Money Supply, Income and Prices in Sudan

Abstract

Economic disorder in developing countries became a way of life with reasons of economic mismanagement, corruption and favoritism and political crisis can manipulate economic decisions. Sudan is not different where some researchers described what is happening there as economic chaos. Though economic deterioration is part of everyday’s happening in many countries, Sudan is unique in its abnormal policies and economic mismanagement. The document reviews impacts of money supply on income in of Sudan. In 1990 a package of policies was implemented to solve the shortage of foreign exchange problem. Free market economy was adopted through liberalizing trade and exerting efforts to promote and boost exports, besides adopting encouraging policies for the benefit of increasing productivity. Whenever exchange rate is determined by the market forces with weak economic productive base the impacts fall on income. Implementing floating exchange rates were implemented to increase exports. Commercial banks were encouraged to extend finance to the export sectors, which was considered as a priority sector in all government policies. Trade started to flourish and bilateral agreements between Sudan and other countries started to thrive. With these radical changes the Bank of Sudan issued the circular in which the free and the official markets were abandoned and the exchange rate determined through a committee affiliated to the Sudan banking association. Dealing in foreign exchange was allowed through the official channels. Restrictions on the flow of foreign currencies were abolished and opening free accounts was allowed. This unified free market-rate that dominated all dealings. Policies aimed at filling the gap in the trade balance through encouraging exports and restricting imports. The latter objective, reducing imports, was pursued through banning the importations of ten commodities. That reflected on the real exchange rate, the experiment of the parallel exchange rate policy contributed in accelerating the economy growth of country. However, authorities canceled the official and the commercial bank exchange rate and reintroduced a unified official regime under which the rate of exchange was freely determined in the interbank market by the independent actions of the commercial banks. That had impacts on market exchange rates for foreign currencies and a set back to income per capita. Official foreign exchange requirements were met through the compulsory sale to the Bank of Sudan by the commercial banks of 50% of proceeds at the commercial banks selling rate. The imports policy remained unchanged, where all imports were allowed except wine and strong drinks. The result was an environment of economic uncertainty that leads to gradual downfall of the productive activity.