S. Sudan economy: Sound financial system with effective monetary regulation is needed

By Akot-Dit Garang Wol

OPINION – In July 2011, South Sudan proclaimed an independent nation-state, and being a newborn state as preferred by others, South Sudan was obliged to fulfill requirements for an independent country, that have its own sovereign institutions. Economically, The ministry of finance & planning (MoFP) together with Bank of South Sudan(BSS) are solely responsible for fiscal & monetary policy formulation. Immediately after independence, the Bank of South Sudan legally became the goal & instrument independence; nevertheless, others think that political pressures are being exercised.

Primarily, the central bank is mandated to stabilize the prices in the market, lower or stabilize interest rate level, act as custodian of government federal reserve; lender of last resort etc. However, Bank of South Sudan is the only authority to ensure sound financial system; with effective regulations that govern its financial system and banking sector in particular. Typically, financial system is comprise of commercial banks, insurance companies, credit union , finance companies, thrift management association etc.whose role contribute to steady economic growth.

Hence, sound financial system is crucial because of its macroeconomic impact on inflation and unemployment rate. Financial system channel funds from people who have surplus to individuals with productive investment opportunities, encouraging investors to invest in new plants & equipments to increase productivity & curtailing unemployment rate in an economy. By moving excess funds from people who saved; to business oriented minds, the financial institutions play an important role in connecting lenders with borrowers to avoid them adverse impact of a hyperinflation, which is a persistent rise in price level, usually more than 50% inflation rate.

On the banking regulation system, most central banks including federal reserve system of USA provide government safety net, restrictions on assets & capital requirements, assessment of risk management, consumer protection etc. as an effective monetary policy measures for sound financial system.For instance government safety net aims at reducing the risk of asymmetric information, adverse selection and moral hazard by providing deposits insurance to depositors during the bank failures. Recently, Bank of South Sudan has issued press release in an attempt to mitigate impact of COVID-2019 Pandemic on South Sudan economy.

Reduction of central bank interest rate 3points from 13% to 10% meant to lower financing costs on borrowing institutions, Cash reserve ratio was also cut by 5% from 15% to 10% to provide liquidity needed by banking sector, minimum paid up capital amended 2020 is suspended for six months period, and South Sudanese Pound as the legal tender in payment for goods & service or repayment of Debt and Debt servicing.Notwithstanding; the prospects of sound financial system on South Sudan economy are projected as follows:

1. a) Channelling of funds between lenders & borrowers for steady economic growth.
2. b) Curb the adverse impact of hyperinflation on consumers, firms and the economy as a whole.
3. c) Mitigate unemployment rate, which in turn increase productivity level.
4. d) Impact on interest rate level, which will reduce uncertainty.
5. e) Promote role of financial intermediaries in the country for better banking services.

Conclusion

South Sudan economy is still considered an infant economy, given the economic shocks & financial distress. Modern economies are now in transition to be fully cashless society with which e.money is the most convenient mean of payment e.g. Debit Card or Credit Card, Store Value Card, Smart Card rather than Fiat money.

Rule of thumb proved that financial system is the most regulated sector; that leads to steady economic growth, reduce unemployment rate and impact the interest rate level in the country. Generally South Sudan financial system need thoroughly review by the governing authority, almost 90% of commercial banks and insurance industry are monopolize by foreign entities, which I think will add less more to economic growth.

The fact remains that, once financial institutions are largely owned by overseas investors, this will surely put additional pressure on the national economy; particularly on the country balance of payments. To shun further financial crisis, which constitutes overall economic shock, the Bank of South Sudan needs to embark on a monetary policy reform strategy as part of the economic recovery agenda in the country.

The author is an economist who lives in Juba, South Sudan.

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