Understanding the Exchange Rate Regimes in South Sudan: A Non-technical Review

This paper simplifies and discusses our understanding of the exchange rate policy regime in South Sudan. After independence in 2011, South Sudan fixed the value of its currency, the South Sudan Pound (SSP), to the U.S. dollar. This is a common practice for countries that depend heavily on a single export commodity, such as oil. In December 2015, South Sudan abandoned the fixed exchange rate and adopted a more flexible managed float regime. But without a manufacturing or export sector besides oil, South Sudan is an overly dollar-denominated economy, which largely depends on expensive imports. Most goods—including essential products such as foodstuffs, fuel and medicines—come as dollar-priced imports. This makes such a rather radical monetary policy change a risky business. The shift in exchange rate policy, though long overdue and a step in the right direction, faces serious implementation hurdles, largely because it has not been followed with complementary reforms in the monetary and fiscal sides, as well as key supporting institutional and regulatory arrangements. As a consequence, the managed float policy has reduced the purchasing power of the local currency without any immediate corresponding benefits in the general economy in the short-term. This situation has triggered headline inflation pressures, including the risk of hyperinflation and has further exacerbated poverty incidence among the poor. The government of South Sudan is now contemplating corresponding reform efforts but the adjustment in the exchange regime is becoming a hard sale to the general public, which is experiencing more economic pains than gains.