South Sudan Devalues Currency

The devaluation has provoked fears of inflation in the war torn country.

South Sudan announced on December 26 it was devaluing its currency, the pound against the dollar by 34 percent so as to bring to parity with the black market rate. The decision comes on the heels of a similar one made by their neighbours, Sudan equalling devaluing its pound by 22.6 per cent against the dollar, the second such move in a little over a year. The bank of South Sudan indicated the official foreign exchange rate as one dollar to 4.5 pounds from 2.95 pounds before the devaluation. The bank said the devaluation was part of reforms intended to bring informal markets into the formal economy and create jobs. “It 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,” it said. 

However the view is contradicted by the World Bank economic consultant and director of Equity Bank, Kenyi Spencer, who is quoted as saying “adjusting the rate is very unfortunate for South Sudan but there is no way out. We now can’t avoid inflation, definitely prices are going to go up,” he told Reuters. Spencer said fuel shortages and rising fuel prices were also imminent after heavy rains flooded and blocked the main road to Uganda, a key link for South Sudan’s food. Taban Albert, treasurer at Eden Commercial Bank said neighbouring Uganda and Kenya, South Sudan’s main trading partners, would also be affected by the price hikes. “We think a better idea would have been to inject dollars into the market, that would be a better way to combat the black market,” he said. 

Stability in South Sudan is vital for the crude oil producers from China, India and Malaysia operating in the country and for east African neighbours Ethiopia, Kenya and Uganda which were swamped with refugees during the civil war. South Sudan has had a currency problem ever since it gained independence from Sudan in July 2011. Its oil exports have been disrupted by disputes with Khartoum, as well as by endemic corruption, leaving it struggling to pay for the food and other imports that it depends upon.  


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