Strategies to Stock Foreign Currency Reserves and Strengthen the Pound in South Sudan
By Malith Alier, Kalgoorlie, Australia
Friday, October 30, 2020 (PW) — Before the start of the interim period in 2005, Southern Sudan was juggling multiple currencies at the borderlines. Kenyan/Ugandan/Tanzanian Shillings, Sudanese Dinar, US Dollars, Ethiopian Birr as well as other currencies that facilitatedexchange of goods and services in the war-ravagedterritory. This situation was of course understandable. There was no other better way to conduct trade at the time.
Soon after the Comprehensive Peace Agreement, the Sudanese Pound replaced the inflated Dinar. The Pound was then pegged against the US Dollar. This made people happy. The Pound was valued like a cow to the cattle keepers! It consumed other currencies like the way it’s being consumed today.
At the end of the interim period and the advent of independence, Sudan and South Sudan only separated but also diverged their economies in all but oil. Two currencies named Sudanese and South Sudanese Pound came forth immediately.
The 2013 civil war in South Sudan took the country to the edge for the second time. Oil production lessened, the pound weakened, and the reserves began to diminish. There was no other way to fund the way other than commandeering all country’s resources including reserves and future funds.
Last August, the government formed a committee to look into the economy and how to revive it, in an everlasting way. We held our breath because this was not the first time for such committee to be formed in the wake of an economic crisis. To add more uncertainty, individuals who were in previouscommittees found their way into this committee for reasons that are beyond this piece.
One of the recommendations of the unlikely to succeed committee on the economy, is to carry out all transactions in national currency, in this case, the Pound. This shift was long overdue. For if the Pound was to be relegated to other currencies, it should have not been printed at all in 2011.
On July 9, 2011, on Independence Day, the country became “sovereign” and full sovereignty instrumentsinclude national currency, the flag, coat of arms and the National Anthem.
Sovereignty has many definitions, but I will take one of these for the purpose of this article. Sovereignty, according to the free Dictionary, is a complete independence and self-government. For South Sudan, the 2011 independence was meant to be complete not half or quarter or third or whatever.
The prolonged parallel use of the US Dollar along Pound on daily transactions has been a headache for the government leading to the disappearance of the national reserves as disclosed by central Bank last August.
Yes, petroleum brings in Dollars; but the Dollars disappear at a higher rate than the inflows. people explain it away on imports. They claim that the country, imports everything from refined oil all the way to candle and needle!
There are three major sources of foreign currency inflows into the country; crude oil revenue also known as Petrodollars, international relief and international remittances.
South Sudan now currently pumps 165,000 barrels per day according to Sudantribune.com. this is a far cry from 300,000 barrels a day around 2011 just before the shutdown of 2012. The price per barrel at that time was also high compared to now.
The United Nations, UN, Nongovernmental Organisations, NGOs, and foreign governments bring in millions of Dollars into South Sudan each year.The US government disbursed 64.71m in 2020. It is projected that it will disburse 102.30m in 2021. This amount goes to specific funding areas including, peace, health, humanitarian assistance, and education.
Due to the presence of significant number of South Sudanese in the US, Australia and Canada, international remittances have spiked over the yearssince 2002. The inflows exponentially increase during disaster times e.g. during recent floods in Jonglei State for example. A great percentage of citizens with family members and friends in the west have come to rely on this vital assistance for years.
Ideally, nobody in South Sudan should be allowed to exchanged goods, pay rent, salary, or benefits in a foreign currency. There’s a rational for thatargument. It is neither the case in whole region nor should it be the case here.
Since the government has realized that the Pound should be the medium of all exchanges, the problem may be half redressed by this mere recognition. This is the viable way forward. It should be gazetted, the sooner the better.
This attempt is not going to be easy.
What it needs is systematic and sustained approach on two fronts: legal and tactical. The legal approach would call for the amendment of the NGO Act of 2016. The realities on the ground like the call for national transactions in own currency and others of similar nature necessitated this.
The UN and the NGOs should be given enough time to prepare for the inevitable shift from paying for goods and services in US Dollars to paying in South Sudanese Pounds in compliance with the policy. Doing this will relieve pressure on the economy by strengthening the Pound and rebuilding reserves.
Employees of the foreign currency paying NGOs should therefore be allowed time to sign contracts whose remuneration was stated in local currency. This will give the would-be employees opportunity to negotiate with the employers before concluding contracts. If an employee is not pleased with being paid in Pounds, they cannot sign the contract.
To manage an economy is not an ad hoc undertaking. It needs a sustained and coordinated approach. The notion of having a national currency is to fullyfacilitate exchange of goods and services based on that currency. It’s the legal tender meaning South Sudan courts of law only recognize Pound and not the US Dollar.
People imagine that having multiple currencies is the antidote to the import dependent economy like the one in South Sudan. If the country is taking out more hard currency than it makes in exports, then there must occur a depletion. South Sudan has learnt thatthe hard way.
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