South Sudan Fragile Economy Threatens Nascent Peace Gains - Experts

Juba — South Sudan's ever widening budget deficit and high inflation in the aftermath of two-year civil conflict and drop in global oil prices are threatening its nascent peace gains, experts have said.

Analysts say the country is caught between a rock and a hard place after its foreign reserves plummeted as President Salva Kiir's administration prioritized financing military operations against former rebels of the Sudan People's Liberation Movement- In opposition (SPLA) led by now First-Vice President Riek Machar.

The two leaders signed a peace deal last August under UN pressure to end more than two years of civil conflict that ushered in the transitional government of national unity, which since formation in April has been facing financial difficulty to deliver badly needed services.

The transitional government is expecting financial aid from the international community.

"The government is faced with difficulties in paying salaries of its civil servants for more than three months amid plummeting oil production and revenue," Abraham Awolich, a senior political economy analyst at the Juba-based Sudd Institute, said on Friday.

He said the failure to pay salaries of most civil servants obviously could rollback peace dividends.

And also the fact that the civil population is awash with guns could jeopardize the little peace gains.

In April, medical workers in teaching hospitals in Juba and Wau went on strike over delayed salaries. Lecturers in five public universities are currently on strike over the same.

Analysts say lack of funding coupled with industrial actions could spill out into violence if the shaky peace deal fails to hold.

"If the government is unable to pay civil servants then it cannot implement peace. The fact is the civil population is awash with guns that is a recipe for chaos," Awolich warned.

The International Monetary Fund (IMF) said South Sudan is experiencing an economic crisis with a sharp decline in national income and high inflation which approaches 300 percent.

The value of the South Sudanese pound has dropped by close to 90 percent since the exchange rate liberalization in December 2015, while the South Sudan central bank's international reserves have dwindled to a few days of import coverage.

"If macroeconomic policies do not change, the economic situation will deteriorate further, resulting in more humanitarian suffering and potentially threatening the still-fragile peace process," IMF said on June 1.

"The deficit in 2016/17 could top 1.1 billion U.S. dollars or 25 percent of GDP which, if again financed through borrowing from the central bank or accumulation of arrears, would continue to fuel inflation and put further downward pressure on the exchange rate," IMF added.

The South Sudanese pound is trading at as high as 42 to the U.S. dollar in June, up from 32 in April.

IMF further cautions that the South Sudan government must do its part by raising non-oil revenue and cutting expenditures, particularly in payroll, current operations, travel, and investment.

IMF urged the government to strengthen expenditure controls, budget preparation, and to limit arrears accumulation.

Adding these measures could reduce the fiscal gap to about 300 million dollars, IMF said.

Alic Garang, a researcher with South Sudan's think tank Ebony Center for Strategic Studies, said the government should heed to recommendations from IMF concerning expenditure control, shielding Bank of South Sudan from political interference as well as building extra reserves to withstand future shocks.

He said the government issued some securities in the past which have not been paid.

The experts called on the government to explore means of widening its non-oil revenue which was on the rise before civil conflict erupted in December 2013 and disrupted the economy.

South Sudan depends on oil revenue to finance 98 percent of its fiscal budget.

Garang said the country needed to maintain peace and make reforms to win back lost trust and credibility from the international community that will help secure its badly needed external financial support.

Xinhua