IMF urges South Sudan to stop taking oil-backed loans

NAIROBI (Reuters) - South Sudan should stop selling expensive and opaque oil advances, the International Monetary Fund said, because loan resettlements were hindering spending vital for the implementation of a peace deal.

President Salva Kiir and his former deputy Riek Machar signed an accord in September, halting fighting that had uprooted more than a third of the country’s 12 million people.

South Sudan was plunged into war in 2013 after a political disagreement between the two men, who hail from rival ethnic groups, escalated into a military confrontation.

    The government took out loans from several Chinese companies during the war, offering to repay them with future oil proceeds from fields that at their height pumped 350,000 barrels per day.

“On the management of oil revenues, the mission urges the authorities to immediately stop contracting oil advances that are expensive and nontransparent,” said Jan Mikkelsen from the IMF, who lead a mission to Juba

“This measure will also help to ensure that oil revenues will be fully available for financing budgetary spending.” 

The IMF said spending in the remaining part of the 2018/19 fiscal year will be constrained by large repayments of oil revenue advances.  

    “With a tight resource envelope, the authorities should strictly prioritize core peace-related spending and payment of civil servant salaries.”

    The landlocked country has one of the most oil-dependent economies in the world, accounting for more than 95 percent of revenues.

The oil ministry hopes to push production back up to more than 350,000 bpd by the middle of 2020, up from current levels of just over 140,000 bpd.

    Inflation had dropped to 40 percent by the end of last year, down from triple digits, but the central bank needed to address the gap between the official and black-market exchange rates, the IMF said.

“The current dual foreign exchange rate system with a large spread between the official rate and the parallel market rate is unwarranted, as it gives rise to rent seeking and reduces inflows of foreign exchange into the country,” the IMF said.