Double Dutch Disease - Emigration as a Human Resource Curse on the Sudan

Abstract

Structural adjustment started in Sudan in 1978 but no real devaluation nor effective liberalisation was achieved. Declining exports and persistent inflation were not solely the result of the Sudan’s lax fiscal policies, distorted markets and structural weaknesses. Sudanese emigration to OPEC countries and the Dutch-disease effect of the emigrants’ hard-currency remittances had a greater impact; one which was reinforced by an inherited service-sector bias to the Sudanese state. These factors rendered powerless the standard prescriptions of devaluation and market liberalisation. An extensive debate over those policies between the IMF, Sudanese economists and others was in fact irrelevant. Even if Government had shown far greater capacity to implement a coherent policy of fiscal and economic reform, the loss of up to two thirds of the skilled labour force and remittances equivalent to 2% of GDP would still have driven the Real Exchange Rate up and productivity in tradeable sectors down. A standard model of booming sector economics is used to develop a theory for this special form of Dutch Disease and the way the effects were compounded by its direct impact on Government. This model may have lessons to teach for other countries which have experienced mass labour emigration.