IMF Executive Board Concludes 2016 Article IV Consultation with the Republic of South Sudan
IMF News, March 23, 2017
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- Published: March 23, 2017
Overview
- On March 15, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of South Sudan.
- South Sudan faces enormous economic and humanitarian challenges after internal conflict and external shocks, including relapse into violence after April 2016, deaths of thousands, severe food insecurity for nearly half of the population, substantial refugee flows, and declared famine in some areas.
Economic conditions and recent developments
- Real GDP growth declined by nearly 20 percent in the two years through 2015/16.
- Annual inflation rose to about 550 percent in September 2016 before declining to 370 percent in January 2017.
- Oil production and export proceeds declined due to conflict and the collapse of oil prices.
- Falling government revenue and rising security-related spending caused the fiscal deficit to rise rapidly.
- Monetization of the fiscal deficit led to strong money growth, high inflation and precipitous exchange rate depreciation.
- Since December 2015, the South Sudanese pound has lost more than 95 percent of its value against the U.S. dollar.
- Authorities passed a new budget for 2016/17 in late 2016 incorporating fiscal measures; preliminary information indicates a substantial reduction in the fiscal deficit for the first half of the fiscal year and significant moderation in money growth.
Medium-term outlook and scenarios
- The medium-term outlook faces challenges and significant downside risks.
- A sustainable medium-term outlook depends on: progress on normalization of the political and security situation; sustained economic adjustment and reforms; and renewed access to external financing.
- Assuming that peace is achieved:
- The fiscal deficit could fall to 2–3 percent of GDP in the coming years consistent with a return to single digit inflation and exchange rate stability.
- In the next five years, annual GDP growth could increase to 5-6 percent, reflecting a recovery in oil production and in non-oil GDP.
Executive Board assessment and policy recommendations
- Directors emphasized the need for a credible path towards lasting peace and decisive economic stabilization; without these, the country risks a spiral of deteriorating economic performance and worsening security conditions.
- Humanitarian access: Directors called on the authorities to ensure that aid organizations have access to all areas of the country to deliver assistance.
- Fiscal policy:
- Restoring fiscal discipline is necessary to reduce money expansion, help reduce inflation and restore external stability.
- Directors welcomed the 2016/17 budget and measures, including a decision to stop monetizing the deficit and improve public financial management.
- Directors urged implementation of adopted revenue measures and spending cuts, and additional measures to reduce domestic financing to a level consistent with macroeconomic stability.
- Improve expenditure management and prevent domestic arrears by enforcing monthly budget allocations, strictly controlling extra-budgetary expenditures, and setting up 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.
- Monetary and financial sector policies:
- Tighten monetary policy to reduce inflation and gradually replenish international reserves.
- Enforce statutory minimum reserve requirements and minimum capital for all banks to reduce vulnerabilities in the banking system.
- Acknowledge progress in liberalizing the exchange rate regime and eliminating several exchange restrictions and multiple currency practices.
- Medium-term fiscal priorities:
- Reprioritize budgetary spending from security-related outlays towards public services and infrastructure investment.
- Seek assistance to develop a coherent and well prioritized public investment program given capacity constraints.
- Seek donor support for a disarmament, demobilization and reintegration program.
- Debt and financing:
- Directors noted that South Sudan is in debt distress despite moderate levels of external debt because of civil war, decline in oil prices and high fiscal spending.
- Steadfast implementation of announced adjustment policies and a return to peace would improve the debt outlook and allow for a gradual resumption of external financing.
Selected economic indicators (fiscal year July to June; data correspond to fiscal year)
- Country and social indicators:
- 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
- Key export markets: China, Malaysia
- Paved road density: 0.02km/100km2
- Selected time-series indicators (2013/14 Act.; 2014/15 Prel.; 2015/16 Proj.; 2016/17)
- 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 (% 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; 33.0; 33.7; (2016/17 data not separately listed)
- 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: 23.2 (2013/14)
- 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
- Balance of payments
- 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; 0.2
- External debt (% GDP): 4.2; 5.5
- Exchange rate
- Official rate (SSP per dollar; period average): 3.0; 16.9; …
- Parallel market rate (SSP per dollar; period average): 4.3; 6.6; 23.8
Press Release No. 17/97, March 23, 2017, IMF Communications Department.