South Sudan is in talks with the International Monetary Fund for a loan of as much as $50 million to help the two-year-old country recover from a halt to oil exports, central bank Governor Kornelio Koriom Mayik said.
Foreign-exchange in the East African nation dwindled after South Sudan shut crude production in a dispute that began last year with neighboring Sudan over border security, oil-transit fees and citizenship issues. The country stopped pumping from January 2012 to April and then reduced output again in June because of the disagreements, which were resolved this week.
South Sudan already borrowed about $500 million from external sources, including $100 million from Qatar National Bank SAQ, to offset the dollar shortage and fund government spending, Mayik said in an interview in the capital, Juba, on Sept. 4. It arranged an additional $100 million credit line three months ago with CFC Stanbic Bank Holdings Ltd., a unit of Johannesburg-based Standard Bank Group Ltd., he said.
“It has been difficult without oil,” Mayik, 71, said. “We managed to run the budget of the government for a period of about five to six months, from this little money that was borrowed from the financial institutions in the country.”
The country quadrupled revenue collection and introduced austerity measures, the finance ministry said April 27. The government started collecting as much as 60 million South Sudanese pounds ($19 million) in taxes and customs duties monthly, compared to 14 million pounds before production of crude was halted.
South Sudan relies on oil to generate 98 percent of its foreign-currency earnings. The central bank rationed the use of foreign exchange to be used for purchases of basic supplies such as food, fuel, medicines and building materials. That helped slow inflation, which surged to a record 79.5 percent in May 2012, according to the National Bureau of Statistics. Prices declined 9.8 percent from a year earlier in July, the third successive monthly drop, according to the latest available data.
South Sudan became a member of the IMF last year and is eligible for concessional lending. The country doesn’t have a credit rating. To secure the IMF loan, South Sudan plans to harmonize an official foreign-exchange rate of 3.06 South Sudanese pounds per dollar with the black market rate, which is currently at about 4.35 against the U.S. currency, Mayik said.
“We’re going to pressure the market rate to come near to the official rate and then when we either come to the official rate or we come near to it, we shall unify our rate and make it the official rate,” he said. The central bank plans to use reserves to “intervene when there’s a deviation from it.”
The proceeds from the planned loan will be used to revive infrastructure projects that were shelved when the government introduced the austerity budget to cope with the halt to oil production, Mayik said.
South Sudanese President Salva Kiir and his Sudanese counterpart, Umar al-Bashir, this week signed an agreement to keep South Sudan’s oil flowing. The two met in Sudan’s capital, Khartoum, on Sept. 3 after al-Bashir threatened to halt shipments of crude through Sudan’s territory on Sept. 6 unless the south withdrew support for rebels opposed to his rule. South Sudan denies backing the fighters and accuses Sudan of deploying troops in its oil-producing Upper Nile region.
South Sudan gained independence from Sudan in July 2011. The only way South Sudan can export its oil is via pipelines that traverse the northern neighbor to a terminal at Port Sudan on the Red Sea. The country is considering building pipelines via neighboring Ethiopia to Djibouti and through Kenya.
The breakthrough in the talks may help the country secure the IMF loan, Mayik said.
The IMF says that “if everything goes well and your oil is flowing, and because your start has been bad, we can be able to give you a loan so that you can make a good start and it will make it possible for your development to be possible,” Mayik said.
South Sudan may be the world’s fastest-growing economy this year, with growth expected to be 32.1 percent, according to the IMF’s website. The country’s oil is pumped mainly by China National Petroleum Corp., Malaysia’s Petroliam Nasional Bhd. and India’s ONGC Videsh Ltd.
The IMF’s representative in South Sudan, Joseph Karangwa, didn’t respond to e-mailed questions.