After War, Economic Crisis Hits South Sudan
By Charlton Doki
JUBA, Jun 1 (IPS) - The United Nations has warned that despite the austerity
measures put in place by South Sudan to deal with its economic woes,
humanitarian agencies will have to increase relief efforts in order to keep
the country's poor alive as the financial situation worsens.
"It is going be the humanitarians who are going provide the assistance that
is necessary to help families survive," U.N. humanitarian coordinator in
South Sudan Lise Grande told IPS.
The
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economic crisis was triggered by South Sudan's decision to shut down oil
production, which accounts for 98 precent of the country's revenue, at the
end of January following a
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n/%22http:/www.ips.org/africa/2012/04/sudans-president-rules-out-talks-with-
south/%22> dispute with Sudan over fees charged to use its pipelines.
The government introduced austerity measures shortly afterwards, which
include cutting essentials such as investments, halving expenditure on
government institutions, limiting borrowing to only fund activities that
will stimulate economic growth such as infrastructure development, and
intensifying tax revenue collection efforts.
The government has also resorted to heavy international borrowing, acquiring
a number of large loans from foreign banks in order to ease the financial
crisis.
However, Grande told IPS that if the government ran out of money to provide
health care and education, communities would be badly affected.
"We are all worried that as austerity bites deeper and deeper into
households, it is going be the humanitarian agencies that are going have to
step up their operations, step up their support to help those families pull
through," Grande told IPS.
While economists and the World Bank warn that South Sudan's economy could
totally collapse before the end of the year, leaders here insist that this
is not true. (The local
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Sudan Tribune reported on May 6 that
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leaked documents from the World Bank claimed that the country could possibly
face "state collapse".)
"South Sudan will go for as long as it takes. We have no plan to collapse as
some of the people who are not wishing us well would like to believe. We
have no plan to die. We are here to stay," Finance and Economic Planning
Minister Kosti Manibe told IPS.
However, the cessation of oil production has led to an acute shortage of
foreign currency. Consequently the local currency has declined drastically
against the dollar. The official rate is 2.95 South Sudanese Pounds to the
dollar, but it has plunged to five pounds to the dollar on the black market
from 3.5 in January. In an earlier interview with IPS, Grande said that
prices of basic commodities in border communities have risen as much as 200
percent.
Consequently, fuel is now scarce and prices have increased to about 30
pounds (six dollars) per litre for both diesel and petrol, compared to six
pounds before the crisis.
In addition the country's inflation rate jumped to 50.9 percent in March
from 21.3 percent in February, South Sudan's statistics office said.
"Times are hard. That is true, but we have measures to deal with them and we
will (survive). just like we did during the difficult times of the war,"
Manibe insisted. The country, which was formerly part of Sudan, was
embroiled in a civil war from 1983 to 2005.
However, Spencer Kenyi, an environmental economist and World Bank consultant
on the private sector in South Sudan, said it was wrong for the government
to use its people's ability to endure hardships as an excuse for its failure
to address the current economic challenges.
"People suffered during the war but it was not their wish. They had no
choice. The government needs to create some semblance of order by not only
implementing policy but also by implementing the right policy to improve the
lives of people," he said.
He is one of the many who have criticised the government's decision to stop
oil production saying it was taken prematurely without any prior
consideration or preparation for the consequences.
Meanwhile, the government has stated that is currently relying on reserves
from savings it claims where accumulated over the last seven years. While
the government has not revealed how much money it has in hand, it said that
the funds would last for 18 months.
"If these reserves run out, it is obvious that the economy will collapse.
There are already a few signs showing that the system is beginning to
collapse. The fact that there is no longer fuel in filling stations shows us
that unless we do something drastic, the economy will soon collapse. The
lack of fuel affects all aspects of our lives," said Kenyi.
Former Finance and Economic Planning Minister Arthur Akuein Chol has also
criticised the government for not diversifying into other forms of revenue
generation apart from oil. He said that government's campaign, launched in
May, to increase non-oil revenue tax collection by 300 percent over the next
six months would not generate significant income.
However, Manibe said the government's collections in the last three months
had increase fourfold.
"But we also will tax non-traditional sources that we had not used before
now. These include areas that were once a jurisdiction of the government of
Sudan, which have now come to us like the issuing of licences. This includes
licensing, for example, telecommunications, licences for concessions in the
field of oil exploration and development, and licences for mining," he told
IPS.
In May South Sudan secured a 100-million-dollar loan from the National Bank
of Qatar to finance the import of essential goods and services including
fuel, food and medicines. It is understood that the government is also in
the process of securing another 100-million-dollar loan from Stanbic Bank
and another 500-million-dollar loan from a yet an undisclosed source.
In April China agreed to give the new country a loan of eight billion
dollars that South Sudan said would be used to fund South Sudan's
infrastructure development.
The exact terms of these deals have not been published, but it is understood
that repayment will be tied to future oil revenues.
Kenyi said that instead of borrowing money, the government should have
approached international financial institutions like the World Bank and the
International Monetary Fund and donor countries with which it could reach
bilateral arrangements for grants.
However, Kenyi warned that South Sudan's emerging economy could suffer
serious consequences if it started to rely on loans so early in its
democracy.
"Any money obtained in grants should not be used luxuriously. It should be
used only to provide essential services such as medical care to the ordinary
people and to undertake development work," said Kenyi.
A May 17 report by the campaign group, Global Witness, called on South Sudan
to exercise caution and total transparency in pursuing oil-backed financing.
The group asked the government to publicise details of any loan agreement to
prevent exploitative terms, corruption, and mismanagement from undermining
immediate benefits.
Meanwhile, Grande says that the U.N. will do all it can to help those
affected by food insecurity.
"We will reach people with food assistance as the lean season progresses and
austerity bites deeper," she said. "The U.N.'s World Food Programme will
provide food aid to 2.7 million people out of 4.7 million people who need
food aid this year," Grande added.
Kenyi cautioned that humanitarian agencies could not shoulder the entire
burden of taking care of South Sudan's people.
"The U.N. and other aid agencies can only help refugees and internally
displaced people. I do not believe that they will feed, cloth, and provide
medical care for the whole population," he said.
But he did not see many countries rushing forward to offer aid: "European
countries have their own problems and it is unlikely that they will keep on
donating money to NGOs to come and support the South Sudanese."
(END/2012)
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Received on Fri Jun 01 2012 - 21:25:15 EDT
