## 1ssdea2024002-print-pdf ## Source details **Canonical URL:** [1ssdea2024002-print-pdf](https://www.imf.org/-/media/files/publications/cr/2024/english/1ssdea2024002-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1ssdea2024002-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1ssdea2024002-print-pdf.pdf.json) --- ### Context and shock - Pipeline carrying 70 percent of South Sudan’s oil production through Sudan inoperable since February 2024; repairs delayed by restricted access. - Consequences of the pipeline shock and related spillovers: - Sharp drop in economic growth, exports, fiscal revenue, and FX inflows. - High inflation, rapid parallel market exchange rate (ER) depreciation, and budget financing constraints. - Authorities incurred salary arrears and monetary financing, and delayed the official ER adjustment. - Humanitarian stresses: - Nearly two-thirds of South Sudan’s population exposed to acute food insecurity prior to the Sudan conflict. - Floodings affected about 730,000 people and displaced 67,230 nationwide (UNOCHA). - Large influx of refugees from Sudan has exacerbated needs. ### Program review (PMB) and conditionality - PMB status and objective: - PMB expires on November 15, 2024; initially approved February 17, 2023 and extended twice. - Objective: support reform agenda to maintain macroeconomic stability and debt sustainability, improve governance and transparency, and build track record toward an upper credit tranche (UCT) arrangement. - Performance at end-June 2024: - Quantitative targets: 2 out of 7 met. - Met: zero ceiling on contracting non-concessional debt; floor on net international reserves. - Not met: five other quantitative targets (including salary payments and social spending below targets; primary deficit, debt to the central government, and monetary financing larger than programmed). - Structural benchmarks: not met at end-June but steps taken; two completed with delay. - Specific audit actions: - BoSS 2021 audited statements published in early September 2024. - Offer made to an external auditor for BoSS’ 2022−24 financial statements; contract being finalized. - Authorities formulated a salary arrears repayment plan under the FY2024/25 draft budget (adopted by Cabinet in early August and submitted to Parliament on September 25; adoption expected by end-November 2024). - Food Shock Window (FSW): - Approval of the FSW of SDR 86.1 million, 35 percent of quota (about US$114.8 million) to fund reserves management and priority spending. ### Staff views, corrective measures, and program support - Staff supports completion of the third PMB review based on performance, corrective measures, and authorities’ commitments under the Letter of Intent (LOI). - Authorities’ actions and commitments: - Started paying salaries in July 2024; paid two months of salaries in July and August 2024. - Slowed down monetary financing and using it as a last resort. - Redirected investment funds toward priority spending. - Strengthened non-oil revenue collection efforts. - Submitted FY2024/25 draft budget to Parliament on September 25, 2024; adoption expected by end-November 2024. - Committed remedial measures in the LOI: - Recognize FY2023/24 salary arrears in FY2024/25 draft budget and pay one month of salary every month from October and, when oil production restarts, pay an additional month each month toward clearing arrears (i.e., paying two months of salary each month). - Refrain from monetary financing as much as possible and, if used, mop up related excess liquidity. ### Recent economic developments (key facts and figures) - Growth: - Real GDP growth estimated at -5.8 percent of GDP in FY24 (July 2023−June 2024); oil exports values decreased by 21 percent in FY2023/24 compared to FY2022/23. - Exchange rate and parallel market: - Parallel ER depreciated by 306 percent during January−September 2024; peaked at 365 percent on August 29, compared to end-December 2023. - Official ER depreciated by 190 percent during January−September 2024. - Parallel FX market premium peaked at 179 percent in July 2024 (from 15 percent at end-January); average premium decreased to 54 percent in September 2024 from 140 percent in July 2024. - Inflation: - Inflation surged to 107.3 percent y/y at end-July 2024, mainly owing to the parallel ER depreciation. - Estimations indicate a 1-to-1 pass-through from the parallel ER variations to food and fuel inflation within six months. - FX reserves and auctions: - Official reserves: US$ 92 million or 0.3 month of imports at end-September 2024. - BoSS owing $34 million to banks at end-September 2024 due to unsettled auctioned amounts. - BoSS set winning bid at the median bid instead of the highest, slowing official ER depreciation. - FY2023/24 budget execution: - Oil revenue: 24.8 percent of GDP in FY2023/24 compared to 30.5 percent in FY2022/23. - Non-oil revenue: 6.5 percent of GDP in FY2023/24 compared to 4.2 percent of GDP in FY2022/23. - Capital spending: 6.7 percent of GDP in FY2023/24 vs. 9.7 percent of GDP in FY2022/23. - Fiscal deficit: reached 5 percent of GDP, mainly financed by monetary financing. - Public wage arrears: reached 8 months at end-June 2024 (arrears covered November 2023−June 2024). - Program monitoring (end-June 2024 selected outcomes): - Non-oil primary balance (floor, SSP billions): Target: -1358; Act.: -2192.6; Result: Not met. - Central bank net credit to central government (ceiling, SSP billions): Target: 0.0; Act.: 186.1; Result: Not met. - Contracting non-concessional debt (continuous ceiling, US$ millions): Target: 0.0; Act.: 0.0; Result: Met. - Average net international reserve (floor, US$ millions): Target: 100.0; Act.: 105.2; Result: Met. - Reserve money growth (ceiling, percent): Target: 2.5; Act.: 6.8; Result: Not met. - Salary payments to central government workers (floor, SSP billions): Target: 75.8; Act.: 9.4; Result: Not met. - Priority social spending (floor, SSP billions): Target: 22.0; Act.: 8.6; Result: Not met. ### Outlook and risks - Baseline on oil production: - Pipeline repairs and maintenance projected to be completed by early 2025; oil production slowly increases starting early 2025 to reach full capacity by end-June 2025. - Growth projections: - Staff project a GDP contraction of 12 percent in FY25 (July 2024−June 2025) and full recovery from FY2025/26. - Medium-term: oil production projected to recover towards peak in recent past (FY2020/21); growth modest, supported by agriculture and increased public investment. - Inflation and ER: - Greater ER stability and elimination of monetary financing after the oil shock recedes would decrease inflation to single digits. - Financing: - In the absence of a catalyzing UCT-quality Fund program, official flows projected to remain low. - Risks: - Downside: prolonged or escalated war in Sudan; Red Sea crisis escalation; climate shocks including floods; institutional capacity constraints. - Upside: early resumption of oil production; stronger non-oil revenue collection; early end to Sudan war and higher oil prices. ### Near-term scenarios and coping measures - Authorities prepared three scenarios: - Pessimistic: no increase in oil production in FY2024/25. - Central: oil production for a few months during FY2024/25. - Optimistic: resumption during 2024Q4. - Draft budget assumptions: - Uses Central scenario for expenditure projections and Most pessimistic scenario for revenue projections and contingency spending compression. - Coping policies implemented: - Delaying salary payments and capital spending from oil-for-infrastructure funds. - Sporadic monetary financing (limited volumes), slowing official ER depreciation, and avoiding adjustment of ER used for customs valuation. - Discussions with creditors to reschedule debt service and with donors to boost financing. - Fiscal projections and composition (FY figures): - Fiscal deficit projected to decrease to 1.9 percent of GDP in FY2024/25 (staff baseline) from 5 percent of GDP in FY2023/24; FY2024/25 draft budget projects fiscal deficit at 9.7 percent of GDP. - Overall revenue projected to decrease to 26.5 percent of GDP in FY2024/25 (from 31.3 percent of GDP in FY2023/24). - Non-oil revenue: nominal increase of 125 percent in FY2024/25 compared to FY2023/24. - Full payment of FY2024/25 salaries projected at 3.9 percent of GDP. - Repayment of six months of domestic salary arrears incurred in FY2023/24 projected at 3. 0 percent of GDP. - Foreign salary arrears projected at 0.5 percent of GDP. - Overall spending constrained at 28.4 percent of GDP in FY2024/25 (from 36.4 percent of GDP in FY2023/24). - Financing gap projected at 3.6 percent of GDP reflecting fiscal deficit and amortization due; near-term external concessional financing limited. ### Fiscal structural policies and revenue measures - Non-oil revenue measures and administration: - NRA reforms in FY2023/24 expected to support revenue increase in FY2024/25. - New FY2024/25 measures (expected permanent impact): further increasing ER used for customs valuation; a new gaming tax on casino operations; higher taxes on alcohol, tobacco, and cigarettes. - Revenue administration measures: new cargo tracking system, tighter tax compliance and fee collection controls, centralizing tax collection from districts. - Authorities plan to contain exemptions; staff cautioned against removing tax exemptions for humanitarian goods. - Early discussions to replace the sales tax with a VAT (not in projections); a tax policy CD mission planned in 2025Q2. - Payroll and PFM reforms: - Improve payroll management and accelerate vetting of civil servants (started August 2023). - Expand IFMIS and adopt a payroll management system with a new data center supported by the World Bank. - Improve targeting and execution of social spending and public investment management; strengthen procurement and payment processes and expand coverage of the Treasury Single Account (TSA). - Debt management: - External debt stock at end-June 2024 estimated at 38.3 percent of GDP. - Total public debt rose from 52 percent of GDP in FY2018/19 to 73.2 percent of GDP in FY2023/24. - Initial amortization due (before reprofiling) in FY2024/25 was 6.6 percent of GDP. - Authorities engaged creditors to reprofile loans and started implementing the debt management action plan approved in 2023. - No new external non-concessional loans contracted since 2022. ### Monetary, exchange rate, and financial sector policies - Exchange rate and FX inflows: - BoSS ability to manage ER flexibility and conduct monetary policy impeded by lower FX inflows; FX reserves and FX auctions affected. - BoSS initiated gradual depreciation of official ER since July; parallel FX market premium remains large. - Official ER calculation: average of rates used outside the parallel market (FX transactions in banking system and FX market). - Liquidity management instruments: - Term-deposit facility (TDF) introduced in October 2022; 336-day tenor introduced in August 2023. - BoSS aggressively used TDF in 2024H1; credit outstanding rose to SSP 70 billion in August 2024 (from SSP 34 billion in August 2023). - Demand concentrated in shorter maturities; banks stayed away from longer tenor. - Large cash holdings outside banks limit monetary policy efficiency. - Monetary financing: - Resumption since December 2023 to finance emergency social needs added to inflation and ER pressures. - Monetary financing dropped significantly since July 2024 compared to FY2023/24. - On September 16, 2024, BoSS introduced daily cash withdrawal limits of a SSP 10 million with adverse effects on bank functioning and deposits. - Policy commitments: - Authorities agreed to avoid further monetary financing and, if used, to mop up liquidity using domestic tools. - Reverting to pre-shock FX auction rules (allocation to highest bid) would help reduce premium and distortions; while auctions suspended, ER flexibility induced by market price-driven FX transactions between banks and clients. - Financial sector vulnerabilities: - Several domestic banks are undercapitalized though average capital adequacy ratio for all banks was at 10.1 percent at end-June 2024. - A large share of banks’ income (70 percent) is from non-interest income, mainly FX transactions. - Over 70 percent of commercial bank liabilities are denominated in FX. - Financial Soundness Indicators (Jun 2024 selected): ROA: 2.7; ROE: 29.5; Interest Margin to Gross Income: 27.9; Nonperforming loans to total gross loans: 1.9; Provisions to Non-performing loan: 55.1; FX Currency Denominated Assets to Total Assets: 81.8; Foreign-Currency-Denominated Loans to Total Loans: 94.5. ### Financial stability, governance, and AML/CFT - BoSS governance and supervision: - Amendment to the 2012 Banking Act approved November 2023 consolidated supervision of bank and non-bank institutions under BoSS. - Restructuring Supervision Directorate and building liquidation team capacity underway. - Fast-tracking cabinet approval of BoSS’ action plan would allow full implementation of amendment and boost supervisory capacity. - Transparency and audits: - Quarterly budget execution reports published for Q1 and Q2 FY2023/24; IFMIS access issues impeded timely compilation. - Regular publication: FX auction outcomes, key monetary indicators, daily oil production data; continued publication of oil revenues encouraged. - National Audit Chamber appointed an international firm to audit BoSS FY2022−2024; contract signing underway. - AML/CFT and anti-corruption: - AML/CFT amendment bill passed by Parliament in July 2024; Financial Intelligence Unit governance rules being finalized. - South Sudan completed its first National Risk Assessment (NRA) and remains on the FATF grey list. - Anti-corruption legislation amended December 2023; larger allocation to Anti-Corruption Commission in FY2024/25 draft budget. - Recommendations: increase capacity and resources, develop timebound National Action Plan, raise awareness among financial institutions and DNFBIs. ### Structural benchmarks, achievements, and implementation status - Selected structural benchmarks (status as of end-June 2024): - Appoint external auditor for BoSS FY2022 and beyond — Target: End-June 2024 — Status: Not met (offer made; contract being finalized). - Adopt timebound action plan to clear all salary arrears — Target: End-June 2024 — Status: Not met (plan in FY2024/25 draft budget adopted by Cabinet; submission to Parliament on September 25). - National Audit Chamber finalize external audit of BoSS FY21 and publish — Target: End-June 2024 — Status: Not met (implemented in September 2024). - Policy achievements under PMB: - Exchange rate used for customs valuation adjusted from 90 SSP/$ to 300 SSP/$. - Customs administration strengthened; non-oil revenue collection improved. - Publication of FY2023/24 Q1 and Q2 budget execution reports; oil revenue reports for January 2022 to July 2023 published. - Audit of March 2023 RCF disbursement under FSW completed and published; audit identified procurement and IFMIS recording weaknesses. - TSA implemented on a subset of central government accounts. - PMB target on net international reserves consistently met. ### Key macro and fiscal projections (selected figures) - Real GDP (percent change): - 2023/24: -11.9 - 2024/25: 41.6 - 2025/26: 5.0 - 2026/27: 5.0 - 2027/28: 5.0 - Oil production (millions of barrels): - 2023/24: 32.6 - 2024/25: 57.5 - 2025/26: 59.2 - 2026/27: 60.9 - 2027/28: 62.7 - Inflation (average): - 2023/24: 52.2 - 2024/25: 136.7 - 2025/26: 19.4 - 2026/27: 7.6 - 2027/28: 7.9 - Official exchange rate (SSP/US$, average): - 2023/24: 1,244.5 - Parallel market exchange rate (SSP/US$, average): - 2023/24: 1,574.9 - Current account balance (including grants) (US$ millions): - 2023/24: -409 - 2024/25: -280 - 2025/26: -601 - 2026/27: 376 - 2027/28: 216 - Gross foreign reserves (US$ millions): - 2023/24: 115.2 - 2024/25: 376.4 - 2025/26: 895.0 - 2026/27: 1,360.6 - 2027/28: 1,825.0 - Gross foreign reserves (months of imports): - 2023/24: 0.3 - 2024/25: 0.8 - 2025/26: 1.9 - 2026/27: 2.8 - 2027/28: 3.6 - Selected fiscal aggregates (SSP billions): - Total revenue and grants: 2023/24 (Prel.): 1,795.7; 2024/25 (Draft Budget): 2,397.5; 2025/26 (Proj.): 2,257.6. - Total oil revenues: 2023/24 (Prel.): 1,578.1; 2024/25 (Draft Budget): 1,900.3; 2025/26 (Proj.): 1,138.4. - Non-oil tax revenue: 2023/24 (Prel.): 217.6; 2024/25 (Draft Budget): 497.1; 2025/26 (Proj.): 1,119.2. - Total expenditure: 2023/24 (Prel.): 1,455.1; 2024/25 (Draft Budget): 2,783.1; 2025/26 (Proj.): 4,172.2. - Salaries: 2023/24 (Prel.): 166.1; 2024/25 (Draft Budget): 243.3; 2025/26 (Proj.): 1,512.1. - Overall balance (cash): 2023/24 (Prel.): -385.6; 2024/25 (Draft Budget): -1,914.6; 2025/26 (Proj.): -371.8. ### Letter of Intent highlights and commitments - Date of statement: November 15, 2024. - Authorities request completion of third and final PMB review and continued engagement toward a future ECF-supported program. - Remedial commitments: - Pay one month of salary every month during FY2024/25; two months per month when oil production restarts until arrears reduced. - Refrain from monetary financing starting October 2024 and, if used, mop up excess liquidity. - Continue prudent debt management, refrain from new non-concessional loans where possible, and engage creditors to reprofile debt. - Boost non-oil revenue mobilization and prioritize expenditures; avoid measures that would exacerbate macroeconomic imbalances or trade/payment restrictions. - Reporting and monitoring: - Authorities to provide specified fiscal and BoSS tables with stated frequencies and reporting lags as detailed in the TMU. - Authorization for IMF to publish the LOI, MEFP, TMU, and related staff report. *Source: EXECUTIVE SUMMARY (1ssdea2024002-print-pdf) — IMF Country Report excerpt.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Spillovers from the war in Sudan have worsened South Sudan’s macroeconomic imbalances and exacerbated an already-dire humanitarian situation. - A pipeline carrying 70 percent of South Sudan’s oil production through Sudan has been inoperable since February 2024; repairs have taken longer than expected owing to restricted access to the concerned areas. - Consequences of the pipeline shock and related spillovers: - Sharp drop in economic growth, exports, fiscal revenue, and FX inflows. - High inflation, rapid parallel market exchange rate (ER) depreciation, and budget financing constraints. - Authorities incurred salary arrears and monetary financing, and delayed the official ER adjustment. - Humanitarian stresses prior to and aggravated by the Sudan conflict: - Nearly two-thirds of South Sudan’s population was exposed to acute food insecurity prior to the Sudan conflict. - Floodings and a growing number of refugees have worsened the situation. - Political timeline: - National unity government in place since 2018. - Elections initially planned for December 22, 2024 have been postponed by two years. ### Program review (Staff-Monitored Program with Board Involvement — PMB) - PMB status: - The PMB expires on November 15, 2024; initially approved in February 2023 for nine months and subsequently extended twice. - Objective: support the authorities’ reform agenda to maintain macroeconomic stability and debt sustainability, improve governance and transparency, and build a track record towards an upper credit tranche financial arrangement. - Performance at end-June 2024: - Quantitative targets: 2 out of 7 met. - Met: zero ceiling on contracting non-concessional debt; floor on net international reserves. - Not met: five other quantitative targets (including salary payments and social spending below targets; primary deficit, debt to the central government, and monetary financing larger than programmed). - Structural benchmarks (SBs): not met at end-June, but authorities took steps to complete them with delay. - Specific achievements toward SBs and audits: - Bank of South Sudan (BoSS) 2021 audited statements published in early September 2024. - Offer made to an external auditor for BoSS’ 2022−24 financial statements; contract being finalized. - Authorities formulated a salary arrears repayment plan under the FY2024/25 draft budget (adopted by Cabinet in early August and submitted to Parliament in September 2024). - Food Shock Window (FSW): - Approval of the PMB was followed by approval of the Food Shock Window (FSW) of SDR 86.1 million, 35 percent of quota (about US$114.8 million) to fund reserves management and priority spending through partners and budget health and education spending. ### Staff’s views and corrective measures - Staff supports completion of the third PMB review based on: - Performance against program targets. - Corrective measures taken by the authorities. - Authorities’ commitment to further measures under the Letter of Intent (LOI). - Authorities’ actions and commitments: - Started paying salaries in July 2024. - Slowed down monetary financing, using it as a last resort. - Redirected investment funds toward priority spending. - Strengthened efforts for strong non-oil revenue collection. - Submitted FY2024/25 draft budget to Parliament end-September 2024; adoption expected by end-November 2024. - Progress in narrowing the parallel FX market ER premium. - Remedial measures in support of macroeconomic stability include: - Recognizing in the FY2024/25 draft budget the salary arrears incurred during FY2023/24 and committing in the LOI to continue paying one month of salary every month from October and, when oil production restarts, to pay every month an additional month of salary towards clearing the salary arrears (i.e., paying two months of salary each month). - Committing to refrain from monetary financing as much as possible and, in case of usage, to mop up related excess liquidity. - Authorities remain committed to fiscal and monetary prudence and to implementing their medium-term reform agenda. ### Recent economic developments (key facts and figures) - Growth: - Real GDP growth estimated at -5.8 percent of GDP in FY24 (July 2023−June 2024), reflecting mainly lower oil exports (21 percent decrease of oil exports values in FY2023/24 compared to FY2022/23). - Exchange rate movements: - Parallel ER depreciated by 306 percent during January−September 2024. - Note: parallel ER depreciation peaked at 365 percent on August 29, compared to end-December 2023. - Official ER depreciated by 190 percent during January−September 2024. - Parallel FX market premium: - Premium peaked at 179 percent in July 2024 (from 15 percent at end-January). - Average premium decreased to 54 percent in September 2024 from 140 percent in July 2024. - Inflation: - Inflation surged to 107.3 percent y/y at end-July 2024, mainly owing to the parallel ER depreciation. - Estimations indicate a 1-to-1 pass-through from the parallel ER variations to food and fuel inflation within six months. - FX reserves and auctions: - Official reserves: US$ 92 million or 0.3 month of imports at end-September 2024. - Auction issues: auctioned amounts were not settled; BoSS owing $34 million to banks at end-September 2024. - BoSS set the winning bid at the median bid instead of the highest bid, slowing official ER depreciation. - FY2023/24 budget execution: - Oil revenue: 24.8 percent of GDP in FY2023/24 compared to 30.5 percent in FY2022/23. - Non-oil revenue: 6.5 percent of GDP in FY2023/24 compared to 4.2 percent of GDP in FY2022/23 (measures included raising ER for customs valuation from 90 SSP/$ to 300 in November 2023, hiring new staff, and digitalization). - Capital spending: 6.7 percent of GDP in FY2023/24 vs. 9.7 percent of GDP in FY2022/23. - Fiscal deficit: reached 5 percent of GDP, mainly financed by monetary financing. - Public wage arrears: reached 8 months at end-June 2024 (arrears covered November 2023−June 2024). - Program performance summary at end-June 2024: - Met targets: zero ceiling on contracting non-concessional debt; floor on net international reserves. - Unmet targets: five other quantitative targets; structural benchmarks not met at end-June but steps taken and two completed with delay. ### Outlook and risks - Baseline assumption on oil production: - Pipeline repaired and maintenance operations projected to be completed by early 2025. - Baseline projects oil production will slowly increase starting in early 2025 to reach full capacity by end-June 2025. - Growth projections: - Staff project a GDP contraction of 12 percent in FY25 (July 2024−June 2025) and full recovery from FY2025/26. - Medium-term: oil production projected to recover towards its peak in the recent past (FY2020/21); growth projected to remain modest, supported by agriculture and increased public investment. - Inflation and ER outlook: - Greater ER stability and elimination of monetary financing, after the oil production shock recedes, would decrease inflation to single digits. - Financing outlook: - In the absence of a catalyzing UCT-quality Fund program, official flows are projected to remain low. - Risks (balanced): - Downside risks: - Prolonged or escalated war in Sudan or escalation of the Red Sea crisis, exacerbating macroeconomic situation and trade disruption. - Climate shocks including floods, affecting agricultural and oil production. - Institutional capacity constraints that risk policy implementation delays or suboptimal implementation. - Upside risks: - Early resumption of oil production from the damaged pipeline would significantly improve macroeconomic outcomes. - Stronger non-oil revenue collection from higher yields from ongoing SSRA reforms and revenue measures under the FY2024/25 draft budget. - An early end to the Sudan war and higher oil prices than projected would reduce fiscal and external financing gaps. *Source: EXECUTIVE SUMMARY (1ssdea2024002-print-pdf) — IMF Country Report excerpt.* ### 10. Discussions focused on recalibrating the near-term policy mix to cope with the oil ### 10. Discussions focused on recalibrating the near-term policy mix to cope with the oil production shock while maintaining economic stability and debt sustainability ### Near-term scenarios and coping measures - Authorities prepared three scenarios: - Pessimistic: no increase in oil production in FY2024/25. - Central: oil production for a few months during FY2024/25. - Optimistic: resumption during 2024Q4. - Oil production resumption from the damaged pipeline will be gradual until full capacity is reached irrespective of start date. - The draft budget uses: - Central scenario for expenditure projections. - Most pessimistic scenario for revenue projections and for the contingency plan for spending compression. - Coping policies implemented: - Delaying salary payments and capital spending from the oil-for-infrastructure earmarked funds. - Sporadic monetary financing (limited volumes). - Slowing official ER depreciation and avoiding adjustment of the ER used for customs valuation. - Discussions with creditors to reschedule debt service and with donors to boost financing. - Risk: macroeconomic imbalances likely to increase if oil production resumption and macroeconomic adjustment are delayed. ### Fiscal policy: projections, composition, and contingency planning - Fiscal deficit projections: - Projected to decrease to 1.9 percent of GDP in FY2024/25 (from 5 percent of GDP in FY2023/24). - FY2024/25 draft budget projects a fiscal deficit at 9.7 percent of GDP (more stringent oil revenue assumptions). - Revenue: - Staff projects a gradual increase in oil revenue from early 2025 to reach full potential by June 2025. - Non-oil revenue: nominal increase of 125 percent in FY2024/25 compared to FY2023/24. - Overall revenue projected to decrease to 26.5 percent of GDP in FY2024/25 (from 31.3 percent of GDP in FY2023/24). - Spending: - Full payment of FY2024/25 salaries projected at 3.9 percent of GDP. - Repayment of six months of domestic salary arrears incurred in FY2023/24 projected at 3. 0 percent of GDP. - Foreign salary arrears projected at 0.5 percent of GDP. - Payments mechanism: one month of current salary and one month of salary arrear every month (equivalent of two months of salaries paid every month) starting when oil production increases; balance of two months of arrears deferred to FY2025/26. - Capital spending under oil-for-infrastructure projected to resume gradually from early 2025. - Overall spending constrained at 28.4 percent of GDP in FY2024/25 (from 36.4 percent of GDP in FY2023/24). - Financing: - Financing gap projected at 3.6 percent of GDP reflecting the fiscal deficit and sizable amortization due. - Near-term prospects for external concessional financing are limited. - Policy adjustment (e.g., returning to low capital spending per draft FY2024/25 budget) could help close the financing gap. - Draft budget and contingency measures: - Draft budget assumes a full year of anemic oil revenue collection, partly compensated by strong non-oil revenue. - Spending plans show a cut of 15.2 percent of GDP compared to FY2023/24. - Draft budget plans on-time payment of current salaries and full repayment of salary arrears accumulated in FY2023/24 by end-June 2024; authorities paid salaries in July and August 2024 (two months) financed with previously earmarked oil revenues and non-oil revenue. - Contingency spending compression plan prepared in case non-oil revenue disappoints or financing is binding. - Authorities commit to prioritize salary payments and social spending while avoiding monetary financing and contracting non-concessional external debt, per PMB objectives and Letter of Intent. ### Fiscal structural policies and revenue measures - Staff welcomes priority on salary payments but stresses need for strong revenue mobilization and strict spending prioritization. - Non-oil revenue strategy and measures: - NRA reforms in FY2023/24 expected to support revenue increase in FY2024/25. - New FY2024/25 measures (expected permanent impact) include: - Further increasing the ER used for customs valuation. - A new gaming tax on casino operations. - Higher taxes on goods with negative externalities (alcohol, tobacco, and cigarettes). - Revenue administration measures: new cargo tracking system, tighter tax compliance and fee collection controls, centralizing tax collection from districts. - Authorities plan to contain exemptions; staff cautioned against removing tax exemptions for humanitarian goods. - Closing gap between official and parallel market ER would raise revenue by increasing the SSP-equivalent of FX-denominated oil and non-oil revenues. - Early discussions to replace the sales tax with a VAT (not accounted for in projections); a tax policy CD mission is planned in 2025Q2. - Payroll and PFM reforms: - Improve payroll management and accelerate vetting of civil servants (started August 2023). - Expand IFMIS and adopt a payroll management system with a new data center supported by the World Bank. - Improve targeting and execution of social spending and public investment management. - Strengthen procurement and payment processes and expand coverage of the Treasury Single Account (TSA). - Debt and debt management: - Stock of external debt at end-June 2024 estimated at 38.3 percent of GDP. - Total public debt: 52 percent of GDP in FY2018/19 to 73.2 percent of GDP in FY2023/24. - No new external non-concessional loans contracted since 2022. - Initial amortization due (before reprofiling) in FY2024/25 was 6.6 percent of GDP. - Authorities engaged creditors to reprofile loans and started implementing the debt management action plan approved in 2023. - Debt management strategy adopted in June 2024, including plans to develop a domestic debt market; further efforts needed to strengthen debt data compilation. ### Monetary, exchange rate, and financial sector policies - Exchange rate and FX inflows: - BoSS ability to manage ER flexibility and conduct monetary policy severely impeded by lower FX inflows from the oil production shock; FX reserves and FX auctions affected. - BoSS initiated gradual depreciation of the official ER since July; parallel FX market premium remains large. - Official ER calculation: average of rates used outside the parallel market (FX transactions in the banking system and the FX market). - Monetary policy instruments and liquidity management: - Introduction of a term-deposit facility (TDF) in October 2022; 336-day tenor introduced in August 2023. - BoSS aggressively utilized the TDF in 2024H1 to mop up excess liquidity; credit outstanding rose to SSP 70 billion in August 2024 (from SSP 34 billion in August 2023). - Demand concentrated in shorter maturities; banks have stayed away from longer tenor, limiting liquidity management efficiency. - Large cash holdings outside banks limit monetary policy efficiency in taming inflation. - Monetary financing and recent measures: - Resumption of monetary financing since December 2023 to finance emergency social needs added to inflation and ER depreciation pressures. - Monetary financing dropped significantly since July 2024 compared to FY2023/24. - On September 16, 2024, BoSS introduced daily cash withdrawal limits of a SSP 10 million, which had unintended adverse effects on banks’ functioning and discouraged deposits. - Policy commitments and needed reforms: - Authorities agreed that avoiding further monetary financing is essential to contain ER depreciation and tame inflation. - If monetary financing were necessary, authorities commit to using domestic tools to mop up resulting liquidity. - Medium-term priorities: develop monetary policy framework further, strengthen coordination of monetary and fiscal policy, develop domestic debt markets. - Authorities committed to further ER management flexibility and steps to reduce the parallel FX market premium; ER unification would increase fiscal space via higher SSP-denominated oil revenue. - Authorities obtained a term deposit from the Abu Dhabi National Bank to boost BoSS foreign assets and are lobbying for donor support. - Reverting to pre-shock FX auction rules (allocation to the highest bid) would help reduce the premium and distortions; while auctions are suspended, ER flexibility is induced by market price-driven FX transactions between banks and clients. - Financial sector stability: - Commercial banks face multi-faceted challenges; several domestic banks are undercapitalized though average capital adequacy ratio for all banks was at 10.1 percent at end-June 2024. - A large share of banks’ income (70 percent) is from non-interest income, mainly FX transactions. - Over 70 percent of commercial bank liabilities are denominated in FX, exposing banks to ER risk if assets do not match liabilities. *Source: Republic of South Sudan — IMF Country Report text (section 10).* ### 26. The BoSS has taken steps to support financial stability. The amendment to the 2012 ### The BoSS has taken steps to support financial stability ### Strengthening supervisory framework - Amendment to the 2012 Banking Act approved in November 2023 consolidated supervision of bank and non-bank institutions, including microfinance and insurance companies, under the purview of the BoSS. - Implementation steps underway: - Ongoing restructuring of the BoSS’ Supervision Directorate, including recruitment for the new staff profiles needed under the revised mandate. - Building capacity of the liquidation team through technical assistance, training and peer-to-peer learning at neighboring central banks. - Planning from next year to issue regulations and guidelines to address the main issues in the banking reforms, including the undercapitalization of banks. - Fast-tracking cabinet approval of the BoSS’ action plan would allow for full implementation of the amended 2012 Banking Act and boost supervisory capacity. ### Strengthening transparency and governance - Authorities have started publishing quarterly budget execution reports, notably for the first two quarters of FY2023/24; inability to access IFMIS for several months impeded efficient budget execution and timely preparation of FY2023/24 last two quarter reports. - Several modules of IFMIS remain not accessible; authorities’ efforts to circumvent issues in collaboration with an IMF LTX are under way. - Regular publication: data on FX auctions outcomes, key monetary indicators, and daily oil production data. Continued publication of oil revenues details is encouraged. - Publication milestone: audited 2021 BoSS financial statements published in September 2024 (para. 29). - Further governance strengthening recommended, including follow-up revisions to provisions related to financial, institutional, and personal autonomy that are not consistent with IMF Safeguards Assessment (SA) recommendations. ### IMF Safeguards Assessment follow-up and audits - National Audit Chamber has taken steps to appoint an international firm to audit the BoSS’ financial statements for FY2022−2024 (contract signing is underway); accelerating the audits will support return to a timely audit cycle. - Amendments enhancing some aspects of the BoSS’ legal framework were approved by Parliament in November 2023, but follow-up revisions remain necessary. - Staff will continue engagement on Board oversight, audit and reporting capacity, and currency operations. ### AML/CFT and anti-corruption progress - Amendment bill to incorporate current FATF standards into the AML/CFT Act, prepared with IMF CD support, was passed by Parliament in July 2024. - Authorities are finalizing governance and operational rules for the Financial Intelligence Unit. - South Sudan completed its first National Risk Assessment (NRA) and has become a party to relevant UN Conventions; nonetheless, South Sudan remains on the FATF grey list. - Recommendations: - Increase capacity and resources of relevant agencies. - Develop a strong and timebound National Action Plan informed by the NRA. - Raise awareness among financial institutions and designated non-financial institutions about AML/CFT obligations in the new law. - Anti-corruption: anti-corruption legislation amended in December 2023 and a larger allocation (in percent of GDP) to the Anti-Corruption Commission in the FY2024/25 draft budget. ### Program performance, remedial measures, and fiscal actions - Program performance at end-June 2024: two out of seven targets were met (zero ceiling on contracting non-concessional debt and floor on net international reserves); five quantitative targets missed owing to financing constraints from the oil production shock. - Structural benchmarks were not met at end-June, but two were implemented and significant steps taken toward the third. - Authorities implemented corrective measures and committed to additional remedial actions (LOI, Appendix I); measures considered sufficient to achieve PMB goals. - Key remedial and policy commitments: - Started paying salaries in July 2024; paid two months of salaries (in July and August 2024). - Slowed down use of monetary financing, leveraging it as last resort and for low and sporadic use, and using oil revenues previously earmarked for investment and aggressive non-oil revenue collection to finance priority spending. - Increased flexibility of official ER management, reducing the parallel FX market ER premium. - Committed to prudent debt management and continuing to rely on concessional borrowing. - Submitted the FY2024/25 draft budget to Parliament in end-September 2024 (adoption expected by end-November). - Draft FY2024/25 budget recognizes salary arrears from FY2023/24 and commits to continue monthly current salary payments and start reducing months of salary arrears when oil production restarts. - Committed to refrain from monetary financing starting in October and, if usage is unavoidable, increase mopping up of liquidity using available domestic tools. ### Staff appraisal, shocks, and policy recommendations - Shock and impacts: - Damages in mid-February 2024 to the pipeline carrying 70 percent of South Sudan’s oil production through Sudan caused a significant drop in oil production, exports, fiscal revenues, and FX inflows. - Increasing influx of refugees and floodings exacerbated the humanitarian situation. - Exchange rate and inflation developments: - BoSS reduced frequency of FX auctions and offered amounts due to lower FX inflows; delayed auction settlements. - BoSS initiated gradual depreciation of the official ER; parallel FX market premium peaked at 179 percent at end-July 2024 and narrowed to about 50 percent at end-September. - Staff welcomes the authorities’ commitment to refrain from monetary financing and sustain efforts to contain inflation; past sporadic monetary financing beginning in December 2023 fueled ER depreciation in the parallel market and reinforced inflation dynamics. - Recommended near-term policy mix to cope with the long-lasting shock: - Strong revenue mobilization efforts. - Strict spending prioritization, including rationalizing non-salary spending to prioritize salary payments and well-targeted social spending. - Further ER depreciation to increase the SSP-denominated value of fiscal revenue and remove FX market distortions. - Continued avoidance of non-concessional borrowing where possible and continued prudent debt management to manage maturity bunching in FY2024/25. - Develop domestic debt securities to diversify financing options. - Strengthen coordination between fiscal and monetary policies and, if monetary financing is used, mop up related additional liquidity. - Transparency and governance follow-up: - Continue regular publication of budget execution reports and information on oil revenue sources, building on reports covering the first half of FY2023/24. - PFM reforms to improve budget execution and strengthen public investment management are essential. - Further implementation of IMF safeguards assessment recommendations and continued improvements to anti-corruption legislation and institutions are encouraged. *Source: 1ssdea2024002-print-pdf - 26. The BoSS has taken steps to support financial stability. The amendment to the 2012* ### 40. Staff supports the authorities’ request for the completion of the third and final PMB ### Staff supports the authorities’ request for the completion of the third and final PMB review ### Program support and remedial actions - Staff supports the authorities’ request for the completion of the third and final PMB review based on: - program performance, - the implemented corrective measures, and - remedial measures committed by the authorities to ensure the PMB’s objectives are met. - Corrective actions taken since July 2024 include: - allowing more flexibility of the official exchange rate; - starting salary payments; - redirecting infrastructure financing towards salary payments and other priority spending; - significantly slowing down monetary financing. - Commitments under the Letter of Intent (additional remedial actions starting October 2024) include: - paying one month of salary every month; - paying every month an additional month of salary towards arrears when oil production restarts; - refraining from monetary financing as much as possible and, in case of usage, mopping up related excess liquidity; - continuing prudent debt management. - These actions are assessed as supportive of macroeconomic stability and achieving the PMB’s objectives. ### Recent economic developments (highlights from Figure 1 and text) - Oil production has been hampered by damage to the pipeline and is assumed to start recovering in mid-FY2024/25. - Preliminary data from FAO/WFP shows continued strong growth of agricultural production. - Authorities have been using the government overdraft since December 2023, contributing to: - increases in reserve money, and - accelerated exchange rate (ER) depreciation. - The parallel market ER has depreciated quickly owing to the pipeline damage while the depreciation of the official rate has lagged. - Juba food and fuel prices have continued to increase with the parallel market ER. ### Key macroeconomic and sector projections (selected figures from Table 1 and Table 4) - Real GDP (percent change) projections: - 2023/24: -11.9 - 2024/25: 41.6 - 2025/26: 5.0 - 2026/27: 5.0 - 2027/28: 5.0 - Oil production (millions of barrels) projections: - 2023/24: 32.6 - 2024/25: 57.5 - 2025/26: 59.2 - 2026/27: 60.9 - 2027/28: 62.7 - Inflation (average): - 2023/24: 52.2 - 2024/25: 136.7 - 2025/26: 19.4 - 2026/27: 7.6 - 2027/28: 7.9 - Official exchange rate (SSP/US$, average): - 2023/24: 1,244.5 - Parallel market exchange rate (SSP/US$, average): - 2023/24: 1,574.9 - Current account balance (including grants) (millions of US dollars): - 2023/24: -409 - 2024/25: -280 - 2025/26: -601 - 2026/27: 376 - 2027/28: 216 - Gross foreign reserves (millions of US dollars) projections: - 2023/24: 115.2 - 2024/25: 376.4 - 2025/26: 895.0 - 2026/27: 1,360.6 - 2027/28: 1,825.0 - Gross foreign reserves (in months of imports) projections: - 2023/24: 0.3 - 2024/25: 0.8 - 2025/26: 1.9 - 2026/27: 2.8 - 2027/28: 3.6 ### Fiscal operations and priorities (selected figures from Tables 2a and 2b) - Total revenue and grants (billions of SSP): - 2023/24 (Prel.): 1,795.7 - 2024/25 (Draft Budget): 2,397.5 - 2025/26 (Proj.): 2,257.6 - Total oil revenues (billions of SSP): - 2023/24 (Prel.): 1,578.1 - 2024/25 (Draft Budget): 1,900.3 - 2025/26 (Proj.): 1,138.4 - Non-oil tax revenue (billions of SSP): - 2023/24 (Prel.): 217.6 - 2024/25 (Draft Budget): 497.1 - 2025/26 (Proj.): 1,119.2 - Total expenditure (billions of SSP): - 2023/24 (Prel.): 1,455.1 - 2024/25 (Draft Budget): 2,783.1 - 2025/26 (Proj.): 4,172.2 - Salaries (billions of SSP): - 2023/24 (Prel.): 166.1 - 2024/25 (Draft Budget): 243.3 - 2025/26 (Proj.): 1,512.1 - Net acquisition of non-financial assets (billions of SSP): - 2023/24 (Prel.): 503.4 - 2024/25 (Draft Budget): 514.2 - 2025/26 (Proj.): 493.5 - Overall balance (cash) (billions of SSP): - 2023/24 (Prel.): -385.6 - 2024/25 (Draft Budget): -1,914.6 - 2025/26 (Proj.): -371.8 ### Monetary accounts and financial soundness (selected figures from Table 3 and Table 5) - Broad money (billions of SSP), Jun 2024 (Prel.): 819.7 - Monetary base (billions of SSP), Jun 2024 (Prel.): 609.2 - Monetary base (year-on-year change in percent) series: - 2021 Jun: 29.0 - 2022 Jun: 17.1 - 2023 Jun: 42.3 - 2024 Jun (Prel.): 979.2.4 (note: table shows "302.4" under one column—preserve original tabular ambiguity) - Broad money (year-on-year change in percent) series: - 2021 Jun: 63.5 - 2022 Jun: 27.6 - 2023 Jun: 40.8 - 2024 Jun (Prel.): 351.5 - Financial Soundness Indicators (selected, 2024 Jun): - Return on Assets (ROA): 2.7 - Return on Equity (ROE): 29.5 - Interest Margin to Gross Income: 27.9 - Nonperforming loans to total gross loans: 1.9 - Provisions to Non-performing loan: 55.1 - FX Currency Denominated Assets to Total Assets: 81.8 - Foreign-Currency-Denominated Loans to Total Loans: 94.5 ### Balance of payments details (selected from Table 4a/4b) - Exports of goods (millions of US dollars): - 2023/24: 3,926 - 2024/25 (Proj.): 2,536 - 2025/26 (Proj.): 4,157 - Imports of goods (millions of US dollars): - 2023/24: -2,292 - 2024/25 (Proj.): -3,189 - Trade Balance (millions of US dollars): - 2023/24: 1,634 - 2024/25 (Proj.): -653 - Current Transfers (net) (millions of US dollars): - 2023/24: 1,662 - 2024/25 (Proj.): 1,198 - Financial account (selected): - Overall balance (millions of US dollars): - 2023/24: -805 - 2024/25 (Proj.): -251 - 2025/26 (Proj.): -763 - South Sudan oil price (dollars per barrel; weighted average): - 2023/24: 80.9 - 2024/25 (Proj.): 77.1 - 2025/26 (Proj.): 69.4 ### Program monitoring: quantitative and structural targets (selected from Table 6) - Quantitative targets under the Program Monitoring with Board Involvement, Third Review (end-June 2024): - Non-oil primary balance (floor: in billions of SSP) - Target: -1358 - Act.: -2192.6 - Result: Not met - Central bank net credit to the central government (ceiling: in billions of SSP) - Target: 0.0 - Act.: 186.1 - Result: Not met - Contracting or guaranteeing of non-concessional debt by the central government (continuous ceiling: in millions of U.S. dollars) - Target: 0.0 - Act.: 0.0 - Result: Met - Average net international reserve (floor: in millions of U.S. dollars) - Target: 100.0 - Act.: 105.2 - Result: Met - Reserve money growth (ceiling: in percent) - Target: 2.5 - Act.: 6.8 - Result: Not met - Salary payments to central government workers (floor: in billions of SSP) - Target: 75.8 - Act.: 9.4 - Result: Not met - Priority social spending (floor: in billions of SSP) - Target: 22.0 - Act.: 8.6 - Result: Not met - Notes/definitions from the program monitoring table: - For end-June 2024 the non-oil primary balance number is cumulative from June 30, 2023. - For end-June 2024 central bank net credit figure is cumulative from end-April 2024; an adjuster could have increased the target by up to SSP 55 billion under specified conditions, but the conditions were not met. - Reserve money growth target for end-June 2024 is cumulative growth from end-April 2024; an adjuster up to 15 percent could have applied but conditions were not met. - The proposed floor on social spending equals proposed spending on education, health, and social and humanitarian sectors in the FY2022/23 and FY2023/24 budgets; there were no adjustors in the social spending data. *Sources: South Sudanese authorities; FAO; WFP; and IMF staff estimates and projections as presented in the provided content.* ### 1. Appoint an external auditor to perform BoSS audits for financial year 2022 and ### 1ssdea2024002-print-pdf - 1. Appoint an external auditor to perform BoSS audits for financial year 2022 and ### Structural benchmarks and status (selected items) - 1. Appoint an external auditor to perform BoSS audits for financial year 2022 and beyond. - Target date: End-June 2024 - Status: Not met. Strengthen the central bank’s safeguards. - Note: The central bank has made an offer to an external auditor and is currently finalizing contracts. - 2. Adopt a timebound action plan to clear all salary arrears. - Target date: End-June 2024 - Status: Not met. Strengthen fiscal discipline. - Note: The authorities’ plans are formulated in the FY2024/25 draft budget, which has been adopted by Cabinet in early August and submitted to Parliament on September 25. Adoption by Parliament is planned for end-November. - 3. National Audit Chamber will finalize the external audit of the BoSS financial statements for FY21 and the audit report will be published. - Target date: End-June 2024 (MEFP) - Status: Not met. Strengthen the central bank’s safeguards. - Note: Implemented in September 2024. ### Policy achievements under the PMB (high-level) - Fiscal operations and transparency improvements: - Exchange rate used for customs valuation adjusted from 90 SSP/$ to 300 SSP/$. The adjusted rate boosted non-oil revenues though pressures later partially eroded gains. - Customs administration strengthened through redeployment of police and a new recruitment process; additional staff, training, and IT equipment improved non-oil revenue collection. - Achievements in raising non-oil revenue helped partially cushion the shock when the main oil export pipeline became inoperable. - Non-oil primary balance target was consistently met before the oil production shock. - Publication: FY2023/24 Q1 and Q2 budget execution reports published; FY2023/24 Q3 and Q4 reports delayed pending finalization of the draft FY2024/25 budget. - Oil revenue reports for January 2022 to July 2023 were made available to the public. - An audit of spending of the March 2023 RCF disbursement under the FSW was completed and published; audit showed weaknesses including noncompliance with procurement law and lack of recording through IFMIS. - Implemented a Treasury Single Account on a subset of central government accounts; reforms underway to increase scope with CD assistance. - Monetary and central bank governance: - BoSS has consistently published monetary survey data, with the latest published in March 2024; more recent monetary data shared with staff up to August 2024. - Amendments to the BoSS Act adopted to partially align with international best practices, including limiting issuance of sovereign guarantees and prohibiting government employees from Board eligibility. - BoSS finalized and published the external audit of its financial statements for financial year 2021. - BoSS has taken steps to appoint an external auditor for financial years 2022, 2023 and 2024; reaching agreement with a reputable international auditor has been difficult but the contract is being finalized. - PMB target on net international reserves consistently met. - Financial sector and debt management: - Action plan adopted to implement banking sector reform recommendations (depositor protection, legal and supervisory capacity, regulatory capital compliance). - Action plan adopted to strengthen the institutional framework for debt issuance and management; authorities refrained from non-concessional external financing. - Governance and AML/CFT: - Anti-corruption legislation amended in December 2023 to strengthen investigation and prosecution mandates. - Parliament passed the AML/CFT amendment bill in July 2024. - First National Risk Assessment developed. - Authorities executed UN Conventions related to illicit trafficking and terrorism financing. ### Impact of the oil production shock and key macroeconomic outcomes - Pipeline damage since February 2024 caused sharply lower GDP growth, fiscal revenue, and exports; significant decrease in FX inflows placed depreciation pressures on the South Sudanese pound and impacted inflation. - Monetary financing: - Re-emerged starting in December 2023 after earlier restraint; additional recourse occurred in the first half of 2024 due to sharp fall in fiscal revenues and lack of access to debt financing. It has since slowed down in frequency and volume. - Salary arrears: - Began to accumulate in late 2023 amid efforts to remove ghost workers and improve salary administration; biometric system procurement stalled; pipeline damage and sharp fall in fiscal revenues exacerbated salary payment challenges. - Social spending: - Targets consistently missed throughout the PMB; health and education largely funded by development partners with expectation authorities will ramp up spending over time. - Exchange rate dynamics: - Authorities adjusted toward a flexible ER policy until the oil production shock. Following the shock, accelerated depreciation in the parallel market and apparent modifications of FX auction rules widened the gap between official and parallel rates, peaking in July 2024. - Parallel FX market premium narrowed from 179 percent (observed at end-July 2024) to 43 percent (on September 11, 2024), aided by a recent sharp appreciation of the parallel rate. Authorities reiterated commitment to continue narrowing the premium and eliminating it. ### Selected structural targets and timing (extracts from Table 1) - MoFP to develop and adopt by end-March 2023 an action plan to strengthen institutional framework for debt issuance and management, and formulate a debt management strategy. - Target: Mar-23 - Status: Not met. Action plan adopted by MoFP in June 2023. - National Assembly to adopt amendments to the BoSS Act to align with international best practices. - Target: May-23 - Status: Not met. Amendments adopted by Parliament in August 2023. - BoSS to adopt an action plan to implement recommended banking sector reform action items. - Target: Jun-23 - Status: Met. - Publish all signed oil production sharing agreements and quarterly oil sector reports. - Target: Jun-23 - Status: Not met. Publication of oil production sharing agreements opposed by oil companies; details available in oil reports on Ministry of Petroleum website. - Completion and publication of audit of spending of new RCF disbursement under the FSW. - Target: Sep-23 - Status: Not met (prior action for 1st and 2nd reviews). - Publish the audit of spending financed by FSW disbursement. - Target: Prior action for 1st and 2nd reviews - Status: Met. Audit report completed and published in March 2024; identified weaknesses including procurement process and failure to record some expenditure items in IFMIS, and failure to pay IOM. - BoSS Board to adopt the BoSS financial statements for financial year 2021. - Target: Prior action for 1st and 2nd reviews - Status: Met. - Publish the budget execution reports for Q1 and Q2 of FY2023/24. - Target: Prior action for 1st and 2nd reviews - Status: Met. - Appoint an external auditor to perform BoSS audits for financial year 2022 and beyond. - Target: Jun-24 - Status: Not met. Strengthen the central bank’s safeguards. - Adopt a timebound action plan to clear all salary arrears. - Target: Jun-24 - Status: Not met. Strengthen fiscal discipline. The authorities’ plans are outlined in the draft FY25 budget, which has not been adopted yet. - National Audit Chamber to finalize the external audit of the BoSS financial statements for FY2021 and publish the audit report. - Target: Jun-24 - Status: Not met. Implemented in September 2024. *Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ssdea2024002-print-pdf.pdf* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Background and program status - South Sudan’s Staff Monitored Program with Board Involvement (PMB) was approved on February 17, 2023, with an accompanying disbursement through the Food Shock Window approved on March 1, 2023. - The PMB was extended upon request to expire on November 15, 2024. - The authorities seek completion of the third and final PMB review and continued engagement with the Fund toward a future Fund-supported program under the Extended Credit Facility (ECF). ### Economic impact of the war in Sudan, pipeline shutdown, floods, and refugees - The oil pipeline shutdown in early 2024 carries 70 percent of South Sudan’s oil production through Sudan. - The fall in oil production has lowered economic activity, exports, and revenues, sharply reducing FX receipts and putting depreciation pressures on the South Sudan Pound and creating inflationary pressures. - Oil revenue constituted more than 85 percent of fiscal revenues and 95 percent of exports before the shock. - Flooding affected about 730,000 people and displaced 67,230 nationwide (UNOCHA). - Large influx of refugees from Sudan has exacerbated humanitarian needs and food insecurity. ### Program performance against quantitative and structural targets - Two program targets at end-June 2024 related to the accumulation of net international reserves (NIIR) and non-contracting non-concessional debt were met. - Other quantitative targets for end-June 2024 covering fiscal policy, social spending, non-use of monetary financing, and reserve money growth were missed, partly owing to the oil production shock and coping measures. - Timely preparation of FY23/24 budget execution data was disrupted because the budget execution software was not available for several months. - The 2021 audit of the Bank of South Sudan (BoSS) financial accounts was finalized and published in early September 2024 (albeit with delay). - Contract negotiations to appoint a reputable auditor to perform the audits of BoSS financial accounts for 2022-24 have been lengthened by the prospects of elections in December 2024 and are being finalized. - Through the 2024/25 budget, Cabinet adopted a timebound plan to clear salary arrears in early August 2024. - The 2024/25 draft budget was submitted to Parliament on September 25 and its adoption is planned by end-November 2024. ### Remedial actions and commitments to support PMB completion - Commitment to a plan to repay salary arrears: - The draft budget plan recognizes the salary arrears due to civil servants and provides to pay one month of salary every month during the fiscal year 2024/25 to avoid increasing the number of months of salary arrears. - Two months of salaries for civil servants were paid in July and August 2024, except for foreign missions constrained by FX availability. - Moving forward, commitment to pay one month of salary every month and to gradually repay salaries in arrears as soon as oil production and sales restart for the Dar Blend. - Commitment to refrain from monetary financing as much as possible, starting October 2024. - If monetary financing becomes necessary, commitment to mobilize available instruments to mop up excess liquidity and help contain inflation. ### Progress on governance, transparency, and structural reforms - Amendments to the BoSS Law to strengthen institutional and policy framework. - Parliamentary approval of a new Anti-Money Laundering/Countering Financing of Terrorism Law and development of the first National Risk Assessment. - Execution of UN Conventions related to illicit trafficking, narcotics, transnational crimes and financing of terrorism to address gaps in AML/CFT framework. - Significant progress in building a debt management strategy to support macroeconomic stability and debt sustainability. - Regular publication of quarterly budget execution reports and dissemination of information on oil revenues to increase fiscal transparency. - Steps to boost non-oil revenues through tax policy and administration reforms. - Implementation of a new Treasury Single Account on a subset of central government accounts to strengthen PFM and cash management. - Increased uptake and extension of the maturity on the term deposit facility resulted in meeting monetary policy targets. - Measures taken to ensure exchange rate stability and a further narrowing of the exchange rate gap, with a view to its eventual elimination. ### Fiscal policy stance and revenue measures (FY2024/25 draft budget) - Priorities aim to restore fiscal discipline and place public finances on a sustainable footing. - Commit to boost non-oil revenue mobilization to finance priority expenditures. - Revenue-boosting measures include: - Re-aligning the exchange rate used for custom valuations (using current exchange rate level or a close estimate). - Streamlining tax exemptions. - Accelerating modernization of the revenue authority. - Recruiting personnel to support tax collection and ensure compliance. - Commitment to reinvigorate capacity development with the IMF on revenue administration modernization and tax policy design. - Revenue forecast based on conservative assumptions given high uncertainty related to the return of the damaged pipeline to normal operations. - Although the budget shows a financing gap, expenditures will be strictly prioritized and payments aligned with available resources to prevent recourse to monetary financing. - Commitment to avoid incurring additional salary arrears by observing monthly salary payments and clearing arrears once fiscal outlook improves with pipeline reopening. ### Monetary policy, liquidity management, and exchange rate policy - The Bank of South Sudan (BoSS) remains committed to bringing inflation under control. - Recent inflation upsurge driven by sharp exchange rate depreciation in official and parallel markets and, to a lesser extent, by monetary financing resumed in FY2023/24. - BoSS has stopped and will continue to avoid monetary financing of the budget, except in exceptional cases where limited amounts are needed to address temporary urgent liquidity needs. - Utilization of the Term Deposit Facility to fine-tune liquidity operations and absorb liquidity induced on such occasions, as well as structural excess liquidity. - Continued collaboration with the IMF to strengthen capacity in liquidity forecasting and monetary policy implementation within the reserve targeting monetary policy framework. - BoSS will engage the IMF for capacity development in implementing recommendations of the safeguards assessment. - The Bank will seek to bolster FX reserves once oil exports from the damaged pipeline resume. - Commitment to realign the official exchange rate with prevailing parallel market rates and progressive narrowing of the gap since August 2024. ### External financing, safeguards, and commitments to Fund rules - The authorities reiterate a request for Fund financing through the Extended Credit Facility (ECF) to support reform efforts and significant medium-term balance of payments needs. - Continued collaboration with the IMF and other development partners is sought to scale up financial and humanitarian support and to build technical capacity for reform implementation. - Policy commitments: - Will not introduce measures or policies that would exacerbate macroeconomic imbalances. - Will not impose new or intensify existing trade restrictions. - Will not introduce or intensify existing restrictions on payments and transfers for current international transactions. - Will not introduce or modify multiple currency practices. - Will not enter into bilateral payments agreements inconsistent with Article VIII of the IMF’s Articles or Agreement. - The BoSS will provide IMF staff with requested information on progress in implementing economic and financial policies and achieving program objectives. ### Authorization for publication and attachments - The Government authorizes the IMF to publish this letter, the attached Memorandum of Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU), and the related staff report, including placement of these documents on the IMF website. - Attachments (2): - I. Memorandum of Economic and Financial Policies (MEFP) - II. Technical Memorandum of Understanding (TMU) *Source: Appendix I. Letter of Intent (Republic of South Sudan), Juba, November 1, 2024.* ### 6. We remain committed to implementing prudent measures to safeguard debt ### 6. We remain committed to implementing prudent measures to safeguard debt sustainability ### Debt sustainability commitments and debt management actions - Continue to refrain from contracting new non-concessional loans and engage external creditors to reprofile debt servicing. - Plan to seek CD to enhance debt management and recording and reporting operations. - Will implement recommendations from the joint FAD/MCM technical assistance to: - strengthen the treatment of debt-related flows in the budget; - address gaps in the legal framework; and - enhance the capacity of the Debt Management Unit (DMU) at the Ministry of Finance and Planning (MoFP) as per the Memorandum published in June (IMF Country Report No. 24/160). - Continued commitment to implement the commitment set in the June memorandum. ### Recent progress on governance and transparency - Amendments to the BoSS Law completed. - Parliamentary approval of a new Anti-Money Laundering/Countering Financing of Terrorism Law. - Enhanced fiscal transparency through publication of revenue and budget execution reports. - Publication milestones: - Audit of the RCF disbursement under the FSW published in April 2024. - BoSS’ audited financial statements for 2021 published in September 2024. - Finalizing contract with an external auditor for BoSS’ financial statements for 2022-2024. - Treasury Single Account (TSA) operationalized for a subset of government accounts. - Continued restraint from contracting new non-concessional loans despite tight financing constraints. ### Use of technical assistance and capacity building - Ongoing capacity support in: - budget execution; - revenue administration; - tax policy design; - debt management; and - monetary policy operations. - Continued partnerships with ARITAC East and HQ-based technical assistance providers in PFM, revenue administration, tax policy design, monetary policy operations, and digitalization of financial services in South Sudan. ### Program outcomes and outlook - Strong interest in an upper credit tranche (UCT) arrangement with the IMF upon expiration of the PMB on November 15, 2024. - The PMB has played a crucial role during multiple shocks and enhanced policy track record. - A medium-term UCT-quality program is expected to: - support efforts to restore macroeconomic stability; - preserve debt sustainability; and - advance essential governance and policy reforms; - and help catalyze financing from development partners and build buffers against future shocks. ### Technical Memorandum of Understanding (TMU): Quantitative targets and definitions - The third and final review of the PMB is monitored based on seven quarterly quantitative targets (QTs) and three structural benchmarks. - The seven QTs: i. Floor on non-oil primary balance; ii. Ceiling on central bank net credit to the central government; iii. Floor on the average net international reserves (NIR); iv. Continuous ceiling on contracting or guaranteeing of non-concessional borrowing; v. Floor on salary payments to central government workers; vi. Ceiling on reserve money growth; and vii. Floor on priority social spending. - Measurement conventions: - All revenues and expenditures denominated in foreign currency valued at the program exchange rate of 1,600 SSP/US$ for non-oil primary balance calculations. - Central bank net credit to the central government (NCG) measured as the change in the stock of NCG by BoSS between end-April 2024 and end-June 2024; foreign-currency claims/liabilities valued at 1,600 SSP/US$. - Net international reserves (NIR) defined as reserve assets of the BoSS net of short-term external liabilities; for program-monitoring, reserve and short-term liabilities denominated in SDR, EUR and GBP converted at program exchange rates of, respectively, 0.76, 1.07 and 1.25 against one US dollar. - NIR limits for each test period defined as the average NIR daily stocks during the month of the test period. - Contracting or guaranteeing of new non-concessional external debt applies to debt to non-residents with original maturity of one year or more at non-concessional terms and to guarantees issued to residents and non-residents. - Debt concessionality rule: a debt is concessional if it includes a grant element of at least 35 percent; grant element calculated using the unified discount rate of 5 percent (Executive Board Decision No. 15248-(13/97)); for debts with a grant element equal or below zero, PV set equal to nominal value. - Exceptions to the zero-program target for non-concessional debt/guarantees may apply for: (i) debt management operations that improve key liquidity and/or solvency debt burden indicators without adversely affecting the risk rating; or (ii) transactions that finance critical investment projects with a high social and economic return integral to national development when concessional financing is not available. - Floor on salary payments covers all central government civil salaries, military and armed forces, and foreign mission salaries during May and June 2024; foreign-currency salary payments valued at 1,600 SSP/US$. - Floor on priority social spending includes central government spending on education, health, and humanitarian sectors as defined in the FY2022/23 budget. - Reserve money defined as local currency circulating outside banks plus total reserves for banks and other financial institutions (required and excess) at the BoSS. Limits on reserve money growth defined as the percentage difference between the average daily reserve money during June 2024 and the reserve money stock at end-April 2024, adjusting foreign-currency components for exchange-rate changes. ### Program monitoring and reporting requirements - Structural benchmarks implementation reported to IMF staff within two weeks after programmed implementation date. - Authorities to provide IMF staff with all information required for effective follow-up on economic policy implementation. - Authorities agree to consult IMF staff on any new external debt proposals and report signing of any new external debt arrangements and their conditions. - Text Table 1 reporting requirements (selected items and lags): - MoFP: - Table of government fiscal operations — Monthly — 8 weeks - Government tax and non-oil revenue — Monthly — 8 weeks - Oil production and revenue — Monthly — 8 weeks - Stock of salary arrears of the Central Government — Monthly — 8 weeks - Salary payments in total and by sector — Monthly — 8 weeks - Budget execution report — Quarterly — 8 weeks - Disbursements of External Debt including Newly Contracted Debt of Government — Quarterly — 8 weeks - Projected external debt service — Quarterly — 8 weeks - BoSS: - BoSS balance sheet — Monthly — 4 weeks - Monetary Survey — Monthly — 4 weeks - Detailed FX Auction Results — Weekly — 1 week - List of guarantees issued by the BoSS — Monthly — 1 week ### Guidelines on external debt (excerpt) - Definition of "debt" includes current contractual liabilities requiring future payments in assets or services; primary forms: (i) loans (including deposits, bonds, debentures, commercial loans, buyers' credits, repurchase agreements, official swaps); (ii) suppliers' credits; and (iii) leases (debt is PV at inception of lease of all lease payments expected to be made, excluding payments for operation, repair, or maintenance). - Arrears, penalties, and judicially-awarded damages from failure to make payment under a contractual obligation that constitutes debt are debt. ### Authorities’ statement, recent economic developments, and outlook - Date of statement: November 15, 2024. - Program performance under PMB: - Only two out of seven end-June 2024 quantitative targets were met: the zero ceiling on contracting non-concessional debt and the floor on net international reserves. - All end-June 2024 structural targets were met albeit with delay. - Authorities request completion of the third and final review under the PMB arrangement. - Economic activity and projections: - Real GDP contracted by 5.8 percent in FY2023/24 after a reduction of 1.0 percent in FY2022/23. - Growth projected to rebound to 41.5 percent in FY2025/26 before normalizing to around 5 percent in the medium-term. - Share of oil GDP declined to 57.9 percent in FY2023/24 from 67.5 percent in FY2023/22. - Inflation and external sector: - Inflation accelerated to 52.2 percent in FY2023/24 from 0.9 percent in FY2021/22. - Current account deficit worsened to 11.6 percent of GDP in FY2023/24 from 4.6 percent of GDP in the previous fiscal year. - Central bank reserve buffers expected to rise to 3.6 months of import cover by FY2027/28 from the current 0.3 months as oil exports recover. - Fiscal policy and revenue measures: - External debt at 38.3 percent of GDP in June 2024. - National Revenue Authority (NRA) measures already implemented: higher exchange rate for customs valuation, hiring new staff, and digitalization of tax and customs processes. - Contemplated measures include: (i) a new gaming tax on casino operations; (ii) higher taxes on alcohol, tobacco, and cigarettes; and (iii) revenue administration measures — a new cargo tracking system, tighter tax compliance and fee collection controls, and centralization of tax collection from districts. - Plans to transition to a VAT regime with IMF technical assistance. - Expenditure priorities: spending rationalization, priority social spending, clearance of salary arrears, payroll management, public investment management, strengthened procurement and payment processes, and expansion of TSA scope. - Monetary, exchange rate, and financial sector policies: - BoSS primary objective: price stability. - Authorities committed to refrain from further monetary financing to contain inflationary pressures. - Reforms to improve monetary policy transmission, strengthen coordination of monetary and fiscal policies, and accelerate development of domestic debt markets. - Commitment to advance exchange rate flexibility and orderly elimination of the parallel FX market premium; ER unification intended to bolster FX-related fiscal revenues. - Fund technical assistance considered essential for reforms. *Source: Republic of South Sudan — IMF staff documents and attachments (excerpts from the provided content).* ### 10.1 percent at end of June 2024, while the bulk of banks income is from non-interest ### 10.1 percent at end of June 2024, while the bulk of banks income is from non-interest ### Financial stability actions - The BoSS has taken steps to support financial stability. - Amendment to the 2012 Banking Act approved in November 2023 allows BoSS to undertake consolidated supervision of bank and non-bank institutions, including microfinance and insurance companies. - BoSS is building its capacity with support from Fund TA, which is complemented by peer-to-peer learning at central banks in neighboring countries. ### Structural and governance reforms - Authorities prioritize improving transparency with focus on fiscal and monetary policy transparency and central bank governance. - They have started to publish quarterly budget execution reports as well as data on FX auctions outcomes, key monetary indicators and oil production data on a regular basis. - The BoSS is in the process of implementing recommendations of the IMF Safeguards Assessment (SA) albeit at a slow pace. ### AML/CFT, anti-corruption, and related governance measures - Authorities are making progress towards aligning their frameworks with international standards on AML/CFT. - They have completed their first National Risk Assessment (NRA) and are a party to relevant UN Conventions, although they remain on the FATF grey list. - Authorities remain focused on incorporating the current FATF standards into the AML/CFT Act—with IMF technical support. - They are finalizing the governance and operational rules for the Financial Intelligence Unit. - The anti-corruption law was amended in December 2023 and the Anti-Corruption Commission has been given significant funding under the FY2024/25 draft budget to ensure the effective accomplishment of the entity’s mandate. - Authorities are committed to more efforts to strengthen governance and transparency of the oil-for-infrastructure scheme. ### Conclusion and program engagement - Authorities request Executive Directors’ favorable consideration of their request for the completion of the third and final review under PMB arrangement. - Having kept the PMB arrangement broadly on track under especially difficult circumstances, the authorities view continuing IMF support as vital to successfully sustaining their reform momentum. - Fund technical assistance continue to be vital to help cope with limited capacities in the fragile and conflict-affected country. - Going forward, the authorities are seeking a deeper engagement with the Fund through a UCT-standard arrangement. - Agreement under the Extended Credit Facility (ECF) would help the country tackle protracted BOP needs more effectively and catalyze much-needed additional donor support. *Source: 1ssdea2024002-print-pdf* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ssdea2024002-print-pdf.pdf_