By Dhieu Mathok Diing Wol
August 28, 2011 — Recently the esteemed Caretaker Council of Ministers, based on presentation made to it by the removed administration of Bank of South Sudan (BSS) approved and announced a set of monetary policies as a bid to face-out current inflation and high demand for foreign currency especially US Dollar.
These policies were totally of a highly liberal economy orientation; a step actually desired by our young nation and should be a policy of long-run after realisation of growth in industrial and agricultural sectors in South Sudan, which believed to be possible within a short period if correct policies and strategies are designed and put in place.
It is categorical mistake to start with this high profile westernised monetary policy because the economy of Republic of South Sudan (RSS) is an infant and needs protection.
Currently in South Sudan everything is imported from neighboring countries including food items and basic services. South Sudan does not possess single factory with working capacity that provides needed goods and services including drinking water factories. In addition, the acquisition of education and health services from abroad is adding more responsibilities to already existing demand for foreign currencies in South Sudan.
In such a situation the demand for the currency to meet these needs is expected to be very high. Our only source of supply of foreign currency is oil revenue which is facing difficulty of continuation with current intransigence over the use of existing pipelines running to Port Sudan, by the government of Sudan in Khartoum.
The new rules and regulations in managing foreign currencies introduced by BSS adopting Letter of Credit (LC) to address the issue of imports from abroad is not practical now and expected to face difficulties, because it requires the computerisation of the banking system (Which is actually connected with the RSS international code, i.e. 211 expected to be launched in October 2011) and at least a degree of awareness to our citizens. It can work with big business houses but very much doubted whether will serve the purpose of small scale enterprises and families pursuing education for their children abroad.
Moreover, the market is dominated by exchange forex bureaus mostly owned by senior managers in BSS or partners to foreign investors. This automatically makes our economy vulnerable to hands of foreigners.
The auction model adopted recently by BSS and endorsed by the esteemed Caretaker Council of Ministers is highly risky to the young economy of South Sudan and needs to be revised by the new administration of BSS. One can easily see now how far it has contributed in rising inflation of prices in markets in Juba town. When the auction was carried out by the US Dollar jumped from 3.38 to 3.80 SSP in a second and continued rising until it reached 4.00 SSP. This is because demand and supply are not relatively competitive in monetary markets in South Sudan.
It’s advisable not to make any attempt for another auction. Instead, our currency needs protection by putting in place measures like calculation of its value in market and continuous injecting US Dollars at a fixed rate when necessity arises to prevent inflation. The recent applied policies on banking system by opening LC for commercial and business transactions are important and should continue with intensive pressure to make it happen soon.
The government needs to put in place sound macroeconomic policies where fiscal and monetary policies complement and do not substitute each other.
Dr. Dhieu Mathok is author of Politics of Ethnic Discrimination in Sudan: A Justification for the Secession of South Sudan.