--finance.html

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