South Sudan remains trapped in a worsening cycle of debt as it is losing large portions of revenues through compensation agreements and defense expenses, according to a report by the World Bank.
South Sudan has been using its net oil revenue to repay debts from oil trader Trafigura and advances to the Sudan.
The World Bank says this has left the country with little net oil revenues to fund the 2018/2019 budget.
“Given these financing shortfalls, the government has faced difficulties in meeting its payment obligations. Pay scales remain restricted,” read the South Sudan Economic Update by the World Bank.
“Even under these conditions, the government expenditures have exceeded the available resources by 978 million SSP in the first quarter. This was partly funded by a net inflow of 590 million SSP from oil advances.”
South Sudan’s budget has eroded
Recently, the Minister of Finance presented the 2018/2019 financial budget of over 81 billion pounds before the Transitional National Legislative Assembly.
In this draft budget, the Security Sector still has the largest allocation of 15.9 billion that will entirely be funded by the country’s resources.
Meanwhile, the Humanitarian Affairs and Economic Functions Sectors have been given the least shares.
“It remains unclear how South Sudan will finance its budget, given its struggling economy amidst the ever rising inflation figures,” the World Bank said.
It said the credibility of the budget has eroded over the past years.
“During execution, budget credibility is undermined by lack of transparency and the fact that budget outcomes per spending agency significantly differ from the approved budgets.”
For the fiscal year 2017/18, which is already at its end, only the report of the first quarter is currently available.
In June, Juba and Khartoum signed an agreement on collaboration for the rehabilitation and protection of oilfields and the eventual resumption oil production.
“The declaration does not provide for the immediate resumption of oil production since South Sudan’s opposition rejected the proposal arguing that this step should only come after the signing of a comprehensive peace agreement,” partly read the report.
Hence, the World Bank said it is uncertain if the bilateral agreement will lead to an increase in oil production to pre-conflict levels.