Effects of Financial Policies on Foreign Currencies Exchange Rates in Sudan (1989-2010)
Issam A.W. Mohamed
Al-Neelain University - Department of Economics
April 6, 2012
The present paper aims to analyze impacts of financial policy on the foreign currencies exchange rates. The study utilizes time series data analyses in order to reach better econometric model that may reflect the relationship between financial policy and foreign exchange rates in Sudan between years 1989-2010. The importance of the analysis is embodied on shedding light on fluctuating financial policies in the country that negatively affects the economic performance. The study hypothesized that there are positive correlations between the financial policy represented by the independent variables of governmental expenditure and taxation and the dependent variable of foreign currencies exchange rates. The results show that there are positive correlations between total taxation and foreign currencies exchange rates. Moreover, results show that there are positive correlations between governmental expenditures and currencies exchange rates. The results are in agreement with the economic theory as illustrated by Mohamed (2012). However, their implications clearly define that the current financial crisis in Sudan is self-inflicted by irrational and irresponsible governmental macroeconomic policies and uncontrolled expenditure. I strongly point here at the necessity of austerity measures, first applied to the GE before applying them to the general governmental services, e.g., health, education, water and electricity services. Raising taxation seems to have enhanced financial resources which were used for defense, security and other sovereignty expenditures. That did not help to keep effective foreign currencies exchange rates in leash. In fact GE and Taxation lost control and unleashed hyper pricing for foreign currencies market prices. The current economic course is without doubts leading uncouthly to domestic market dryness of hard currencies as they are currently not dealt with as tools of commodities exchange. They represent saving commodity and solid asset. The expected results are the minimization of imports. It is even encouraging under-voicing of exports by setting-aside part of their revenues and preventing them from re-entering the country. In conclusion, I clearly admonish that official macroeconomic decision-makers are either ignorant or on purpose lead the country into total bankruptcy. The only feasible recommendation is that country needs a comprehensive policy restructure, particularly in its economic decision-making and economic planning.
Number of Pages in PDF File: 5
Keywords: Macroeconomic Policy, Finance, Foreign Currencies Exchange Rates, Economic Performance
JEL Classification: A00, A10, C1, C1, C2, C12, C20, C22working papers series
Date posted: April 6, 2012 ; Last revised: May 10, 2012
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