Sudan on the Brink: How War and Economic Turmoil Are Shaking the Banking and Financial Sector to Its Core

Professor Hassan Bashir Mohamed Nour
A recent report by the International Monetary Fund indicated a contraction in the Sudanese economy by 20% during the year 2024, a contraction (in addition to what preceded it in the years 2022 and 2023 due to the October 2021 coup and then due to the disastrous. war) which represents great pressure on different sectors, especially the banking and financial sector, which is facing unprecedented challenges in the fields of deposits, financing, investment, and capital adequacy. These challenges come at a time when Sudan is suffering from the scourge of war, political instability, a continuous increase in inflation rates, and an increase in the cost of production and living, which makes it more difficult to stabilize the financial system.

The current crisis shows a sudden drop in bank deposits, as individuals and companies are afraid to deposit their money in banks amid political and economic uncertainty. This reduction leads to a reduction in the liquidity available to banks, which limits their ability to provide the necessary funding, and weakens their role in stimulating the economy. The heavy reliance on foreign currency for reserves and the volatility of the exchange rate also exacerbate the crisis of confidence in the banking sector.

On the financing side, the economic downturn has led to an increase in the cost of borrowing, as banks find it difficult to finance economic projects, which are considered one of the most important drivers for creating job opportunities and increase productivity. This has led to a reduction in investments, both internal and external, as investors avoid the risks associated with entering an unstable environment. With the decline in funding, local companies were affected and some were forced to reduce their operations, stop altogether, or leave the country, which led to the loss of many job opportunities and therefore a decline in the earnings of all factors of production (especially earnings on capital and labor and earnings from agriculture and the real estate sector).
In addition to the above, the current crisis has a direct impact on the capital adequacy and financial solvency of banks, as the reduction in earnings and the increase in the risk of bad debts has led to a decline in the ability of banks to fulfill their obligations . Small and medium-sized banks were more affected, leading to fears about their inability to continue in the face of mounting financial liabilities and falling revenues.
It should be noted that the financial situation inside and outside the banking system suffers from fragmentation and conflict, as the amount of money circulating within the banking system has decreased in exchange for an increase in liquidity outside out into the formal sector. This led to weak control over the movement of money, and a greater reliance on informal transactions, which increases the difficulty in developing effective monetary policies that contribute to managing the economy, managing inflation, managing liquidity, and managing the mass financial, which was outside the banking sector by an estimate of 87% in the past The most optimistic estimates before the war. In this context, we confirm that printing currency under these circumstances will be of no benefit and will leak out of the banking system The problem is not in the currency itself, but rather in the system and the situation in the whole country .Shadow treatment and step back.
Therefore, the economic contraction is a pressing factor on monetary policy, as the authorities face the challenge of balancing cash liquidity while trying to control inflation and support the local currency. With the decline in production and job losses, the Sudanese economy is witnessing a drop in employment levels, which negatively affects overall economic activity. This situation leads to a reduction in domestic demand and a slowdown in investment, which weakens economic growth and increases unemployment rates, especially among the youth.
As the current conditions and the ongoing war continue, it is expected that the financial and financial situation in Sudan will remain under great pressure. Challenges related to low levels of productivity, huge debts, and lack of political stability will make economic recovery more difficult to achieve. According to macroeconomic indicators, the continuation of the war will inevitably lead to further economic decline, as job opportunities will shrink and confidence in financial institutions will decline, leading to a decline in domestic and foreign capital.

Any effective economic vision requires the adoption of structural policies aimed at restoring financial and financial stability, by improving the efficiency of the banking sector and increasing support for small and medium enterprises that can create job opportunities and improve productivity. The situation also requires urgent measures to ensure the stability of monetary policy, such as strengthening foreign exchange controls and increasing incentives for savers and investors to ensure the continuity of the flow of liquidity and stimulate economic activity, but all this is out of reach if there is no voice the defenders go quiet and peace and political stability is ensured.
The Sudanese economy therefore faces serious challenges that require tremendous efforts to ensure financial and financial stability, and to create an enabling environment to chart a path for recovery and development. If the current conditions continue, the outlook will remain bleak, as the situation cannot be improved through thoughtful fiscal and monetary policies aimed at restoring confidence and improving the flexibility of the banking sector, which could contribute to achieve sustainable future economic growth that will restore Sudan. ability to compete and improve its stability This is only by stopping the war and completing the necessary arrangements to create an environment that enables life and work in an (acceptable) manner.

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