South Sudan needs lasting peace to maintain fiscal stability, says IMF

Inflation is currently at 40 per cent from an earlier peak of 550 per cent in 2016

South Sudan, which broke away from Sudan in 2011 has Africa’s third-largest oil reserves . AP

South Sudan, the world’s youngest country, will need “lasting peace” to restore fiscal stability, according to the International Monetary Fund, which forecast a 6.6 per cent increase in annual economic growth next year if it can maintain an agreement to cease conflict.

The peace agreement signed last year between the South Sudanese government and a rival faction has “improved prospects for lasting peace and economic recovery”, the organisation noted.

Inflation declined to around 40 per cent by year-end from 550 per cent at the height of the conflict in September 2016, with oil production rising by a fifth in the first quarter of the year.

"Without peace and security, the outlook remains extremely difficult, with continuing threats to macroeconomic and financial stability, declining income and deteriorating humanitarian conditions," the IMF said. A sustainable medium-term outlook requires improvements in the political and security situation, robust economic adjustment and reforms, budgetary discipline as well as enhanced oil revenue management, it added.

South Sudan’s economy is heavily reliant on crude revenues, with oil set to account for 28 per cent of total government receipts in the current fiscal year.

The nation of 12.6 million people, which broke away from Sudan in 2011, has Africa’s third-largest oil reserves at an estimated 7 billion barrels. It currently produces below capacity at 165,000 barrels per day after a two-year civil war devastated oil facilities. Crude accounts for nearly all of the country’s export revenues and efforts are underway to modernise South Sudan's oil infrastructure.

In an interview with The National, Awow Daniel Chuang, South Sudan's director general for petroleum authority said the country looked to attract $3 billion across its energy sector over the next five years. Around $1.5bn will be spent upstream in exploration and production, with the remainder to be spent developing downstream assets, particularly building refineries. The country currently has no refineries and exports all of its crude to neighbouring countries. A capacity of at least 80,000 bpd is required, with the products targeted for export to neighbours such as Ethiopia, Kenya and Uganda.

The IMF expressed concern however, over a “lack of transparency” in the financial operations of state oil company Nilepet, and called for an open audit to ensure that its planned investments in oil production and related activities are "cost-effective and growth-enhancing”.

The fund also cautioned that South Sudan’s fiscal policy has been weakened by lack of fiscal discipline, deteriorating public financial management as well as contracting of non-transparent oil advances, which it said has added to the country’s “corruption vulnerabilities”.

The country’s banking sector has yet to revive from the civil war, which began not long after independence, leading to high inflation and strong depreciation in currency. Most banks were heavily under-capitalised and faced rising non-performing loans, noted the IMF.

South Sudan’s plans to pursue a tight monetary policy, with the objective of lowering inflation further and replenishing international reserves would help long-term, it said. The country’s plans to float its exchange rate was a positive move that would help address “external imbalances” and improve the economy’s resilience to shocks, added the IMF.