Impact Of Fiscal Policy Shocks On Official Versus Parallel Exchange Rate Of Sudan: Under Long-Term Economic Sanction And South Sudan Reverondum (1997-2017)

Abstract

We analyze the impact of fiscal policy shocks on official and parallel exchange rates in Sudan under two extreme circumstances over the period1997-2017, using standard structural VAR framework, supported by Impulse Response Function IRFs to investigate the performance and transitory shocks on exchange rate systems, at first the stationary of the variables is obtained to avoid the specious of the model. The result of long run analysis shows that lag fiscal policy expressed by LGt; lag official exchange rate (Loexrt) and lag economic openness( Leopent) have significant positive impact on parallel exchange rate , on the other hand lag Gross Domestic Product(LGDPt) and LGt variables shows significant impact on official exchange rate, with respect to IRFs, the shock of fiscal policy on Loext only significant in the short run; while in the long run it deserve no effect, hence South Sudan referendum shows negative impact on LGt, which mean that Sudanese government fiscal policies did not achieved the targeted objectives, concerning US economic sanction results indicates that it is one of the main factors of parallel exchange rate volatility and encouragement of black market of foreign currencies. The study recommend the important of a comprehensive packages of fiscal and monetary policies; unification of multi-exchange rate system; rationalize taxes and duties to combat smuggling and the need to increase exports and encouraging inflow of remittances of Sudanese working abroad.