South Sudanese Pound soars in value against the US dollar
The South Sudanese Pounds have soared in value against the US dollar over the last few days since SPLM-IO leader Riek Machar arrived in Juba to take part in forming the unity government.
The exchange rate dropped from 1 US Dollar – 330 SSP last week to 1USD – 270 SSP Tuesday. Economists believe the gain is due to the unity government’s formation but predict the gains won’t last if the peace deal is not fully implemented.
The local currency began to rise against the dollar after it became clear the parties would form a unity government on time.
During his swearing in on Saturday, First Vice President Riek Machar said he was surprised by the sudden change in the value of the South Sudanese Pound and called it a good sign.
“This morning I have been informed that the dollar has dropped from 33 [thousand] pounds to 23 [thousand] pounds, this is peace dividend, Dr. Machar said.
“It’s a good sign that peace brings confidence in the economy and encourages investors back to the country,” the country’s new First Vice President added as he resumed his former position before conflict broke out in December and July 2013 and 2016 respectively.
Economist Deng Makur, who lecturers at the University of Juba said the local currency is gaining value due to consumers’ and suppliers’ expectations. But warns the gain will not last long if the government fails to put in place mechanisms to stabilize the currency.
The government announced a decision early last year to allow the exchange rate to be determined by the forces of supply and demand.
While foreign exchange bureaux and private money changers in the black-market are exchanging a dollar for SSP 270 today, the government exchange rate stands at 1 USD to 161.29 SSP at the Bank of South Sudan. Makur said that could mean donors are expected to invest in South Sudan. He added that those who supplying dollars maybe expecting that the peace will affect the dollar market positively or the reserve of foreign currency will be available in South Sudan since;
“They will be expecting donors to add something for this peace and stability. So maybe the donors are going to give South Sudan some dollars anyway. So they will bring out all dollars that they have in store,” Makur said.
He added that if South Sudan increases food production, the pound will continue to rise in value.
A relapse into war in July 2016 spread insecurity across the country and severely affected all economic activities and exacerbated the humanitarian crisis.
An International Monetary Fund report released last June said the signing of the Agreement on the Resolution of Conflict in South Sudan in September 2018 improved the prospects for lasting peace in the country.
Martin Logo, head of the department of the political science at the University of Juba said peace must be sustained in order for the exchange rate to remain stable or even improve.
He said the recent change is caused an economic shock caused by formation of the unity government. Logo warns that if fiscal policies don’t follow, the rate of the dollar will definitely rise again.
“What should be done to keep the rate the way it is or even lower is that, the peace must be sustained,” he resolved. This, he says is “Because once the peace is sustained then the oil production will go up and the exports will even grow bigger and bigger and then we can expect something good. The rate of dollar can even go lower than that.”
In its economic outlook for South Sudan, the African Development Bank projected in its latest report that South Sudan’s Gross Domestic Product or GDP would grow at a rate of 7.4 percent this year and by 6.1 percent by 2021.
The report projected that oil exports would reach 180-thousand barrels a day, which would boost foreign reserves. Manufacturing would also benefit from increased electricity supply. The report said education and infrastructure are expected to improve and if peace holds, these improvements could give confidence to private investors.
According to the African Development Bank, South Sudan’s foreign investment is expected to reach $30 million dollars by the end of the year.
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