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The Controversy of Exchange Rate Devaluation in Sudan: An Economy-wide General Equilibrium Assessment

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  • Siddig, Khalid H.A.

Abstract

The international Monitory Fund (IMF) has been working with Sudan since 1997 to implement macroeconomic reforms including a managed float of the exchange rate (EXR). The IMF sees the EXR flexibility as key to safeguard and rebuild foreign exchange reserves and essential to meet the international reserve target in Sudan. However, the authorities in Sudan are concerned that greater exchange rate flexibility could contribute to inflationary pressures. In addition, a review of literature focusing on the exchange rate policies in Sudan reflects huge ambiguity about its outcome. This calls for additional empirical investigations that provide economy wide assessments of the various possible scenarios that could be adopted in the Sudanese context. Accordingly, the current paper applies an economy-wide impact assessment tool to investigate the possible effects of devaluating the overvalued (according to the IMF, 2009) Sudanese pound. Namely, it uses a Computable General Equilibrium (CGE) model together with its detailed database of Sudan to simulate the Sudanese pound to depreciate according to three different scenarios by 5%, 10%, and 15%. Results of the paper recommend that the additional flexibility in the Sudanese EXR regime suggested by the IMF should be carefully considered if that would lead the value of the Sudanese currency to be devalued. This imply that the authorities in Sudan should closely monitor and control the EXR to avoid its depreciation in the short run, while encouraging both public and private investments to help creating additional jobs that increases domestic income and reduces the negative consequences of inflation.

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Bibliographic Info

Paper provided by University of Khartoum, Department of Agricultural Economics in its series Agricultural Economics Working Paper Series with number 112971.

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Date of creation: Aug 2011
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Handle: RePEc:ags:ukdawp:112971

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Web page: http://agri.uofk.edu/index.php?option=com_content&view=article&id=67&Itemid=90.=en
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Keywords: devaluation; Sudan; CGE analysis; inflation; Sudanese pound; Agricultural and Food Policy; Consumer/Household Economics; Crop Production/Industries; Demand and Price Analysis; Food Security and Poverty; International Relations/Trade; Labor and Human Capital; Production Economics; A1; C6; C8; D1D5; D6E6; F1H3.;

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Cited by:
  1. Sassi, Maria & Cardaci, Alberto, 2012. "Impact of climate change on wheat market and food security in Sudan: stochastic approach and CGE model and CGE Model," Congress Papers 124110, Italian Association of Agricultural and Applied Economics (AIEAA).
  2. Sassi, Maria & Cardaci, Alberto, 2012. "Impact Of Climate Change On Cereal Market And Food Security In Sudan: Stochastic Approach And Cge Model," 86th Annual Conference, April 16-18, 2012, Warwick University, Coventry, UK 134779, Agricultural Economics Society.
  3. Sassi, Maria & Cardaci, Alberto, 2013. "Impact of rainfall pattern on cereal market and food security in Sudan: Stochastic approach and CGE model," Food Policy, Elsevier, vol. 43(C), pages 321-331.

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