Impact of Macroeconomic Policiesand Foreign Capital Transfers OnSudan’s Currency Crises(1930 – 2012)

Abstract

The subject of this research was motivated by the observation of sustainable devaluations of the Sudanese official pound’s exchange rate from LS 0.345 per dollar in 1957 to LS 0.394 per dollar in 1972 to LS 6,414 per dollar in 2015, while the many development plans and peace agreements remained dependent on net balancing capital inflows (NBKIs).As mentioned in the outlinechapter, the available literature and reports considered devaluation to be acuring medicine for the Sudanese economy’s imbalances. That literature goes-onadvising the same policy without mentioning whether these devaluations were due to currency crises (CCs) or not.This backdrop formed the research’s problem and its aim to find out if that is true. As a result, theresearch’s hypothesisstressesthatsome of theseNBKIs-dependent devaluations were the result of currency crises, mainly during 1930 – 2012 for unindustrialized undiversified economy (UUE).Dependence on NBKIsis actually a temporary anesthesiato unstablemacroeconomic disequilibriumthat ends inCCs.To test them, a predictive law-based nonlinear visual model. As revealed in chapters 4 and 5,the Sudanese exchange ratewitnessed eleven CCs, of which two were achieved by aggressive internal devaluations.The fundamentals that led themwere:the influential commodity’ international price’s (ICIP), adopted ERR, net international reserves to domestic money (NIR/DMS) ratio, and divergence between inflation (IR) and current account deficit (CAD) rates, which is equivalent to NBKIs, explain, robustly, the non-currency-crisis (CC) duration and the onset of CCs episodes. It is found that the crashing point is realized when CAD rate and Inflation rate (IR) diverge as NIR/DMS ratio in the negative trend. The research concluded, implicitly, as based on the historical experiences of the now advanced and emerging economies, in chapter 3, that the fixed exchange rate regimes (ERRs) were the most appropriate ones for stabilizing rapidly the development of the Sudanese economy’ssocio-economic structure. It also reached to the following main findings for Sudan: (a) the CC’s minimum threshold was 13.86% or above; (b) they took longer time to happen under fixed, relative to floating/flexible, ERR; (c) fiscal policies were crisis-transmitting channel,and (d) the deteriorated, economic structure, by 2011,withits strongties to the historical structural trade-growth limiting parameter (H-STGLP), was the core reasonfor Sudan’s all types of financial crises. In the end, the fading NBKIs-dependent NIR/DMS ratio was the core triggers forCCswith its substantial economic, and political costs. So, a rule of thumb is suggested to minimize exposures to CCs and heavy dependence on NBKIs. It states that the growth of export/import ratio to be at rates higher than NIR/DMS ratio. In addition, deep indispensible studies aresturdily recommendedfor changingdrastically the prevailing underdeveloped economic structure, in line withimproved macroeconomic policies, to limit exposure to currency crises.