Mr. Mahhouk, of the staff of the Kuwait Fund for Arab Development, is a graduate of the American University of Beirut. He was formerly an economist in the Middle Eastern Department of the International Monetary Fund, a member of the faculty of the University of Beirut, and on the staff of the United Nations Relief and Works Agency for Palestine Refugees in the Near East.
Mr. Drees, economist in the Middle Eastern Department, is a graduate of the University of Cologne. He was formerly assistant at the Finanzwissenschaftliches Forschungsinstitut of that University.
LSd 1 = US$2.87. The Egyptian pound was the currency in circulation up to 1957 when the Sudanese pound was issued. Since the Sudanese currency was issued at par with the Egyptian pound, the Sudanese pound is used throughout the paper.
Calculated by the least-squares method.
The correlation coefficient was +0.18 for unlagged imports. The regression equation of exports and lagged imports, both as defined by J. J. Polak (see below, p. 162, fn. 18), was Mt = 10.3 + 0.89 Xt−, where Mt is imports in period t, and Xt− is exports in period (t−1). Where only commodity imports and exports were included, the regression equation was Mt = 18.6 + 0.66 Xt−. The difference between the two equations is due primarily to aid-financed imports, for which adjustment is made in the first equation but not in the second.
In compensation for the flooding of Wadi Haifa by the High Dam, the United Arab Republic agreed to pay to the Sudan LE 15 million, of which the first installment of LE 3 million was paid in January 1960, and three installments of LE 4 million each were paid in January 1961, January 1962, and February 1963.
In this paper, the term “current account” includes goods, services, and transfer payments. Capital movements are defined to include all private capital plus official long-term liabilities. All other capital movements are included with changes in monetary reserves.
The quantity of cotton exports was almost doubled between 1947 and 1951, and prices more than doubled. The rise in world cotton prices was partly due to the devaluation of sterling in 1949, but most of the increase took place in 1950 and 1951 as a result of the Korean war boom.
Holdings of Egyptian pounds were classified as short-term foreign assets.
From a peak of 136 U.S. cents a pound in January 1952, the price of G4S (Gezira Grade 4 Sakel) in Liverpool declined steadily to 44 U.S. cents a pound in August 1953, a decline of 68 per cent. Average prices of G4S declined from 89 U.S. cents a pound during the 1951/52 season (August 1 to July 31) to 48 U.S. cents a pound in 1952/53, and then rose to approximately 52 U.S. cents in 1953/54.
On the average, cotton export prices were 26 per cent higher in 1954 than in 1953. The volume of cotton exports from the Sudan, however, declined somewhat in 1954 although world demand for long-staple cotton was brisk and prices were rising sharply. The cotton authorities then felt that, in view of sharply rising prices, it would be desirable to ration Sudanese cotton; therefore, limited amounts were offered for sale until such time as the full increase in demand, which they anticipated, was reflected in higher prices. Consequently, in May 1954 the system of sales by private contract was replaced by the system of auctioning cotton with minimum reserve prices.
For Sudan Gezira Grade 5 Sakel.
In yield per acre.
These data are derived from customs statistics, which differ somewhat from the exchange control data used elsewhere in this paper.
Monetary statistics are not available for the period prior to 1950. Moreover, the series available for the period before 1957 are less reliable than later ones, because the amount of Egyptian currency in circulation in the Sudan prior to the issuance of the Sudanese pound could be estimated only roughly. Also, reporting forms for banks were not standardized until 1957.
End-of-year figures only.
During the period 1948 to 1961/62, government domestic revenues increased from LSd 15.7 million to LSd 68.7 million, while current expenditures increased from LSd 10.3 million to LSd 60.6 million. For 1948 and 1949, the fiscal year covers 12 months ended December 31; for 1950/51, 18 months ended June 30: for 1951/52-1961/62, 12 months ended June 30.
Ordinary budget surpluses, averaging LSd 11 million a year, were realized in each year during this period. The range of fluctuation was from LSd 0.6 million in 1958/59 to LSd 24.7 million in 1951/52.
From LSd 1.9 million in 1948 to LSd 23.5 million in 1961/62 in absolute amount, and from 16 per cent to 28 per cent of total government expenditure.
See J. J. Polak, “Monetary Analysis of Income Formation and Payments Problems,” Staff Papers, Vol. VI (1957-58), pp. 1-50, and J. J. Polak and Lorette Boissonneault, “Monetary Analysis of Income and Imports and Its Statistical Application,” Staff Papers, Vol. VII (1959-60), pp. 349-415.
In this section, terms such as “imports,” “exports,” “domestic credit,” and “capital movements” are used as defined by Polak in the articles cited above. Briefly, import payments are defined to include commodity imports, most service payments, and private transfer payments minus drawings on project loans. Export receipts include commodity exports, receipts from private transfer payments, net investment income, and receipts from other services. Changes in reserves are a composite of the movement of monetary assets, monetary gold, and monetary liabilities. Domestic credit is the change in the money supply (defined as the sum of currency in circulation plus private demand deposits) minus the change in net foreign exchange reserves. Capital movements are defined as imports minus exports plus changes in net reserves.
For the definition of these terms, see footnote 19.
Import duties had also been raised from 10 per cent to 15 per cent ad valorem, with larger increases on certain items.
Budgets were balanced throughout the declining phase of the export cycle. In fact, during the three years 1952/53-1954/55, when cotton exports were declining, over-all budgetary surpluses totaling LSd 0.4 million were realized. In the face of steadily rising ordinary and development expenditures, large budgetary deficits would have been incurred had the Government not resorted to raising tax rates, especially on imports at the end of 1952 and in July of each following year through 1956.
Only three banks operated in the Sudan, and these pursued generally conservative credit policies. The three banks were the National Bank of Egypt, Khartoum, which was also the Government’s bank; Barclays Bank D.C.O., which was the main depository of the Sudan Gezira Board; and the Ottoman Bank.
Two new banks (Crédit Lyonnais and Bank Misr) started operating in 1953, raising to five the number of banks in the Sudan. Since then, three more banks have opened offices: the Arab Bank (1956), the State Bank of Ethiopia (1958), and the Sudan Commercial Bank (1960).
The NBEK terminated its activities in the Sudan when the Bank of Sudan began operating in February 1960.
This figure does not include small advances (LSd 0.11 million at the end of 1951) by the NBEK to the private sector.
The cotton-pricing system adopted by the Gezira Board replaced sales by private contract by auctions conducted in Khartoum five days a week. Minimum reserve prices were fixed and announced by the Board. At first, the reserve prices were not declared, but as it was not difficult for buyers to find out these prices by starting with very low bids which were raised gradually, the Gezira Board began to announce a list of prices in advance. The unusually slow movement of the crop in 1958 induced the authorities to require private growers not to sell below minimum reserve prices, fixed in line with those of the Gezira Board. In 1959, however, this restriction on private growers was lifted and the Gezira Board, while continuing to sell cotton at auctions, abandoned its rigid pricing policy in favor of a more flexible one. In defense of its pricing policies in 1958, the Gezira Board maintained that its reserve prices were in line with international quoted prices, but that bilateral arrangements entered into by competing exporters of long staples placed the Sudan at considerable disadvantage.
These included credit for imports, retail trade, and personal use.
The Cotton Boards, of which the Gezira Board was by far the largest single entity, account for most of the deposits of official entities.
Capital movements changed from an inflow of LSd 1.3 million in 1955 to an outflow of LSd 2.9 million in 1956.
Sterling securities with a face value of LSd 19.5 million were transferred by the United Arab Republic to the Sudan as part of the currency settlement. Of this total, LSd 12.6 million was turned over to the Sudan Currency Board as part of the currency coverage. Because the currency law of 1956 required the securities held by the Currency Board to be entirely short-term, it became necessary to reshuffle the portfolio handed over by the United Arab Republic. Interest rates in London were high at the time, and the effect of the reshuffle, which included the sale of a substantial portion of the securities to meet the payments deficit, was a loss of LSd 3.6 million. Thus, the net addition to the free exchange reserves of the Sudan was approximately LSd 3.3 million.
Less than 50 per cent of the 1957 cotton crop was exported.
The excess of imports over exports as defined in Polak’s model. See footnote 19, page 162.
See footnote 31.
Import duties and excise taxes had been raised in July 1959 to provide additional revenues for financing development. These measures were expected to generate LSd 3.5 million a year in revenues.
This was done at first on an ad hoc basis; but subsequently the policy of shifting most of the deposits of the cotton Boards from the commercial banks to the Bank of Sudan was formalized, and a formula was worked out in February 1961 under which the Gezira Board transferred to the Bank of Sudan time deposits and any current deposits in excess of those made during the preceding two months.
Some years earlier, ceilings had been applied by the NBEK on its advances to the various banks, but these had invariably been fixed so high that their effectiveness as an instrument of credit policy was greatly diminished.
Ratio of cash to total private deposit liabilities.
The modern sector is defined as that part of the economy in which modern techniques are applied and modern types of investment goods are used. See Sudan Ministry of Finance and Economics, Economic Survey, 1962.
At the end of 1962 the foreign assets of the Bank of Sudan amounted to LSd 55 million. However, in 1963, they declined by LSd 13 million.
Until the end of 1962, the Sudan had received from the United Arab Republic LSd 11 million in compensation for the resettlement of the Wadi Haifa population out of a promised total of LSd 15 million. The Sudanese Government has estimated the total cost of the project at LSd 20 million and the direct foreign exchange cost at more than LSd 12 million. Hence, about 80 per cent of the foreign exchange received from the U.A.R. is earmarked for the resettlement. It is assumed that total expenditure on the scheme up to the end of 1962 amounted to LSd 1.7 million, of which about LSd 1 million was in foreign exchange. Thus, about LSd 8 million (80 per cent of LSd 11 million minus LSd 1 million) of foreign exchange should be deducted to arrive at a more meaningful picture of the movement of foreign assets during the period 1959-62.