Sudan’s central bank only has enough dollar reserves left to fund four to five months of imports but it expects the situation to improve after reaching an oil agreement with South Sudan, its central bank governor said on Tuesday.
Last week, Sudan signed an agreement with landlocked South Sudan to resume exporting southern oil through the north, providing both economies with badly needed dollars.
Sudan lost three quarters of its oil production when the South became independent in July 2011, depriving it of its main source of state revenues and the dollars it needs to fund imports.
The deal will take up to six months to take effect as the oil companies need to prepare pipelines and wells before crude flows can resume. Juba in January shut off the roughly 350,000 barrels-a-day of output it transfers to Sudan following a row with Khartoum over transit fees.
“It’s very difficult now, it is around four to five months of imports,” Sudan’s central bank Governor al-Kheir Zubeir told Reuters when asked about foreign currency reserves.
“Four months is low but we hope that after this agreement (with South Sudan), the reserves will increase drastically,” he said on the sidelines of a conference in Kuwait.
He declined to specify dollar reserve levels but said the central bank wanted to be able to fund imports for six to seven months.
Zubeir said the central bank had increased minimum reserve levels for commercial banks to mop up liquidity and contain inflation, which hit 42.1 percent in August.
“We have already increased reserve requirements on banks from 13 to 15 to 18 percent to contain pressures on inflation and the exchange rate as well,” he said.
Asked if the central bank was considering increasing the reserve requirement further, he said: “We are monitoring. It depends on developments.”
As well as containing inflation, another motive for raising minimum reserves was for the central bank to attract much-needed deposits, especially from the few foreign banks operating in the Arab-African country, banking sources say.
Zubeir declined to say whether inflation would ease this year but said strong summer rains boosting agricultural production would help Sudan to rely less on the imports that are draining its dollar reserves.
Sudan’s inflation is mainly driven by imports because it needs to buy many basic items such as sugar or wheat abroad.