IMF Staff Completes 2016 Article IV Mission to South Sudan

An International Monetary Fund (IMF) staff team led by Jan Mikkelsen, visited Juba from May 23 to June 1 to hold discussions in the context of the country’s 2016 Article IV Consultation.

At the conclusion of the mission, Mr. Mikkelsen made the following statement:

South Sudan has suffered political instability and external shocks over the last two and a half years. Since the civil war started in December 2013, around two million people have been displaced, exacerbating an already dire humanitarian situation. The decline in oil production by almost half and the sharp drop in international oil prices caused large shortfalls in foreign exchange receipts and government revenue. The country is experiencing an economic crisis with a sharp decline in national income and high inflation, which approaches 300 percent. Moreover, the value of the South Sudanese pound has dropped by close to 90 percent since the exchange rate liberalization in December 2015, while central bank international reserves have dwindled to a few days of import coverage.

If macroeconomic policies do not change, the economic situation will deteriorate further, resulting in more humanitarian suffering and potentially threatening the still-fragile peace process. The deficit in 2016/17 could top US$1.1 billion or 25 percent of GDP which, if again financed through borrowing from the central bank or accumulation of arrears, would continue to fuel inflation and put further downward pressure on the exchange rate.

The mission stressed that restoring macroeconomic stability would require collaborative efforts from South Sudan and its development partners. The government must do its part by raising non-oil revenue and cutting expenditures, particularly in the payroll, current operations, travel, and investment. Moreover, there is a need to strengthen expenditure controls, budget preparation, and to limit arrears accumulation. These measures could reduce the fiscal gap to about US$300 million. Meanwhile, the central bank should regain control over monetary policy by refraining from lending to the government, setting inflation on a decelerating path, and gradually start replenishing its international reserves.

Further fiscal adjustment beyond these measures would make it impossible for the government to meet its obligations, including expenses related to the peace agreement, suggesting a need to cover this remaining gap from external sources. Strong policy efforts by the government could lay the basis for donors to play a role in providing support to close the fiscal gap, including through budget support. The mission urges the government to restore credibility by not only preserving peace and the rule of law, but also by starting to implement a stronger public financial management framework and enhancing transparency in its financial transactions.

The peace agreement signed in August 2015 has now registered significant progress with the formation of the Transitional Government of National Unity (TGoNU). However, political reconciliation must now be consolidated and the TGoNU should work as a cohesive government for it to chart a new course toward broad-based and inclusive economic development. Demonstrating unity and commitment in the coming months to economic stabilization and strengthening public financial management will be key steps to rebuilding policy credibility and regaining access to external financial support.

The mission met with President Salva Kiir, First Vice President Riek Machar, Vice President Wani Igga, Minister of Finance Deng Athorbei, Central Bank Governor Kornelio Mayik, several other ministers and high-level officials, parliamentarians, and representatives of the diplomatic community and of the civil society. The team wishes to express its gratitude to the South Sudanese authorities for the constructive discussions and their hospitality.

The IMF Executive Board is expected to discuss the 2016 Article IV Consultation in August 2016.rdquo;

Source: International Monetary Fund (IMF).