Sudan Multi Donor Trust Funds

Sudan Multi Donor Trust Funds

National and Southern Sudan(N&S)

Initial Project Proposal

Project Name: Sudan New Unified National Currency Project

Assistant Governor

Table of Contents

Cover Sheet

A. Government Endorsement

B. Key Issues and Rationale for MDTF Involvement

C. Project Development Objective

D. Preliminary Project Description and Costs

E. Institutional Arrangements

F. Potential Risks and Issues

G. Proposed Preparation Schedule

A. Government Endorsement

The Ministry of Finance and National Economy of the Government of National Unity (GONU) and the Ministry of Finance and Economic Development of the Government of Southern Sudan (GOSS) have endorsed in principle the critical importance of MDTF funding for the introduction of the new unified national currency in Sudan. This project proposal has been prepared by the Central Bank of Sudan (CBOS) based on the directives from the Presidency of the GONU pertaining to implementation of the CPA.

B. Key Issues and Rationale for MDTF Involvement

The proposed project will fulfill a key requirement of the Comprehensive Peace Agreement (CPA), namely that the Government of National Unity in Sudan introduce a new unified national currency during the Interim Period to replace the multiple currencies that are currently in circulation in the country. This requirement is spelled out in Article 14 (9) of the Wealth Sharing Agreement of the CPA.

The currency situation in the country is complex, creating serious problems for the economy. Before the signing of the CPA, the Sudanese Dinar has been the legal tender (since 1992) in the areas controlled by the Government of Sudan. In most of Southern Sudan, however, several currencies co-circulate in various locations and combinations: for example, the “old” Sudanese Pound, Kenyan and Ugandan Shillings, Ethiopian Birr, US Dollar, and the Sudanese Dinar. This situation creates real problems for the pricing system and the payment system, generates varying local exchange rates, and is not conducive to the reconstruction and economic re-integration and development of the South.

With six concurrently circulating currencies all currently recognized as legal tender in Southern Sudan, prices in the same market in villages and towns are often expressed in more than one currency leading to a complex exchange rate system and confusion for a mostly illiterate population, especially in rural areas. Banknotes in circulation are generally dirty, mutilated, and often unrecognizable. This increases the risk of cheating and use of counterfeit currency. With market development squeezed by the lack of a unified medium of exchange, the economic integration of Southern Sudan is being hindered with continued commercial and economic dependence on the neighboring countries, especially in the bordering states.

Through this joint project, the GONU and GOSS renew their request to the international donor community to fulfill its commitment stated in Point 5c (Issuing New Currency) of the Implementation Modalities of the Framework Agreement on Wealth Sharing. This provision of the CPA entrusts CBOS with the issuance of the new currency and states clearly that the funding sources for the new unified currency are the international community and the national government. This request relates largely to:

(i)  The funding of the foreign component that is the non-domestic currency elements of the project – which also includes the procurement of inputs for the production of banknotes and coins;

(ii)  Financing a limited number of international experts to provide targeted capacity building of CBOS/BOSS staff with respect to the currency conversion; and,

(iii)  Financing of certain services and equipments relating to the logistics and public awareness campaign, as well as the necessary upgrades of CBOS/BOSS branches and exchange points, primarily in Southern Sudan.

The new unified currency represents an important symbol of national unity. The new currency jointly designed by representatives of northern and southern Sudan reflects the diversity of the country and embodies important messages to promote harmony, peace and unity in the country. The design of the new currency satisfies the following requirements:

(i)  Reflects the peace vision

(ii)  Reflects the Sudanese cultural background

(iii)  Reflects the unity of the country in its diversity

(iv)  Reflects the hopes and aspirations of the people of Sudan

(v)  Reflects the country’s diverse national natural resources

(vi)  Reflects the country’s industrial advancement

(vii)  Avoids showing religious symbols

(viii)  Avoids showing ethnic symbols

(ix)  Avoids showing associations to state-of-war and conflict

(x)  Avoids showing any human figures.

C. Project Development Objective

The importance of introducing a new unified national currency derives from the necessity to overcome the serious socio-economic problems faced by the Southern states and to serve the following objectives:

(i)  Maintain the integrity of the CPA

(ii)  Reform the distorted monetary system in the country

(iii)  Restore normal economic activity in Southern Sudan

(iv)  Enhance the economic integration and development of the country as a whole

D. Preliminary Project Description and Costs

The project is intended to replace all legal tender circulating in Sudan at the time of the signing of the CPA with a single unifying national currency. The introduction of the new currency is expected to start in January 2007, and the entire process of currency exchange is expected to be completed during 2007. As stipulated in the CPA, the states in Southern Sudan shall be given priority when the new currency is issued in view of their urgent need for additional and better quality currency. The CBOS has decided to issue six denominations of the Sudanese Pound (SDP) – 1,2,5,10,20, and 50, corresponding to the current Sudanese Dinar (SDD) denominations of 100, 200, 500, 1,000, 2,000, and 5,000. In addition, there will be five denominations of coins – 1, 5, 10, 20, and 50 Piastres (100 Piastres = 1 SDP), corresponding to 1, 5, 10, 20, and 50 SDD. At the end of 2005, some 530 million SDD banknotes were in circulation in Sudan in addition to five other currencies circulating in Southern Sudan. Some 1.3 billion SDP banknotes would be needed to cover anticipated needs and to provide a reserve stock to ensure that the currency exchange takes place smoothly.

Based on the core values of the CPA, designs for the new family of banknotes have been developed by a group of artists representing the different parts of Sudan. The design of each banknote reflects a theme like unity, peace, prosperity, etc. The banknote designs have now been decided for the various banknote denominations. A World Bank LICUS Grant of US $ 121,000 supported the design work including collection and selection of symbols and icons for the design. From a security point of view, all six banknote denominations are designed using basic “public” features such as (i) watermark, (ii) security thread, (iii) intaglio printing, and (iv) see-through marks. All higher denomination banknotes are toe be equipped with (v) holographic stripes, and (vi) other special features, which are readable only with the help of specific equipment.

The project consists of the following components (based on a detailed project report entitled “Sudan: Introduction of a New National Currency” IMF, Washington DC May 2006) :

(i)  Procurement of Banknotes and Coins

The total requirement for new banknotes is estimated to be in the order of 1.335 billion banknotes, based upon a direct need of 911 million plus a reserve stock of 424 million banknotes. Thus the initial production goal just to cover circulation needs is about 900 million banknotes. The requirement for coins is estimated at 242 million pieces.

The CBOS has decided that the Sudan Currency Printing Press Company Limited will be in charge of the production of banknotes and the Sudan Mint Company for the coins. Another important step taken by the CBOS is its declaration that most procurement of currency inputs will take place through the World Bank’s international competitive bidding procedures while the actual production is planned to take place in Sudan.

CBOS has recently secured supplies of the required banknote paper and security features and coin blanks through international tenders conducted in full compliance with World Bank’s procurement guidelines. The remaining items to be procured include printing ink and chemicals. The IMF supported a suggestion by the Sudan Currency Printing Press (SCPP) that these two items be procured through sole source procurement procedures. In addition, CBOS has prepared an initial stock of new banknotes and coins to launch the new currency in January 2007.

Table 1 shows the summary of the awarded contracts for the banknote paper:

Table 1

Table 2 shows the summary of the awarded contracts for the coin blanks:

Table 2

(ii)  Currency Exchange Program

The management of a currency exchange is a multi-pronged task that requires inputs from a variety of disciplines and sources, comprising the following key components:

Information and Public Awareness. A detailed public relations and communications program is being developed to ensure that the general public as well as specially targeted groups is well informed about the process of currency exchange as well as the most important and easily recognizable security details of the new banknotes and coins. The information and awareness activities have to start early and go on during the whole exchange period. In addition, the information activities have to be adapted to the very variable circumstances under which people will be exposed to the facts and the information. Extra care will be taken to reach the part of the population that is illiterate or due to cultural, occupational, or historical reasons disconnected from the established media. The information and public awareness campaign is expected to be outsourced to one or more companies with domestic knowledge and proven information and public education expertise. In addition consideration is being given to engage international expert that has relevant experience in this field.

Telecommunications. A well-functioning communications system is required to direct the currency exchange process. Real time availability of exchange data and circumstances is critical to adapt to a variable demand for banknotes or other developments throughout the country at any time during the exchange.

Currency Exchange Places and Exchange Points. The establishment and maintenance of currency distribution facilities throughout the country with a minimum of one coordination center in each state and a regional coordination center in Juba for the Southern ten states has already been completed. The utilization of already well functioning financial entities such as commercial banks should have priority and be utilized for the exchange whenever possible. In southern Sudan and more remote rural areas, systems for the practical handling of the exchange have to be developed. Mobile exchange units will be needed in remote areas for deployment in cooperation with the local administration, police, and military forces. In total, about 540 exchange points are estimated to be needed aside from the branches of the CBOS and the banks. Of these, 300 are planned to be mobile units that can cover larger areas in southern Sudan and rural areas in the rest of the country. Each mobile unit is budgeted at $20,000.

Logistics – Air and Ground Transportation. The distribution and storage of the new and old currency during the exchange constitutes a major challenge from a logistical point of view. Special considerations have to be made to the demanding climatic conditions as well as the immense geographical size of Sudan. The long distances, condition of the roads, and security situation all call for logistical strategy where air transportation plays a critical role. Fixed-wing planes will distribute the new currency from Khartoum to Juba and to various state coordination centers. However, not all state coordination centers have adequate and secure storage facilities and the remainder needs to be upgraded. Most exchange points can be reached by road or water transport; the rest will have to be reached by helicopter. Each of the State Coordination Centers will need to have one armored vehicle for short distance transportation.