The Impact of Sudanese Pound Devaluation on the Balance of Payments Deficit before and during the Oil decade

Abstract

The paper investigated the effect of the devaluation of Sudanese Pound on the Sudan's balance of payments during the agricultural – based decades (1973 - 1993), and the oil-based decade (2002 -2012). To achieve this goal, Marshall -Lerner approach was applied using an annual data covering both periods. The results obtained showed that during the period (1973 - 1993) the weighted average of the estimated elasticity of exports and imports were (0.073) and (0.163) respectively, and equal to (0.465) and (0.231) respectively for the (2002-2012) period. Thus, based on Marshall -Lerner approach, the sum of these elasticities in the two periods was less than one, indicating that devaluation had worsened the Sudan's Balance of Payments deficit. The structural rigidities characterizing the Sudanese economy and the high inelastic nature of the supply of the agricultural products that dominate Sudanese exports during the first period; besides the inelastic foreign demand for the Sudanese exports (as the study results show), coupled with the essential nature of the imports and the absence of domestic substitutes, may provide an explanation for the above-mentioned results. Accordingly, appropriate economic policies should accompany the implementation of the devaluation policy in order to have a positive impact on balance of payment