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South Sudan Hunts for Loans as Oil-Output Halt Dents Economy

May 11 (Bloomberg) -- South Sudan is negotiating loans to boost the value of its currency and keep its economy afloat as foreign-exchange reserves decline after the country halted oil production, Deputy Finance Minister Marial Awou Yol said.

The East African nation has secured a $100 million line of credit from Qatar National Bank and will receive a $500-million loan within a month from an unidentified provider, Yol said in an interview in Juba, the capital, on May 8. Loans are also being sought from countries including China.

“We have oil in the ground, we can mortgage this oil for money,” Yol said. Lines of credit will be used to give importers access to foreign currency to buy goods including fuel, and future loans will allow the government to release dollars into the economy to fight inflation, he said.

South Sudan, which seceded from Sudan in July, halted oil output in January after accusing the Khartoum government of stealing $815 million worth of its crude from a pipeline to a port on the Red Sea. Sudan said it confiscated the oil to make up for unpaid fees. South Sudan gained control of about 75 percent of the previously united country’s 490,000 barrels a day of output at independence and crude sales accounted for 98 percent of South Sudan’s government revenue before the shutdown.

Inflation Surge

South Sudan’s inflation rate jumped to 50.9 percent in March from 21.3 percent in February, the country’s statistics office said last month. The South Sudanese pound, which officially trades at 2.95 per dollar, plunged to 5 per dollar on the black market from 3.5 in January, according to an April 27 report by Standard Chartered Bank Plc.

“The current situation highlights the vulnerable position of the authorities because of an over-reliance on oil exports for foreign exchange,” the London-based lender said.

The World Bank said in a statement on May 7 it is “deeply concerned with the economic and development impact of the unresolved oil issues” between South Sudan and Sudan. “The World Bank’s economic analysis unambiguously shows that it is in the interests of both countries to resume talks urgently and resolve their ongoing dispute.”

The Sudan Tribune, a Paris-based news website, on May 8 posted what it said were two World Bank documents in which the Washington-based lender said South Sudan faces a “dramatic contraction” in its gross domestic product, a “massive depreciation” of its currency and an “exponential rise in inflation.” Reserves may be depleted by July, “at which point state collapse becomes a real possibility,” according to the documents.

No Comment

The World Bank won’t comment on whether the documents are authentic and its May 7 statement will be the only official comment on the issue, Peter Warutere, a Nairobi-based spokesman, said in an e-mailed response to questions yesterday.

Yol dismissed fears of an economic collapse. The government has a short-term strategy of offsetting oil revenue losses by borrowing; a medium-term strategy of building two oil refineries to meet domestic demand and trucking excess oil to neighbouring countries for export; and a long-term plan to construct pipelines that would allow it to avoid using those running across Sudan.

The pound’s value is being affected by uncertainty about where the government will acquire foreign exchange after losing revenue from oil production, Yol said.


“The system is being driven by speculation” and adjusting the official exchange rate to bring it in line with the black market would only create more uncertainty, he said. Instead, the government plans to stabilize the currency by injecting foreign exchange into the economy obtained from the loans it’s negotiating.

Rob Borthwick, an analyst at Maplecroft, the London-based risk analysis company, said tensions between the two countries make the resumption of oil production unlikely for two years. Loans may stabilize the government, though the debt would increase pressure to resume exports, he said in an e-mailed response to questions on May 9.

“Trucking oil large distances along poorly maintained roads and through unstable regions clearly poses significant risks,” he said. “However, given South Sudan’s dire macroeconomic situation, diminished returns remain better than none.”

For Related News & Information: On South Sudan’s Oil Industry: {TNI SOUTHSUDAN OIL <GO>} Top Regional Stories: {AFTO <GO>} Most-Read Africa News: {MNI AFRICA <GO>}

To contact the reporter on this story: Jared Ferrie in Juba via Nairobi at

To contact the editor responsible for this story: Antony Sguazzin at

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