Have the governor of the central bank and the minister for finance become the supreme authority over parliament?
Have South Sudan’s central bank governor and minister for finance and economic planning become the Supreme Authority over the legislature in the Republic of South Sudan?
Marial Mabor Turic, Juba, South Sudan
March 20, 2016 (SBB) —- Ladies and gentlemen, I am startled and surprised by the way things are moving in this country! It was barely three days ago, when the national assembly summoned the heads of two principal institutions responsible for failure and crisis in our economy, but unfortunately, they failed to appear before the august house, which I believed to be the supreme body any government civil servant/ institution should be answerable to.
This brings me to the question of, who have become the superior body to the other! Did they turn down the invitation/summon in their capacity as sole managers of these institutions or as mere/common citizen of this country? However, my dear readers, let me bring to light what the parliament wanted to inquire from the two sitting officers in our offices.
First and foremost, the crumbling economy in our country: These two gentlemen, should I called them gentlemen? If they were, they would have appeared before the assembly majestically well organized, equipped and furnished with all the practical answers needed by the house/country/citizen of this beautiful nation. In my last article titled, “Economic Meltdown, Not Riek Machar, is Number One Rebel for the Government in Juba”. This article was basically dwelling on the failures these institutions had made over the years. The minister, who represents the institution as well the executive, in managing our economy did not appeared despite all the efforts made by the assembly to availed himself and his friend and colleague in crime the governor of central bank.
What happened after these principal parties failed to show up before the august house? Definitely, the session was adjourned until further notice, if am not mistaken. The assembly went off indefinitely on the matters related to the failing economy, which is heading to a dangerous zone, (Hyperinflation). As I stated in my last article, the policy makers are not up to their responsibilities as expected. The central bank, which is the core policy maker related to fiscal and monetary policies has no plans and strategies to save this collapsing economy. Money supply has gone unknown and the inflation is maddening unmeasured.
Is it really the dollar exchange rate that is destroying our economy, as many people believed? Definitely ‘No’ the problem is not the dollar or the exchange rate, the problem is with our policies made in comfortable offices. But, what is exchange rate here? Exchange rate is simply the rate at which one country’s currency can be traded or exchanged for another country’s currency. It determines how cheap or how expensive it is for you to buy goods, such as televisions, clothes, food commodities and tires for your car. A lower exchange rate for the U.S. dollar makes our currencies appreciates, which lowers the price of imports. This means you can buy more electronics and other goods and services for every pounds you make!
A high exchange rate makes imports more expensive because your pounds won’t buy as much foreign currency. Although this means you will spend more of your paycheck on normal everyday items, on the flip side, it encourages exports, which can cause a balance of trade surplus and help the economy grow.
Now that we have recapped a few of the basics, let’s dive deeper into how fiscal and monetary policy affect the exchange rate.
Fiscal Policy, which is the use of government spending or taxes to grow or slow down the economy, can affect the exchange rate in three different ways. It can affect exchange rates through income changes, price changes and interest rates. Let’s explore each now.
Income Changes: When the government lowers your taxes through fiscal policy, it puts more income in your pocket! This means more shopping and morning stops at the local coffee shop, usually resulting in overall increased demand for goods and services. This means more imports. You have more money; you want to spend it!
Price Changes: When the government wants to grow the economy, it is known as expansionary policy. To do this, the government can reduce taxes or spend more to stimulate the economy. When the government spends more or decides to cut your tax bill, this ultimately leads to increased demand, which pushes the overall price of goods and services higher.
As the prices of goods increases, this also makes exports of our goods to other countries more expensive and imports more attractive. This leads to higher demand for foreign currency to buy goods and lower demand for dollars to purchase South Sudan goods. This lowers the exchange rate. Contractionary policy, which is characterized by a decrease in government spending or increases in taxes, has the opposite effect.
Interest Rate: Now that we have seen how income and price levels can affect the exchange rates, let’s see how interest rates work. When the government takes an expansionary fiscal approach and wants to increase its spending, it has to get that money from somewhere. To do that, it sells bonds, which I believed not to be common in case of south Sudan. This raises the interest rates. This higher south Sudan interest rate causes foreign dollars to flow into the South Sudan, because foreign investors are attracted to the higher interest rates, which give them a better return on their money. People are always looking for a good return on their money! Foreign investors will only bring in their investment when we have achieved a lasting peace, hence creating a peaceful environment for their returns. Who would opt to invest in such hostile environment?
Moreover, this increased flow of capital pushes up the south Sudan exchange rate. On the contrary, contractionary fiscal policy leads to lower interest rates and more capital flowing out of the country and pushes down the exchange rate. This more technical and difficult to understand, especially on how the general economy depends on these! However, my dear readers, the government has the sole responsibility to make these institutions works, and prove to the country that their policies makes a huge impact on our economy.
Monetary Policy, which is headed by the Federal Reserve/Central Bank and involves changing the money supply and credit availability to individuals, can also affect the exchange rates. Similar to fiscal policy, it can affect the exchange rates through three paths: income, prices and interest rates.
When the Federal Reserve or central bank wants to expand the economy, it pups more money into the economy. More money in the economy leads to higher demand for goods and services, which increases the prices you pay. Similar to the income path, this rise in prices makes export more expensive and import relatively cheaper. When imports becomes cheaper, we buy more imports! This increases our demand for foreign currencies to pay for these goods and pushes down the exchange rate.
My dear readers, let us not be deceived by our so called leaders in power, by making us fools and marauders who can’t understand anything at all, even a layman who is not an economist or an accountant like me, could easily finger it out where the problem lies. Our suffering wholesomely lies right underneath the big chairs and offices in our ministries and the central bank.
The sitting official are not ready to serve this youthful nation, whose citizen are so patriotic and ready to lay down their lives for the betterment of their country. Nevertheless, I recommend that the changes in both the ministry of finance, commerce and economic planning and the central bank be made without delay, to save our economy.
Marial Mabor Turic, Juba, South Sudan, marialmabor@gmail.com. The opinion writer holds a degree in accounting and finance, and a contributing commentator on contemporary affairs in South Sudan.
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