IMF Executive Board Concludes Article IV Consultation
IMF News, June 4, 2019
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- Published: June 4, 2019
Background and Humanitarian Crisis
- Executive Board concluded the Article IV consultation with the Republic of South Sudan on May 29, 2019.
- Since December 2013, South Sudan has been hit hard by a civil war and falling oil prices; conflict along ethnic lines left hundreds of thousands dead.
- A relapse into war in mid-2016 spread insecurity, severely affected economic activities, and exacerbated the humanitarian crisis and food insecurity.
- About 40 percent of the population are either internally displaced or live as refugees in neighboring countries.
- More than half of the population currently requires humanitarian assistance.
Economic Performance and Living Standards
- South Sudan is in a deep economic crisis; economic conditions deteriorated rapidly since late 2013.
- Real GDP and income:
- Real GDP is estimated to have declined by 2.4 percent in 2017/18, adding to a cumulated decline of about 24 percent in the last three years.
- Overall, real disposable income (adjusted for terms of trade) is estimated to have declined by about 70 percent since independence in 2011.
- Poverty headcount ratio increased from 50 percent in 2012 to about 82 percent in 2016.
- Inflation and exchange rate:
- Inflation has gradually declined to about 40 percent in December 2018 from a peak of 550 percent in September 2016.
- The exchange rate depreciated substantially in the last 18 months.
- Oil production:
- Reopening of some damaged oil wells after the September 2018 peace agreement pushed up daily oil production (export) by about 20 percent in February 2019.
Fiscal Policy, Public Finance, and Arrears
- Fiscal policy weakened by loss of fiscal discipline, deteriorating public financial management, and contracting of non-transparent oil advances, increasing corruption vulnerabilities.
- Revenue shortfalls led to deep cuts in expenditure, including wages and operating expenses, containing the cash deficit to an estimated 2.8 percent of GDP in 2017/18.
- Cash rationing caused arrears to grow; civil servants’ salaries lagged by at least 3 months.
- In the first half of 2018/19, the fiscal path ran essentially a balanced cash deficit and maintained 3–4 months of salary arrears.
Banking Sector and Financial Stability
- The banking sector has not recovered from the civil conflict, high inflation, and strong currency depreciation.
- Many domestic banks are heavily undercapitalized and face rising non-performing loans.
Medium-Term Outlook and Risks
- Outlook faces significant downside risks; without peace and security, the outlook remains extremely difficult with continuing threats to macroeconomic and financial stability, declining income, and deteriorating humanitarian conditions.
- Conditions required for a sustainable medium-term outlook:
- Sustained improvements in the political and security situation.
- Robust economic adjustment and reforms.
- Budgetary discipline.
- Enhanced oil revenue management.
- Under these assumptions:
- Fiscal deficit is projected to average 1–2 percent of GDP in the coming years assuming a robust recovery in oil production and higher capital spending.
- Annual GDP growth could increase to about 6 percent a year, reflecting a recovery in oil production and in non-oil GDP.
Selected Economic Indicators (highlights from Table 1)
- Real GDP (percent change):
- 2016/17: -13.0
- 2017/18: -2.4
- 2018/19 (proj.): 3.4
- 2019/20 (proj.): 8.1
- 2020/21 (proj.): 6.6
- 2021/22 (proj.): 5.5
- 2022/23 (proj.): 5.6
- Inflation (average):
- 2016/17: 384.9
- 2017/18: 125.8
- 2018/19 (proj.): 33.5
- 2019/20 (proj.): 26.4
- 2020/21 (proj.): 11.0
- 2021/22 (proj.): 9.2
- 2022/23 (proj.): 8.2
- Inflation (end-of-period):
- 2016/17: 361.9
- 2017/18: 88.5
- 2018/19 (proj.): 27.2
- 2019/20 (proj.): 14.0
- 2020/21 (proj.): 9.5
- 2021/22 (proj.): 8.5
- Exchange rate (SSP/US$, average):
- 2016/17: 85.3
- 2017/18: 127.8
- 2018/19: …
- Exchange rate (SSP/US$, end period):
- 2016/17: 117.0
- 2017/18: 140.2
- 2018/19: 157.11 (note: exchange rate as of April 24, 2019)
- Money and credit (selected):
- Broad money 2016/17: 87.2; 2017/18: 64.3; 2018/19 (proj.): 33.4
- Reserve money 2016/17: 96.6; 2017/18: 34.0; 2018/19 (proj.): 19.1
- Credit to non-government sector 2016/17: 171.7; 2017/18: 114.1; 2018/19 (proj.): 26.1
- M2/GDP (percent) 2016/17: 19.7; 2017/18: 16.8; 2018/19 (proj.): 16.7; 2019/20 (proj.): 15.7; 2020/21 (proj.): 15.4
- Central government budget (percent of GDP):
- Total revenues and grants: 2016/17: 36.5; 2017/18: 28.6; 2018/19 (proj.): 31.5; 2019/20 (proj.): 32.0; 2020/21 (proj.): 35.8; 2021/22 (proj.): 39.2; 2022/23 (proj.): 40.6
- Of which: Oil 2016/17: 32.8; 2017/18: 24.5; 2018/19 (proj.): 27.4; 2019/20 (proj.): 27.9; 2020/21 (proj.): 31.7; 2021/22 (proj.): 35.1
- Of which: Non-oil tax revenue 2018/19 (proj.): 3.2; 2019/20 (proj.): 3.7; 2020/21 (proj.): 4.1
- Expenditures 2016/17: 36.8; 2017/18: 31.4; 2018/19 (proj.): 32.6; 2019/20 (proj.): 38.9; 2020/21 (proj.): 39.4
- Current expenditures 2016/17: 36.1; 2017/18: 31.1; 2018/19 (proj.): 30.8; 2019/20 (proj.): 30.5; 2020/21 (proj.): 32.9; 2021/22 (proj.): 34.7
- Transfers to Sudan (of which): 2016/17: 16.0; 2017/18: 15.9; 2018/19 (proj.): 13.3; 2019/20 (proj.): 11.9; 2020/21 (proj.): 12.6; 2021/22 (proj.): 12.4; 2022/23 (proj.): 6.4
- Net acquisition of non-financial assets 2016/17: 0.7; 2017/18: 0.4; 2018/19 (proj.): 2.2; 2019/20 (proj.): 2.9; 2020/21 (proj.): 4.2; 2021/22 (proj.): 8.9
- Overall balance (cash) 2016/17: -0.3; 2017/18: -2.8; 2018/19 (proj.): -0.6; 2019/20 (proj.): 0.2; 2020/21 (proj.): 1.2
- Change in arrears 2016/17: 4.5; 2017/18: 3.3; 2018/19 (proj.): 2.4; 2019/20 (proj.): -0.4
- Overall balance (accrual balance) 2016/17: -4.8; 2017/18: -2.5; 2018/19 (proj.): -1.3; 2019/20 (proj.): 0.5
- Public debt:
- Total Public Debt 2016/17: 46.8; 2017/18: 43.0; 2018/19 (proj.): 35.9; 2019/20 (proj.): 34.2; 2020/21 (proj.): 38.2; 2021/22 (proj.): 51.9; 2022/23 (proj.): 51.6
- Of which: external public debt 2016/17: 37.2; 2017/18: 34.6; 2018/19 (proj.): 31.6; 2019/20 (proj.): 30.2; 2020/21 (proj.): 34.4; 2021/22 (proj.): 45.0; 2022/23 (proj.): 44.9
- External sector and reserves:
- Export of goods and services 2016/17: 54.3; 2017/18: 68.7; 2018/19 (proj.): 60.3; 2019/20 (proj.): 64.4; 2020/21 (proj.): 75.6; 2021/22 (proj.): 84.3; 2022/23 (proj.): 88.9
- Imports of goods and services 2016/17: 80.0; 2017/18: 83.5; 2018/19 (proj.): 70.0; 2019/20 (proj.): 84.9; 2020/21 (proj.): 95.7; 2021/22 (proj.): 96.9
- Current account balance (including grants) 2016/17: -3.0; 2017/18: -4.5; 2018/19 (proj.): -6.4; 2019/20 (proj.): -1.8; 2020/21 (proj.): -1.9; 2021/22 (proj.): -0.7
- Current account balance (excluding grants) 2016/17: -37.5; 2017/18: -32.9; 2018/19 (proj.): -27.9; 2019/20 (proj.): -27.1; 2020/21 (proj.): -26.2; 2021/22 (proj.): -29.8; 2022/23 (proj.): -26.1
- Gross foreign reserves (millions of US dollars) 2016/17: 28.3; 2017/18: 33.0; 2018/19 (proj.): 41.3; 2019/20 (proj.): 72.3; 2020/21 (proj.): 137.2; 2021/22 (proj.): 253.0; 2022/23 (proj.): 513.0
- Gross foreign reserves (in months of imports) 2016/17: 0.8; 2017/18: 1.4; memorandum items: 12.8; 13.2; 13.6; 14.4; 14.9
- Oil and GDP nominal:
- Oil production (millions of barrels) 2016/17: 42.0; 2017/18: 43.5; 2018/19 (proj.): 48.6; 2019/20 (proj.): 56.4; 2020/21 (proj.): 62.0; 2021/22 (proj.): 64.8; 2022/23 (proj.): 67.2
- South Sudan’s oil price (US dollars per barrel) 2016/17: 42.3; 2017/18: 53.4; 2018/19 (proj.): 56.9; 2019/20 (proj.): 52.6; 2020/21 (proj.): 52.3; 2021/22 (proj.): 51.5
- Brent price (US dollars per barrel) 2016/17: 49.8; 2017/18: 60.6; 2018/19 (proj.): 63.7; 2019/20 (proj.): 59.1; 2020/21 (proj.): 58.6; 2021/22 (proj.): 57.9; 2022/23 (proj.): 58.2
- Nominal GDP (billions of SSP) 2016/17: 276.1; 2017/18: 532.2; 2018/19 (proj.): 713.0; 2019/20 (proj.): 913.8; 2020/21 (proj.): 1,062.8; 2021/22 (proj.): 1,204.9; 2022/23 (proj.): 1,363.5
- GNI per capita (US dollars) 2016/17: 230.7; 2017/18: 233.2; 2018/19 (proj.): 280.1; 2019/20 (proj.): 272.8; 2020/21 (proj.): 253.2; 2021/22 (proj.): 234.0; 2022/23 (proj.): 232.0
- Nominal GDP (percent change) 2016/17: 327.1; 2017/18: 92.7; 2018/19 (proj.): 28.2; 2019/20 (proj.): 13.4
Executive Board Assessment and Policy Recommendations
- General assessment:
- Directors commended signing of the revitalized peace agreement and stressed that lasting peace is critical to restoring macroeconomic stability and improving living conditions.
- Directors noted the country faces a deep economic and humanitarian crisis and emphasized decisive implementation of key reforms to restore macroeconomic stability, strengthen economic buffers, improve governance, and rebuild credibility with the international community.
- Fiscal and revenue management:
- Welcomed removal of domestic fuel subsidies and liberalization of the fuel market.
- Welcomed authorities’ efforts to reduce central bank budgetary financing, contributing to lowering inflation.
- Urged the restoration of fiscal discipline and strengthening of oil revenue and public financial management.
- Called for implementation of planned measures to discontinue contracting oil advances and to arrest off‑budget transactions.
- Encouraged non‑oil revenue mobilization to underpin needed fiscal consolidation while creating space for increased spending in education, health, infrastructure, and rural development.
- Recommended fast‑tracking the operationalization of the newly‑created National Revenue Authority.
- Monetary and exchange rate policy:
- Welcomed the authorities' intention to pursue a tight monetary policy, including abstaining from providing credit to government, to lower inflation, gradually replenish international reserves, and remove distortions in the foreign exchange market.
- Called for actions to liberalize the foreign exchange market and abolish the surrender requirements.
- Concurred that the exchange rate should be market‑determined to help address external imbalances and improve resilience to shocks.
- Financial sector and governance:
- Welcomed the Bank of South Sudan’s commitment to strengthen financial stability, including adopting a sound banking resolution framework and addressing undercapitalization of banks that do not meet minimum capital requirements.
- Encouraged efforts to strengthen the AML/CFT framework.
- Noted additional reforms, including to improve governance, are needed to foster more diverse, inclusive growth.
- Expressed concern about the lack of transparency of Nilepet’s financial operations and called for a transparent audit to ensure planned investments are cost‑effective and growth‑enhancing.
- Stressed the importance of auditing the current stock of domestic arrears and developing a credible clearance strategy.
IMF Communications Department; Press Release No. 19/197; June 4, 2019.
