Policy Brief: Analysis of the Implications of Foreign Exchange Reforms on Food Prices in South Sudan (September 2021)

Abstract

The economy of South Sudan is one of the most oil-dependent economies in the world. The economy’s dependence on one commodity (oil) makes it highly susceptible to external shocks. Therefore, the most obvious socio-economic impact of the pandemic in South Sudan is on the reduced fiscal space because of low oil prices in the global market. The secondary impact, in addition to low oil prices, is that the economy experienced, for the past two years, sharp and fast depreciation of the SSP and government’s fiscal expansionary response by borrowing from the Central Bank (instead of cutting down on expenditure) resorted to high inflation for an import-dependent country. Coupled with the impact of the pandemic, South Sudan’s economy is also vulnerable to weather and conflict-related shocks. As the country and the entire world battled with mitigating the impact of the pandemic, the Government of South Sudan and development partners introduced measures to reverse the trend of depreciation of the SSP by implementing several forex reforms. These reforms are bearing fruits with regards to the appreciation of the SSP and closing the gap between the exchange rate at the parallel market and the official exchange rate. Of most importance to South Sudan’s poor, who constitute about 82 percent of the population, is the impact of these circumstances on food prices. For an import-dependent country, expectations are that the appreciation of the SSP will translate into a reduction of prices in general, especially for imported food. There is growing concern that this is not the case.

This technical brief analyzes the delay in the translation of currency appreciation into reduced food prices as food accounts for a very significant proportion of households’ expenditure. The brief is divided into five parts and will analyze exchange rate reforms and implications for South Sudan’s economy with a focus on food prices. The first section is an introduction; section two discusses the drivers and the trends of the exchange rate in South Sudan’s recent past. Section three discusses the implication of the exchange rate on different sectors of South Sudan’s economy. Section four focuses on food price analysis, and section five concludes the brief. The brief covers the period from the onset of the COVID-19 pandemic in 2020 to the present.