News Analysis: South Sudan's printing of more money will exacerbate inflation, experts say

Experts have said that last week's decision by the Bank of South Sudan to print more money into the economy will create additional inflationary pressure on the local South Sudanese Pound (SSP) driving it to its lowest value against the U.S. dollar.

Annual inflation peaked 835.7 percent by October, leaving the SSP exchanging now at 86 per U.S. dollar from 32 in April.

Analysts revealed to Xinhua on Thursday in the capital of Juba that despite being driven by the need to fill the SSP shortage in the market, the decision by the central bank to print more currency in the estimate of 5 billion SSP will only address short-term needs but later exacerbate inflation.

This is despite the Central Bank governor Kornelio Koryom quelling public anxiety that the printed money will only replace worn out notes and also help meet arrears of civil servants.

"The presence of the money printed will not affect the economy unless you release it into the economy. And if you release it into the economy and back up with foreign currency or goods and services it will not affect the economy," he said.

Besides, experts worry that deficit-financing will widen the public debt due to excessive borrowing by government from the market crowding out the nascent private sector that badly needs hard currency.

"Currently what we are doing is to terminate deficit-financing. There are other ways which we have recommended to finance the gap through external borrowing, commercial banks and sell of treasury bills," Koryom revealed.

He added that there was urgent need to strengthen non-oil revenue collection and management to fill the financial void created due to shrinking oil revenues.

Lecturer of Economics at Upper Nile University James Alic Garang told Xinhua that the central bank was placed between a rock and a hard place due to scarcity of SSP and that necessitated a need to inject new liquidity into the market via new banknotes.

"This is a normal procedure and all central banks do it. Second, the last printing of new banknotes was done many years ago. This new printing was thus expected to happen at some point," he said.

However, he conceded that the development will create inflationary pressure on the battered economy as consumers will feel the pinch resulting from high prices of imported goods.

South Sudan depends entirely on oil to finance 98 percent of its fiscal budget and yet ongoing conflict and fall in global oil prices have reduced oil production and revenue.

Oil production is at its lowest at less than 130,000 barrels a day from 350,000 bpd since independence in 2011.

Garang added that the economy is carrying undue burden resulting from the more than two years of war which must stop to allow the parties to fully implement the signed August 2015 peace agreement, hence reducing the inflationary pressure on the economy.

"Second, continue to reform economic institutions of governance for better. Third, increase oil production if that is possible. Increased production means more sales and we can fetch some revenue even if the price globally remains low," he said.

However, political economy analyst Jacob Dut Chol, says that printing more money amid shrinking foreign reserves in the central bank creates further inflation and instead the central bank will be earning more debt on its books.

"It's basically a dangerous thing which works for short- term but instead you need to fix the revenue management, corruption and excessive public spending," he said.

Juba-based International Institute for Research and Development (IIRAD) analyst Glamourson Eales, says that this will drive up the existing high cost of doing business due to shortage of hard currency to import goods.

"The health of the economy is important to livelihoods and this may lead to increase in petty crime and corruption," he revealed.

He added that South Sudan first devalued the SSP in 2015, and printing of more money may lead to further depreciation of the SSP like the case of Zimbabwe's dollar which has lost value with the latter resorting to issuing bond notes to solve shortage of hard currency.

"The government should reduce expenditure and stick to living within its limits. And to solve this may take years, unless the economy starts to perform and create jobs," he added. Endit