News Analysis: South Sudan needs sound macro-economic policy to tackle crisis: experts

Sound economic policy intervention is needed for South Sudan to address its economic crisis fueled by decreased oil production and surging inflation which nears 300 percent, experts have said.

Experts told Xinhua in the capital Juba on Saturday that the 2012 oil shutdown after a bitter pipeline fee dispute with Sudan, more than two years of civil conflict and a drop in global oil prices set in motion the economic crisis in the world's youngest nation.

The country needs to take bold macro-economic policy intervention and reforms to realistically bring back the battered economy to the path of economic growth and diversify sources of revenue away from over-reliance on oil that finances 98 percent of its fiscal budget.

"South Sudan from the beginning has put all its eggs in one basket -- that's oil which has destabilized macro-economic stability," James Garang, an economist with the Juba-based Ebony Centre for Strategic Studies told Xinhua.

South Sudan's economic growth rate plummeted from 15.9 percent in 2014 to 2 percent in 2015, and its current-account deficit is expected to widen to 35 percent of Gross Domestic Product, according to the World Bank.

The 2015 devaluation of the South Sudan Pounds (SSP) drove the few investors in the country to transfer their hard earned capital to safe havens amid speculation, and the SSP fell further against the U.S. dollar from 32 in April to 50 in June.

"If nothing is done through policy intervention in the exchange rate. It could go up to 200 from 50," Kimo Adiebo, a lecturer of Economics at University of Juba said.

Adiebo said that despite the country facing economic hardship, government expenditure continued to increase unabated that wiped away the meager oil and non-oil revenue that would help fund agriculture, health and education if effectively put to use.

"Since 2005 we have observed that government expenditure has been increasingly wiping out revenue and this has to change," he said.

The International Monetary Fund (IMF) says political reconciliation, marked by the formation of a unity government in April, must now be consolidated and that the unity government should chart a new course toward broad based and inclusive economic development, demonstrating unity and commitment in the coming months.

"The government must do its part by raising non-oil revenue, and cutting expenditures, particularly in the payroll, current operations, travel and investment. There is a need to strengthen expenditure controls, budget preparation, and to limit arrears accumulation," IMF said in June.

"What IMF said here is not new because we have been talking about these recommendations to government over time. If we think that agriculture is the backbone of this economy, then much needs to be allocated to this sector to achieve results on the ground," Garang told Xinhua.

Political economist David Nailo Mayo said the country carried out currency reforms without replenishing its hard currency reserves in the central bank and that there was urgent need to implement the Petroleum Revenue Management Act which calls for separate oil revenue accounts for economic stabilization and future generation.

"We warned that if the devaluation goes on without replenishing hard currency reserves. The economy would experience shocks, but now we are printing more money that may worsen inflation," Mayo said.

He said the country needed to regulate the financial and banking sector to protect consumers from being exploited.

"South Sudan financial institutions are not well regulated. Even today we don't have insurance law. How then could we protect consumers from being exploited," Mayo said.

"We have to negotiate the proposed reforms by IMF, so that we do not harm the ongoing peace agreement implementation," he added.

Experts also cautioned that if gold and gum Arabic were developed, these would help diversify the economy and create jobs for the rising number of unemployed youth.

"Everybody here wants to be employed in government due to the undeveloped and small private sector that is even starved with capital," Mayo said.

According to Adiebo, the government should fast track the construction of a proposed refinery at the Paloch oil field in Upper Nile state that will help in value addition of the oil byproducts, hence widening revenue base.

"South Sudan needs to have the right people not only in the central bank but also other economic sectors. If you go to many of these institutions some of them don't have the right qualified staff," Adiebo said. Endit