Sudan Pound Sinks in Black Market as Oil Fields at Risk

Sudan’s pound slumped to a record against the dollar in the black market as the war in South Sudan threatens to curb foreign-exchange inflows from oil shipments.

The currency changed hands at 9.1 pounds per dollar yesterday in the capital, Khartoum, according to two money changers who trade on the streets of the city where most residents buy foreign exchange. Rates ranged from 8.9 to 9 per dollar today, compared with about 8.2 on March 31, they said. The official rate is about 5.7, according to central bank data.

South Sudan’s oil fields have become a key target for insurgents opposed to President Salva Kiir, with rebel leader Riek Machar vowing to seize crude-producing areas to starve the military of revenue. The landlocked nation exports its oil via pipelines that cross Sudan to a port on the Red Sea. Transit fees for the shipments may earn Sudan about $1.4 billion in 2014, or 25 percent of total export earnings, according to the International Monetary Fund.

“Sudan has a severe foreign-currency crisis, our currency inflows are lower than our needs,” Ezz al-Din Ibrahim, a Khartoum-based economist and former state minister of finance, said in a phone interview. “Transit fees mitigate this problem and also increase the central bank’s ability to support the local currency.”

Landlocked South Sudan took over three-quarters of the formerly united Sudan’s output of 490,000 barrels a day when it became independent in July 2011 after a two-decade civil war. South Sudan is producing about 160,000 barrels per day of crude from Upper Nile state, the only region still pumping oil in the country after four months of violence, the Petroleum Ministry said earlier this month.

Forex Shortage

South Sudan’s army said last week it repelled attacks near the Upper Nile oil fields. On April 15, South Sudanese rebels seized Bentiu, the capital of Unity state, where the government said companies were on track to restore output by July. The four-month-old conflict has pushed the world’s newest nation to the edge of catastrophe, the United Nations High Commissioner for Human Rights Navi Pillay told reporters today in the South Sudan capital of Juba.

Led by President Umar al-Bashir, who is wanted by the International Criminal Court on allegations of war crimes in Darfur, Sudan has been under U.S. economic sanctions since 1997. The northeastern African nation has had a shortage of foreign currency since South Sudan seceded. The country, with a $59 billion economy, posted a current account deficit of $4.5 billion last year, according to government data.

“Everyone is holding onto the dollars they have,” Alaa Osman, an informal trader in Khartoum, said by phone yesterday. “Trading is very weak. I’m able to buy a little and sell a little.”

Import Quotas

The shortage has fueled demand for currency in the illegal black market, which is tolerated by the authorities, allowing dealers to trade in Khartoum’s streets in broad daylight. In 1991, three people were executed for trading foreign currency in violation of the Currency Restriction Act, according to Human Rights Watch, the New York-based advocacy group. While the CRA was scrapped a year later, dealing in the currency black market remains banned.

The Central Bank of Sudan “rationalizes demand” for foreign currency by limiting liquidity available to importers, according to policy briefs published on it website. Earlier this month, Sudan’s government said it received the second installment of a $1 billion loan from Qatar to support its foreign currency reserves.

“It seems that the central bank isn’t using the deposit to ease pressures on the pound,” Mohamed Al-Jak, an economics professor at the University of Khartoum, said by phone. “There must be other spending priorities.”

Forex Injection

Officials at the central bank weren’t immediately available for comment when Bloomberg called twice yesterday. The undersecretary of Sudan’s Oil Ministry, Awad al-Karim, didn’t answer three calls seeking comment on the status of oil shipments.

The central bank has started to inject additional amounts of foreign currency in the market to meet the needs of small importers and individuals, Khartoum-based al-Sudani reported yesterday, citing Bashir Ahmed, the head of foreign currency department at the bank.

“Throughout April, official exchange offices weren’t offering dollars,” Abdallah Aly, a black-market trader in Khartoum, said by phone yesterday. “That’s why the rate got so high.”

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