Macroeconomic management and the black market for foreign exchange in Sudan
Elbadawi, Ibrahim A.
The author uses a simple general equilibrium model to derive a forward-looking linear solution for the premium on the black market for foreign exchange in Sudan. His solution accounts for the long-run fundamentals of the premium that operate through the current account balance. It also accounts for the short-run determinants of the asset market. Estimates based on Sudanese data broadly corroborate the model's predictions. The author's thesis is that successful exchange rate unification and subsequent integration of the parallel market into Sudan's regular economy will require deep fiscal reform and liberalization of trade and exchange rate policies tailored to the pace of macroeconomic reform. His results show that controlling inflation becomes more difficult under high-premium regimes and that higher premiums hurt official exports and tax revenue from foreign trade. A high premium also tends to accelerate capital flight.
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