24th July 2024
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South Sudan’s macroeconomic reforms slip over inflation: IMF

Author: Chany Ninrew | Published: Saturday, June 15, 2024

One U.S. dollar currently trades at around 3,000 South Sudanese pound in the Forex market. | Photo: Courtesy.

The International Monetary Fund said the performance of its support to South Sudan’s economic recovery under a nine-month staff monitored program has been hampered by the current economic hardships in the country.

This is according to IMF Country Report published this month, following consultation of its Executive Board with South Sudan.

It also followed the completion of the first and second reviews and extension to November 2024 of the South Sudan Staff Monitored Program with Board Involvement (PMB), on May 14, 2024.

The program was first approved by IMF Management in February 2023 with a disbursement of about $114.8 million through the Food Shock Window (FSW) of the Rapid Credit Facility (RCF) to support Juba’s reform agenda aimed at maintaining macroeconomic stability and debt sustainability.

IMF said performance under the staff monitored program was initially strong, before slipping due to accumulation of salary arrears for civil servants and the depreciation of the national currency.

“Performance under the PMB was initially strong. However, there have been several slippages in recent months, including the resumption of monetary financing of the deficit…., an accumulation of public sector salary arrears, and the reemergence of a significant gap between the official and market exchange rates.

IMF said the program has been extended through November 15, 2024, to allow the authorities time to implement policies aimed at restoring macroeconomic stability, and safeguarding gains on FX reforms.

Other conditions include addressing salary arrears, and taking further steps to strengthen governance and transparency of oil revenue and its use.

According to The East African newspaper, South Sudan is facing growing pressure from the IMF to disclose its oil production agreements, to help build credibility with donors and unlock concessional financing.

However, Juba is reportedly against disclosing oil production agreements adding that the move is tantamount to a ‘breach of contractual agreements’ with oil extracting companies.

The report noted that the spillovers from the fighting in Sudan have exacerbated an already dire humanitarian situation.

It said the Sudan war has also delayed the needed repair of the pipeline that transports South Sudan’s crude oil to international markets through Sudan, causing oil exports to collapse to about one-third of their previous level.

“This has increased significantly the fiscal financing and balance of payments gaps given that oil exports account for nearly 90 percent of fiscal revenues and 95 percent of exports.”

The global financial body discussed making the program sustainable, boosting domestic non-oil revenues to create fiscal space, and enhancing social spending to allow the government to shoulder some of the support for nutrition, health and education that are currently provided mostly by international partners.

Others are implementation of implementing governance and transparency reforms to reduce corruption, and assisting the authorities through a tailored capacity building program in key areas, such as public financial management, revenue administration, and monetary operations.

– Recommendations –

IMF Executive Directors expressed “serious concerns over South Sudan’s severe economic and humanitarian challenges, which have resulted from numerous external shocks.”

These, they say include flooding, the Red Sea crisis, and the war in Sudan; as well as from domestic policy slippages.

“Against this worrying backdrop, the directors urged the authorities to return to prudent macroeconomic policies to restore economic stability, rebuild buffers, and maintain debt sustainability,” the report reads in parts.

“They stressed that pressing ahead with fiscal, governance, and structural reforms, together with continued multilateral support, is crucial to help South Sudan overcome fragility and address the serious humanitarian crisis.”

Noting the drastic decline in oil revenues, the IMF leadership further called on the authorities to enhance non-oil revenue collection, tax administration and to prioritize spending on salaries and critical social spending.

They also proposed cutting non-priority spending, as needed, to close the budget financing gap and preserve debt sustainability.

The Directors underscored the need to avoid option to arrears, monetary financing, and non-concessional borrowing.

They called for resolute reforms to improve governance and transparency of public operations, including the use of IMF resources, and improving public financial management.

IMF REPORT ON SOUTH SUDAN

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