Exclusive: Sudan needs up to $5 billion in budget support to prevent collapse

© Reuters. Sudan's Finance Minister Ibrahim Elbadawi speaks during an interview with Reuters in Khartoum © Reuters. Sudan’s Finance Minister Ibrahim Elbadawi speaks during an interview with Reuters in Khartoum

By Khaled Abdelaziz, Ulf Laessing and Michael Georgy

KHARTOUM (Reuters) – Sudan needs up to $ 5 billion in budget support to avert economic collapse and launch reforms after the ouster of veteran ruler Omar al-Bashir, its finance minister told Reuters.

The country, in crisis since losing most of its oil wealth with South Sudan’s secession in 2011, has only enough foreign currency reserves to fund imports for a few weeks, said Ibrahim Elbadawi, part of a transitional government formed in August.

Sudan has had some support for fuel and wheat imports but about 65 percent of its 44 million people live in poverty and it needs up to $ 2 billion in development funding along with a hoped-for $ 2 billion from Arab development funds, he said.

Outlining reform plans in detail for the first time, Elbadawi said public salaries would need to be increased and a social support network established to prepare for the painful removal of fuel and food subsidies.

Months of demonstrations over price hikes for fuel and bread and cash shortages triggered the uprising against Bashir, who was toppled in April by the military. Protests have continued since, with people killed in clashes with security forces.

“We have started the process (of reforms),” Elbadawi said in an interview on Thursday. “The people of Sudan deserve to be seen in a radically different prism than the international community used to see Sudan, as a country ruled by a pariah state.”

“Now we have a revolution,” he said. Asked how much budget support was needed for 2020 he said: “Some estimates say between three to four billion (US dollars), maybe even five billion.”

The civilian government Elbadawi is part of has taken over for three years under a power-sharing deal with the military. It has drawn slightly more than half of $ 3 billion in support for imports of wheat and fuel offered by Saudi Arabia and United Arab Emirates in April, he said.

A “friends of Sudan” donor meeting is planned for December and the government had agreed with the United States it could start engaging with international institutions while still on a list of countries deemed sponsors of terrorism, Elbadawi said.

The designation, which dates from allegations in 1993 that Bashir’s Islamist government supported terrorism, makes it technically ineligible for debt relief and financing from the IMF and World Bank. Congress needs to approve a removal.

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The first experts from international institutions had arrived in Khartoum to help with reforms and a delegation of the International Monetary Fund (IMF) would come this month for Chapter IV discussions, Elbadawi said. There was no immediate comment from the IMF, World Bank or U.S. State Department.

Part of a roadmap agreed with the IMF and World Bank was that Sudan did not have to pay back $ 3 billion in arrears from international institutions.

“We don’t need to pay anything. What we need to … deliver really is policy,” he said. Sudan is one of the most indebted countries, owing $ 60 billion, which needs to be settled separately.

Sudan would start to increase its tax base and overhaul the civil sector, Elbadawi said. Salaries — eroded by double digit inflation rates — could be raised as much as 100 percent by April.

In the second half of next year a social support network would be set up to allow the lifting of subsidies by June or later. Some donor funding would be used to collect data to allow cash transfers for the needy.

Sudan also wanted to produce bread based on sorghum, a local cereal, to import less wheat. He said he hoped a spread between official and black market would be ended by June. But this week the local pound dropped to 80 for a dollar on the black market versus the official rate at 45.

He said the 2020 budget would have sustainable development targets for education, health care and social spending, suggesting Sudan might move away from the dominant military spending choking development.

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Forex News

Pound Needs More Than Election Date to Sustain October’s Rally

© Reuters.  Pound Needs More Than Election Date to Sustain October's Rally © Reuters. Pound Needs More Than Election Date to Sustain October’s Rally

(Bloomberg) — Sign up to our Brexit Bulletin, follow us @Brexit and subscribe to our podcast.

Pound traders are unlikely to find that the promise of a December U.K. election provides an escape from the Brexit maze.

The currency pared losses after the Labour Party backed government plans for an early poll, before lawmakers vote on the decision later Tuesday. An election is unlikely to send the pound plunging with the Conservatives ahead in the polls, strategists say, yet there is enough uncertainty around the result and the Brexit outcome that it also won’t prompt a huge rally.

“The most severe of the longer-term structural risks facing the U.K. — a no-deal crash out — have all but evaporated,” said Ned Rumpeltin, European head of currency strategy at Toronto-Dominion Bank. “There is a lot of good news in the price, and the balance of headlines may not be as constructive once we head into an election cycle.”

The pound is headed for its best month against the dollar since January 2018, with no-deal Brexit risk reduced after lawmakers voted to force Prime Minister Boris Johnson to seek an extension to the deadline. The likely election now looks set to become a proxy vote on European Union membership.

The rose 0.1% to $ 1.2878 on Tuesday, and climbed 0.2% to 86.16 pence per . The yield on government bonds held steady at 0.72%.

Wary Investors

Even as polls suggest a Tory-led government is the most likely outcome, the market will be mindful of risks around Jeremy Corbyn. Investors have long been wary of a government led by the left-wing Labour leader, who is seen nationalizing parts of the economy, boosting borrowing and redistributing income.

There is also the question of how the two main parties position themselves on Brexit. If Labour opts to campaign on a platform of no Brexit or an arrangement where Britain maintains close ties with the EU, while the Conservatives go for a departure at any cost, volatility will likely pick up into the vote, according to Thu Lan Nguyen, a currency strategist at Commerzbank AG (DE:).

“I wouldn’t expect a large market reaction in pound spot rates,” said Nguyen. “Rather, I think we will see a repricing on options markets, factoring in an increased political risk around the date of the elections.”

Option pricing has been subdued in recent days, with implied volatility in the pound staying low in the shorter and longer term. This suggests traders foresee smaller jumps in the currency, reflecting optimism about the fading risk of no-deal, contained by pessimism caused by simmering political uncertainty.

Persistent question marks over Brexit itself could also keep a lid on the pound. Traders may also shift their attention to the risk of the second phase of Brexit negotiations when Britain will have to decide its future relationship with the EU.

“The capacity for sterling to enjoy a major relief rally that ‘it’s over’ may be more constrained than others may think because, let’s face it, it’s not over,” said Toronto-Dominion’s Rumpeltin. “Not by a long shot.”

(Adds options context, comments from Commerzbank, updates pricing.)

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Forex News

IMF Says Greece Needs More Fiscal Space From European Partners

(Bloomberg) — A reduction of Greece’s fiscal targets would support the country’s economic and social recovery, the International Monetary Fund said.

In 2020, the IMF recommends that “the government and European partners build consensus around a lower primary balance path, given ample economic slack and critical unmet social spending and investment needs,” according to the fund’s statement after the conclusion of its Article IV mission in Athens.

Greece has to achieve a primary surplus of 3.5% of gross domestic output every year until 2022 under the terms of a deal with its European creditors. The new Prime Minister, Kyriakos Mitsotakis, who took over in July, has called these targets “a relic of the past,” and he is now trying to convince his country’s partners to reduce them, starting in 2021.

For 2019, Greece is going to meet its primary surplus target “more or less,” Peter Dolman, IMF mission chief for Greece told reporters in Athens on Friday. But there is a gap for 2020, and the question is what the quality of the measures taken to fill this gap will be, he said.

Cutting public investments is not a quality measure and the country should improve its sales-tax compliance and broaden its tax base to create more fiscal space for social policies and tax cuts, Dolman said.

The fund forecasts that Greece’s growth rate for both 2019 and 2020 will be around 2%. It “will take another decade and a half for real per capita incomes to reach pre-crisis levels,” the IMF said in the statement.

To support growth, the new government “should use its political mandate and improving investor sentiment to deploy a full range of policy tools and overcome long-standing vested interests,” it said.

Fixing banks must be a top priority for the new government given that they are a misfiring engine. Apart from the implementation of an Italian-style project to massively cut bad loans, which is about to be approved by European authorities, the government should take further actions to make judicial processes more efficient and improve insolvency law, according to the IMF.

While Mitsotakis’s administration “deserves credit for unblocking privatization and pushing through business deregulation and digitalization,” much of the needed structural transformation of the Greek economy still lies ahead, the IMF said.

The IMF expects Greece’s public debt-to-GDP ratio to decline over the next decade with relatively low liquidity risks in the medium term also noting that the country has a large cash buffer to use if needed. But, in terms of debt sustainability analysis “we think the long-term sustainability is not assured,” Dolman said.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Forex News

Tiered ECB rate needs monetary policy case: Praet

© Reuters. Peter Praet, executive board member of the European Central Bank (ECB) delivers his speech at the conference © Reuters. Peter Praet, executive board member of the European Central Bank (ECB) delivers his speech at the conference “The ECB and its watchers” in Frankfurt

FRANKFURT (Reuters) – The European Central Bank must have a monetary policy case if it is to consider a multi-tier deposit rate, outgoing ECB chief economist Peter Praet said on Monday.

The ECB is currently studying whether to grant relief to banks from some of the charges on its minus 0.4 percent deposit rate, worried that weak bank profitability could impair the transmission of its policy.

But policymakers have long argued that low bank profits are not enough for the ECB to introduce such a new tool and instead, they need to be convinced that policy on the whole, for the entire currency bloc, would benefit.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Economy News

UK's Clark says parliament needs to establish agreement over a Brexit deal

Comments by UK business secretary, Greg Clark

  • No-deal Brexit would be a disastrous situation
  • Need to act to avoid a no-deal outcome
  • No-deal outcome would not become government policy
  • Says indicative votes over Brexit preferences among lawmakers can be a useful step

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The final comment is basically suggesting something to test the waters ahead of next week’s meaningful vote. Like that is ever going to happen. It’s pretty clear now that May isn’t going to get the necessary assurances, which need to be legally-binding, from European leaders before next week.

In that case, it either means she delays the vote again – which I don’t see a point in doing so – or she backtracks and decides to extend Article 50 (since there is no other option unless she also backtracks and opt for a no-deal outcome). But the latest wrench in the works now is that Labour party leader Jeremy Corbyn is looking to angle an election challenge should parliament vote against May next week.

The element of uncertainty surrounding the vote next week is what is putting a bit of drag on the pound to start the day. Cable now sits at 1.2766 after falling to a low of 1.2751 earlier.

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Inflation risk needs to be considered

Could a run-up in prices be the x-factor?

We believe investor enthusiasm around the Fed Chair’s looser policy talk ahead of the weekend has been overstated, especially when considering a hot hourly earnings component in the US jobs report that could serve as a precursor to a rapid rise in inflation. This significantly undermine the Fed’s ability to hit the brakes on rates. 

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