UPDATE 2-Sudan to set daily exchange rate, cancel import restrictions -cbank governor

Sudan will begin on Sunday setting its daily currency exchange rate using a newly-formed body of bankers and exchange bureaus, part of a package of measures designed to tackle an economic crisis, the central bank governor said.

Sudan is also cancelling import restrictions, central bank Governor Mohamed Kheir al-Zubeir told reporters. The controls had been imposed last year on 19 selected foods and other items in an effort to cut the deficit and protect the Sudanese pound.

Sudan's economy has been struggling since the south seceded in 2011, taking with it three-quarters of oil output and depriving Khartoum of a crucial source of foreign currency.

Worsening hard currency shortages have led to strict withdrawal limits and a booming foreign exchange black market, where dollars have been trading for a premium of about 40 per cent. The official exchange rate on Thursday was around 29 pounds to the dollar.

"It's expected that in the first phase you will see a rise in the price of the dollar, but after a period the price of the Sudanese pound will stabilise," Zubeir told Reuters.

The exchange body will also set a purchase price for gold to counter smuggling, he said. Though gold mining has boomed, officials say most gold is smuggled out of the country, depriving the central bank of a crucial source of foreign currency.

This is partly because miners have been unwilling to sell their product to the central bank, which has set its buying price below global prices, mining companies and industry officials say.

NEW GOVERNOR

Zubeir, who was brought back last month for a second term as governor, believes in liberalising the economy, said Amin Hassan Sayed Ahmed, a Sudanese economist and investment banker.

He said he was reasonably optimistic about the new policy, though if the Sudanese pound weakened, it should be gradual. "If (the price of the dollar) increases in six months from 45 to 50, that is reasonable, but I don’t want it to become 90 in six months."

The import restrictions being scrapped were introduced last December as the value of the pound slipped following the lifting of 20-year-old U.S. sanctions against Khartoum two months previously.

The end of the embargo has so far failed to provide a hoped-for boost to foreign investment, which economists have linked to Washington's continued designation of Sudan as a state sponsor of terrorism.

A decision to reduce bread subsidies earlier this year triggered rare nationwide protests after bread prices doubled. Inflation climbed to a record 66 per cent in August, one of the highest rates globally.

Last month President Omar al-Bashir, in power since 1989, dissolved the government and slashed the number of ministries by one third, part of an effort to trim spending.

Bashir's ruling party said last month that it plans to nominate him for re-election in 2020, a move that requires amending the constitution.

(With inputs from agencies.)