SALARIES INCREASE: A DOUBLE-EDGED WEAPON?

It is obvious that the great increase in salaries that has recently been applied by the Hamdok’s Transitional Government is linked with a new policy of lifting subsidy from the basic goods, fuels and gaz. It is also, no doubt, that this step might have been dictated by the International Monetary Fund (IMF) – as a package imposed on Sudan – as with similar cases in dealing with the ailing economies of the Third World Countries. If so, it will add more complications to our staggering economy.
The transitional government – as represented here by the Ministry of Finance – needs to be sure or aware of major economic risks with regard to increasing wages and salaries by more than five folds. Motivated by political targets and ‘revolutionary’ drive, things might take disappointing directions unless the Ministry of Finance possesses the appropriate alternatives and measures to curb the would-be inflation. The simple tenets of economic principles hold that the great increase of salaries will result in an immediate increase in demand. Increase in demand – with other things (such as production) remain the same – will push up prices (the law of supply and demand).
If we are to reflect on the dictum usually used in economic analysis – “if other things remain the same” – vis-à-vis the present conditions of the Sudan, one may argue that other things would not remain the same (or equal). This simply because of myriad of problems the Sudan is facing – which have been further complicated by the stagnation imposed by the battle against the Corona Virus-19.
If we are to think of financing the increase of salary by the money to be gained from lifting of subsidy, it will be misleading in real terms. The increase of prices resulting from the lifting of subsidy will be far greater than the increase of wages and salaries. This will directly affect the real value of the big (nominal) money received by employees. Consequently, the purchasing power will be gravely impacted. Hence, employees may soon be stunned by the hyper inflation absorbing the increase of their salary.
Moreover, the government will order the private sector to follow suit – salary increase. The increase in salaries – besides increase in customs and taxes – means increase in the cost of production. This, in turn, will be compensated (in the private sector) by raising the prices of their products. This will also push prices higher. This chemical chain reaction will be politically very expensive for the transitional government which is facing great challenges such as paying debts with arrears accumulated from the defunct regime, paying for the victims of the USS Cole bombing (12 October 2000) and also as being engaged in the bombing the US embassies at Dar es Salaam and Nairobi (August 1998).
This means the transitional government will be facing a difficult examination: Will it be able to stabilize the market amidst these challenges to make the increase of salaries a real shift in the standard of living? Will it be able to curb inflation? Will it be able to tackle the distortions caused to the national economy by the corrupt practices of the previous government? What are the ‘real’ resources available to the government to remedy this acute and chronic deficit that the national economy is suffering from?