The author of this opinion article calls for implementation of the signed peace agreement in South Sudan, especially chapter (4) which talks of Resource, Economic and Financial Management Arrangements in order to find solutions to econimic challenges.
Since the signing of the Agreement on the Resolution of the Conflict in the Republic of South Sudan ARCISS, Kiir’s regime has been manipulating, sabotaging and delaying the implementing of the ARCSS, resulting to the fight inside Juba for five consecutive days, including the fighting at Lou Clinic in Gudele road on Thursday July 7, 2016, the deadly clashes outside the Presidential Palace (J1) on Friday July 8, 2016, leading to the huge attacks on the IO position in Jebel Kujur, by the government forces.
Immediately after the fighting inside Juba, South Sudanese Pound SSP has significantly lost its value against the foreign currencies.The latest rise in the foreign exchange rates followed complaints from the traders that there was scarcity of the US dollar at the Commercial Banks in the war-ravaged nation, causing dollar to hike at the black market. During the Juba Street, 1 US dollar traded at 50SSP at the black market, only to be increased further to 80SSP days after the fighting.
However, before to the Juba fighting, the currency crunch of SSP have started on Tuesday, December 15, 2015 when the South Sudan Bank floated its currency resulting to the South Sudanese Pound SSP to be devalued by 84 percent.
As the government allowed the pound to be traded freely, surrendering to prices charged in the black market. After the floating of the SSP, the value of the SSP, which had been pegged to the U.S. dollar at an official rate of 2.96 SSP to the dollar, fell to levels approached the parallel market rates of 18.50 SSP to the dollar.
Moreover, the currency crisis in South Sudan was not caused only by the Juba fighting. In fact, the increase in the foreign currency’s value against the SSP was cause by number of underlying factors, such as the bank of South Sudan’s poor policies in the past, including the floating of the SSP.
As the result, the floating of the SSP by the South Sudan Bank was proven to be an ill decision, which was tended to avoid the scarcity of the hard currency in that time.
Moreover, after the floating of the SSP, South Sudan Bank has failed significantly to provide or control the flow of hard currency into the local market, in order for the businesses to import the Goods needed. Subsequently, the failure to inject the hard currency into the commercial bank by the South Sudan Bank has led to the worsening of the economy situation in the whole country.
Disadvantages of floatation
1. The floatation of the South Sudanese Pound SSP has led the foreign currency to be evaluated against the SSP. The high rocking of the hard currency was the reason why the hyperinflation happened in the country. Therefore, the SSP has lost its value in the local market, furthermore, imports have becoming more expensive, and firms and exporters have less incentive to cut costs, as they have been relying on the devaluation to improve competitiveness. Subsequently, the devaluation of SSP has been the main reason led to lower imports and productivity.
2. The devaluation of the SSP has reduced the purchasing power of citizens in the local market, inflicting pain into already deteriorated economy situation, which become more sluggish.
3. A large and rapid devaluation in the SSP value has scared off international investors. Therefore, made the foreign investors less willing to invest in the country or hold government debt because the devaluation would effectively reduce the value of their holdings.
4. Ordinary South Sudanese people who have payments abroad in foreign currency, for instance mortgages, lease payments, education fees, health payments, have been experiencing a sharp rise in the cost of their foreign debt repayments after the devaluation, making it even harder to support or send their beloved one for health treatment or education for instance.
There are several common factors leading to the crunch of the South Sudan Pound SSP, including:
- South Sudanese government has borrowed heavily since 2013
- For a long time South Sudan has been lacking accountability and transparency, democracy, rule of law and most of all stability that needed to develop the economy.
- Ill decisions by South Sudan Bank during the last ten (10) years, including the decision to float the SSP without pumping hard currencies into the market, in which as a result of the floating, the SSP values decreased rapidly.
- Intentional efforts by regime’s elements, including Salva Kiir mayardit, to undermine state institutions in order to protect their corrupt extraction of national resources and maintain power at any cost.
- The weaknesses of governance institutions, Anti-Corruption Commission, the National Audit Chamber, and the Public Accounts Committee in the National Legislative Assembly, in South Sudan stem from deliberate efforts by elite politicians, including the president.
- The widespread of the government corruption left intentionally unchecked by the regime, as officials been investigated are sidelined or ignored
- Unwilling of the regime in Juba to implement the ARCSS, especially the financial reform stipulated in Chapter four (4) of the agreement.
- most of all, the uncertainty over Kiir regime’s actions made the investors jittery in the country
Solution
There are many possible solutions to the crunch of the South Sudanese Pound SSP, including many preventative measures that South Sudan Bank should take to prevent any future collapse in the value of the SSP.
However, the best solution to a currency crisis is avoiding them in the first place with preventative measures. Practically, the South Sudan authority has several options to deal with the SSP crunch:
- The first solution is a full implementation of the Agreement on the Resolution of the Conflict in the Republic of South Sudan ARCSS, especially the Chapter four (4) on Resource, Economic and Financial Management Arrangements, which call for transparency and accountability, zero tolerance on fighting against corruption etc.
- The second is to tighten capital controls, which would allow the central bank to set aside money and reserve requirements to stimulate the economy.
- The third option is to simply inject foreign currencies into the commercial banks and continue with floating of the SSP, the step which will create a new equilibrium for the currency market.
- The fourth option is to sharply increase fiscal stimulus to the point where the expectations of falling economic growth and SSP depreciation are effectively reversed
The views expressed in ‘opinion’ articles published by Radio Tamazuj are solely those of the writer. The veracity of any claims made are the responsibility of the author, not Radio Tamazuj.