Khartoum (AFP)

Sudan adopted on Sunday a floating exchange rate regime managed, that is to say regulated by the monetary authorities, in order to meet the demands of the International Monetary Fund (IMF), at the risk of causing a surge in prices and stoking popular discontent.

This measure is part of a series of reforms launched by Khartoum to attract foreign investment, but also to allow relief from its crushing debt and access to loans from international institutions, in order to support the country in its delicate political transition.

Sudan's economy is in tatters, after decades of sanctions and mismanagement under the reign of autocrat Omar al-Bashir, ousted in April 2019.

"The transitional government has decided to adopt a set of policies aimed at reforming and harmonizing the exchange rate regime by applying a managed floating exchange rate," the Central Bank said in a statement.

The official exchange rate is now determined by supply and demand, but the monetary institution retains a regulatory role.

This decision was "imperative", according to the Central Bank, to achieve the economic stability of the country, which last week equipped itself with a new government responsible for reviving the economy.

In January, the IMF - which adopted in 2020 a program for Sudan requiring in particular the harmonization of the exchange rate regime - had declared "to work very intensively with Sudan to create the preconditions for the reduction of its debt "as part of the Poor and Heavily Indebted Countries (HIPC) Initiative.

- Low reserves -

On the black market, the dollar traded at over 400 Sudanese pounds, while the official - and fixed until now - exchange rate was 55 pounds to the dollar.

Gibril Ibrahim, the new finance minister, urged the Sudanese to overcome the consequences of this decision, acknowledging at a press conference that the effort "would require a great patriotic spirit (...) and the cooperation" of the people .

The minister also assured that support measures for poor families had been taken to cope with a possible rise in prices.

The adoption of a floating exchange rate could drastically lower the value of the Sudanese pound against the dollar and thus cause prices to soar, at the risk of further fueling popular discontent in this country of 40 million inhabitants.

In December 2018, it was the tripling of the price of bread that sparked the popular uprising that led to the fall of Bashir.

Demonstrations, sometimes peppered with clashes, against the high cost of living have taken place in recent weeks in Sudan, where the annual inflation rate exceeded 300% in January.

Economists fear that the state's foreign exchange reserves are too low to allow it to cushion the impact of the float.

The shortages of bread and fuel that already plague Sudanese daily life are a sign of low foreign exchange reserves, said Sudanese expert Mohamed al-Nayer.

In January, Khartoum adopted a new budget and announced that it wanted to reduce inflation to 95% by the end of the year.

Sudan hopes that its recent removal from the US list of states accused of supporting terrorism - with sanctions on the way - will allow an influx of foreign capital.

© 2021 AFP