## cr1773 - 2013. Real GDP growth declined by nearly 20 percent in the two years through 2015/16, and

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### Macroeconomic collapse and immediate developments
- Real GDP growth declined by 18.8 percent in the two years through 2015/16 (July–June).
- Annual inflation rose to about 550 percent in September 2016 and declined to about 370 percent in January 2017.
- Since December 2015, the South Sudanese pound has lost more than 95 percent of its value against the U.S. dollar.
- Monetization of the fiscal deficit led to strong money growth, high inflation, and precipitous exchange rate depreciation.
- Conflict and collapse of oil prices caused decline in oil production and export proceeds, falling government revenue, rising security-related spending, rapid rise in the fiscal deficit, and exacerbation of economic instability.
- Gross international reserves have dropped to about one week of import cover.
- Non-oil GDP declined by an estimated 17 percent over the last two years.
- Real domestic income adjusted for terms of trade declined by an estimated 35 percent since 2013.

### Key statistical indicators (as reported)
- Population (millions; 2015/16): 12.2
- Per capita GDP (US$) (2015/16): 240
- IMF Quota (current; millions SDR; % total): 2 246; 0.05%
- Literacy rate (%) (2009): 27
- Main exports: Oil
- Poverty rate (%) (2009): 51
- Paved road density: 0.02km/100km2
- Key export markets: China, Malaysia

Selected yearly indicators (2013/14 Act.; 2014/15 Act.; 2015/16 Prel.; 2016/17 Proj.):
- Real GDP growth (%): 39.3; -12.8; -6.9; -10.5
- Oil production (millions of barrels per year): 66.8; 57.8; 53.1; 43.4
- Inflation, average (%): -5.6; 14.8; 158.7; 336.2
- South Sudan's oil price (US dollars per barrel): 97.8; 62.4; 34.7; 41.4

Central government finances (percent of GDP):
- Revenue and grants (% GDP): 26.4; 28.6; 29.0; 34.4
  - Of which: grants (% of GDP): 0.0; 8.3; 0.4; 0.9
  - Of which: oil revenues (% of GDP): 24.1; 16.7; 22.0; 29.5
- Expenditure (% GDP): 28.1; 37.2; 38.4; 36.3
  - Current: 24.5; 34.7; 33.0; 33.7
    - Of which: Payments to Sudan (% of GDP): 6.2; 5.9; 7.9; 17.2
  - Capital: 3.6; 2.4; 5.4; 2.6
- Errors and Omissions: 1.1; 6.0; -1.8; -0.5
- Change in arrears: 0.0; 0.0; 23.2; 0.0
- Fiscal balance (% GDP) (On an accrual basis): -2.9; -14.6; -30.8; -1.3

Money and credit:
- Broad money (% change): 20.5; 36.9; 219.1; 38.7
- Reserve money (% change): 37.0; 81.1; 239.6; 56.6
- Credit to private sector (% change): 4.6; 13.7; 172.6; 46.9

External sector and exchange:
- Current account (% GDP): 2.3; -4.2; -3.7; 2.1
- Net foreign assets of the central bank (in months of imports, end of period): 1.0; 1.4; 0.4; 0.2
- External debt (% GDP): 4.2; 5.5; 28.6; 38.7
- Official rate (SSP per dollar; period average): 3.0; 3.0; 16.9; ...
- Parallel market rate (SSP per dollar; period average): 4.3; 6.6; 23.8; ...

### Policy response and Executive Board assessment
- Authorities adopted a new 2016/17 budget with fiscal measures aimed at restoring macroeconomic stability and strengthening public financial management.
- Preliminary information indicates a substantial reduction in the fiscal deficit for the first half of the fiscal year and significant moderation in money growth.
- Executive Directors emphasized the need for a credible path toward lasting peace and decisive economic stabilization, and ensuring aid organizations have access to all areas.
- Key policy priorities urged by Directors:
  - restore fiscal discipline to reduce money expansion, inflation, and restore external stability;
  - implement the 2016/17 budget revenue measures and spending cuts;
  - take additional measures to reduce domestic financing to a level consistent with macroeconomic stability;
  - improve expenditure management and prevent domestic arrears via enforcement of monthly budget allocations, strict control of extra-budgetary expenditures, and setting up of a treasury single account;
  - minimize revenue leakages by implementing domestic oil market reforms, including removal of fuel subsidies, transparent transfer of government crude oil receipts to the budget, and liberalization of the fuel market;
  - tighten monetary policy to reduce inflation and gradually replenish international reserves, and enforce statutory minimum reserve requirements and minimum capital for all banks;
  - continue liberalization of the exchange rate regime and elimination of exchange restrictions and multiple currency practices.

*International Monetary Fund staff report for the 2016 Article IV consultation (February 28, 2017).*

### Fiscal deterioration and oil revenue
- Oil revenue net of transfers to Sudan dropped from about US$2.3 billion in 2013/14 to US$0.5 billion in 2015/16.
- Oil-related arrears to Sudan in 2015/16 amounted to US$291 million (transit fees and Transitional Financial Arrangement).
- With unadjusted spending, the overall fiscal deficit increased from 3 percent of GDP in 2013/14 to 31 percent of GDP in 2015/16.
- Arrears on external and domestic payments rose by an estimated 23 percent of GDP in 2015/16.
- The SSP/US$ rate rose ten-fold in the second half of 2015/16, causing a jump in foreign currency denominated revenues and expenditures as percent of GDP.
- Salary increases in March 2015 raised pay by 200-300 percent (depending on grade), contributing to fiscal deterioration.

Text Table 1. Government Net Oil Revenue (in US$ millions):
- Oil revenue (gross): 3,204; 2,082; 796; 852
- Transit fees: 329; 291; 111; 86
- Transfers to Sudan: 549; 420; 276; 313
- Net oil revenue: 2,326; 1,371; 509; 353

### Oil sector (Box 1 findings)
- Oil contributes slightly more than half of GDP, 95 percent of exports, 90 percent of government revenue and a significant share of private sector employment.
- Production was 490,000 bpd in 2010; proven oil reserves were estimated at 3.75 billion barrels as of January 2014.
- Under the 2013 agreement, South Sudan pays US$9.10/barrel in transit fees and US$15/barrel under the Transitional Financial Arrangement.
- Mature fields imply natural decline unless new investments in enhanced oil recovery (EOR) are made; conflict and low oil prices have postponed EOR investment.

### Monetary consequences and exchange rate evolution
- BSS financing of the government deficit grew five-fold from June 2013 to June 2016.
- Broad money grew by 219 percent in the 12 months through June 2016.
- Annual inflation peaked at 550 percent in September 2016.
- In December 2015 authorities switched to a de jure floating exchange rate; since then the SSP lost about 95 percent of its value against U.S. dollars.
- International reserves fell to about two weeks of imports by June 2016 and to about one week of imports by December 2016.
- The de facto exchange rate arrangement was reclassified to other managed from conventional peg, effective December 15, 2015.
- Removal of several exchange restrictions and MCPs accompanied reforms.

### 2016/17 budget measures and staff proposals
- 2016/17 budget aimed to reduce the accrual deficit from about 31 percent of GDP in 2015/16 to 8½ percent of GDP and to stop direct borrowing from the BSS.
- Revenue measures could raise annual revenue by 1.4 percent of GDP (total impact of measures 0.73 in 2016/17 and 1.41 in 2017/18).
Key proposed measures (Percent of GDP impact):
- Raise sales tax from 15% to 18%: 0.07 (2016/17), 0.20 (2017/18)
- Raise excise tax on alcohol (50% to 100%) and tobacco from 30% to 50%: 0.20; 0.40
- Impose 8% withholding tax on government contracts and 10% withholding tax on fees paid to contractors: 0.05; 0.08
- Departure tax of US$20 per passenger: 0.09; 0.13
- Implement new customs tariff schedule: 0.10; 0.20
- Moratorium on customs exemptions: 0.05; 0.05
- Update customs valuation schedule: 0.10; 0.20
- Strengthen tax admin. and information exchange: 0.08; 0.15
- Total impact of measures: 0.73 (2016/17), 1.41 (2017/18)

- Text Table 2 fiscal aggregates (Percent of GDP): Total revenue and grants: 29.0 (2015/16 Act.), 26.7 (Budget), 34.4 (Proj.); Total expenditure1/: 59.8; 35.1; 35.8; Overall balance (accrual): -30.8; -8.4; -1.3.
- Staff urged additional measures to eliminate a budgeted external financing need and estimated updated assumptions could improve the budget by 7.2 percent of GDP.
- With additional measures and updated assumptions, staff estimated the fiscal deficit could be reduced to 1½ percent of GDP in 2016/17, reducing domestic financing requirement to 4 percent of GDP.
- Staff assessment: domestic borrowing requirement of 2-3 percent of GDP is consistent with a return to price stability; a deficit targeted at 3½ percent of GDP with some external borrowing could contain domestic financing at 2-3 percent of GDP in 2017/18.
- Real GDP was projected to decline by about 10 percent in 2016/17 absent adjustment and peace.

1/ include change in arrears and errors and omissions.

### Public Financial Management (PFM) reforms (Box 3)
Immediate PFM reform milestones recommended:
- Remittance of all revenue collected to the consolidated treasury account.
- Registration of all civil servants (including military) on payroll system.
- Completion of payroll audit and removal of ghost workers.
- Establishment of a Treasury Single Account (TSA) structure.
- Verification of the 2015/16 non-salary arrears and formation of a clearance plan.
- Enactment of the Public Procurement Bill.
- Enactment of the Public Financial Management and Accountability Act (PFMAA).

Authorities have taken measures to require all revenue to be immediately transferred to the treasury account and established a Cash Management Committee; mission urged enforcement of commitment control, payroll audit, strengthened reporting, adoption of Procurement Act, and verification of domestic arrears.

### Other priorities: Disarmament, Demobilization, and Reintegration (DDR)
- Mission urged authorities to seek development partner support for a DDR program; an estimated 70 percent of the wage bill is currently spent on the armed and organized forces.
- A properly implemented DDR program could release budgetary resources and allow space for development priorities.

### Monetary policy stance and banking sector measures
- Monetary policy focus: reduce inflation, gradually replenish international reserves, and strengthen monetary instruments.
- Proposed fiscal adjustment includes eliminating BSS direct lending to government and financing the deficit through Treasury bills.
- Tighter monetary conditions could decelerate broad money growth to about 40 percent in 2016/17 and near 25 percent in 2017/18, supporting lowering inflation to about 20 percent (year-on-year).
- BSS should enforce statutory minimum reserve requirement: apply increase from 15 percent to 20 percent and begin reserve averaging.
- Staff support introduction of repurchase agreements for liquidity management.
- BSS should enforce minimum capital requirement for banks (raised in 2013 to US$30 million for foreign-owned banks and US$15 million for locally-owned banks); only about half of banks met requirements.
- Staff urged bank resolution regulations and banking system consolidation by closing banks that do not meet capital requirements.

Authorities’ commitments and actions:
- BSS has stopped direct lending to the government; plans to finance deficit solely through Treasury bills; plans to enforce reserve requirements and reserve averaging by early 2017; instructed banks to address inadequate capitalization; audit of BSS’s financial statements for 2013-15 expected in first half of 2017.

### Exchange rate policy and external stability
- Exchange rate liberalization in December 2015 broadly eliminated overvaluation of the official exchange rate and reduced the spread to parallel market, but parallel market volatility and cash premium remain high.
- Given low inflows of foreign exchange, BSS should conduct regular auctions with smaller amounts to send price signals.
- Restoration of external stability requires exchange rate flexibility, tighter fiscal and monetary policies, and some external financing.
- Urgent measures needed to minimize FX expenditure by the government given weak reserves.

### Medium-term outlook, scenarios, and key projections
- Medium-term outlook faces significant downside risks; without progress toward peace and stabilization the economy risks spiraling deterioration.
- Conditional projections assuming peace:
  - fiscal deficit could fall to 2–3 percent of GDP in coming years;
  - return to single digit inflation and exchange rate stability;
  - in the next five years, annual GDP growth could increase to 5-6 percent, reflecting recovery in oil production and non-oil GDP.
- Path for oil production assumes investments and daily production projected to increase from current 120,000 barrels to about 155,000 barrels in 2020/21.
- Projection assumes public investment of 10–12 percent of GDP annually in the medium term and gross foreign exchange reserves increasing to about 1.5 months of imports by 2020/21.
- Downside scenario (three-year delay in peace and adjustment) — key macro deviations:
  - Growth: real GDP growth flat for next three years.
  - Fiscal policy: fiscal deficit projected to rise gradually to 10 percent of GDP in next three years.
  - Monetary policy: central bank will resume printing money, fueling inflation and depreciation; FX reserves decline to less than a week of imports.
  - Inflation: annual consumer price inflation projected to stay at 400-500 percent.

### Debt sustainability and outlook
- South Sudan is in debt distress despite moderate external debt due to civil war, decline in oil prices, and high fiscal spending.
- Payment delays have arisen on international obligations, civil servant salaries, and other government obligations.
- International reserves are near exhaustion and country is constrained from accessing longer-term external financing.
- DSA indicates implementation of adjustment policies and return to peace would improve the debt outlook and allow gradual resumption of external financing.
- Authorities encouraged to seek financing on the most concessional terms.

### Oil revenue management and domestic oil-market reform
- PRMA enacted in 2015 but only partially implemented; PRMA stipulates oil revenue flow through specific accounts and utilization through the budget.
- Staff recommendations:
  - Eliminate fuel subsidies to Nilepet and raise pump prices to cost-recovery levels.
  - Review domestic fuel prices periodically.
  - Subject Nilepet to external audits.
  - Nilepet should focus on fuel importation and transfer proceeds from government crude oil shares to the consolidated government fund monthly.
- Authorities concurred and a policy document for Cabinet approval is under preparation.

### Promoting private sector development and diversification
- Need to diversify economy and create non-security related employment.
- Medium-term priorities:
  - Address undeveloped banking sector, insufficient infrastructure, lack of rule of law, and endemic corruption.
  - Prosecute acts of corruption in line with UNCAC.
  - With donor/creditor support, create frameworks (including PPPs) to supply public goods: water, sewage, electricity, transport.

### Capacity development and technical assistance
- IMF launched a dedicated five-year capacity development program in 2012 funded by a multi-donor trust fund.
- TA delivery was scaled back in 2015 and nearly stopped after July 2016 violence.
- Depending on peace and donor willingness, trust fund-supported activities could be resumed, including PFM strengthening.
- Authorities expressed desire to resume trust fund activities and committed to strengthen capacity.

### Public financial management and expenditure control (further details)
- Parliament agreed to phase out subsidies to NilePet; Ernst and Young engaged to audit NilePet (progress stalled due to conflict).
- Cash Management Committee (CMC) established comprising senior officials from Ministry of Finance and BSS, mandated to prioritize critical expenditures and transfer government accounts to consolidated treasury account.
- IFMIS installation underway to control commitments and curtail domestic arrears.
- National Procurement Bill before legislature.
- BSS raised minimum capital requirements; non-compliant banks to merge or liquidate by mid-2017.
- BSS to enforce reserve requirements and introduce repurchase agreements for liquidity management.
- Government discontinued recourse to central bank borrowing and plans to scale down Treasury bill issuance.

### External sector assessment (Annex I)
- Official exchange rate depreciated by about 95 percent, or around 60 percent in real terms, since end-2015.
- International reserves at current level of US$30–50 million (about one week of prospective imports) — inadequate by any measure.
- Rebuilding reserves constrained by low oil prices and investment needs for higher production.
- Short-term priorities: restore fiscal discipline, shift from domestic to concessional external financing, cut FX-draining expenditures (travel, transport), improve security, and end monetary financing.
- Medium-term: address weak business climate, high transport costs (US$9,285 to import a twenty-foot container in 2014), near-absence of manufacturing, lack of infrastructure.
- Governance indicators: World Bank Worldwide Governance indicators (2015) rank South Sudan among the lowest in the world; World Bank Doing Business ranks: Ease of doing business: 186 (2015), 187 (2016).

### Agriculture, resettlement, and private investment prospects
- Only 4.3 percent of arable land is cultivated; government objective to increase to 9.7 percent.
- Food insecurity severe; country imports majority of its food.
- Livestock headcount close to 40 million but constrained by transport.
- Transforming agriculture requires about US$200 million per year over medium term for roads and related investment.
- Potential in mining and artisanal gold; light manufacturing affected by dual exchange rate and scarcity of dollars.
- Mobile phone services and mobile banking show promising prospects.
- Donors likely to condition development assistance on an IMF-supported program; estimated remaining gap of US$300–400 million per year over at least two fiscal years after adjustment.

### Article IV consultation — capacity development and partner engagement
- Capacity development areas: Oil Revenue Management; PFM; Monetary and FX Operations; Central Bank Organization; Tax and Customs Administration; Balance of Payments Statistics; National Accounts; Fiscal Statistics/GFSM 2001; Monetary and Financial Statistics.
- World Bank, AfDB operations and pipelines listed; many projects on hold or delayed due to security.
- Statistical issues: serious data shortcomings across macroeconomic domains; CPI, monetary and exchange rate data more reliable than fiscal, GDP and external statistics.
- Table of Common Indicators Required for Surveillance provided with dates and frequencies (as of January 5, 2017).

### Debt position, projections, and scenarios (selected figures and assumptions)
- At independence in July 2011, no domestic or foreign debt; by June 2016 stock of domestic and external debt owed or guaranteed by central government about US$1.4 billion (38 percent of GDP).
- By June 2016 foreign exchange reserves about US$70 million (about 2 weeks of prospective imports); by end-December 2016 about 1 week of imports.
- External debt composition (US$ millions): World Bank (IDA) 34; China Exim Bank 100; Oil-related advances 219; QNB Line of credit 610; Total external borrowing 963 (27.5 percent of GDP).
- QNB outstanding liability about US$610 million restructured to monthly payments of US$10 million, later reduced to US$5 million.
- Domestic debt (as of June 2016): SSP 24.1 billion (40 percent of GDP) with components listed including borrowing from Bank of Sudan and Treasury bills; domestic arrears uncertain and could add SSP 5 billion.

Box 1 macro assumptions (2016/17–2036/37 highlights):
- Oil output: about 120,000 bpd in 2016/17–2017/18; recover to about 145,000 bpd by 2019/20; nearly 200,000 bpd by mid-2020s with EOR; about 140,000 bpd in 2030s.
- Real GDP growth: expand by 4½ percent a year during 2019–22.
- Average inflation: fall to high single digits within three years.
- Total revenue excluding grants: rise from about 29 percent of GDP in 2015/16 to about 38 percent in 2019/20.
- Planned external borrowing and investment financing: new investment program about US$1.5 billion financed over 5-6 years starting 2017/18; about half non-concessional; projected overall external public sector borrowing requirements about US$2.8 billion in next 10 years.

Alternative scenarios:
- Lower oil price scenario: 10 percent lower oil price for five years raises PV of debt by about 10 percentage points of GDP.
- Postponed adjustment scenario: three-year delay in peace and adjustment raises PV of public debt quickly by about 20 percent of GDP above baseline; debt thresholds exceeded by wide margin.

### Risk Assessment Matrix — principal risks and policy responses (selected)
- Political instability: Likelihood High; Impact High; Response: political agreement on peace and reconciliation.
- Sustained fiscal gap and shortfall in external financing: Likelihood High; Impact High; Response: tighten fiscal policy and improve governance to secure external financing.
- Sustained decline in commodity prices: Likelihood High; Impact High; Response: tighten fiscal policy, improve non-oil revenue collection, consider additional external financing.
- Tension with Sudan: Likelihood Medium; Impact High; Response: advance non-oil revenue reforms, keep public spending under control, maintain coordination with Sudan.
- Delays in improving governance or capacity: Likelihood High; Impact Medium; Response: strengthen anti-corruption, implement transparency reforms, enforce petroleum and PFM laws.

### Staff appraisal and policy priorities (summary)
- South Sudan faces massive economic and political challenges; real income has declined massively and humanitarian needs have risen.
- Immediate focus: restore fiscal discipline to reduce money expansion, stabilize domestic prices, and restore external stability.
- Staff urges government to implement proposed revenue measures and spending cuts in 2016/17 budget and additional measures to eliminate financing gap and reduce domestic financing to levels consistent with stability.
- Public financial management improvements needed: enforce commitment control, conduct payroll audit, bolster reporting, adopt Procurement Act, fully implement PRMA.
- IMF stands ready to support with technical assistance as security conditions allow.

### Conclusion (debt distress and prospects)
- South Sudan is in debt distress: several debt indicators exceed thresholds, external payment difficulties, very low FX reserves, and short-term repayment needs exceed available resources unless adjustments are implemented.
- With peace, good policies, cautious borrowing strategy, and stable external environment, South Sudan could regain access to external financing and attain external viability over a relatively short period.
- Downside risks: subdued oil prices, lack of political commitment to adjustment, deadlock in peace, under-investment in EOR, unresolved issues with Sudan, protracted rent seeking and corruption.

*International Monetary Fund staff report for the 2016 Article IV consultation (February 28, 2017).*

### 2013. Real GDP growth declined by nearly 20 percent in the two years through 2015/16, and

### cr1773 - 2013. Real GDP growth declined by nearly 20 percent in the two years through 2015/16, and

### Macroeconomic collapse and immediate developments
- Real GDP growth declined by 18.8 percent in the two years through 2015/16 (July–June).
- Annual inflation rose to about 550 percent in September 2016 and declined to about 370 percent in January 2017.
- Since December 2015, the South Sudanese pound has lost more than 95 percent of its value against the U.S. dollar.
- Monetization of the fiscal deficit led to:
  - strong money growth,
  - high inflation,
  - precipitous exchange rate depreciation.
- Conflict and collapse of oil prices caused:
  - decline in oil production and export proceeds,
  - falling government revenue,
  - rising security-related spending,
  - rapid rise in the fiscal deficit,
  - exacerbation of economic instability.
- Gross international reserves have dropped to about one week of import cover.
- Non-oil GDP declined by an estimated 17 percent over the last two years.
- Real domestic income adjusted for terms of trade declined by an estimated 35 percent since 2013.

### Key statistical indicators (as reported)
- Population (millions; 2015/16): 12.2
- Per capita GDP (US$) (2015/16): 240
- IMF Quota (current; millions SDR; % total): 2 246; 0.05%
- Literacy rate (%) (2009): 27
- Main exports: Oil
- Poverty rate (%) (2009): 51
- Paved road density: 0.02km/100km2
- Key export markets: China, Malaysia

Selected yearly indicators (2013/14 Act.; 2014/15 Act.; 2015/16 Prel.; 2016/17 Proj.):
- Real GDP growth (%): 39.3; -12.8; -6.9; -10.5
- Oil production (millions of barrels per year): 66.8; 57.8; 53.1; 43.4
- Inflation, average (%): -5.6; 14.8; 158.7; 336.2
- South Sudan's oil price (US dollars per barrel): 97.8; 62.4; 34.7; 41.4

Central government finances (percent of GDP):
- Revenue and grants (% GDP): 26.4; 28.6; 29.0; 34.4
  - Of which: grants (% of GDP): 0.0; 8.3; 0.4; 0.9
  - Of which: oil revenues (% of GDP): 24.1; 16.7; 22.0; 29.5
- Expenditure (% GDP): 28.1; 37.2; 38.4; 36.3
  - Current: 24.5; 34.7; 33.0; 33.7
    - Of which: Payments to Sudan (% of GDP): 6.2; 5.9; 7.9; 17.2
  - Capital: 3.6; 2.4; 5.4; 2.6
- Errors and Omissions: 1.1; 6.0; -1.8; -0.5
- Change in arrears: 0.0; 0.0; 23.2; 0.0
- Fiscal balance (% GDP) (On an accrual basis): -2.9; -14.6; -30.8; -1.3

Money and credit:
- Broad money (% change): 20.5; 36.9; 219.1; 38.7
- Reserve money (% change): 37.0; 81.1; 239.6; 56.6
- Credit to private sector (% change): 4.6; 13.7; 172.6; 46.9

External sector and exchange:
- Current account (% GDP): 2.3; -4.2; -3.7; 2.1
- Net foreign assets of the central bank (in months of imports, end of period): 1.0; 1.4; 0.4; 0.2
- External debt (% GDP): 4.2; 5.5; 28.6; 38.7
- Official rate (SSP per dollar; period average): 3.0; 3.0; 16.9; ...
- Parallel market rate (SSP per dollar; period average): 4.3; 6.6; 23.8; ...

### Policy response and Executive Board assessment
- Authorities shifted policy in late 2016 by adopting a new 2016/17 budget with bold fiscal measures aimed at restoring macroeconomic stability and strengthening public financial management.
- Preliminary information indicates:
  - a substantial reduction in the fiscal deficit for the first half of the fiscal year,
  - significant moderation in money growth.
- Executive Directors emphasized:
  - the need for a credible path towards lasting peace and decisive economic stabilization,
  - ensuring aid organizations have access to all areas to deliver assistance to alleviate humanitarian costs.
- Key policy priorities urged by Directors:
  - restore fiscal discipline to reduce money expansion, inflation, and restore external stability,
  - implement the 2016/17 budget revenue measures and spending cuts,
  - take additional measures to reduce domestic financing to a level consistent with macroeconomic stability,
  - improve expenditure management and prevent domestic arrears via enforcement of monthly budget allocations, strict control of extra-budgetary expenditures, and setting up of a treasury single account,
  - minimize revenue leakages by implementing domestic oil market reforms, including removal of fuel subsidies, transparent transfer of government crude oil receipts to the budget, and liberalization of the fuel market,
  - tighten monetary policy to reduce inflation and gradually replenish international reserves, and enforce statutory minimum reserve requirements and minimum capital for all banks,
  - continue liberalization of the exchange rate regime and elimination of exchange restrictions and multiple currency practices.

### Medium-term outlook, risks, and debt position
- The medium-term outlook faces challenges and significant downside risks; without significant progress toward peace and economic stabilization the economy is highly unstable and risks spiraling deterioration.
- Conditional projections assuming peace is achieved:
  - fiscal deficit could fall to 2–3 percent of GDP in the coming years,
  - return to single digit inflation and exchange rate stability,
  - in the next five years, annual GDP growth could increase to 5-6 percent, reflecting recovery in oil production and in non-oil GDP.
- Debt sustainability:
  - South Sudan is currently in debt distress despite moderate levels of external debt due to the combined impact of civil war, decline in oil prices and high levels of fiscal spending.
  - Steadfast implementation of adjustment policies and a return to peace would improve the debt outlook and allow gradual resumption of external financing.

### Policy recommendations and priorities (summary)
- Immediate priority: address macroeconomic imbalance through tighter fiscal and monetary policies.
- Government actions needed:
  - raise revenue and cut expenditures to reduce financing need,
  - implement adopted revenue measures and spending cuts,
  - shift budgetary spending from security-related outlays towards public services and infrastructure investment,
  - develop a coherent and well prioritized public investment program (seek assistance given capacity constraints),
  - seek donor support for disarmament, demobilization and reintegration programs.
- Central bank actions:
  - refrain from lending to the government,
  - gradually replenish international reserves,
  - tighten monetary policy to reduce inflation,
  - enforce statutory minimum reserve requirements and minimum capital for banks.
- Structural reforms:
  - strengthen public financial management,
  - implement domestic oil market reforms (remove fuel subsidies, transparent transfer of crude receipts, liberalize fuel market),
  - liberalize and unify exchange rate policies and eliminate multiple currency practices.

*International Monetary Fund staff report for the 2016 Article IV consultation (February 28, 2017).*

### 6. A large and widening fiscal deficit has exacerbated economic instability. Depressed oil

### 6. A large and widening fiscal deficit has exacerbated economic instability.

### Fiscal deterioration and oil revenue
- Oil revenue net of transfers to Sudan dropped from about US$2.3 billion in 2013/14 to US$0.5 billion in 2015/16.
- Oil-related arrears to Sudan in 2015/16 amounted to US$291 million (transit fees and Transitional Financial Arrangement).
- With unadjusted spending, the overall fiscal deficit increased rapidly from 3 percent of GDP in 2013/14 to 31 percent of GDP in 2015/16.
- Arrears on external and domestic payments rose by an estimated 23 percent of GDP in 2015/16.
- The sharp depreciation of the South Sudanese pound in the second half of 2015/16 (the SSP/US$ rate rose ten-fold) caused a jump in foreign currency denominated revenues and expenditures in 2015/16, raising foreign currency denominated budget categories markedly as a percent of GDP.
- Salary increases in March 2015 raised pay by 200-300 percent (depending on grade), contributing to fiscal deterioration.

- Text Table 1. Government Net Oil Revenue (in US$ millions)
  - Oil revenue (gross): 3,204 (2013/14), 2,082 (2014/15), 796 (2015/16), 852 (2016/17)
  - Transit fees: 329, 291, 111, 86
  - Transfers to Sudan: 549, 420, 276, 313
  - Net oil revenue: 2,326, 1,371, 509, 353

### Oil sector (Box 1 findings)
- Oil contributes slightly more than half of GDP, 95 percent of exports, 90 percent of government revenue and a significant share of private sector employment.
- South Sudan gained control of three-quarters of Sudan’s oil production at independence; production was 490,000 barrels per day (bpd) in 2010.
- Proven oil reserves were estimated at 3.75 billion barrels as of January 2014 (ranking 38th in the world and 3rd in Sub Sahara Africa).
- Production has experienced frequent disruptions since independence (including a 15-month shutdown in January 2012).
- Under the 2013 agreement, South Sudan pays US$9.10/barrel in transit fees and US$15/barrel under the Transitional Financial Arrangement.
- Mature fields imply natural decline unless new investments in enhanced oil recovery (EOR) are made; conflict and low oil prices have postponed EOR investment.

### Monetary consequences and exchange rate evolution
- Bank of South Sudan (BSS) financing of the government deficit grew five-fold from June 2013 to June 2016.
- Broad money grew by 219 percent in the 12 months through June 2016.
- Annual inflation peaked at 550 percent in September 2016.
- In December 2015 the authorities officially switched to a de jure floating exchange rate system; since then the South Sudanese pound lost about 95 percent of its value against U.S. dollars.
- International reserves fell to about two weeks of imports by June 2016 and to about one week of imports by December 2016.
- The de facto exchange rate arrangement was reclassified to other managed from conventional peg, effective December 15, 2015.
- Removal of several exchange restrictions and multiple currency practices (MCPs) accompanied reforms, including removal of measures maintained under Article XIV transitional arrangements and Article VIII MCP arising from exchange rate guarantee arrangements.

### Policy recommendations and fiscal measures (2016/17 budget and staff proposals)
- The 2016/17 budget aimed to reduce the accrual deficit from about 31 percent of GDP in 2015/16 to 8½ percent of GDP and to stop direct borrowing from the BSS.
- Revenue measures in the budget could raise annual revenue by 1.4 percent of GDP (Text Table 3 total impact of measures 0.73 in 2016/17 and 1.41 in 2017/18).
- Key proposed revenue and fiscal measures (Text Table 3; Percent of GDP impact)
  - Raise sales tax from 15% to 18%: 0.07 (2016/17), 0.20 (2017/18)
  - Raise excise tax on alcohol (50% to 100%) and tobacco from 30% to 50%: 0.20, 0.40
  - Impose 8% withholding tax on government contracts and 10% withholding tax on fees paid to contractors: 0.05, 0.08
  - Departure tax of US$20 per passenger: 0.09, 0.13
  - Implement new customs tariff schedule: 0.10, 0.20
  - Moratorium on customs exemptions: 0.05, 0.05
  - Update customs valuation schedule: 0.10, 0.20
  - Strengthen tax admin. and information exchange: 0.08, 0.15
  - Total impact of measures: 0.73 (2016/17), 1.41 (2017/18)
- Text Table 2 fiscal aggregates (Percent of GDP)
  - Total revenue and grants: 29.0 (2015/16 Act.), 26.7 (Budget), 34.4 (Proj.)
  - Total expenditure 1/: 59.8, 35.1, 35.8
  - Overall balance (accrual): -30.8, -8.4, -1.3
  - Financing gap: 0.0, 5.6, 0.0
  - Closing the financing gap (2016/17): Total 5.6 comprised of Additional measures 0.4; Salary raise in Jan 2017 -1.0; Lower domestic financing from banks -1.0; Oil price and other ajustments 7.2
  - 1/ include change in arrears and errors and omissions.

- Staff urged additional measures to eliminate a budgeted external financing need: (i) maintain foreign currency-denominated operational spending notwithstanding exchange rate adjustments; (ii) eliminate subsidies to Nile Petroleum (Nilepet) and raise domestic fuel prices to cost recovery; (iii) reduce cost of operating foreign diplomatic missions (estimated budgetary effect in 2016/17 of these measures is 0.4 percent of GDP).
- Updated assumptions for exchange rate, oil prices, and oil production in line with current production are estimated to improve the budget by 7.2 percent of GDP.
- With additional measures and updated assumptions, staff estimated the fiscal deficit could be reduced to 1½ percent of GDP in 2016/17, reducing domestic financing requirement to 4 percent of GDP and allowing repayment of external obligations.
- Staff assessment: a domestic borrowing requirement of 2-3 percent of GDP is consistent with a return to price stability; a deficit targeted at 3½ percent of GDP with a small amount of external borrowing could contain domestic financing at 2-3 percent of GDP in 2017/18.
- Real GDP was projected to decline by about 10 percent in 2016/17 absent adjustment and peace.

### Public Financial Management (PFM) reforms (Box 3)
- Immediate PFM reform milestones recommended for implementation:
  - Remittance of all revenue collected to the consolidated treasury account.
  - Registration of all civil servants (including military) on payroll system.
  - Completion of payroll audit and removal of ghost workers.
  - Establishment of a Treasury Single Account (TSA) structure.
  - Verification of the 2015/16 non-salary arrears and formation of a clearance plan.
  - Enactment of the Public Procurement Bill.
  - Enactment of the Public Financial Management and Accountability Act (PFMAA).
- Authorities have taken measures to require all revenue to be immediately transferred from government accounts in commercial banks to the treasury account and established a Cash Management Committee.
- Mission urged further steps: enforce commitment control, conduct a payroll audit, strengthen reporting of public sector accounts, adopt the Procurement Act, improve Cash Management Committee effectiveness, and complete verification of domestic arrears.

### Other policy priorities
- The mission urged authorities to seek development partner support to develop and finance a disarmament, demobilization and reintegration (DDR) program; an estimated 70 percent of the wage bill is currently spent on the armed and organized forces.
- A properly implemented DDR program could release budgetary resources toward other priorities and move away from the war economy; over the medium term a reduction in humanitarian assistance needs could allow room for additional donor support for DDR.

### Authorities’ views and actions
- Authorities broadly agreed strong fiscal adjustment is necessary and agreed to revise the budget to eliminate the financing gap and avoid new borrowing from the BSS.
- Preliminary actions by authorities included initiatives to eliminate transfers to Nilepet and reduce costs in foreign missions, and early implementation of envisaged budgetary tightening for 2016/17.
- Authorities have started implementing reforms to strengthen PFM systems.

*Source: IMF staff report (Republic of South Sudan).*

### 18. Monetary policy should focus on reducing inflation, gradually replenishing

### 18. Monetary policy should focus on reducing inflation, gradually replenishing

### Monetary policy stance and objectives
- Focus on reducing inflation, gradually replenishing international reserves, and strengthening monetary policy instruments.
- Proposed fiscal adjustment includes eliminating BSS direct lending to government and full financing of the deficit through Treasury bills.
- Tighter monetary conditions are expected to:
  - Gradually lower inflation and stabilize the foreign exchange market.
  - With the proposed fiscal tightening, broad money growth could decelerate to about 40 percent in 2016/17 and further to near 25 percent in 2017/18, supporting a lowering of inflation to about 20 percent (year-on-year).
- With banks holding large excess reserves, the BSS should urgently enforce the statutory minimum reserve requirement:
  - Apply the adopted increase in reserve requirements from 15 percent to 20 percent.
  - Begin reserve averaging.
- Staff support the authorities’ plan to introduce repurchase agreements for liquidity management.
- A tighter monetary policy stance will also support a gradual recovery in foreign exchange reserves and enhance confidence in the South Sudanese pound.
- Note: Information through December 2016 confirms that money growth indeed is slowing down and that new direct BSS lending to the government has been small in recent months.

### Banking sector capitalization and supervision
- The BSS should enforce the minimum capital requirement for all banks.
  - Decision in 2013 raised capital requirements to US$30 million for foreign-owned banks and US$15 million for locally-owned banks to be met over two years; only about half of the banks have met the requirements.
- Financial soundness indicators reveal declines in capital adequacy ratios, earnings, increases in non-performing loans (NPLs), reduced profitability, and eroded asset quality.
- Recent pick-up in NPLs and drop in earnings reflect the worsening of the security situation in July 2016, particularly affecting construction and service sectors.
- Staff urged authorities to:
  - Adopt bank resolution regulations.
  - Foster banking system consolidation by closing banks that do not meet capital requirements.

### Authorities’ actions and commitments on monetary and banking policy
- The BSS agreed with the assessment and recommendations on monetary policy.
  - It has stopped direct lending to the government.
  - Plans to finance the fiscal deficit solely through the issuance of Treasury bills.
  - Plans to enforce reserve requirements and reserve averaging by early 2017.
  - Instructed banks to address inadequate capitalization; will either agree on specific plans with delinquent banks or start withdrawing banking licenses.
  - The audit of BSS’s financial statements for 2013-15 is expected to be completed in the first half of 2017.

### Exchange rate policy and external stability
- Exchange rate liberalization in December 2015 broadly eliminated overvaluation of the official exchange rate and reduced the spread to the parallel market.
- Despite liberalization, volatility in the parallel market remains high and the cash premium has risen substantially; spread to the official indicative rate increased substantially since mid-2016.
- Given current low inflow of foreign exchange, the BSS should continue to conduct regular auctions with smaller amounts to send price signals to the market.
- Authorities need to ensure the spread between the official and parallel rates is reduced by allowing the auction and indicative rates to reflect market conditions.
- Restoration of external stability will require improvement in policies and external support:
  - Exchange rate flexibility will help, but tighter fiscal and monetary policies combined with some external financing are required to restore external stability and gradually rebuild reserves.
  - Urgent measures needed to minimize foreign exchange expenditure by the government in light of very weak reserve position.
  - Tighter fiscal conditions should over time allow the BSS to increase reserves.
  - Over the medium term, structural reforms to address business environment are essential to diversify the economy and build competitiveness.

### Medium-term outlook, scenarios, and key projections
- Medium-term outlook faces challenges and significant downside risks, including external risks (lower oil prices, climate shocks) and risk of lack of internal political inclusiveness derailing peace process.
- Downside scenario (Box 4) assumes a three-year delay in peace and economic adjustment; consequences include:
  - Fiscal deficit remains high and economic activity stagnant, leading to high inflation, exchange rate volatility, and low foreign exchange reserves.
- Under baseline assumptions of progress toward political normalization and fiscal adjustment:
  - Fiscal deficit projected to fall to 2-3 percent of GDP in the coming years assuming a moderate recovery in oil production and higher capital spending.
  - In the next five years, annual GDP growth could increase to 5-6 percent, reflecting recovery in oil production and in non-oil GDP.
  - Path for oil production assumes investments in existing wells and daily production projected to increase from the current 120,000 barrels to about 155,000 barrels in 2020/21.
  - Projection assumes public investment of 10–12 percent of GDP annually in the medium term and an increase in gross foreign exchange reserves to about 1.5 months of imports by 2020/21.
- Box 4: Risks of a Delay in Policy Action — key macroeconomic deviations under a three-year delay:
  - Growth: real GDP growth flat for next three years.
  - Fiscal policy: fiscal deficit projected to rise gradually to 10 percent of GDP in the next three years.
  - Monetary policy: central bank will resume printing money to finance the government deficit, fueling inflation and depreciation; foreign exchange reserves decline to less than a week of imports.
  - Inflation: annual consumer price inflation projected to stay at 400-500 percent.

### Debt sustainability
- South Sudan is in debt distress.
  - Despite moderate levels of external debt, decline in oil prices, civil war, and high fiscal spending left South Sudan in debt distress.
  - Payment delays have arisen on international obligations, civil servant salaries, and other government obligations.
  - International reserves are near exhaustion and country is constrained from accessing longer-term external financing.
- Debt sustainability analysis suggests that implementation of adopted adjustment policies and a return to peace would improve the debt outlook and allow for gradual resumption of external financing.
- Authorities encouraged to seek financing on the most concessional terms to prevent falling into debt distress in the face of negative shocks.

### Managing and reforming oil revenue and sector
- Petroleum Revenue Management Act (PRMA) enacted in 2015 but only partially implemented.
  - PRMA stipulates oil revenue should flow through specific accounts and utilization must go through the budget; prescribes prudent financial management guidelines and auditing requirements.
  - Authorities agreed to implement the PRMA in full and seek necessary technical support.
- Domestic oil sector reforms needed:
  - Fuel and other oil products are imported; no refining capacity in South Sudan.
  - Existing subsidy at the pump (prices currently significantly below import cost) has led to fuel shortages and a parallel market.
  - State-owned Nilepet imports petroleum products and holds/manages South Sudan’s shares in crude oil production ventures; use of dividends is unclear as Nilepet does not provide transparent accounting and no dividends are paid to the central government.
- Staff recommendations for oil sector reform:
  - Eliminate fuel subsidies to Nilepet and raise pump prices to cost-recovery level to help alleviate supply shortages and informal trade.
  - Review domestic fuel prices periodically.
  - Subject Nilepet to external audits.
  - Nilepet should focus on core business as a fuel importer and transfer proceeds from government crude oil shares to the consolidated government fund on a monthly basis.
- Authorities concurred and a policy document for Cabinet approval is under preparation.

### Promoting private sector development
- Need to diversify the economy and create non-security related employment.
- Conflict and macroeconomic uncertainty have impeded non-oil exports and import-substituting production.
- With successful peace process, liberalized exchange rate regime, and economic stabilization, impediments will be reduced.
- Medium-term priorities to support private sector growth:
  - Address undeveloped banking sector, insufficient infrastructure, lack of rule of law, and endemic corruption.
  - Effectively prosecute acts of corruption in line with the United Nations Convention Against Corruption.
  - With donor/creditor support, create frameworks (including public private partnerships) to supply public goods such as water, sewage, electricity and transport.

### Capacity development and technical assistance
- IMF launched a dedicated five-year capacity development program in 2012 funded by a multi-donor trust fund.
- Delivery of technical assistance has been challenged by political instability, high staff turnover, limited local resources, and insufficient political commitment to reform.
- TA delivery was scaled back in 2015 to focus on areas with sufficient traction: core functions of the central bank, macroeconomic analysis and coordination, production of statistics, and tax administration.
- Escalation of violence in July 2016 led to a nearly complete stop of TA activities.
- Depending on peace efforts and donor willingness, trust fund-supported activities could be resumed in the future, including support for strengthening public financial management.
- Authorities expressed strong desire to resume trust fund-supported activities and committed to implement measures to strengthen capacity.

### Staff appraisal and policy priorities
- South Sudan faces massive economic and political challenges from prolonged conflict and subdued oil prices; real income has declined massively and humanitarian needs have risen to unprecedented proportions.
- Decisive economic stabilization and credible path toward lasting peace are necessary to rebuild confidence and prevent economic collapse.
- Immediate focus should be on restoring fiscal discipline to reduce money expansion, stabilize domestic prices, and restore external stability.
- Staff urges government to implement proposed revenue measures and spending cuts in the 2016/17 budget and take additional measures to fully eliminate the financing gap and reduce domestic financing to a level consistent with macroeconomic stability.
- Public financial management systems need improvement:
  - Enforce commitment control, conduct a payroll audit, bolster reporting of public sector accounts, and adopt the Procurement Act.
  - Fully implement the Petroleum Revenue Management Act.
- The Fund stands ready to support these steps with technical support as soon as security conditions allow for resumption of missions.

*Source: IMF country report excerpt "18. Monetary policy should focus on reducing inflation, gradually replenishing" (cr1773).*

### 38. The authorities should seek support from development partners for a disarmament,

### cr1773 - 38. The authorities should seek support from development partners for a disarmament,

### Disarmament, Demobilization, and Reintegration (DDR)
- Recommendation: The authorities should seek support from development partners for a disarmament, demobilization and reintegration (DDR) program.
- Expected benefit: DDR will contribute to lower the high share of budgetary resources allocated for security personnel and provide an alternative living for former soldiers.

### Monetary policy and banking-sector measures
- Policy focus: Reduce inflation and gradually replenish international reserves.
- Interaction with fiscal policy: The proposed fiscal adjustment supports tighter monetary conditions that will gradually lower inflation and stabilize the foreign exchange market.
- Central bank actions recommended:
  - The BSS should stop direct lending to the government.
  - Domestic financing of the budget could instead be achieved by issuance of Treasury bills.
  - The BSS should enforce the statuary minimum reserve requirements and the minimum capital for all banks to reduce vulnerabilities in the banking system.

### Exchange reforms
- Staff position: Welcomes the exchange reforms and removal of two exchange restrictions and the two MCPs.
- Recommendation: Encourage the authorities to continue efforts to remove the remaining exchange restrictions and MCP as soon as conditions permit.

### Medium-term fiscal priorities and growth prospects
- Policy motivation: Reprioritize budgetary spending and rebuild foreign exchange reserves.
- Spending shift: As stabilization takes hold, budgetary spending should be shifted away from security-related outlays towards public services and infrastructure investment.
- Conditional recovery scenario:
  - Assuming progress towards lasting peace and security, a coherent economic policy package would boost economic activity, including gradual recovery in oil production.
  - Economic growth could bounce back to 5-6 percent a year within a few years under the right conditions.
- Support requested: The authorities should seek assistance to develop a coherent and well prioritized public investment program.

### Domestic oil-market reform
- Recommendations:
  - Remove domestic fuel subsidies.
  - Ensure that the proceeds from the government’s crude oil interests are transparently transferred to the budget.
  - Liberalize the domestic market for fuel.
- Expected outcomes: Improve the budgetary situation and address the current shortages in the domestic fuel market.

### Debt outlook
- Assessment: South Sudan is in debt distress.
- Drivers: Combined impact of a decline in oil prices, civil war, and high levels of fiscal spending.
- Outlook: The debt sustainability analysis suggests that steadfast implementation of the announced adjustment policies and a return to peace would improve the debt outlook and allow for a gradual resumption of external financing.

### Downside risks
- Main risk: Failure to achieve sufficient internal political inclusiveness to bring the peace process back on track.
- Potential consequence: If inclusiveness and peace are not achieved, the economy becomes highly unstable and the country risks falling into a spiraling trap of deteriorating economic performance and worsening security conditions with devastating humanitarian costs.

*REPUBLIC OF SOUTH SUDAN  INTERNATIONAL MONETARY FUND*

### 45. It is recommended that the next Article IV consultation be held on the standard 12-

### cr1773 - 45. It is recommended that the next Article IV consultation be held on the standard 12-month schedule.

### Recent economic developments and outlook
- Real GDP (percent change): 39.3, -12.8, -6.9, -10.5, 1.1 (2013/14–2017/18 series as shown).
  - Oil: 263.0, -11.6, -10.6, -18.4, 0.6.
  - Non-oil: -3.2, -13.6, -4.1, -5.1, 1.4.
- Inflation (end-of-period): 0.66, 61.2, 187.0, 237.9, 20.0.
- Inflation (average): -5.6, 14.8, 158.7, 336.2, 61.9.
- Exchange rate (SSP/US$, average): 3.0, 3.0, 16.9, ...... (note: exchange rate as of February 13, 2017 provided elsewhere).
- Oil production (millions of barrels, memorandum): 66.8, 57.8, 53.1, 43.4, 43.7.
- South Sudan's oil price (U.S. dollars per barrel, memorandum): 97.8, 62.4, 34.7, 41.4, 44.6.
- Gross foreign reserves (millions of US dollars, Table 1): 363, 282, 735, 0, 131 (series as presented).

### Fiscal developments and public finances
- Central government: Total Revenues and Grants (percent of GDP): 26.4, 28.6, 29.0, 34.4, 33.4.
  - Of which: Oil (percent of GDP): 24.1, 16.7, 22.0, 29.5, 25.7.
  - Non-oil tax revenue (percent of GDP): 1.8, 3.1, 6.1, 3.7, 4.2.
  - Grants (percent of GDP): 0.0, 8.3, 0.4, 0.9, 3.1.
- Expenditures (percent of GDP): 28.1, 37.2, 38.4, 36.3, 36.9.
  - Current expenditure (percent of GDP): 24.5, 34.7, 33.0, 33.7, 32.2.
  - Transfers to Sudan (percent of GDP): 6.2, 5.9, 7.9, 17.2, 15.0.
- Overall balance (cash, percent of GDP): -2.9, -14.6, -7.6, -1.3, -3.5.
- Table 2a (billions of SSP): Total revenue and grants: 10.4, 11.2, 17.4, 58.2, 75.0, 113.1 (2013/14–2017/18 series as shown). Total expenditure: 11.7, 14.5, 23.0, 77.7, 79.1, 124.9.
- Financing composition (Table 2a): Domestic (net) financing and net credit from central bank and commercial banks reported in detail for 2013/14–2017/18 (values preserved in tables).

### Monetary and financial developments
- Broad money (year-on-year, percent change): 20.5, 36.9, 219.1, 38.7, 26.1 (series as shown).
- Reserve money (year-on-year, percent change): 37.0, 81.1, 239.6, 56.6, 9.5.
- Monetary Survey (Table 3, selected levels in billions of SSP):
  - Broad money: 6.6, 9.1, 17.1, 28.9, 40.1, 50.6 (selected dates).
  - Currency outside banks: 1.9, 2.6, 4.1, 6.6, 12.2, 16.3.
  - Transferable deposits (of which in foreign currency): reported across periods (preserve table figures).
- Gross foreign reserves (millions of U.S. dollars, Table 3 memo): 363, 282, 1247, 350, 131 (series as shown).
- Balance of payments projections (Table 4): Current account balance (millions of US$): -560, -131, 58, -219, -357, -313, -447 (2014/15–2020/21 series).
  - Exports of goods (millions of US$): 3,880, 2,142, 1,825, 1,983, 2,198, 2,577, 2,798.
  - Oil exports (millions of US$): 3,839, 2,113, 1,795, 1,948, 2,158, 2,513, 2,718.
  - Imports of goods (millions of US$): -3,286, -1,704, -1,466, -1,873, -2,108, -2,256, -2,482.
  - Current account balance including transfers (percent of GDP, memorandum): -4.4, -3.4, 2.1, -6.6, -10.4, -8.0, -11.1.

### Financial soundness indicators (banking sector)
- Capital to Assets series (percent): 16.2%, 14.4%, 14.3%, 14.8%, 13.1%, 12.4%, 11.2%, 9.1%, 10.3%, 10.2%, 9.5% (Mar-14 through Sep-16).
- Nonperforming loans to total gross loans (percent): 18.7%, 23.2%, 21.3%, 11.1%, 26.2%, 27.6%, 22.5%, 21.6%, 22.2%, 22.5%, 54.9% (Mar-14 through Sep-16).
- Return on Assets (ROA) (percent): 5.7%, 2.9%, 2.4%, 2.2%, 2.6%, 2.6%, 2.0%, 1.7%, 6.5%, 5.5%, 2.4% (Mar-14 through Sep-16).
- Liquid Assets to Total Assets (percent): 78.7%, 81.9%, 84.0%, 79.8%, 86.4%, 80.7%, 78.8%, 60.1%, 52.7%, 51.8%, 46.7% (Mar-14 through Sep-16).
- Customer Deposits to Total (noninterbank) loans: 563.4%, 783.9%, 807.5%, 577.6%, 912.4%, 1,296.1%, 1,379.9%, 1,284.3%, 1,099.6%, 1,090.6%, 1,012.1% (Mar-14 through Sep-16).

### Key projections (medium term)
- Real GDP (percent change, Table 5): -12.8, -6.9, -10.5, 1.1, 3.5, 6.2, 5.8 (2014/15–2020/21).
  - Oil: -11.6, -10.6, -18.4, 0.6, 6.2, 13.1, 7.6.
  - Non-oil: -13.6, -4.1, -5.1, 1.4, 1.9, 2.0, 4.6.
- Inflation (percent change, average): 14.8, 158.7, 336.2, 61.9, 20.2, 10.4, 7.5 (2014/15–2020/21).
- Central government (percent of GDP, Table 5):
  - Total Revenues and Grants: 28.6, 29.0, 34.4, 33.4, 35.8, 36.8.
  - Expenditures: 37.2, 38.4, 36.3, 36.9, 38.2, 38.8.
  - Overall balance (cash): -14.6, -7.6, -1.3, -3.5, -3.0, -2.4, -2.1.

### Principal risks and policy responses (Risk Assessment Matrix)
- Political instability
  - Likelihood: High.
  - Expected impact: High — diversion of resources, lower oil production, insufficient investment, economic instability.
  - Possible policy response: Political agreement on peace and reconciliation between the parties.
- Sustained fiscal gap and shortfall in external financing
  - Likelihood: High.
  - Expected impact: High — central bank lending and monetization, higher inflation, currency depreciation, falling reserves.
  - Possible policy response: Tighten fiscal policy and improve governance to secure external financing.
- Sustained decline in commodity prices
  - Likelihood: High.
  - Expected impact: High — larger fiscal gaps, domestic financing, high inflation, low reserves.
  - Possible policy response: Tighten fiscal policy through spending cuts and improving non-oil revenue collection; consider additional external financing.
- Tension with Sudan over transfer payments, pipeline contracts, territory, or borders
  - Likelihood: Medium.
  - Expected impact: High — disruption of oil production would be detrimental given low prices and reduced output.
  - Possible policy response: Advance non-oil revenue reforms, keep public spending under control, maintain good coordination and information sharing with Sudan.
- Delays in improving governance or capacity
  - Likelihood: High.
  - Expected impact: Medium — entrenched rent seeking, pressure to raise current expenditures, lower quality of public investment, social and political instability risk.
  - Possible policy response: Strengthen anti-corruption efforts, implement agreed transparency reforms, focus on strengthening key economic institutions, enforce petroleum and public financial management laws, and foster improvements in the business environment.

### Priority policy recommendations (as presented)
- Tighten fiscal policy and improve governance to secure external financing.
- Improve non-oil revenue collection and implement non-oil revenue reforms.
- Keep public spending under control and prioritize spending cuts where feasible.
- Advance transparency and anti-corruption reforms; strengthen key economic institutions and enforcement of petroleum and public financial management laws.
- Maintain coordination and information sharing with Sudan regarding transfers and pipeline arrangements.
- Pursue political agreement on peace and reconciliation to reduce risk of conflict-related economic disruption.

*Source: Republic of South Sudan — IMF staff report content as provided in the supplied document.*

### Annex I. South Sudan. External Sector Assessment

### Annex I. South Sudan. External Sector Assessment

### Exchange rate developments and trade balance
- The official exchange rate depreciated by about 95 percent, or around 60 percent in real terms, since end-2015.
- The unification of the exchange rate at end-2015 brought the official exchange rate broadly in line with the parallel market.
- The parallel market had itself depreciated in the course of 2015 in line with deteriorating fundamentals.
- The trade balance has narrowed as imports have fallen in response to the reduced supply of foreign exchange.
- Assessment complexities:
  - Insufficient data availability and large structural changes complicate competitiveness and external stability assessment.
  - Prior to December 2015, government current account transactions were executed at the official exchange rate while most other transactions took place at the parallel market rate.
  - The about 70 percent real depreciation in the first three quarters of 2016 either eliminated or greatly diminished the prior overvaluation.

### International reserves and adequacy
- International reserves are at the current level of US$30–50 million (about one week of prospective imports of goods and services), which is inadequate by any measure.
- Given dependence on oil exports and the need to import almost all goods consumed in the economy (barring subsistence agriculture), South Sudan would benefit from substantial foreign exchange buffers.
- Reserve benchmarks:
  - The “rule of thumb” of three months of imports would likely be suboptimal.
  - The LIC reserve adequacy template proposes nine months’ of imports and would be closer to ideal for South Sudan.

### Constraints on rebuilding reserves
- Rebuilding foreign reserve buffers will be a challenge as long as oil prices remain low.
- South Sudan is unlikely to see a significant increase in oil production at current oil price levels in the near term because substantial investments are required to expand production beyond near current levels.
- Outstanding obligations that will continue to place pressure on central bank reserves include:
  - Outstanding trade-related credits of ($US5 million a month over the next five years).
  - Other outstanding obligations to oil companies.
- Authorities should aim to build reserves gradually while ensuring the ability of the government to carry out its essential functions.

### Short-term policy priorities to restore external stability
- Restoration of fiscal discipline is essential in the short term.
  - Large-scale monetization of budget deficits would exacerbate inflationary pressures and maintain high demand for foreign exchange.
  - A combination of fiscal consolidation and a shift away from domestic towards concessional external financing would reduce inflation and stabilize the foreign exchange market.
- With around one-third of government expenditure taking place in foreign exchange, there is scope to reduce pressure on reserves by cutting back on travel, transportation, and other non-priority spending items that constitute a drain on foreign reserves.
- Improved security, fiscal retrenchment, and an end to monetary financing are required to prevent an exponential depreciation of the exchange rate.

### Medium-term structural reforms and competitiveness
- Over the medium term, strengthening the balance of payments requires addressing the dire business climate to diversify the economy and attain competitiveness.
- Evidence of a weak business environment:
  - Near-absence of any manufacturing in the country; the country’s sole brewery has shut down production.
  - Almost all nonfood and most food items (with the exception of bottled water and subsistence agriculture) are imported.
  - Very high transport costs: the cost to import a twenty-foot container to South Sudan was US$9,285 in 2014 (second-highest in the world).
- Competitive support measures:
  - Restoration of security and macroeconomic balance, and maintenance of a flexible exchange rate regime, should support investment.
  - The almost complete absence of supportive infrastructure (electricity, water, sewage, and transportation network) will remain a constraining factor for some time.

### Regulatory environment and governance
- South Sudan performs worse than regional peers across a range of indicators.
- World Bank Worldwide Governance indicators (2015): South Sudan ranked among the lowest in the world in five out of six dimensions; in three dimensions South Sudan ranked in the first percentile and in two dimensions it ranked in the third percentile (where the 100 percentile is the best scoring).
- World Bank Doing Business Indicators (2015–16) highlights (country ranks):
  - Ease of doing business: 186 (2015), 187 (2016)
  - Trading across borders: 179 (2015), 179 (2016)
  - Getting electricity: 183 (2015), 187 (2016)
  - Resolving insolvency: 189 (2015), 189 (2016)
- Improving political stability, responsiveness, regulatory quality, and government effectiveness is identified as an important step to improve the business climate and competitiveness.

*Annex I. South Sudan. External Sector Assessment*

### 15. Agriculture and farming in general are excellent ways of resettling population to their

### 15. Agriculture and farming in general are excellent ways of resettling population to their original communities.

### Agriculture, resettlement, and food security
- Resuming production and living off that production after years in refugee camps would constitute a peace dividend for displaced populations.
- South Sudan is exceptionally endowed with fertile land, water, and ecological diversity.
- Official estimates: only 4.3 percent of arable land is cultivated; that ratio has likely declined due to the civil war.
- Government medium-to-long term objective: increase areas cultivated to 9.7 percent.
- Food insecurity remains a real problem, with countless communities relying on humanitarian assistance for survival.
- South Sudan paradoxically imports the vast majority of its food; increased domestic production would help address food insecurity and save foreign exchange.
- Livestock: headcount close to 40 million; however, lack of transportation within the country and to neighbors means livestock remains subsistence goods or store of value rather than commercial goods.
- Realizing the farming-sector peace dividend requires investing funds to resettle people and to develop basic transportation infrastructure to open untapped markets.

### Potential for new private investments
- Civil war has reduced prospects for large inflows of foreign investment; with relative peace, short-run attractive areas include agriculture, mining, light manufacturing, and services.
- Unification of the exchange rate has helped by realigning relative prices and bringing the market for foreign exchange largely into the open.
- South Sudan infrastructure action plan estimate: transforming agriculture from subsistence to export-contributing activity will require investment in the order of US$200 million per year over the medium term, including for building roads; such investment would require a combination of public, private, and donor funding.
- Mining:
  - Challenge: transform mineral resources from a curse to an opportunity.
  - Current declining commodity prices are not conducive to investment; large-scale projects have been shelved, including in oil exploration.
  - Potential exists in oil and other minerals such as iron, diamond, copper, nickel, marble, and gold.
  - Artisanal gold mining is already taking place largely benefiting warlords; with organization it could become a significant foreign exchange earner.
- Light manufacturing:
  - Badly affected by the dual exchange rate, scarcity of dollars, the economic downturn, and sometimes bad policies.
  - Example: scarcity of bottled water caused by administered pricing was eliminated when price restrictions were lifted.
  - Comparative advantage exists for domestic manufacturing because the country is in construction and its position far away from the coast makes transportation costs very high.
- Services:
  - Developed rapidly pre-crisis with banks and insurance companies opening branches.
  - Widespread destruction and looting during the civil war set these activities back significantly; expansion to pre-crisis levels will take time and effort.
  - Prospects are bright: mobile phone services continue to expand and mobile banking is poised for a breakthrough.

### What to expect from the donor community
- To date, the vast majority of assistance to South Sudan has been humanitarian.
- Due to civil war and governance problems, donors have been reluctant to provide development support; many donor-funded projects have been put on hold; trend worsened after the resumption of fighting in July.
- Should there be peace, donors would likely condition development assistance on the existence of an IMF-supported program to help safeguard public funds and provide an appropriate overall macroeconomic framework.
- South Sudan is unlikely to receive any budget support in 2016/17, despite the balance of payment shock and depth of macroeconomic imbalances, and notwithstanding efforts at reforming.
- After the government undertakes tough but realistic adjustment policies, the remaining gap to be filled could be in the range of US$300–400 million per year over at least two fiscal years.
- Only sustained peace would put South Sudan in a position to receive such support; thus it is imperative for South Sudanese to make peace before counting on international friends.

### Conclusion: verifying a peace dividend
- Preconditions and expected changes to verify a peace dividend:
  - First and foremost, the fighting must stop.
  - Expect a reduction in the number of displaced people and refugees and resettlement of population in their communities, undertaking income-generating activities.
  - As the relative weight of oil in the economy declines, expect diversification with sectors such as agriculture making for a larger share of the economy.
  - Institutions of economic governance and political representation must be built or reinforced.
  - The rule of law must be strengthened; transparency and accountability must hold more sway.
- More than mere savings on war spending, peace dividends should reflect progress in refocusing the country toward building a functioning government that works for and protects all citizens and an economy that provides opportunities for a better life.

*Source: STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION — INFORMATIONAL ANNEX, Republic of South Sudan (extract).*

### 1. Article IV consultation

### 1. Article IV consultation

### Capacity Development
- Areas of capacity development listed:
  - 1. Oil Revenue Management
  - 2. Public Financial Management
  - 3. Monetary and Foreign Exchange Operations
  - 4. Central Bank Organization
  - 5. Tax and Customs Administration
  - 6. Balance of Payments Statistics
  - 7. National Accounts Statistics
  - 8. Fiscal Statistics/GFSM 2001
  - 9. Monetary and Financial Statistics
- Timeframes and status items (as presented):
  - December 2017
  - June 2017-March 2018 (repeated entries for multiple items)
  - March 2018
  - N/A (multiple entries)

### Sharing of Work Program Inputs (Bank ↔ Fund)
- From Bank to Fund staff:
  - Memos for Bank missions and back to office debriefs
  - Draft internal assessments of fragility, business climate, CPIA, public expenditure review, civil service reform, and other relevant structural reforms
- From Fund to Bank staff:
  - Macroeconomic framework
  - Briefing memoranda
  - Policy notes
  - Back-to-office reports
  - Staff reports

### World Bank Operations
- Latest Interim Strategy Note (ISN) date:
  - Date of Latest Interim Strategy Note (ISN): February 28, 2013 (Joint IDA and IFC ISN, covering the period FY13-FY14). An update to the World Bank Board was provided in March 2014.
- World Bank program objectives:
  - (i) improving economic management and governance for effective local service delivery
  - (ii) expanding productive employment opportunities
- Principles for engagement discussed March 2014:
  - (i) protecting core functions of government
  - (ii) protecting the vulnerable by supporting livelihoods and ensuring the delivery of basic services
  - (iii) investing in knowledge
  - (iv) protecting development gains
- Operational impacts and adjustments:
  - When conflict renewed in July -2016, The World Bank country office in juba closed and the staff relocated to Nairobi.
  - All Bank’s operations were put on hold due to the security situation.
  - Additional fiduciary, operational arrangements and risk mitigation measures were implemented to provide more oversight to the existing projects and reduce fiduciary risk and ensure appropriate use of the Bank proceeds.
  - A systematic Country Diagnostic completed in June 2015; Concept Note for the Country Engagement Note prepared and shared; process delayed by the eruption of the conflict in July 2016.
- Ongoing Operations (as of December 22, 2016):
  - (i) The South Sudan Rural Roads Project (US$38 million) — closed October 2016; focused on labor-based upgrading and maintenance of rural roads and building state and national capacity for rural infrastructure management
  - (ii) The Emergency Food Crisis Response Project (US$ 2.7 million) — funded from the Global Food Crisis Response Fund
  - (iii) Four IDA supported projects:
    - Local Governance and Service Delivery Project (US$50 million)
    - Social Safety Net and Skills Development Project (US$21 million)
    - Statistical Capacity Building Project (US$ 9 million)
    - Health Rapid Results (US$40 million) Additional Financings
  - (iv) South Sudan Eastern Africa Regional intervention project (US$80 million in its first phase) — core highway from the Kenya border to Juba; ICT Sector support
  - (v) IDF grant project: Strengthening the Capacity of the Audit Chamber (US$ 299,144K)
- Pipeline Operations FY 2017-2018 (notional):
  - (i) Institutional Development and Capacity-Building project (US$20 million)
  - (ii) Energy Sector Technical Assistance Project (US$15 million)
  - (iii) Agriculture Development Project (US$50 million)
  - (iv) Additional Financing Local Governance and Service Delivery (US$52 million)
  - (v) Safety Net and Skills Development Project Additional Financing (US$30 million)
- Complementary analytical work and technical assistance ongoing

### African Development Bank (AfDB) Operations
- Strategy and timeframe:
  - Interim Country Strategy Paper (I-CSP) 2012-2014 approved October 2012; aligned with SSDP 2011-2013 extended to 2016
  - I-CSP updated and extended to end of 2016; extended I-CSP (2014-2016) ended in December 2016; Bank finalizing new Country Strategy Document to cover 2017–18
- Portfolio as of December 2016:
  - Six operations amounting to UA 35.64 million
  - Sectoral allocation:
    - Power sector: UA16.96M (48%)
    - Transport sector: UA6.93M (19%)
    - Water Supply and Sanitation: UA4.95M (14%)
    - Financial sector: UA4.8M (13%)
    - Multi-sector: UA2M (6%)
  - Average project size: UA 5.94 million
  - Average age of portfolio: 2.1 years
  - Cumulative disbursement rate: 14.8%
  - Two projects worth 21 million delayed for security reasons (approval expected February 2017)
- FY 2015-2016 allocations:
  - Total allocated: UA 36.94 Million
    - Grants: UA 16.97 million (ADF Performance Based Allocation UA 6.89 Million and UA 10.08 Million Transitional Support Facility)
    - Loans: UA 19.97 Million (ADF Performance Based Allocation UA 8.11 Million and UA 11.86 Million Transitional Support Facility)
- Pipeline (2015-2016) projects listed:
  - Urban water supply and sanitation project
  - Juba Power Distribution System Rehabilitation and Expansion supplementary loan
  - Lobira-Kapoeta Road Project
  - Institutional Support Project
  - Four operations expected for Board approval before end ADF-13; i.e. by end-2016
- AfDB Funded Operations (as of October 31, 2016) — selected project summaries:
  - Public Finance Management and Aid Coordination — Amount Approved: 4.8 (Million Unit of Account)
    - Objectives: (i) build and enhance transparency and accountability in the use of public resources; (ii) improve aid coordination; (iii) enhance operational effectiveness of beneficiary institutions by providing basic office equipment
    - Disbursed: UA 1.93 million
    - Financing Source: Fragile States Facility (FSF)
  - University of Juba Capacity Enhancement — Amount Approved: 0.32
    - Objective: enhance capacity of the University of Juba to provide training in auditing, fiduciary management and resource mobilization
    - Disbursed: UA 0.14 million
    - Financing Source: Governance Trust Fund
  - Technical Assistance for Transport sector — Amount Approved: 6.93
    - Objectives: enhance institutional setup and capacity, improve human resource capacity, streamline transport infrastructure development, provide information for policymakers, strengthen project management and implementation capacity
    - Launched October 2014; fulfilled conditions to start disbursement
    - Financing Source: Fragile States Facility (FSF)
  - Juba Electricity Distribution System Rehabilitation and Expansion project — Amount Approved: 16.96
    - Aim: strengthen power distribution networks in Juba to provide reliable electricity and increase access
    - Signed May 2014; fulfilled conditions to start disbursement
    - Financing Source: ADF- Performance Based Allocation
- Indicative Pipeline Operations (2015-2016) — indicative amounts and statuses:
  - Juba Power Distribution System Rehabilitation and Expansion project – Supplementary grant: 10.61 UA (ADF- PBA) — Identified — Approval 2016
  - Multinational: Djibouti Corridor – Lobira-Kapoeta Road Project: 20.5 UA (ADF-PBA & TSF) — Preparation — 2015
  - Institutional Support Project: 10.88 UA (TSF) — identified — 2016
  - Urban Water Supply and Sanitation: 4.95 UA (TSF) — Approved — 2016

### Statistical Issues
- Overall assessment:
  - Data provision has serious shortcomings that significantly hamper surveillance.
  - With the exception of consumer prices, monetary, and exchange rate data, other macroeconomic data have important weaknesses in quality, periodicity, and timeliness.
  - Progress made between 2011 and 2013 was partly reversed in 2014 owing to displacement of civilians, the exile of local statisticians, and interruption of technical assistance.
  - Since the end of hostilities in 2015, technical assistance missions have resumed and significant progress achieved in capacity building and data quality.
- Real sector:
  - Price indexes:
    - Monthly Consumer Price Index (CPI) covering Juba, Wau, and Malakal is compiled (data for Malakal not available for 2014 because of the conflict), based on the 2009-10 Household Budget Survey.
    - A new household survey will need to be conducted to ensure appropriate weights when peace and security are established.
    - Import price indexes are not available and will require substantial investment in source data development (particularly at customs).
    - Monthly CPI figures available on the National Bureau of Statistics (NBS) website.
  - GDP/GNP/National Income:
    - NBS compiles and publishes GDP at current and constant (2009) prices from the expenditure side.
    - Figures are quite weak due to lack of source data.
    - Preliminary estimates on income (mainly profits to direct investors in the oil sector) facilitate estimation of GNI.
    - Work on source data and on production-based GDP estimates is a priority; will require an agriculture survey and continued technical assistance.
- Fiscal sector:
  - Government finance statistics (GFS) are virtually non-existent due to lack of dedicated GFS staff at the Ministry of Finance.
  - Last GFS mission took place in November 2015; scheduled missions for 2016 (2 TA missions and 1 GFS debt workshop) were cancelled due to the security situation.
  - Authorities have been slow to engage with STAGO on organizing GFS missions.
- Monetary sector:
  - Foreign reserves:
    - Data on the Bank of South Sudan’s (BSS) holdings of foreign exchange are available from the BSS.
  - Exchange rates:
    - Data on bid and ask exchange rates vis-à-vis the U.S. dollar applied by the central bank, and on the exchange rate prevailing in the parallel market, are available from the BSS.
  - Monetary data for other depository corporations (ODCs):
    - ODCs comprise commercial banks only.
    - An aggregated ODCs balance sheet and an ODCs survey are compiled monthly by the BSS.
  - Monetary data for the BSS:
    - Balance sheet of the BSS is available on a monthly basis.
    - BSS has not completed reconciliation of its charts of accounts.
    - Data based on the electronic system do not tally with manual records, particularly for foreign currency deposit accounts abroad.
    - BSS compiles and reports to STA the Standardized Report Forms (SRFs): 1SR (central bank), 2SR (ODCs), 5SR (monetary aggregates), and 6SR (interest rate). It also reports Form 01R for exchange rate.
    - Data on other financial corporations (e.g., insurance corporations) are not compiled by BSS.
  - Interest rates:
    - Data on interest rates on deposits and lending are available from a few commercial banks.
  - Financial Soundness Indicators (FSIs):
    - BSS compiles FSIs for its internal use, but has not granted approval to the IMF STA to publish them.
- External sector:
  - Data on external sector statistics are scant.
  - BSS has been producing balance of payments statistics, but only data for 2014 have been disseminated.
  - Data on cross-border transactions through the banking system are collected by BSS’ international transactions reporting system, but coverage incomplete due to non-reporting commercial banks.
  - Reliable estimates for oil exports based on volume and price data.
  - Informal trade data estimated using NBS’s GDP data.
  - Services and primary income data are weak.
  - Occasionally, partial data from official sources on income and current transfers are available.
  - Data on commercial banks’ foreign assets and liabilities, and on BSS’ reserve assets are obtained from reliable source data.
  - Data on direct investment flows and positions are virtually nonexistent and international investment position statistics are not compiled.
  - Gross external debt:
    - At secession from Sudan, South Sudan had no official external debt.
    - Some external public debt accumulated since end-2012; information about terms and amounts has been shared with Fund staff but not published.
    - Public or private debt statistics are not available.
- Data Standards and Quality:
  - South Sudan does not yet subscribe to the General Data Dissemination System (GDDS).

### Table of Common Indicators Required for Surveillance (As of January 5, 2017)
- Dates, frequencies, and publication notes (selected rows preserved exactly as presented):
  - Exchange Rates: Date of latest observation: Current — Date received: Current — Frequency of data: D — Frequency of reporting: M — Frequency of publication: M
  - International Reserve Assets and Reserve Liabilities: Current — Current — M — M — N/A
  - Reserve/Base Money: Nov. 2016 — Dec. 2016 — M — M — M
  - Broad Money: Nov. 2016 — Dec. 2016 — M — M — M
  - Central Bank Balance Sheet: Nov. 2016 — Dec. 2016 — M — M — N/A
  - Consolidated Balance Sheet of the Banking System: Nov. 2016 — Dec. 2016 — M — M — M
  - Interest Rates: N/A — N/A — N/A — N/A — N/A
  - Consumer Price Index: Nov.  2016 — Jan. 2017 — M — M — M
  - Revenue, Expenditure, Balance and Composition of Financing– General Government: May 2016 — June 2016 — M — Q — N/A
  - External Current Account: 2015 — May 2016 — N/A — N/A — N/A
  - Exports and Imports of Goods and Services: 2015 — May — 2016 — N/A — N/A — N/A
  - GDP/GNP: 2015 — June — 2016 — A — A — A
  - Domestic government debt: May 2016 — July 2016 — Q — Q — N/A
  - Gross External Debt: May 2016 — May 2016 — N/A — N/A — N/A
  - International Investment Position: N/A — N/A — N/A — N/A — N/A
- Footnotes included verbatim:
  - 1 Daily (D); Monthly (M); Quarterly (Q); Annually (A); Not Available (N/A).
  - 2 Any reserve assets that are pledged or otherwise encumbered should be specified separately.
  - 3 Data on composition of financing not yet available.

### Debt Sustainability Analysis (Staff Report for 2016 Article IV Consultation—Debt Sustainability Analysis)
- Overall assessment summary:
  - Despite moderate levels of external debt, the combined impact of a civil conflict, a large fall in oil prices, and high levels of fiscal spending has left South Sudan in debt distress.
  - The crisis has caused payment delays on international obligations, on civil servant salaries, and other government obligations.
  - International lines of credit have been restructured on longer maturities.
  - International reserves have declined to near exhaustion.
  - The country is constrained from accessing long term external financing.
- Conditional outlook:
  - Assuming implementation of the recently adopted economic adjustment policies and a successful peace process, the debt outlook would improve considerably which could allow for a gradual resumption of external financing.
  - Vulnerabilities remain high and a prolonged period of lower oil prices or failure to address the country’s economic and security problems could cause continued debt sustainability problems.
- Methodological notes (verbatim):
  - The risk rating is assessed using Debt Sustainability Framework for Low-Income Countries (LIC DSF). The DSA presented in this document is based on a unified 5 percent discount rate. South Sudan has a “weak” policy performance based on the 2015 CPIA score of 1.9. The thresholds, which apply to external public and publicly-guaranteed debt, are: 30 percent for the present value (PV) of external debt-to-GDP ratio, 100 percent for the PV of external debt-to-exports ratio, 200 percent for the PV of external debt-to-revenue ratio, 15 percent for the PV of external debt service-to-exports ratio, and 18 percent for the debt service-to-revenue ratio.
  - See “Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries”
- Report preparation and approval:
  - Approved by Roger Nord (IMF, AFR), Zeine Zeidane (IMF, SPR) and Paloma Anos Casero (IDA)
  - Prepared by the staffs of the International Monetary Fund and the International Development Association
  - March 1, 2017

*IMF Staff Report excerpts from "1. Article IV consultation" (cr1773) — December 2017 / March 1, 2017*

### 1.      South Sudan has fallen into debt distress despite moderate levels of public external debt. At

### cr1773 - 1.      South Sudan has fallen into debt distress despite moderate levels of public external debt. At

### Current debt position and recent history
- At independence in July 2011, the country had neither domestic nor foreign debt.
- By June 2016, the stock of domestic and external debt owed or guaranteed by the central government amounted to about US$1.4 billion (38 percent of GDP).
- By June 2016, foreign exchange reserves had dwindled to about US$70 million (about 2 weeks of prospective imports).  
- By end-December 2016, foreign exchange reserves had fallen further to about 1 week of imports.
- Key drivers of the deterioration: shutdown of oil production between January 2012 and April 2013; civil conflict since December 2013; sharp drop in international oil prices since mid-2014; a highly overvalued exchange rate prior to December 2015.

### External debt composition (as presented)
- World Bank (IDA): 34 (US$ millions)
- China Exim Bank: 100 (US$ millions)
- Oil-related advances: 219 (US$ millions)
- QNB Line of credit: 610 (US$ millions)
- Total external borrowing: 963 (US$ millions)
- (In percent of GDP in US$): 27.5

- Outstanding liability of the Bank of South Sudan (BSS) to Qatar National Bank: about US$610 million (originating from short-term credit facilities guaranteed by the Government that fell into arrears in 2015).  
  - This short-term debt was restructured in mid-2016 with an agreement to repay though monthly payments of US$10 million. This figure was reduced to US$5 million later in 2016.
- Balance of outstanding oil advances from international oil companies and traders: estimated at US$219 million.
- Debt to the World Bank (IDA) by June 2016: US$34 million.
- Borrowed from China Exim Bank to reconstruct Juba international airport: US$100 million.
- Transitional Financial Arrangement (TFA) arrears to Sudan: about US$290 million by June 2016 according to the authorities (preliminary information indicates rescheduling with a new three-year extension agreement with Sudan in early 2017).

### Domestic debt composition and amounts (as of June 2016)
- Total domestic debt: SSP 24.1 billion (40 percent of GDP)
  - Borrowing from Bank of Sudan: 17.3 (SSP billions)
  - Direct borrowing and interest accrued: 14.8 (SSP billions)
  - Interest accrued on direct borrowing: 0.4 (SSP billions)
  - Capital restoration and interest accrued: 1.9 (SSP billions)
  - Interest accrued on capital restoration: 0.2 (SSP billions)
  - Borrowing from commercial banks: 1.8 (SSP billions)
  - Treasury bills: 1.8 (SSP billions)
  - Interest accrued on Treasury bills: 0.1 (SSP billions)
  - Arrears (estimate and subject to verification): 5.0 (SSP billions)
- Of Treasury bill borrowing, about SSP1 billion were issued to domestic banks in 2012 and have been rolled over.
- Domestic arrears accumulated in 2015/16 are uncertain and could add another SSP 5 billion to government debt.

### Baseline assumptions for projections
- Baseline reflects macroeconomic adjustment conditional on implementation of the adopted budget for fiscal year 2016/17 (July–June) and a gradual return to peace and political stability in the next couple of years.
- Authorities announced a shift in policies in late 2016 including multiple revenue measures and a sharp reduction in expenditures in 2016/17; based on preliminary information, these envisaged policies have been broadly implemented during the first half of 2016/17.
- Baseline assumes continuation of adjustment policy in the medium term and that the economy and oil production will start to recover in 2018/19.
- Medium-term macro policy: prudent fiscal and monetary policies to ensure a return to price stability; reform program to shift spending toward social and infrastructure spending, and foster transparency and accountability.
- Public investment is assumed to be scaled up with priority on transport and energy infrastructure.
- Implementation of reforms expected to support a pickup in real GDP growth to 4½ percent per year from 2018/19 to 2021/22. In the outer years growth is expected to decline to about 2 percent as oil production decreases in aging fields.

### Box 1 — Macroeconomic assumptions: 2016/17–2036/37 (selected projections)
- Real sector:
  - Oil output: about 120,000 barrels per day in 2016/17–2017/18; gradually recover to about 145,000 barrels per day by 2019/20; nearly 200,000 barrels per day by the mid-2020s (with enhanced oil recovery/reopening fields); about 140,000 barrels per day in the 2030s.
  - Real GDP growth: projected to expand by 4½ percent a year during 2019–22.
  - Non-oil real GDP growth: recover slowly to an average of about 5 percent in the 2020s.
  - Average inflation: projected to fall to high single digits within three years and remain at this level thereafter.
- Fiscal sector:
  - Total revenue excluding grants: rise from about 29 percent of GDP in 2015/16 to about 38 percent of GDP in 2019/20, then gradually decrease to about 30 percent of GDP in the 2030s.
  - Noninterest expenditure: decline to 34 percent of GDP in 2016/17, then recover to 38-39 percent of GDP in the mid-2020s.
  - Capital expenditures: increase to 7–9 percent of GDP in the 2020s.
  - Primary fiscal deficit (including grants): decline from around 9 percent of GDP in 2015/16 to 1–2 percent in 2018–20; primary balance close to balance in the 2020s.
  - Payments to Sudan expected to fall after 2022 as TFA payments are expected to be paid off.
- External sector:
  - Exports of goods and services to GDP: projected to increase in the medium term, later decline as oil fades.
  - Imports to GDP: increase in medium term due to scaling up investment, then decrease after mid-2020s.
  - Grants: projected to gradually decline as economy recovers.

### Planned external borrowing and investment financing
- Implementation of a new investment program amounting to about US$1.5 billion is assumed to be financed over 5-6 years starting in 2017/18 (estimates based on identified priority projects).
- About half of this new debt is assumed to be non-concessional; authorities are expected to seek multilateral and bilateral partners to increase concessional share.
- Projected overall external public sector borrowing requirements: about US$2.8 billion in the next 10 years.
- In the 2030s, new external borrowing levels out at about US$250 million a year.
- Most new debt assumed to be contracted with 15-18 years of maturity and a 5 year grace period.

### Alternative scenarios and sensitivity
- Two tailored scenarios prepared:
  - (i) Lower oil price scenario: a 10 percent lower oil price for five years compared to the baseline (static scenario where baseline macroeconomic assumptions are maintained except for export values).
  - (ii) Postponed adjustment scenario: postponement of peace and economic stabilization for the next three years—assumes lower growth, a higher fiscal deficit, and constrained external borrowing.
- Macroeconomic assumptions excerpt (2018–20) — Baseline vs Postponed adjustment:
  - Real GDP growth (%): Baseline 1.1, 3.5, 6.2 (2018, 2019, 2020); Postponed adjustment 0.0, 0.0, 0.0
  - Export growth (%): Baseline 8.0, 10.9, 17.3; Postponed adjustment 7.8, 4.4, 3.1
  - Primary fiscal deficit (% of GDP): Baseline 3.2, 1.8, 2.5; Postponed adjustment 8.2, 8.8, 12.5
  - Revenue and grants: Baseline 31.8, 33.4, 35.8; Postponed adjustment 29.8, 30.4, 32.8
  - Primary expenditures: Baseline 35.0, 35.2, 38.3; Postponed adjustment 38.0, 39.2, 45.3
  - New external disbursements (% of GDP): Baseline 4.7, 10.0, 10.6; Postponed adjustment 2.0, 1.6, 2.5

### Effects of scenarios on debt sustainability
- Baseline:
  - Assuming continuation of stabilization policies, South Sudan could gradually regain access to external financing but caution on scale and terms of new borrowing.
  - PV of debt-to-GDP gradually increases above the threshold within a few years, peaks at about 10 percentage points above the threshold in the late 2020s, then falls below the threshold toward the end of the sample period.
  - PV of debt-export ratio follows a similar pattern but never exceeds the threshold (it starts much lower).
  - Other ratios remain below thresholds for most years; debt ratios tend to peak around 2030.
- Lower oil price scenario (10 percent lower oil price for five years):
  - Would raise the PV of debt by about 10 percentage points of GDP during the initial years; PV of debt-to-GDP ratio breaks the threshold for most of the projection period; PV of debt-to-export ratio exceeds the threshold only in the outer years.
- Postponed adjustment scenario (three-year delay):
  - Assumes gradually increasing deficit by 10 percent of GDP through the three years, revenue losses and higher expenditures, and constant real GDP; limited external financing.
  - PV of public debt rises quickly by about 20 percent of GDP above the baseline.
  - Debt thresholds would be exceeded by a wide margin for several debt indicators; PV of debt-to-GDP exceeds the benchmark throughout the projection period.
  - Effects larger for public debt than external debt because a large share of the higher deficit is financed domestically.

### Additional risks
- Lack of resolution of Sudan’s external debt allocation could affect South Sudan; under the September 2012 cooperation agreement Sudan committed to assume all external debt of former Sudan subject to a “firm commitment” of international creditors for debt relief within two years (the “zero option”); extensions and flexible interpretations occurred; the risk has not been quantified in the DSA.

### Policy implications highlighted
- Implement and sustain fiscal consolidation and economic stabilization policies to restore access to concessional external financing and limit domestic financing.
- Caution in scaling up new external borrowing: manage speed and terms; seek concessional financing where possible.
- Strengthen public financial management, including oil revenue management: improve budget execution and prevent domestic arrears; establish a treasury single account; reorient public spending toward development; implement the Petroleum Revenue Management Act and the forthcoming Public Procurement Act.
- Focus public investment scaling on transport and energy infrastructure, and ensure prudent management of mineral revenue and strengthening of the business environment to improve absorptive capacity.

*International Monetary Fund — South Sudan Debt Sustainability Analysis (as presented in the supplied content)*

### CONCLUSION

### CONCLUSION

### Debt distress and current vulnerabilities
- South Sudan is in debt distress: several debt indicators currently exceed thresholds, there are external payments difficulties, very low foreign exchange reserves, and short-term repayment needs that exceed available resources unless policy adjustments are implemented.
- The country currently cannot access external financing, except for short-term oil-related advances.
- While total public debt indicators improve in the long-term under the baseline scenario, public debt vulnerabilities remain a concern as external and public debt indicators exceed thresholds in a substantial part of the sample period.

### Baseline scenario and prospects
- With peace, good policies, a cautious borrowing strategy, and a relatively stable external environment, South Sudan could:
  - regain access to external financing;
  - attain external viability over a relatively short period; and
  - achieve an improvement in its risk of debt distress rating.

### Downside risks to the baseline
- Subdued oil prices.
- Lack of political commitment to implement strong macroeconomic adjustment measures.
- Deadlock in implementing sustainable peace.
- Under-investment for enhanced oil recovery.
- Unresolved territorial issues with Sudan.
- Protracted rent seeking behavior and corruption.
- These risks underscore the importance of a commitment to internal peace, economic reforms, and close cooperation with the international community.

### Key external-debt indicators (selected figures from Table 1, Baseline Scenario, 2014–2037)
- External debt (nominal):
  - 2014: 4.2
  - 2015: 5.8
  - 2016: 87.8
  - 2017: 42.1
  - 2018: 32.6
  - 2019: 31.1
  - 2020: 34.5
  - 2021: 37.7
  - 2022: 41.2
  - 2027 average: 47.9
  - 2037 average: 32.3
- Change in external debt:
  - 2014: 3.2
  - 2015: 1.6
  - 2016: 82.1
  - 2017: -45.7
  - 2018: -9.5
  - 2019: -1.5
  - 2020: 3.4
  - 2021: 3.2
  - 2022: 3.5
  - 2027 average: 2.4
  - 2037 average: -2.5
- Identified net debt-creating flows (selected):
  - 2014: 2.3
  - 2015: 4.2
  - 2016: 21.6
  - 2017: 9.8
  - 2018: 3.9
  - 2019: 2.5
  - 2020: 3.9
  - 2021: 5.6
  - 2022: 4.9
  - 2027 average: 6.2
  - 2037 average: 0.0
- Non-interest current account deficit (selected):
  - 2014: -3.8
  - 2015: 3.1
  - 2016: 3.0
  - 2017: -2.6
  - 2018: 5.5
  - 2019: -2.5
  - 2020: 6.3
  - 2021: 8.8
  - 2022: 6.8
  - 2027 average: 9.3
  - 2037 average: 6.0
- Exports (percent, selected entries shown in table):
  - (table entries) 46.7, 29.5, 61.5, 66.7, 61.1, 65.7, 67.7, 72.9, 69.2, 65.5, 39.3
- PV of external debt (selected):
  - 2016: 74.4
  - 2017: 37.5
  - 2018: 29.0
  - 2019: 27.0
  - 2020: 29.8
  - 2021: 32.7
  - 2022: 35.9
  - 2027 average: 41.7
  - 2037 average: 26.2
- PV of PPG external debt (in percent of exports, selected):
  - 2016: 121.1
  - 2017: 56.3
  - 2018: 47.4
  - 2019: 41.2
  - 2020: 44.0
  - 2021: 44.8
  - 2022: 51.9
  - 2027 average: 63.7
  - 2037 average: 66.8
- Debt service-to-exports ratio (in percent):
  - 2014: 15.0
  - 2015: 11.1
  - 2016: 4.6
  - 2017: 6.0
  - 2018: 10.5
  - 2019: 9.8
  - 2020: 7.7
  - 2021: 6.2
  - 2022: 2.3
  - 2027 average: 6.2
  - 2037 average: 9.6
- Total gross financing need (Billions of U.S. dollars):
  - 2014: 1.1
  - 2015: 0.8
  - 2016: 0.3
  - 2017: 0.1
  - 2018: 0.3
  - 2019: 0.3
  - 2020: 0.4
  - 2021: 0.4
  - 2022: 0.3
  - 2027 average: 0.5
  - 2037 average: 0.3

### Key macroeconomic assumptions (selected figures from tables)
- Real GDP growth (in percent) sequence shown in table:
  - -4.2, -12.8, -6.9, -10.6, 10.8, -10.5, 1.1, 3.5, 6.2, 5.8, 3.4, 1.6, -1.0, 2.0, 2.1
- GDP deflator in US dollar terms (change in percent) (selected entries shown): 0.8, 7.5, -71.3, -3.7, 40.7, -11.4, 16.6, -0.3, 7.2, -1.9, 6.1, 2.7, 1.9, 5.1, 2.4
- Effective interest rate (percent) (selected entries shown): 142.7, 24.2, 3.2, 56.7, 75.2, 0.1, 1.2, 4.5, 4.6, 4.2, 4.0, 3.1, 4.0, 3.6, 3.9
- Growth of exports of G&S (US dollar terms, in percent) (selected entries shown): -9.7, -40.7, -44.4, -20.6, 25.9, -13.8, 8.0, 10.9, 17.3, 11.7, 4.2, 6.4, -4.4, 3.6, 0.8
- Grant-equivalent financing (in percent of GDP) (selected entries shown): 1.0, 2.5, 3.1, 2.4, 2.8, 3.2, 3.7, 3.5, 3.6
- Nominal GDP (Billions of US dollars) (selected entries shown): 14.1, 13.3, 3.5, 2.8, 3.3, 3.4, 3.9, 4.0, 4.4, 5.8, 8.5

### Public sector debt and fiscal indicators (selected figures from Table 2, 2013–2036)
- Public sector debt (in percent of GDP):
  - 2014: 15.1
  - 2015: 35.3
  - 2016: 127.9
  - 2017: 62.1
  - 2018: 48.5
  - 2019: 44.7
  - 2020: 44.8
  - 2021: 44.7
  - 2022: 46.7
  - 2027 average: 49.2
  - 2037 average: 52.5
- Change in public sector debt:
  - 2014: 14.1
  - 2015: 20.2
  - 2016: 92.5
  - 2017: -65.8
  - 2018: -13.6
  - 2019: -3.9
  - 2020: 0.1
  - 2021: -0.1
  - 2022: 2.0
  - 2027 average: 2.3
  - 2037 average: -0.7
- Primary deficit (selected):
  - 2014: 0.7
  - 2015: 13.4
  - 2016: 8.7
  - 2017: 3.6
  - 2018: 7.1
  - 2019: 1.9
  - 2020: 3.2
  - 2021: 1.8
  - 2022: 2.5
  - 2027 average: -2.4
  - 2037 average: 3.9
- Revenue and grants (in percent of GDP, selected entries shown): 31.4, 28.6, 29.0, 35.3, 31.8, 33.4, 35.8, 39.4, 36.8, 41.2, 30.4, 35.8
- PV of public sector debt (selected):
  - 2016: 114.4
  - 2017: 57.5
  - 2018: 44.9
  - 2019: 40.6
  - 2020: 40.1
  - 2021: 39.6
  - 2022: 41.4
  - 2027 average: 43.0
  - 2037 average: 46.4
- Gross financing need (selected):
  - 2014: 7.7
  - 2015: 19.3
  - 2016: 14.7
  - 2017: 9.1
  - 2018: 16.8
  - 2019: 17.1
  - 2020: 16.0
  - 2021: 8.2
  - 2022: 10.5
  - 2027 average: 3.9
  - 2037 average: 27.1

### Recent economic developments and outlook (selected facts and figures from authorities' statement)
- Real GDP growth declined by 12.8 percent and 6.9 percent in FY2014/2015 and FY2015/2016, respectively.
- Oil production scaled back from 165,000 barrels/day in 2015 to 130,000 barrels/day in 2016.
- South Sudanese Pound (SSP) depreciated by an estimated 95 percent in 2016.
- Inflation accelerated from 187 percent in June 2016 to 550 percent in September 2016, and moderated to 370 percent in January 2017.
- Growth prospects are challenged by oil price volatility, adverse weather, and political instability; fiscal reforms and tighter monetary conditions are expected to curb money supply growth, reduce inflation, and stabilize the foreign exchange market in the medium term.

### Fiscal and public financial management reform measures (selected actions underway)
- Revenue mobilization measures:
  - increase sales tax and excise duty on selected products and services;
  - impose withholding tax on government contracts;
  - introduce a new departure tax;
  - eliminate exemptions on personal income and corporate tax.
- Establishment of the National Revenue Authority (NRA):
  - National Legislature passed the National Revenue Authority Bill;
  - appointments to the NRA Board of Directors expected in the near-term;
  - NRA expected to commence operations by the end of 2017.
- Expenditure containment measures:
  - freeze new recruitments for civil service and implement payroll screening and biometric registration to eliminate ghost workers;
  - cleaning and updating the payroll system and removing ghost workers through identification codes (external support will be critical);
  - strict spending limits on travel, goods and services, wages, and domestic capital expenditure;
  - downsizing of staff in diplomatic and foreign missions, expected to result in an estimated 50 percent reduction in expenditures of running the country’s diplomatic missions.

*Source: CONCLUSION (cr1773 - CONCLUSION), IMF staff estimates, projections, and authorities’ statement.*

### 9. To further contain spending, the authorities are taking steps to remove subsidies

### 9. To further contain spending, the authorities are taking steps to remove subsidies to Nile Petroleum Corporation (NilePet)

### Removal of subsidies and NilePet audits
- Parliament agreed that subsidies to NilePet should be phased out.
- The authorities engaged Ernst and Young to undertake audits of NilePet and pave the way for the publication of NilePet’s financial statements on an annual basis.
- Progress on audits stalled due to the renewed political conflict; subject to improvements in security conditions, the audit process is expected to resume.

### Cash Management Committee (CMC) and expenditure control
- The South Sudanese authorities established a Cash Management Committee (CMC) to control expenditures within the broader Public Finance Management reform framework.
- CMC composition and mandate:
  - Comprises senior officials from the Ministry of Finance and Economic Planning and the Bank of South Sudan.
  - Mandated to institute strict expenditure prioritization measures consistent with budget constraints.
- Transparency and reporting:
  - Authorities intend to publish detailed quarterly CMC reports and make regular presentations to cabinet.
- Operational practices and reforms:
  - CMC operates on strict cash budgeting principles with priority accorded to critical government expenditures.
  - Operations benefitted from the transfer of government accounts from commercial banks to the consolidated treasury account.
  - In line with the Public Financial and Accountability Act, the authorities agreed with the Fund to enforce the accountability of under-secretaries to contain the breaching of budget limits.

### IFMIS, budget execution, and procurement reforms
- Integrated Financial Management Information System (IFMIS):
  - Work is underway to install IFMIS to control commitments made by government departments.
  - Once installed, the system will be rolled out to various government departments to control the undertaking of commitments and curtail further accumulation of domestic arrears.
- Budget execution and internal controls:
  - Government is preparing budget execution procedures while strengthening internal expenditure control mechanisms.
- Procurement reform:
  - Authorities intend to strengthen government procurement processes.
  - The National Procurement Bill is currently before the National Legislature, awaiting approval before implementation.

### Banking sector capital and legislative measures
- Minimum capital requirement changes:
  - The Bank of South Sudan (BSS) raised minimum capital requirements to US$30 million for foreign banks and US$15 million for domestic banks over a two-year period ending December 31, 2016.
- Non-compliance consequences:
  - Non-compliant banks will be forced to either merge their operations or liquidate by mid-2017, following proper due diligence by the BSS.
- Legal and regional coordination:
  - The BSS is finalizing the legislative framework guiding the merger and liquidation of under-capitalized banking institutions in consultation with regional counterparts.

### Reserve requirements and monetary policy measures
- Reserve requirements enforcement:
  - BSS will enforce compliance with already approved reserve requirements once work to enhance commercial banks’ preparedness has been completed.
  - Regulations on banks’ compliance with required reserves have been signed, and the appropriate template has been circulated to all banks.
- Central bank borrowing and Treasury Bills:
  - Government discontinued recourse to central bank borrowing to bridge budget deficits as part of disinflation efforts.
  - This measure contributed to subsiding inflationary pressures.
  - The measure will be complemented by the gradual scaling down of Treasury Bill issuances to reduce the banking sector’s exposure to government and avoid crowding-out the private sector.
- Liquidity management:
  - Authorities plan to introduce repurchase agreements to strengthen liquidity management efforts.

### Conclusion — policy stance and reform priorities
- Authorities’ commitments and expectations:
  - Remain committed to implementing sound macroeconomic policies consistent with Fund policy advice despite difficult domestic and external conditions.
  - Acknowledge the severity of prevailing macroeconomic challenges and the need to urgently implement reforms to turn-around the economy and improve living standards.
- Fiscal reform and political process:
  - Expect to leverage far-reaching fiscal reform measures outlined in the 2016/2017 National Budget.
  - Are optimistic that initiatives to establish an inclusive national dialogue process will foster cohesion and consensus needed to restore lasting peace and stability.
- Collaboration with the Fund:
  - Authorities look forward to continued close collaboration with the Fund to help strengthen policies and unlock external support, both technical and financial.

*Source: IMF staff report text.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr1773.pdf_