South Sudan Bank’s Move to Inject Dollars Into Economy Likely to Mitigate Forex Losses
The Bank of South Sudan, the Central bank of the country, has said that it will sell dollars through foreign exchange bureaus to arrest the decline in the price of South Sudan Pound.
South Sudanese traders are facing problems in making payments to foreign countries as the South Sudan Pound is weakening against the US dollar. These traders were waiting for the Bank of South Sudan to take some steps to halt this dip.
The South Sudan Pound started weakening against the US dollar from September after the central bank paid $115.2M in pending salaries. This amounted to 31% of the total currency in circulation.
The salaries were paid from a $400M loan taken by the South Sudanese government from the Africa Export-Import Bank in October.
Elijah Wamalwa, MD and CEO of Co-operative Bank of South Sudan agreed that the infusion of extra currency led to inflation. He said that the Bank of South Sudan should take steps to remove the additional currency from the market. He suggested that the Bank of South Sudan could sell Treasury bills and Treasury bonds to remove the extra cash.
Central Bank Governor Dier Tong also agreed that the decline in South Sudan Pound was a result of the injection of a massive amount of currency into the economy, which had increased liquidity. However, he differed on the solution to the problem. To rectify the situation, Dier Tong said,
To reduce the liquidity in the market, the Bank of South Sudan will intervene in the foreign exchange market by selling dollars.
He further clarified that the dollars would only be sold through forex bureaus.
Dier Tong assured that the country had already allocated dollars for importing fuel, commodities, and medicines; thus, selling dollars would not lead to a shortfall of essential amenities in the country.
The global dip has badly hit South Sudan in oil prices as 98% of its revenue came from oil. The consequences have been aggravated as several oil fields have been seized by rebels and others damaged. This has reduced the in-flow of dollars in the country.
South Sudan also imports a lot of goods from Kenya, Sudan, and Uganda. This also has impacted the South Sudan pound. Thus, we can see that there is an imbalance between imports and exports as the country is not earning as much as it is spending, resulting in a shortage of dollars.
South Sudan’s economy was almost completely dependent on its oil revenue and it was felt that oil prices would never dip below $100 a barrel. However, the government had become complacent and did not feel the need to develop any other industry.