IMF Urges Fiscal Restraint in South Sudan as Inflation Soarsby
Spending controls may help cut budget gap to $300 million
Policy reform seen encouraging donors to support government
The International Monetary Fund urged war-torn South Sudan to curb spending in the fiscal year beginning July or risk widening its budget shortfall to $1.1 billion, or a quarter of its gross domestic product.
Africa’s newest nation should avoid financing the gap through borrowing from the central bank, whose international reserves can only cover a few days of imports, or accumulating arrears, the Washington-based fund said in a statement on its website
“The mission urges the government to restore credibility by not only preserving peace and the rule of law, but also by starting to implement a stronger public financial management framework and enhancing transparency in its financial transactions,” the IMF said after a visit to the oil-producing nation.
South Sudan’s economy shrank 5.3 percent last year and is forecast to grow 0.7 percent this year, according to IMF estimates. Its currency, the pound, has depreciated by close to 90 percent since its 84 percent devaluation in December, according to the fund, while consumer price inflation is approaching 300 percent.
The government is struggling to fund its expenditure after oil output in the country with sub-Saharan Africa’s third-biggest proven reserves declined to as little as 120,000 barrels a day during the nation’s 2-1/2-year civil war. A drop in crude prices also exacerbated the funding shortfall. The country was producing at least 350,000 barrels a day in 2011, when it seceded from Sudan.
The warring parties agreed in August to form a power-sharing government to end the conflict that’s killed tens of thousands of people and forced 2 million to flee their homes. Rebel leader Riek Machar returned to the capital, Juba, in late April and resumed his role as deputy to President Salva Kiir.
Strengthening expenditure controls, budget preparation and limiting an arrears build-up could reduce the fiscal gap to about $300 million, the IMF said. It urged the central bank to target lower inflation and regain monetary policy control by refraining from lending to the government.
“Strong policy efforts by the government could lay the basis for donors to play a role in providing support to close the fiscal gap, including through budget support,” according to the statement.