The Dollar Falls… But the Real Economic Battle Begins Now

By Muhannad Awad Mahmoud
When the US dollar climbed beyond the 5,000-pound mark, I argued that the crisis was never simply one of currency speculators or foreign exchange traders. It was fundamentally a crisis of production, exports and foreign currency earnings, and that any appreciation of the Sudanese pound not underpinned by structural reforms would inevitably prove temporary, regardless of the strength of government intervention.
Today, following the measures adopted by the Central Bank of Sudan—including the injection of approximately AED 400 million through the banking system, tighter controls on imports, reforms to the gold trade, and the government’s entry into the fuel import market—it is important to acknowledge that these policies have achieved a significant objective: they have broken the sharp upward trajectory of the exchange rate and restored a measure of confidence to the foreign exchange market.
This is an achievement that deserves to be preserved. Yet the true measure of success is not what has happened this week, but whether the economy can sustain these gains over the coming months and years.
The question is no longer: Why has the dollar fallen?
The question that should occupy the Prime Minister, the Governor of the Central Bank, and the country’s economic ministers is: Can Sudan maintain this decline when the most difficult phase begins?
In my view, what has been achieved represents success in managing the foreign exchange market, but it does not mark the end of the crisis. The structural factors that drove the dollar to such unprecedented levels remain firmly in place. Indeed, Sudan now stands on the threshold of what is likely to become the most demanding period for foreign currency since the outbreak of the war.
Rebuilding bridges, power stations, roads, ports, airports, water facilities, hospitals and schools will require billions of dollars. The electricity sector alone presents an enormous challenge, with the supply deficit still exceeding 70 per cent. Restoring the system will require importing transformers, transmission towers, cables, circuit breakers, generators and spare parts—all of which must be purchased in foreign currency.
In other words, the largest wave of demand for foreign exchange has yet to begin.
At this point, an important strategic observation emerges.
Within just a few weeks, the state has shifted from being the market regulator to becoming its largest participant.
It now purchases gold, injects foreign currency into the market, imports fuel directly, regulates imports, combats the parallel market, and simultaneously directs both monetary and trade policy.
While this transformation may have been necessary under wartime conditions, it also transfers a substantial portion of market risk from the private sector to the state.
Should global oil prices rise, reconstruction costs escalate, or export earnings decline, it will be the public finances that absorb these pressures first.
Consequently, the success of this policy should not be measured by its ability to lower the exchange rate today, but by whether it can be sustained without becoming an additional burden on the national treasury.
In the gold sector, the new policy appears to extend well beyond combating smuggling. Gold has now become the centrepiece of both monetary and economic policy.
Three new gold refineries are expected to begin operations in the coming weeks. If realised, this development could represent a genuine turning point for Sudan’s mining industry. Countries that export raw gold merely sell a primary commodity. Those that refine it to international standards and develop financial, industrial and logistical services around it capture far greater added value, generate higher returns from every ounce, create new employment opportunities, and significantly increase their foreign exchange earnings.
If Sudan succeeds in gradually transitioning from exporting raw gold to exporting refined gold, it will have achieved one of its most important economic transformations, because value addition—not simply resource extraction—creates lasting national wealth.
Nevertheless, one important issue deserves careful consideration.
If the Central Bank becomes the principal purchaser of gold before exporting companies purchase it again for export, an additional layer will have been inserted into the supply chain.
Every additional stage introduces higher financing costs, additional procedures, greater working capital requirements, and longer trading cycles.
This raises an entirely legitimate economic question:
Has the impact of this additional layer on export costs and the international competitiveness of Sudanese gold been thoroughly assessed?
The objective should not merely be tighter control over gold exports, but maximising returns at the lowest possible cost. Any unnecessary increase in export costs could reduce exporters’ profit margins, weaken competitiveness, and once again encourage unofficial trading channels.
The government’s direct involvement in fuel imports also raises important fiscal questions.
If the Ministry of Finance currently derives substantial revenue from duties imposed on imported fuel, how will these revenues be replaced once the government itself becomes the importer?
Will the government effectively impose these charges on itself?
If not, has the resulting fiscal impact been incorporated into the national budget?
An even larger question remains:
Will this intervention genuinely reduce fuel costs?
Fuel is not simply another consumer commodity. It is the single most important production input in the Sudanese economy.
Any reduction in fuel costs directly lowers the cost of agriculture, transport, manufacturing and mining, thereby improving the competitiveness of Sudanese exports.
Accordingly, the next phase should focus not merely on ensuring fuel availability, but on directing fuel towards productive sectors.
Every dollar spent on supplying fuel for the agricultural season can generate several times its value through export earnings. By contrast, every dollar spent on consumption disappears the moment the fuel is burned.
The logical next step following exchange rate stabilisation should therefore be expanding agricultural finance while guaranteeing timely supplies of fuel and production inputs. Every additional cultivated hectare translates into higher exports and reduced pressure on the exchange rate.
At the same time, taxes and levies that continue to inflate the cost of Sudanese exports and undermine their competitiveness must be comprehensively reviewed. The true source of exchange rate stability is not daily intervention in currency markets, but sustained growth in export revenues.
The coming period also requires rebuilding the role of commercial banks—not simply as channels for distributing foreign currency, but as institutions that finance production.
Banks must become genuine partners in financing agriculture, manufacturing, mining and exports, because even the most successful monetary policy will have only limited impact without a strong banking sector capable of converting policy into productive economic activity.
Electricity, too, can no longer be viewed merely as a public service. It has become a core economic and monetary issue.
There can be no industrial development without electricity; no value addition without electricity; and no manufactured exports without electricity.
Investment in electricity infrastructure is therefore not current expenditure, but direct investment in higher production and increased foreign exchange earnings.
The past few weeks have demonstrated that the state is capable of decisive intervention when political will exists, and monetary, fiscal and trade policies are properly aligned.
But the real test begins now.
Today’s exchange rate does not judge an economy, but by its ability to generate tomorrow’s foreign exchange.
If the recent appreciation of the Sudanese pound becomes an opportunity to expand agricultural finance, secure productive fuel supplies, commission new gold refineries, remove export-discouraging taxes, rehabilitate the electricity sector, and maximise value addition in the gold industry, then Sudan will truly have begun the transition from an economy focused on crisis management to one centred on wealth creation.
However, if reform ends with intervention in the foreign exchange market alone, the market may remain calm today. Still, tomorrow it will once again demand more foreign currency than the economy can produce—particularly as reconstruction costs continue to rise.
The government and the Central Bank have undoubtedly won an important battle in the foreign exchange market, and that achievement deserves recognition and careful consolidation.
But lasting exchange rate stability will not be delivered by the Central Bank alone, nor by administrative measures, however forceful they may be.
Reducing the value of the dollar is a policy decision.
Maintaining that reduction is a national project.

Shortlink: https://sudanhorizon.com/?p=15448