What next for South Sudan Economy after the Aborted rate rise?
By Malith Alier
Term it “Manasenomics,”* that is what the economy of South Sudan has become after November the 11th announcement of rate rise from 2.9623 to 4.50 South Sudanese Pounds per US Dollar.
The reaction, both from the market and every citizen was swift. The market prices rose and citizens all of a sudden became gloomy about the future of their country’s economy.
In the heat of the moment, the country’s parliament summoned the Central Bank Governor together with the Minister of Finance to appear before it to answer questions about the sudden rise of the exchange rate
Let’s come down to basics. South Sudan economy is a consuming economy reliant on imports from neighbouring countries and further afield. The country hardly produces anything for domestic consumption leave alone for export. It is highly reliant on crude oil exports which lack necessary infrastructure. The pipe lines are located in the Sudan to the nearest coast of Port Sudan. A crude oil production shutdown in 2012 led to what was known as austerity measures characterized by reduction of civil servant salaries across the country. This austerity situation is not yet lifted despite resumption of crude production in 2013. Many civil servants attempted strikes for their pay and allowances to be reinstated.
Being an oil dependent economy, the Central bank has managed to steer the country through difficulties since independence in 2011. It has done so through managing foreign currency rates and allocation of major foreign currencies to foreign exchange Bureaus and commercial banks, something that is unique to south Sudan. No other country in East and North Africa is doing what the Central does in this country.
This unique operation (weekly allocation of foreign currencies) of the Central Bank has been taken to mean the entire economic management possible for this country. About ninety Foreign exchange bureaus and close to thirty Commercial banks are now operating in the country. Their work is limited to the allocation of Dollars from Central Bank nothing more or less.
This allocation of foreign currencies to financial institutions has been an economic headache to the Board of Directors of the Central Bank. But not only that, it also has been a headache to all the financial institutions in the country. You find long queues for Dollars in all the financial institutions. The majority of those looking for dollars are not genuinely seeking it for foreign travel, medical or schooling abroad. They simply want to further exchange it to make effortless and quick gains in what is known as “black market.” Those who really deserve to have foreign currencies for the above reasons have been excluded in the process.
The reforms that have been initiated by the Bank of South Sudan (BSS) are necessary because they are long overdue. No country in the world has two parallel exchange rates and where money is displayed on streets, but is assumed to run an effective economy. No country in the world that spoon feed people through the allocation of foreign currency like South Sudan.
The economy is still small but is it necessary to have close to thirty commercial banks in a short span of two years? Those people who forced the Central Bank Governor to back down are not honest to themselves and even in the country.
The reaction we saw in parliament tells a lot. The parliamentarians took it personally, and they all became emotional without restraint. Some of them at the same time have interests in Foreign exchange bureaus as well as commercial banks hence they cannot exercise neutrality. This was also the view of one economics professor from the University of Rumbek during Miraya. Fm roundtable debate on the 13th November 2013.
The good professor who is also one of the Board of Directors in Central Bank argues that allocation of foreign currency to banks and bureaux is “criminal” and will not help this country economically. He added the following;
1. The rate rise was short term
2. Commodity prices will rise but will gradually come back to normal or to equilibrium
3. Investors will be attracted as a result of the rise
4. Economic stimulation and growth is expected
5. Foreign currency will be available and accessible to everybody who needs it
6. Neutrality of currency is lacking but is required
7. The parallel market or black market pays no taxes, something that should worry the informed parliamentarians
8. Long queues for Dollars will be eliminated
These points are powerful enough to tell South Sudanese where they are and where they should be economically. The professor further stated that Central bank was dealing with monetary policies and the Ministry of finance deals with fiscal policies like salaries for civil servants.
The Central Bank action has been rejected but it has done a lot for the country. Lessons have been learned. It will further generate debate about the state of our economy in general. South Sudan economy will not be the same again, forward it must.
The Central Bank Governor should have stood his ground before the supercharged parliament. No country in this world allows it economic direction to be determined by popular vote.
*name of Parliament Speaker where the Central Governor was forced to revoke rate rise decision
Malith Alier is a graduate with a Bachelor of Commerce Degree
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