IMF Executive Board Approves US$ 174.2 Million Emergency Assistance for South Sudan to Address the COVID-19 Pandemic
IMF News, March 31, 2021
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- Published: March 31, 2021
Emergency financing and key figures
- Disbursement approved: SDR 123 million (50 percent of quota or about US$ 174.2 million) under the Rapid Credit Facility (RCF).
- This is the second IMF financial assistance to South Sudan since it joined the IMF in 2012.
- The economy is projected to contract by 4.2 percent in FY20/21.
- A modest economic recovery is projected in FY21/22.
- The RCF disbursement will help finance urgent balance of payments needs and provide fiscal space to maintain poverty-reducing and growth-enhancing spending.
Economic impact and context
- Drivers of the downturn:
- Sharp decline in international oil prices triggered by the pandemic.
- Devastating floods that have eroded economic gains of the peace process.
- Consequences:
- Widened fiscal and balance of payments deficits and large financing gaps in the absence of concessional financing.
- In the past, monetization of the fiscal deficit resulted in high inflation and significant exchange rate depreciation.
- Recent policy moves:
- Since October 2020, authorities stopped monetary financing of the deficit.
- Forex auctions and the halt to monetary financing have helped stabilize the exchange rate.
- Revenue mobilization measures, including phasing out some tax exemptions, have bolstered domestic non-oil revenue in recent months.
Reform programs and conditionality
- A Staff Monitored Program (SMP) will:
- Create conditions for strong and inclusive growth by restoring fiscal discipline.
- Implement a rules-based monetary policy framework.
- Address distortions in the foreign exchange market.
- Transparency measures for RCF resources:
- Regular reports and audits to ensure transparency of the use of RCF resources.
- The authorities committed to publishing monthly reports on pandemic-related spending and making public quarterly audits by the Auditor General.
Governance, fiscal, and monetary policy recommendations (from the Board statement)
- Fiscal discipline and debt sustainability:
- Restore fiscal discipline as key to macroeconomic stabilization and debt sustainability.
- Execute the remainder of the FY20/21 and FY21/22 budgets without arrears accumulation and no recourse to monetary financing.
- Pursue revenue mobilization measures and expenditure rationalization to ensure adequate resource allocation for priority expenditure, including vaccinations, salaries, and critical investments.
- Remain committed to nonconcessional financing and limit external borrowing to only finance critical infrastructure and COVID-related spending.
- Monetary and foreign exchange policy:
- Discontinuation of deficit monetization is critical to enhancing credibility of the macroeconomic framework.
- Foreign exchange reforms should aim to phase out economic distortions, reduce vulnerabilities, and support economic diversification.
- Effectively implement the reserve money targeting framework and reduce distortions in the FX market to support monetary and financial stability.
- Governance and public financial management:
- Strengthen governance to ensure efficient use of public funds and build credibility with the public and development partners.
- Accelerate public financial management reforms, including:
- Implement steps that would strengthen the macro-fiscal framework and the budget process.
- Implement the Treasury Single Account.
- Improve cash management.
- Ensure transparency in the use of RCF resources by publishing monthly pandemic-spending reports and quarterly Auditor General audits.
Board assessment and objectives
- The IMF’s emergency financing under the RCF is intended to:
- Help meet priority spending needs.
- Catalyze donor support.
- Foster critical economic reforms envisaged under the Staff-Monitored Program.
- Prudent fiscal and monetary policies are emphasized as necessary to promote macroeconomic stability.
Press Release No. 21/94, March 30, 2021
