## IMF Executive Board Concludes Article IV Consultation

_IMF News, June 4, 2019_

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## Bibliographic details
- Published: June 4, 2019

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### 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.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Republic of South Sudan and the IMF](http://www.imf.org/external/country/SSD/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2019/06/04/pr19197-south-sudan-imf-executive-board-concludes-article-iv-consultation_