Inflation fears as S. Sudan devalues currency by over 30%
November 12, 2013 (JUBA) – Inflation fears are high in South Sudan after its Central Bank unexpected announced a devaluation of South Sudanese Pounds (SSP) against the US dollar by nearly 35%.
“It [devaluation] will lower short-term exchange rate volatility, provide more reliable access to foreign exchange by the business community and members of the public and help to build buffers for the economy to deal with unanticipated shocks”, the Central Bank said in a statement seen by Sudan Tribune.
The local currency, according to the Central Bank, now trades at 4.5 from 3.16, while commercial bank rates now stand at 4.6, from about 3.25 against the US currency.
The move comes less than 24 hours after the Central Bank of Sudan quietly devalued its currency by 22.6% against the US dollar, which was the second move of its kind since more than a year ago.
South Sudan has had a turbulent economy since it broke away from Sudan over two years ago. The two countries are yet to sort out scores of post-session disputers, which are vital for the stability of both countries’ economies.
In Juba, the South Sudan capital, citizens began feeling the pinch of the currency devaluation, as most fuel stations ran out of petrol and diesel. There are fears that fuel prices, currently at SSP 6 per litre, could be hiked higher.
On the black market, the US dollar, which previously traded at SSP 4.5, was by Tuesday now selling between 5.0 and 6.0.
Joseph Alier, an economist, said government often devalues its currency because the interaction of market forces and policy decisions could have made the currency’s fixed exchange rate unsustainable within a given period.
“So for it [Central Bank] to sustain a fixed exchange rate, it must have sufficient foreign exchange reserves and be willing to spend them to purchase all offers of its currency at the established exchange rate”, said Alier, who runs a forex bureau in Juba.
In that case, however, the country is usually forced to devalue its currency to a level that it is able and willing to support with its foreign exchange reserves, he added.
CITIZENS REACT
“The currency devaluation will certainly affect our business, not only here but in the neighbouring countries as well”, said Ahmed Ali, a cement dealer in Juba.
Warille Benjamin Warille, said the new Central Bank move will affect the country’s budget, which was drawn at the exchange rate of SSP2.9 by the time it was passed about a month ago.
“Yes, businesses supply government at the unofficial rate. Usually goods and services falls below the plan, that is one of the reasons we always have supplementary budgets. These supplements are recognition of deficit in our planning and focusing”, Warille said.
The problem with this kind of management is that budgetary controls become very difficult, he stressed.
Peter Mathiang Mayom, a South Sudanese student writing from Nairobi, Kenya urged the Central Bank to release more dollars into the black market instead of raising the official exchange rate.
Dominic Anei Lual said the newly announced exchange rate was dangerous to the country’s economy and will certainly affect the lives of many citizens.
Meanwhile, members of the national legislative assembly on Wednesday demanded that the Central Bank Governor revokes the new decision, which left many astonished.
(ST)