Sudanese pound in freefall amid fading peace hopes with South Sudan

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A Sudanese man shows freshly-minted notes of the new Sudanese pound in Khartoum. Photo – Ashraf Shazly/AFP/Getty Images

Sudan’s currency hit historic lows against the dollar on the key black market amid fading hopes of oil export fees from South Sudan, dealers said on Tuesday.

The Sudanese pound has been in freefall since South Sudan took away three-quarters of oil production when it became independent a year ago, worsening an economic crisis in Sudan.

As well as being a major source of revenue for Sudan, oil also provided dollars needed for imports. A scarcity of hard currency drove up annual inflation to 41.6% in July, more than double the level a year ago.

The fall of the pound has triggered small anti-government protests as well as dampening the outlook for foreign firms active in Sudan such as Kuwaiti cell firm Zain or Bank of Khartoum, which is owned by Dubai Islamic Bank.

Sudan and South Sudan agreed last month on how much the landlocked new nation has to pay to route oil through northern pipelines, ending a row that led to the shutdown of the southern output of 350,000 barrels a day in January.

But hopes of a quick implementation have faded as both countries need to agree on a border security agreement first.

South Sudan also said last week oil production would not resume until December, making oil payments unlikely until early 2013.

Black market traders said the pound had fallen to rates of between 6 and 6.1 to the dollar, compared with 5.5 after the oil deal. Current rates are well below the official rate of around 4.4. A historic low of 6.3 was hit in April.

“Dollar supplies are totally insufficient. There are no dollars in Khartoum,” said one trader.

In July, the central bank devalued the pound last month by almost halving its value to try bridge a gap to the black market rate, which has become the benchmark for companies.

Sudan’s oil production is too small to satisfy domestic demand, forcing the government to buy fuel products abroad. The state oil company plans to buy 70,000 tonnes of gasoil in the spot market, industry sources said on Monday.

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