Sudan Shifts To Managed Currency Float Amid Economic Crisis

West Darfur State is one of the states of Sudan, and one of five comprising the Darfur region.
West Darfur State is one of the states of Sudan, and one of five comprising the Darfur region.

 

Sudan announced Sunday it was ditching its fixed exchange rate and adopting a managed float, in line with an IMF programme but at the risk of fanning already-smouldering discontent.

The move aims to stem a flourishing black market that has seen the local pound recently trade at around 400 to the dollar, while the official rate was fixed at 55 pounds to the greenback.

It is expected to substantially devalue the official exchange rate towards black market levels, sending prices higher even as citizens grapple with an inflation rate that topped 300 percent last month.

The transitional government has decided to undertake policies “aimed at reforming and unifying the exchange rate system by applying a managed flexible exchange rate system,” the central bank said in a statement.

Closing the yawning gap between the official and black market exchange rates is central to a reform programme agreed with the International Monetary Fund last year.

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The central bank said its policy shift, which follows the recent appointment of a new cabinet tasked with tackling the economic crisis, is “imperative” to help achieve stability.

It is one of several painful IMF mandated reforms, which also include reducing costly subsidies, aimed at securing debt relief and attracting investment following the April 2019 ouster of autocrat Omar al-Bashir.

Newly-appointed finance minister Gibril Ibrahim urged citizens to tolerate the impact of the policy change, saying in a press conference on Sunday that it “will require a high patriotic spirit” and “cooperation”.

Ominously for Sudan’s transitional authorities, protests have already flared in recent weeks in several areas over the skyrocketing prices, alongside bread and medicine shortages.

Sudan’s economy was decimated by decades of US sanctions under Bashir, mismanagement and civil war, as well as oil-rich South Sudan’s 2011 secession.

– Cushioning the blow –

The finance minister and the central bank governor, Mohamed al-Fatih, said the exchange rate policy shift will be cushioned by international donors financing a project aimed at supporting poor families from Monday.

The programme offers $5 dollars per month each to around 80 percent of the country’s 45 million population.

In January, the IMF said it was “working very intensively” with Sudan to build the preconditions for debt relief.

The US recently removed Sudan from its state sponsors of terrorism blacklist, another move Khartoum hopes will unlock debt relief and aid.

The central bank governor said Sudan has begun applying a dual banking system, instead of solely Islamic banking, in a move allowing international banks to operate in the country.

The exchange rate policy shift comes amid concern that Sudan’s level of foreign currency holdings are approaching exhaustion.

If the central bank is to be successful in drawing transactions away from the black market, then reserves need to stand at around $5 billion, Mohamed el-Nayer, a Sudanese economist, told AFP.

Authorities have not lately disclosed the level of reserves.

Asked if the country had enough reserves, the Ibrahim replied that funds had lately been received, but did not specify the origin or amount.

But the recent bread shortages — and also of fuel — point to the possibility of “severely lacking” foreign reserves, the economist Nayer said.

Bashir’s fall nearly two years ago came after months of protests against his autocratic rule that were triggered by his cash strapped government effectively trebling bread prices.

In October, Sudan signed a peace deal with rebel groups that observers hoped would end long-running conflicts in the country’s far-flung regions.

Last month, the government approved this year’s budget and it is aiming for inflation of 95 percent by end-2021.

IMF Dismisses Inflation Concerns Of Biden Stimulus Plan

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP

 

 

Fears that inflation could spiral out of control due to a massive US stimulus package are overblown, IMF chief economist Gita Gopinath said Friday.

Her argument contradicted critics of US President Joe Biden’s proposed $1.9 trillion rescue package for the world’s largest economy, who say the amount is excessive, and even those Democratic economists who have also raised concerns about price spikes.

Gopinath estimated that with the full amount of stimulus, inflation “would reach around 2.25 percent in 2022, which is nothing to be concerned about,” she said in a blog post.

Some economists, including former Treasury secretary Larry Summers, have urged caution saying excess spending could spark an inflationary spiral that the Federal Reserve would find difficult to control.

Rising prices would erode purchasing power and higher interest rates to control inflation would send the cost of borrowing soaring in an economy already awash in debt amid the coronavirus pandemic.

Gopinath noted the “concerns about an overheated economy that could push inflation well above the comfort zone of central bankers.” But she said “the evidence from the last four decades makes it unlikely.”

In the decade following the global financial crisis, US annual inflation barely cracked the Federal Reserve’s 2 percent target, and in December the rate was just 1.3 percent.

And Gopinath said the proposed government aid will push US GDP up five to six percent over three years, which would recoup the 3.5 percent contraction in 2020.

The IMF has consistently supported a large US stimulus plan to recover from the Covid-19-induced recession that has left millions jobless.

US Treasury Secretary Janet Yellen late Thursday repeated the administration view that “the price of doing too little is much higher than the price of doing something big.”

Yellen noted that inflation has been very low for over a decade, and while it remains a risk “it’s a risk the Fed and others have tools to address.”

– Market turbulence –
Yellen, like US central bank chief Jerome Powell, who succeeded her in the post, stressed that true unemployment in the US is close to 10 percent — above the government’s official rate of 6.3 percent last month — and about nine million people remain unemployed, which she says justifies the size of the government aid.

But growing signs that the economy is coming back to life as businesses reopen amid an accelerating vaccination campaign have caused markets to begin to fret about impending price hikes.

The yield on 10-year Treasury notes, a benchmark for inflation expectations, has been rising sharply since October, and accelerated since the start of the year to around 1.3 percent, the highest since before the pandemic.

Those fears got a boost from a spike in the producer price index (PPI), which showed wholesale inflation surged 1.3 percent in January, the largest since the index was revamped in December 2009.

But Powell last week brushed off inflation concerns, saying after prices collapsed last year, some sharp increases are expected but would be unlikely to last.

In the current environment, “we want to see actual inflation,” before the Fed would take any steps to raise interest rates or roll back the massive bond-buying program, Powell said.

The IMF economist acknowledged “the danger of market turbulence” due to temporary price swings, or bad news about new virus variants.

But she said that in the wake of the crisis “considerable slack remains in the global economy” which would dampen price pressures, and worldwide supply chains have largely not suffered disruptions, removing another potential source of rising costs.

Global Economy On Stronger Footing, But Uncertainty High – IMF

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP

 

Optimism that new vaccines will bring the pandemic under control and allow economic activity to resume, coupled with stimulus in major economies, has boosted the growth forecast this year to 5.5 percent, the IMF said Tuesday.

However, the Washington-based crisis lender warned the outlook is beset by “extraordinary uncertainty,” and governments will need to continue to act to prevent lasting damage after Covid-19 caused the worst peacetime economic crisis since the Great Depression.

The upgrade in growth after the 3.5 percent worldwide contraction in 2020 reflects “expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies,” including the United States and Japan, the IMF said in its latest World Economic Outlook (WEO).

Those developments create “a stronger starting point for the 2021-22 global outlook than envisaged in the previous forecast.”

However, “much remains to be done on the health and economic policy fronts to limit persistent damage from the severe contraction of 2020 and ensure a sustained recovery.”

READ ALSO: UK Unemployment Hits 5.0% On COVID-19 Fallout

Surging infections in some countries — including new Covid-19 variants — that led to renewed lockdowns, as well as logistical problems with vaccine distribution, pose “important counterpoints to the favorable news,” the report said.

And even with the growth, many economies will not recover to their pre-pandemic levels this year, the IMF said.

– Stronger growth –

The fund urged governments to continue to provide support “until the recovery is firmly underway.”

In the United States, which approved another large stimulus package at the end of December, the fund expects growth to be a full two points higher than previously projected at 5.5 percent, which would be the strongest rate since 1984.

And newly installed President Joe Biden is pushing for a massive $1.9 trillion rescue plan that would provide support to families, businesses and struggling state and local governments.

Japan, too, benefits from another aid package approved in December, and the IMF raised the 2021 growth forecast by eight tenths to 3.1 percent.

Those stimulus measures also provide “favorable spillovers to trading partners,” the report said.

The IMF expects China’s economy to grow 8.8 percent, slightly slower than the October forecast, while India will surge 11.5 percent, fully 2.7 points higher than previously expected.

– Recovery setbacks –

In Europe, however, where governments have ordered new lockdowns and even curfews amid surging cases — as well as a new, more infectious variant — the IMF slashed growth forecasts.

The euro area growth estimate was cut a full point to 4.2 percent, with significant downgrades for Germany, France, Spain and Italy.

While the IMF noted that London’s last-minute deal on its exit from the European Union prevented a key risk to the outlook, the fund cut the forecast for Britain as well.

IMF Approves $487.5m Aid To Angola

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP

 

 

The International Monetary Fund’s executive board announced Monday it had approved the disbursement of $487.5 million to Angola, which is suffering from low oil prices due to the coronavirus pandemic.

The financial aid is part of a three-year agreement for about $3.7 billion (the value at the time) that was approved on December 7, 2018, under the IMF’s Extended Fund Facility (EFF).

The EFF provides for longer IMF support for a program, as well as longer repayment terms for loans.

Monday’s disbursement brings the IMF to a total of nearly $3 billion granted in aid to the southwestern African country, which has significant oil and mineral wealth, but a large part of its population lives in poverty.

The three-year plan “aims to restore external and fiscal sustainability, improve governance, and diversify the economy to promote sustainable, private sector-led economic growth,” the IMF said in a statement.

The Washington-based lender noted that the economic shock brought on by the coronavirus pandemic “continues to negatively impact Angola’s economy and population.

“Oil production and prices remain weak, and the health and social impacts of the pandemic continue to be felt,” the group said.

After a fourth review of Angola’s economy under the three-year program, the IMF said that despite this difficult environment, “the authorities… remain resolutely committed to the program.

“The authorities achieved a prudent fiscal adjustment in 2020 that included non-oil revenue gains and restraint in non-essential expenditure, while preserving essential spending on health and social safety nets,” the IMF concluded in approving the disbursement.

IMF Approves Release Of $1.67 Bn In Aid To Egypt

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP

 

The board of the International Monetary Fund on Friday approved the release of a second tranche of aid valued at $1.67 billion for Egypt, saying public debt and Covid-19 threatened its economic recovery.

In June, the board approved a one-year, $5.2 billion financing package for Egypt. With the latest disbursement, more than $3.6 billion will have been released.

“The Egyptian authorities have managed well the Covid-19 pandemic and the related disruption to economic activity,” Antoinette Sayeh, the IMF deputy managing director, said.

“There are still risks to the outlook particularly as a second wave of the pandemic increases uncertainty about the pace of the domestic and global recovery.

“The high level of public debt and gross financing needs also leave Egypt vulnerable to volatility in global financial conditions.”

The IMF carried out a virtual mission to Egypt last month and then announced an agreement in principle for the release of the second tranche, which has now been approved by the board of directors.

-AFP

COVID-19 Downturn Not As Bad As Feared, Crisis Not Over – IMF Chief

(FILES) In this file photo taken on January 17, 2020, Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva speaks in Washington, DC. JIM WATSON / AFP

 

Amid a flood of government spending, the global downturn sparked by the coronavirus pandemic will not be as bad as originally feared, IMF chief Kristalina Georgieva said Tuesday, but she warned that the crisis is far from over.

“The picture today is less dire … allowing for a small upward revision to our global forecast for 2020,” she said in a speech ahead of IMF-World Bank autumn meetings next week, when the IMF is due to present its updated forecasts.

In June, the Washington-based crisis lender projected a nearly five percent contraction of global GDP, but results in the second and third quarters were better than expected.

Georgieva credited the “extraordinary policy measures that put a floor under the world economy” which amounted to $12 trillion in fiscal support to households and firms.

But she warned governments not to prematurely withdraw the help they have provided, since the outlook for next year is mixed and rife with uncertainties and risks.

After more than a million deaths, “this calamity is far from over. All countries are now facing what I would call ‘The Long Ascent’ — a difficult climb that will be long, uneven, and uncertain,” Georgieva said.

In the United States and Europe the downturn, though painful, was not as bad as economists feared at the outset, and China is seeing “a faster-than-expected recovery.”

But the news elsewhere is bad: “In low-income countries, the shocks are so profound that we face the risk of a ‘lost generation,'” she said.

“There is also now the risk of severe economic scarring from job losses, bankruptcies, and the disruption of education.”

Low-income countries have not had the resources to spend as much to support jobs and businesses, and also will need help to deal with their debt burden, including through more grants and debt restructuring.

She likened the crisis to World War II when leaders “forged a better world in the worst possible moment,” and called for governments to continue support for workers as long as it is needed, while spending to create a better, more equitable, economic system.

“Where the pandemic persists, it is critical to maintain lifelines across the economy, to firms and workers,” she said. “Cut the lifelines too soon, and the Long Ascent becomes a precipitous fall.”

But, Georgieva said, “We cannot afford simply to rebuild the old economy, with its low growth, low productivity, high inequality, and worsening climate crisis,” and she called for more spending on green jobs which can generate more employment.

“This will require both stimuli for job creation, especially in green investment, and cushioning the impact on workers,” she said. “Safeguarding social spending will be critical for a just transition to new jobs.”

She referred to an IMF report released Monday showing that increasing spending by just one percent of GDP could create 33 million new jobs.

AFP

IMF Extends Access Limits For RFI, RFC

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF)

 

The International Monetary Fund (IMF) has approved a six-month extension of the temporary increase in access limits under its emergency financing instruments.

A statement from the multilateral institution explains that the extension till April 6, 2021, is taken in the context of the persistent impact of the pandemic.

Against the background of the urgent balance of payment needs of member-countries as a result of COVID-19, the fund approved a temporary increase in access limits for its rapid financing instrument and the rapid credit facility earlier in April 2020.

Nigeria as a member country secured 3.4 billion dollars from the IMF under the rapid financing instrument in June 2020.

According to the IMF, the temporary increase in access limits will be assessed as part of the wider review of the temporary changes in annual access limits introduced since the onset of the pandemic.

IMF Says Will Send Mission To Argentina In Early October

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP

 

The International Monetary Fund announced Thursday it will carry out a mission in early October on Argentina’s debt restructuring, after talks on a new accord resumed last month.

“The IMF staff team is currently working on plans to hold what we call a staff visit to Argentina, starting in early October,” said IMF spokesman Gerry Rice,

He called it a “milestone” but added it remained unclear whether the mission would be in-person or virtual due to the Covid-19 pandemic.

“It will take time,” Rice said. “There is no fixed deadline to reach a conclusion.”

Argentina froze relations with the Washington-based crisis lender in 2006 after having paid back the bulk of its debt, but in 2018 former President Mauricio Macri reached Buenos Aires’s biggest-ever deal with the IMF.

After assuming the presidency last December, Macri’s successor as President Alberto Fernandez put repayments on hold and renounced outstanding tranches of the bailout, saying Argentina already had enough debt.

In August, Fernandez’s government reached a deal with three major creditor groups to restructure a $66 billion debt after months of strained negotiations and missed deadlines.

That agreement was a key step in allowing Argentina to negotiate a new agreement with the IMF.

AFP

New Wave Of COVID-19 Cases Threatens US Economic Recovery – IMF

A woman rides past the New York Stock Exchange (NYSE) on July 13, 2020 at Wall Street in New York City. Johannes EISELE / AFP
A woman rides past the New York Stock Exchange (NYSE) on July 13, 2020 at Wall Street in New York City. Johannes EISELE / AFP

 

The dominant risk to the US economic recovery is a resurgence of COVID-19 cases that would force renewed business shutdowns, the International Monetary Fund warned Friday.

The US government will need to do more in the coming months to provide support to households and boost demand, as well as address worsening poverty and the shortcomings of the US health system, the IMF said in its annual Article IV report on the world’s biggest economy.

“Even with the unprecedented policy support being provided to the economy,” the US suffered a 37 percent collapse in GDP in the second quarter, and the economy is expected to contract by 6.6 percent in 2020, the fund said, stressing the “tremendous uncertainties” surrounding the outlook.

“The principal risk, and one that is the most difficult to quantify, is that a resurgence in the number of COVID-19 cases in the US could lead to renewed, partial shutdowns,” the report said.

With case counts spiking in states like Florida, Georgia, Texas, and California, local authorities already have reimposed some restrictions.

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP

 

And the IMF warns that the brunt of the economic impact is being borne by lower-income families, predominantly black and Hispanic, who are least able to weather the downturn.

“There are already urgent warning signs that the depth of the economic contraction and the sectoral distribution of economic losses will lead to a systemic increase in poverty,” the IMF said.

The Washington-based crisis lender said the recovery “will require a further round of fiscal measures in the coming months that boost demand, increase health preparedness, and support the most vulnerable.”

“The US has fiscal space and it should be deployed quickly to hasten the recovery from the second-quarter contraction, permanently improve the social safety net, and facilitate a broader remaking of the US economy,” it said.

 

 

AFP

Cutting Spending Too Soon Could Derail Recovery, IMF Warns

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP

 

As governments rushed out funding to prevent an economic collapse amid the coronavirus pandemic, global public debt swelled to the highest in history, but the IMF warned Friday that cutting back too soon could undermine the recovery.

Government spending “will need to remain supportive and flexible until a safe and durable exit from the crisis is secured,” IMF fiscal policy chief Vitor Gaspar and chief economist Gita Gopinath said in a blog post.

The debt figures are staggering — surpassing the size of the global economy, and deficits in advanced economies five times higher than pre-pandemic estimates for 2020.

AFP

IMF And World Bank To Hold Fall Meetings Virtually

 

 

The IMF and World Bank Group announced Thursday that their annual fall meetings will be mostly virtual  due to the coronavirus pandemic.

“As we continue to monitor the situation of COVID-19 around the world, and given the ongoing health concerns related to the pandemic, the Managements of the IMF and World Bank Group recommend that the 2020 IMF-World Bank Annual Meetings, to take place in the week of October 12-18, be held in a primarily virtual format this year,” the two organizations said in a joint statement.

IMF chief Kristalina Georgieva and WBG president David Malpass said they will be “flexible with the format of the meetings in light of developments.”

“Our goal is to serve our membership effectively while ensuring the health and safety of Annual Meetings’ participants, staff, and the local community in the Washington DC area,” they said in the statement.

The groups’ spring meetings were held virtually in April as the United States — after China and Europe — was battered by the coronavirus, forcing many states into lockdown.

Normally, the meetings draw tens of thousands of participants from around the world.

 

 

-AFP

COVID-19 May Undo Decade Of Progress In Africa, IMF Warns

In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP
In this file photo an exterior view of the building of the International Monetary Fund (IMF), with the IMG logo, is seen on March 27, 2020 in Washington, DC. Olivier DOULIERY / AFP

 

The coronavirus pandemic could set back incomes in sub-Saharan Africa by a decade as weak oil prices, a tourism standstill and business lockdowns shrink the region’s economy 3.2 percent in 2020, an IMF official said Monday.

Activity is expected to recover in 2021, but countries first will have to get through a year in which many will see tepid growth at best, while those that rely on commodities or tourism will suffer severe declines.

“It is a worrisome picture, really, in terms of the economic outlook, and really reflects the continuing weak global economic environment that countries in the region face,” Africa director for the International Monetary Fund Abebe Aemro Selassie told AFP.

The continent is grappling with more than 383,000 cases of coronavirus, according to the Africa Centres for Disease Control and Prevention.

The IMF on Monday released its updated outlook for sub-Saharan Africa, showing the downturn is set to cause a drop in real per-capita income of as much as 15 percent in all but two countries, meaning the region overall will suffer a decline of 7.0 percent, back to where it was a decade ago.

With oil prices low globally, crude exporters will be badly hit. Nigeria is expected to shrink by 5.4 percent and Angola by 4.0 percent, its fifth straight year of economic contraction.

Flight bans and health concerns mean less tourists, and the IMF expects the Seychelles to shrink by 13.8 percent in 2020 and Mauritius by 12.2 percent.

Even diversified economies will suffer. Ethiopia’s GDP is expected to grow just 1.9 percent in fiscal year 2020 then “stall completely” the following year, the IMF said.

South Africa, the continent’s most-industrialized economy — which also has the highest number of recorded coronavirus infections — will contract 8.0 percent in 2020 due to lockdowns imposed to curb the virus, a risk Abebe said countries across the continent face.

“Unfortunately, the region remains still on the exponential side of how the pandemic is playing out in the vast majority of countries,” he said.

“Absent vigilance, there’s no reason why we cannot expect the same kind of dynamics that we’ve seen elsewhere in terms of the pandemic.”

– Fear of spillovers –

The Washington-based crisis lender has moved quickly to roll out support programs to help African economies weather the downturn, with aid totaling up to $10 billion over the last two months or so, and more to be announced, Abebe said.

Africa also stands to benefit from debt relief agreed to in April by the G20 representing the world’s largest economies.

There is “strong willingness to provide” the relief and about 25 countries have applied, though details are still being discussed with some creditors, Abebe said.

The world’s poorest continent is expected to rebound in 2021 with growth in sub-Saharan Africa of 3.4 percent, assuming lockdowns have eased and the pandemic does not get markedly worse with a second wave of infections.

But given the tentative nature of the “phase one” trade deal between the United States and China, and Washington’s threat of new taxes on European goods amid a trade feud, Abebe warned that wider tensions could threaten Africa’s recovery.

“A tense geopolitical environment, one which leads to adverse trade outcomes, growth outcomes, economic outcomes, will also have some spillover on the region.”

AFP