South Sudan traders and businesses are hoping for intermission in the foreign exchange market after the Bank of South Sudan said it would introduce dollars into the market to protect the local currency.
Since after the payment of several months of salaries in arrears in September, South Sudan pound has been weakening against the dollar.
“The pound has lost value in the past two months due to the impact of the recent payment of salaries,” said Central Bank Governor Dier Tong.
About $115.2 million which is about 31 per cent of the currency in circulation was put into the economy for the payments.
In October, South Sudan’s government secured $400 million financings from the Africa Export-Import Bank to pay the salaries and finance infrastructure projects.
Elijah Wamalwa the managing director and CEO of Co-operative Bank of South Sudan said the high liquidity in the country will hit inflation even without the Central Bank’s intervening.
“South Sudan is in high need for dollars for importation and the likes. If you have high demand and low supply for dollars, then the prices will go up as there is a lot of money in the economy,” he said, adding that the mopping up of the South Sudan pound would stem a likely devaluation.
Mr Wamalwa asked the Central Bank to clean up extra cash from the economy through instruments like Treasury bonds and Treasury bills for people to invest their cash and earn interest income.
Central Bank’s Governor Mr Dier said the market was reacting to liquidity. The South Sudan Pound has changed in a narrow range of between 130.25 units and 130.26 units to the dollar since September
“To reduce the liquidity in the market, the Bank of South Sudan will intervene in the foreign exchange market by selling dollars. We have allocated a significant amount of dollars for fuel importation and commodities as well as for medicine,” said Mr Dier.
South Sudan heavily relies on imported goods from Sudan, Kenya and Uganda, which has also that put pressure on the local currency.