Economic Failure and Change in Sudan
36 Pages Posted: 11 Nov 2016
Date Written: November 10, 2016
By the end of last August 2016, Banks clients in Sudan were facing difficulties in withdrawing their checks. The ATMs were out of cash, and the available cash reserves were low. In the 9-10, most of the banks could not deliver services with the excuse that they had no liquidity.
It was before the Great Eid (feast) and there were heavy rush by the public to have cash funds required for their expenditures during a long holiday. There were reports that they withdrew 2 Trillion Sudanese pounds before the holiday from ATMs and banks. That figure can be exaggerated. However, the accelerating inflation rates can justify the great needs for people to use for buying needs during that time. Greater emphasis on the accuracy for that amounts of money should be compared with rumors about intentions of the financial authorities to limit money supply in markets and curb inflation in addition to restrict hard currencies dealings in the black market. Those facts should be correlated with the increasing devaluations in the Sudanese currency and the tendencies of people to save the value in dollars or other available hard currencies in expectation of new governmental policies.
In the following we investigate the role of fiscal and monetary policies on inflation in Sudan. The study assessed the impact of money supply, exchange rate, gross domestic product (GDP), budget deficit and government expenditure on inflation. It has adopted a descriptive and analytical method to achieve the goal. In particular, it has relied on empirical investigation based on descriptive statistic and econometric modeling.
The results shows that several monetary, fiscal and structural factors, namely, money supply, budget deficit and shrinking of gross domestic product are simultaneously influencing inflation in Sudan. While exchange rate and government expenditure are found to be with effect on inflation rate, these findings may explain the fact that inflation depends on the way government expenditure is financed rather than the magnitude of the expenditure itself.
As a role, it is recommended that the government should depend on real sources in financing budget deficit rather than monetizing deficit by and borrowing from the central Bank, which have significant impact on increasing money supply. That can be a reason for the continuous inability of banks to deliver services to clients to the edge of announcing that there is No liquidity and that the Central Bank had to be committed to print new banknotes, even with the knowledge that can accelerate in inflation rates which are already rapidly increasing. That is also related to the decreasing rates of real resources or inability to collect more taxes and tariffs to ensure effective role in curbing budget deficit and controlling inflation. Moreover, it is related with cash inflows combined with an appropriate environment for investment and best 4 utilization of Sudan’s national resources that stimulate gross domestic product (GDP) and reduce inflation rates.
Keywords: Sudan, Inflation, Public Expenditure
JEL Classification: N1, N17, P3, P30, P35, P4, P44
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