Ukraine war, floods to batter South Sudan’s economy- IMF
The International Monetary Fund (IMF) has said South Sudan’s economy could be poised for a heavy blow from the ongoing Russo-Ukrainian war. According to the lender, the war could result in a high cost of international fuel, which could stretch the food prices that have already soared due to COVID-19 impacts and three years of extensive floods.
The latest IMF findings indicate that floods have caused large output losses in the oil and agricultural sectors, and resulted in a deepening humanitarian situation in the country.
Also, the latest reports by humanitarian agencies say a large population of South Sudan is expected to experience acute food insecurity during the lean season.
It is estimated that the global rise in commodity prices due to the war in Ukraine will increase South Sudan’s revenues from oil exports. Most people will experience the impact in the form of higher prices for food and fuel.
Africa relies heavily on Russian and Ukrainian exports, but sanctions imposed on Russia have disrupted supply and pushed up prices. Wheat, corn, sunflower oil, and fertiliser are among the products affected, along with oil, compounding the impact of political instability and drought.
“Despite these challenges, the authorities are building on last year’s successful monetary and exchange rate reform that eliminated the gap between parallel and official rates and stabilised the value of the South Sudanese Pound (SSP).
Niko Hobdari, the IMF delegate, said the ‘‘removal of restrictions in the foreign exchange market has made it possible for individuals and firms to buy and sell foreign currency at predictable and competitive rates, coupled with prudent control of money circulation by the Bank of South Sudan (BoSS), has resulted to the appreciation of the local currency.’’
He said the appreciation of the SSP has ‘‘mitigated some of the rises in global prices, and added that authorities in the financial sector have reiterated their commitment to refrain from monetary financing of the deficit and keep money growth under control. ’’ According to the IMF official, South Sudan “continues to conduct regular foreign exchange auctions in order to maintain a market-determined exchange rate and to expand instruments available for foreign exchange and liquidity management.”
“The recent approval of the 2021/22 budget by the Transitional National Legislative Assembly (TNLA) presents an opportunity to improve budget management for the remainder of the current fiscal year,” Hobdari said.
Hobdari said the increase in oil prices coupled with good returns from non-oil revenue and the commitments under the Transitional Financial Agreement with Sudan, have increased fiscal space.
The IMF delegate welcomed the authorities’ commitment to progressively reduce salary arrears and eliminate them by the end of the fiscal year, which will reduce the adverse impact of rising food and fuel prices as a result of the war in Ukraine.
Hobdari stated that proceeding ahead, budget releases should be made promptly and in line with approved allocations, based on regular considerations by the recently established cash management committee.
The IMF urged the financial sector authorities to increase the transparency of government revenue and spending, including, publishing quarterly budget execution reports and building additional international reserves to insure against future shocks.
“Performance under the SMP has been broadly in line with expectations.” All but one of the quantitative targets have been met, with the clearance of arrears being the only exception, and progress has been made on a number of structural benchmarks. “
IMF further urged finance authorities to complete and publish the audit of spending financed by disbursements under the Rapid Credit Facility and implement the recommendations of the Auditor General, publish external debt data and ensure its integrity going forward, and also ensure that any future external borrowing is screened by the Loan Committee and approved by the TNLA.
The International Monetary Fund (IMF) delegation led by Mr. Niko Hobdari, visited South Sudan from March 14 to March 25, 2022, and held meetings with President Salva Kiir, First Vice President Riek Machar, First Deputy Speaker of TNLA, Oyet Nathaniel Perieno, and Minister of Finance and Planning Agak Achuil Lual.
The delegate held discussions with the authorities on the Staff-Monitored Program (SMP) and the 2022 Article IV Consultation.
The Staff Monitored Program (SMP) has underpinned key monetary and exchange rate reforms and seeks to support macroeconomic stability and reinforce fiscal discipline and budget transparency.
The completion of the SMP review is expected to continue in the context of the forthcoming spring meetings.