South Sudan’s Economy Shrinks by 6%: IMF Report

South Sudan’s economy has underperformed due to disruptions in oil production and the ongoing conflict in neighbouring Sudan, according to a new report released by the International Monetary Fund (IMF).

By Jenifer James

South Sudan’s economy has underperformed due to disruptions in oil production and the ongoing conflict in neighbouring Sudan, according to a new report released by the International Monetary Fund (IMF).

The third review of the Staff-Monitored Program with Board Involvement (PMB), released on Wednesday notes that the country continues to face several difficult macroeconomic challenges, partly resulting from the spillovers of the war in Sudan and recurrent flooding.

Astou Diouf, the IMF team leader said that the pipeline that carries 70% of South Sudan’s oil exports has been inoperable since February 2024 due to the conflict in Sudan.

 “Repairs have proven difficult because the pipeline runs through Sudan,” the IMF noted.

This has led to a sharp drop in oil exports, which heavily affects South Sudan’s economy, as oil is its primary source of revenue.

IMF said that insecurity along the Red Sea has increased insurance costs for oil cargoes, adding further pressure to the economy.

South Sudan’s real GDP growth for the 2023/24 fiscal year (July 2023–June 2024) is estimated to have contracted by nearly 6%, primarily due to the oil export decline in early 2024.

The IMF said the slowdown is expected to continue into 2024/25 as the oil production issues persist.

“Economic prospects are expected to improve in the medium term as the effects of the shocks recede,” Diouf said.

“The authorities will also work with development partners to continue supporting the vulnerable population and reduce food insecurity,” he added.

Oil revenues, while strong at 16% of GDP by December 2023, were severely impacted by the pipeline damage.

Non-oil revenues increased due to better revenue administration and adjustments in customs exchange rates, but this only partly offset the oil revenue losses.

The pipeline issues also resulted in salary payment arrears and increased monetary financing in early 2024. The government redirected funds from infrastructure projects to more urgent needs, including salary payments. “Investment in oil-for-infrastructure continued, albeit at a slower pace,” Diouf said.

Looking ahead, the IMF noted that the draft budget for 2024/25, submitted to Parliament on September 25, 2024, includes provisions for repaying accumulated salary arrears.

The government has already paid two months’ worth of back salaries in July and August 2024. Additionally, investment is planned for road construction to support the distribution of agricultural products across the country.

On the currency front, the parallel foreign exchange market premium remains high, despite a gradual depreciation of the official exchange rate. The IMF reported that reduced foreign exchange inflows and sporadic monetary financing have led to a 222% depreciation of the parallel market exchange rate from January to September 2024. Inflation also remains a significant concern, with a year-on-year inflation rate of 107.3% as of July 2024, driven by rapid growth in reserve money and limited foreign exchange auctions.

South Sudan’s authorities are working on a broad policy recalibration aimed at stabilizing the economy. This includes short-term adjustments in fiscal, monetary, and exchange rate policies to manage the oil production shock, as well as longer-term governance and transparency reforms.

The IMF mission held discussions with key officials, including Finance Minister Marial Dongrin Ater and Bank of South Sudan Governor James Alic Garang, and will continue talks to complete the third review of the PMB in the coming weeks. Diouf thanked the South Sudanese authorities for their hospitality and productive discussions during the mission.

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