Monetary Policies and Inflation Rates in Sudan (1970–2014)

Abstract

The current paper investigates the role of fiscal and monetary policies on inflation in Sudan for the period (1970-2014). The study assessed the impact of money supply, exchange rate, gross domestic product (GDP), budget deficit and government expenditure on inflation. It has adopted a descriptive and analytical method to achieve the goal. In particular, it has relied on empirical investigation based on descriptive statistic and econometric modeling.

The results shows that several monetary, fiscal and structural factors, namely, money supply, budget deficit and shrinking of gross domestic product are simultaneously influencing inflation in Sudan. While exchange rate and government expenditure are found to be with no effect on inflation rate, these findings may explain the fact that inflation depends on the way government expenditure is financed rather than the magnitude of the expenditure itself.

The study recommends that the government should depend on real sources in financing budget deficit rather than monetizing deficit by and borrowing from the central Bank, which have significant impact on increasing money supply. It has to ensure effective role in financing budget deficit and controlling inflation. Moreover, it is important to prepare an appropriate environment for investment and best utilization of Sudan’s national resources that stimulate gross domestic product (GDP) and reduce inflation rates.

Keywords: Sudan, Inflation, Gross Domestic Production

JEL Classification: N1, N17, P24, N7