South Sudan austerity budget in doubt; economic collapse feared - Los Angeles Times

JOHANNESBURG, South Africa -- Just a month after South Sudan announced an austerity budget designed to fend off economic collapse, the struggling country had already failed to meet its targets, a source close to the South Sudanese government acknowledged.

The claim comes on the heels of a leaked World Bank report warning that the world's newest country could collapse in chaos by July because of its decision to shut down oil production, which brought in 98% of its revenue.

The World Bank suggested that if South Sudan managed to cut spending by 43%, to 500 million South Sudanese pounds a month ($120 million), it would still run out of money by October.

But the government's austerity budget target in March was 650 million South Sudanese pounds; by April, the target had risen to more than 800 million South Sudanese pounds, the source said.

The soaring target underscored questions about the government's ability to manage the crisis and raised fears that reserves could run out by June or July, sparking a massive social crisis in a country still emerging from a long independence war with Sudan.

Western nations have warned South Sudan they will not step in with new aid.

South Sudan's controversial invasion last month of Heglig, Sudan's most important oil-producing town, was one reason for its failure to drastically cut spending, as promised, the source said. South Sudan later withdrew under massive international pressure.

"Why invade, even if it is our legitimate land, when you know you are financially vulnerable? This doesn't need economics. It's more common sense and statesmanship," said the source, who spoke on condition of anonymity because he was not authorized to speak publicly about the issue.

South Sudan's spending cuts sidestepped major reductions to its wages for 400,000 civil servants and the army.

"The South Sudanese say they survived through two civil wars without any oil revenues whatsoever, but that's a little disingenuous because they didn't have a government," said one analyst reached in the South Sudanese capital, Juba, who declined to be identified because of the sensitivity of the issue. "You are effectively funding a welfare system for those who carried arms and their families. Most of them are not really productive.

"I am not sure the [government of South Sudan] has really understood how damaging is the situation in which the economy will be." 

South Sudan shut down oil production in February, furious over Sudan's seizure of several shiploads of South Sudanese oil over oil transit fees.

The World Bank's shocked report on the decision was delivered in a Feb. 29 briefing to government officials, and the next day to officials of the U.N. and donor nations.

The language couldn't have been sharper, or blunter. The most damaging contention in the briefing by World Bank official Marco Guigale was that South Sudanese government officials didn't understand the impact of the decision.

The bank's analysis predicted a Zimbabwe-style scenario: a crash in the South Sudanese pound and exponential inflation, which in one of the world's least developed countries would mean hunger and death.

The bank's analysis said the only reason the South Sudanese pound hadn't collapsed was that many people were not economically literate enough to know how grim things were, but that once they realized the severity of the situation, people would take their money out of the country, on foot if necessary.

The leaking of the report could undermine peace talks between the two countries if Sudan believes that waiting a few months could mean the collapse of its new southern neighbor. The U.N. Security Council has threatened sanctions if the two countries don't return to the negotiating table.

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--Robyn Dixon

Photo: A burned-out vehicle is left in Heglig, Sudan, on April 23 after South Sudanese troops invaded the oil-producing region. Credit: EPA/STR