IMF Staff Completes Visit to South Sudan

IMF News, March 18, 2019

Source details

Press Release No. 19/79; mission dates: March 5-15, 2019.
A staff team from the International Monetary Fund (IMF), led by Jan Mikkelsen, conducted discussions of the 2019 Article IV Consultation.
The IMF Executive Board is expected to complete the 2019 Article IV consultation in May 2019.

South Sudan is facing a deep economic crisis following several years of conflict.
About half of the country’s population is estimated to face food insecurity.
More than 4 million people are displaced.
The resumption of hostilities in July 2016 severely impaired the economy, producing substantial loss of income, high inflation, foreign exchange shortages, and acute deterioration in humanitarian conditions.
The conflict has led to the loss of fiscal discipline and weakening of public institutions.

The September 2018 peace agreement has significantly increased the prospects for lasting peace, restoring macroeconomic stability, and returning to positive economic growth.
Implementation of the peace agreement and cessation of hostilities in large parts of the country contributed to a peace dividend in the form of increased daily oil production of about 20 percent.
Inflation declined to about 40 percent by end-2018 from triple digits previously.

Fiscal conditions for the remainder of 2018/19 will be constrained by large repayments of oil advances.
Development partners continue to support South Sudan through humanitarian assistance amounting to about US$1.5 billion annually.
The mission urges the authorities to immediately stop contracting oil advances that are described as expensive and nontransparent.
Stopping oil advances is recommended to help ensure that oil revenues will be fully available for financing budgetary spending.
With the clearance of oil advances in the current fiscal year, the 2019/20 budget can be based on a predictable revenue stream.
The mission advises formulating a balanced 2019/20 budget with appropriately prioritized allocations for:
- the peace process,
- the costs related to the formation of the enlarged Revitalized Transitional Government of National Unity,
- paying salary arrears to civil servants.
Authorities are encouraged to improve collection of non-oil revenue via the newly-formed National Revenue Authority.

The central bank should continue tight monetary policies and refrain from lending to the government, to keep inflation on a decelerating path and gradually replenish foreign exchange reserves.
The current dual foreign exchange rate system with a large spread between the official rate and the parallel market rate is unwarranted; it gives rise to rent seeking and reduces inflows of foreign exchange.
The mission calls for normalizing the foreign exchange market by:
- discontinuing the so-called special accounts (whereby numerous foreign account holders are forced to sell foreign exchange at the official rate), and
- letting banks freely determine their buying and selling rates.

Full dedication to peace, economic stabilization, and robust oil management will be key in rebuilding policy credibility and regaining access to external financial support.
Restoring macroeconomic stability requires collaborative efforts by South Sudan and its development partners, with external support directed towards implementation of the peace agreement.
The government must restore budgetary discipline, strengthen oil management and transparency, and apply rigorous priorities on spending with due consideration to peace-related spending.
With a tight resource envelope in 2018/19, authorities should strictly prioritize core peace-related spending and payment of civil servant salaries.

The mission met with First Vice President Deng Gai, Minister of Finance Mabiordit, Central Bank Governor Ngor, other high-level government officials, and representatives of the diplomatic community, private sector and civil society.
The team expressed gratitude to the South Sudanese authorities for constructive discussions and hospitality.

IMF Communications Department, March 18, 2019.