By Matiop Aguek Anyang,
Sep 20, 2021 — Macroeconomic policy is an economic policy that affects the whole country or a region. The main objective of macroeconomic policy for any economy is to provide full employment, price stability as well as high and sustained economic growth.
Macroeconomic policy can be divided into three policies such as Fiscal, Monetary, and supply-side policies. Governments use these policies to control economic variables such as the GDP, unemployment level and inflation amongst others.
Fiscal policy
Fiscal policy is the manipulation of government spending and taxes to regulate and economy. The ministry of Finance and Economic Planning is the main institution that applies this policy.
There are two major types of fiscal policy. These policies are expansionary and contractionary fiscal policies.
These policies when applied, affect the overall economic aggregate.
Expansionary fiscal policy
Government especially, the Ministry of Finance and Economic Planning applies expansionary fiscal policy if an economy suffers from recession, depression, and downturn caused by lack of economic activities.
In this scenario, Ministry of Finance and Economic Planning will increase government spending and reduce taxes on business. Increasing government spending doesn`t buying cars such as V8s but it means increasing expenditures in areas of infrastructure such as roads, railways, water ways, electric power, health, education, agriculture and so forth.
On the other hand, Ministry of Finance and Economic Planning will drastic actions that reduce taxes levied on businesses and so forth. Ideally, the overall motive here is to investments hence increasing economic productivity to aid an economic recovery.
Contractionary fiscal policy
Government or the concerned Ministry applies contractionary fiscal policy incase an economy suffers from high inflation caused by undesirable economic growth.
Under this policy, government expenditures are reduced while increasing taxes in an economy. This will limit the amount of liquidity circulating in public hands. The main objective of pursuing contractionary fiscal policy is to slow down high rate of inflation caused by undesirable economic growth.
Monetary policy
Monetary policy is change of money supply and demand. The country`s monetary authority uses this policy to regulate amounts of money that circulate in an economy. It does this through several policy tools such as discount rates, interest rates, Open Market Operations (OMO), Reserve Requirements amongst others.
Monetary policy is also divided into Expansionary and Contractionary policies. These are explained as below.
Expansionary Monetary policy
The preference of this policy comes in when an economy is undergoing economic recession, depression, or downturn. To stimulate economic recovery, the monetary authority (Central Bank) will adopt expansionary Monetary policy. To increase the liquidity base in public possession, Central Bank will remove or reduce regulatory limits on reserve requirements, lowers discount rates, buys T-bills from the public and direct financial institutions on interest rates reduction.
All these actions are aimed at encouraging borrowings. These borrowings are then turn into business investments hence stimulating economic recovery and growth.
Contractionary Monetary Policy
Similarly, to the Contractionary fiscal policy, this policy is also preferred when an economy is characterized by inflationary shock. To approach this, Central Bank will increase the following: discount rates, interest rates, reserve requirements and sells out T-Bills through an Open Market Operation (OMO).
This policy aims at limiting money supply hence, reducing amount of money in circulation. This ultimately slows down inflation.
Supply-side policy
This policy looks at cost, efficiency, and productivity. The government sets in policies that reduce costs of production, improve efficiency, and increase productivity to better an international competitiveness. The underlying reason focuses on an economic output.
“Analysis of South Sudan`s spending since 2011”.
Public spending includes all government consumption, investment, and transfer of payments. In national income accounting, the acquisition by governments of goods and services for the current use to directly satisfy the individual or collective needs of the community.
As a young country with promising future due to its resources` endowment, the Country`s 80% spending is something that has most likely left its economy at the peripheral. While changes in government`s spending (Increase and decrease) is meant for economic stimulation, public expenditures in South Sudan since 2011 are things yet to be economically reasoned in. this is because of the following statistics.
Public Spending on Cars; with simple observation, public spending on cars (V8s) in South Sudan since 2011, are somethings that must have cost the economy. These spending are no fitting in policies that are aimed at economic welfare of any country. Though our country was eagerly in need of expansive Macroeconomic policies, increasing public spending on liabilities such as cars was an economic tragedy. By merely observing the costs and maintaining of these V8s, it may not be wrong to note that billion if not billions of dollars are wasted in these projects which of no economic return.
While I happened to ask one of the government officials in early 2013 about the reasons of government investing much in acquiring V8 cars?
The simple and the main answer given was because of poor roads.
And so, was it the problem, government would have embarked on programs and projects aimed at infrastructural development to counter the problem once and for all.
Public Spending on Conflicts and Wars. No economist will urge that an economy can do well in a war characterized zones. Public spending on conflicts and wars are inevitable. However, spending on conflicts and wars preventive measures may be less damaging to the society.
Spending on subsidizing products. Though it is an obligation upon the government to its citizens, spending on subsidizing products and services present constraints on government coffers and limits its ability to provide developmental projects.
I do not have picture on what the government of South Sudan spent on subsidizing fuel products in 2018-19. However, that expenditure would have been better spent on building refineries such the country embarks on local fuel production. Exception can be given for the case of war that may threaten the materialization of the plan.
Recommendation
I strongly recommend the government of South Sudan to spend less on projects that are of no economic return to the society. The RT-GoNU should increase spending on stabilizing security, infrastructural development such as roads, electric power and so forth, and invest in Agriculture, Health and Education.
Conclusion
The RT-GoNU should at least limit expense of V8 Cars to office of the Presidency, Advisors, National Ministers, Governors to minimize costs.
The current fleets of V8 cars used below the mentioned hierarchy to be auctioned off.
The Author is a graduate student of Economic Development and Policy Analysis, University of Juba. He is reachable at Matiop.aguek@gmail.com
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