Monday November 13 2023
Elimination of corruption, strengthening of financial sector and legislation to combat money laundering and terrorist financing are on the list.
IN SUMMARY
South Sudan’s total forex reserves was estimated at $183.61 million in 2020 with hopes of recovering to 0.5 months of import cover in 2022/2023.South Sudan’s total public debt was estimated at $3.45 billion as of December 2021, according to IMF.South Sudanese voted to split from Sudan in January 2011 and became an independent state on July 9, 2011.
The Bank of South Sudan (BoSS) is working towards tightening restrictions on the use of the US dollar in the economy to stem capital outflows and shore up the dilapidated forex reserves that have fallen below one month of imports cover.
The East African Community (EAC) convergence criteria require regional central banks to maintain a minimum of 4.5 months of import cover as part of the preconditions for the implementation of a regional single currency regime.
The latest move by the bank’s new Governor James Alic Garang comes amid mounting pressure from the International Monetary Fund (IMF) for Juba to institute key economic, governance and financial reforms to restore investor confidence and repair the country’s tattered relations with donors.
The reforms, which are expected to restore the credibility of the war-torn nation on the global scene if implemented, include elimination of widespread corruption in the civil service, strengthening of the financial sector and strengthening the legislation to combat money laundering and terrorist financing.
Read: S. Sudan transition stuck in mud of floods, politics
Others are strengthening the debt management framework and expenditure controls, improving the public finance management (PFM) framework and implementing the Public Procurement and Disposal Authority to improve the management of public resources.
“There are many drawbacks from excessive use of foreign currency in an economy… it is, therefore, important to reiterate that the central bank will step up this policy and co-ordinate with other relevant government agencies, including law enforcement agencies, to enforce the legal tender circular,” the bank’s newly appointed Governor James Alic Garang told The EastAfrican through emailed responses.
President Salva Kiir appointed Dr Garang, an economist and former adviser at the IMF, as Central Bank Governor early last month (October) to help stabilise the economy and preserve the value of the currency. This followed the sacking of the governor Johnny Ohisa Damian together with his two deputy governors, marking the sixth Central Bank boss to be fired since January 2017. The president also fired the commissioner-general of the National Revenue Authority (NRA) Athian Diing Athian.
Earlier in August President Kiir replaced Finance Minister Dier Tong Ngor, with an economist Bak Barnaba Chol, with the latest reshuffles linked to the declining value of the South Sudanese Pound (SSP) against the US dollar. The South Sudanese currency has lost 68 percent of its value against the US dollar, trading as low as 1,028.91 against the greenback last week (November 9) from a high of SSP 613.35 on November 11, 2022, according to data by Trading Economics.
Read: South Sudan raises spending plan amid jitters on economy
In February, the South Sudanese government suspended the use of the US dollar in the economy and directed all transactions to be completed in the local currency, the South Sudanese Pound (SSP). Most transactions in the country were initially carried out in the US dollar largely due to hyperinflation and the volatility of the local currency.
“The use of foreign currency reduces the demand for domestic currency and places huge pressure on the forex demand, fuel speculations, and inflation. The rapid expansion in dollar deposits and loans is likely to increase the riskiness of the loan portfolio of the domestic banks,” said Dr Garang.
The other shortcomings of the dollarisation process, according to Dr Garang, are increasing the vulnerability of the banking system to capital outflows and creating maturity mismatches between bank assets and liabilities in foreign currency, which increases banks’ vulnerability to volatile capital flows.
South Sudan’s total forex reserves was estimated at $183.61 million (0.4 months of import cover) in 2020 with hopes of recovering to 0.5 months of import cover in 2022/2023. This is a stark contrast to its regional peers where Kenya’s foreign exchange reserves stood at $6.81 billion (3.7 months of import cover) as at November 2 while that of Tanzania stood at $4.88 billion (four months of import cover) as at September 30, according to respective Central Banks data.
Read: Numerous hurdles ahead of South Sudan’s first-ever general election
In Uganda, the level of foreign exchange reserves was $4.07 billion (4.15 months of import cover) as at June 30, according to the Bank of Uganda (BoU).
Second review
The IMF team is expected in Juba this week (November 15) for the second review of a new programme designed to monitor the country’s compliance with the prescribed reform agenda, according to the IMF’s schedule of reviews contained in the “Country report for South Sudan No 23/108” dated March 2023.
The nine-month programme dubbed “Staff-Monitored Programme with Board Involvement (PMB)” which was approved by the IMF board on February 17 is expected to lay the groundwork for an eventual Extended Credit Facility from the Fund.
The first review, which was done on June 15, involved the setting up of structural benchmarks of the stipulated reforms and the commitment by the South Sudanese authorities to implement them through time bound plans.
Under the PMB, the government of South Sudan is expected to implement policies to address governance issues in the country, maintain debt sustainability and support financial stability.
The government is also expected to deal with transparency in oil production sharing agreements with oil-extracting companies and ensure transparency and accountability in the spending of emergency resources.
Read: Salva Kiir puts South Sudan on edge
In the financial sector, the BoSS has committed to improving banking supervision and financial inclusion through the recapitalisation of the banking sector and creation of a deposit insurance scheme to cushion bank customers in the event of bank failures.
Banking challenges
“It is true that the banking sector in South Sudan has some challenges. Capitalisation is one of the key challenges the Central Bank would manage and handle,” said Dr Garang.
“We are in conversation with the banking industry and the other regulators on how to limit and reduce vulnerability and the related risks this can bring to the sector in general. We are also learning from the region how to best approach bank resolution without creating much panic in the market.”
Dr Garang said the bank is working on a “bank strategy” indicating the overall assessment and approach on key macro- economic indicators such as inflation, forex reserves, economic growth, exchange rate and interest rates, whose findings will be made public by the end November.
Newly appointed Minister of Finance and Planning Dr Bak Barnaba Chol said he intends to reach out to development partners to strengthen cooperation especially with the Bretton Woods Institutions and regional financial organisations.
The government faces a spending plan of about $2.06 billion for the 2023/2024 fiscal year and expected revenues of $1.8 billion, leaving a deficit of $261 million to be financed from domestic non-oil revenues and domestic borrowing.
The bulk of the resources are expected to be used on peace implementation initiatives, increased salaries for civil servants, and improvement of roads and other infrastructure projects.
In the last fiscal year (2022/2023), the government implemented a $2.71 billion spending plan. Much of the budgetary allocations were channelled towards strengthening institutions mandated to fight corruption and improve governance such as the anti-corruption commission, audit chamber and the South Sudan fiscal and financial allocation monitoring.
The country’s Ministry of Finance and Planning projects the economy to grow by 3.9 percent in the 2023/2024 fiscal year from 1.5 percent in the 2022/2023 fiscal year, according to the budget statement for the 2023/2024 fiscal year.
Inflation is projected to average 10.4 percent while the exchange is expected to stabilize around SSP 917 against the US Dollar.
According to the IMF, South Sudan’s short history suggests it may be on the verge of falling into a “fragility trap”, with violent conflict, widespread poverty and weak institutions mutually reinforcing each other.
Read: IMF detected in S.Sudan’s ban on US dollar transfers
There is little accountability in the management of public resources by a small group of politicians and businesspeople and public financial management remains weak, in relation to procurement, fiscal reporting as well as cash and debt management.
“There was no central oversight over borrowing until recently and, as a result, the full extent of South Sudan’s external debts remains uncertain,” said IMF.
South Sudan’s total public debt was estimated at $3.45 billion (67 percent of GDP) as of December 2021, according to IMF.
The country’s heavy reliance on oil exports makes it highly susceptible to oil price shocks, against which the current level of gross international reserves, at below one month of imports, does not provide adequate protection.
The economy has experienced three consecutive years (2020/2021 to 2022/2023) of negative growth as the Covid–19 pandemic and flooding hampered oil and agricultural production.
Oil contributes about 60 percent of South Sudan’s GDP, 95 percent of exports and 90 percent of government revenue making the economy extremely susceptible to external shocks including fluctuations in oil prices and internal shocks such as the recent damage to oil production by flooding.
Exports
Its other exports are forage crops, onions, sheep and goat meat according to the Observatory of Economic Complexity (OEC) International Trade data site.
“Continued macroeconomic stability and a predictable, transparent FX regime are preconditions for furthering other reforms and reducing conflict potential,” said IMF.
South Sudanese voted to split from Sudan in January 2011 and became an independent state on July 9, 2011. But in December 2013, a civil war, which saw an accumulative contraction of the economy by over 20 percent between 2013 and 2018, dashed the hopes and plans of the new nation.
However, after close to six years of conflict, the government and opposition signed the Revitalized Agreement on the Resolution of Conflict in South Sudan (R-ARCSS) in September 2018.
While the formation of a unity government (February 2020), the reconstitution of the Transitional National Legislative Assembly (August 2021), and the unification of the army’s command structure (April 2022) represent significant steps towards its implementation, the progress has been slower than expected.
Source link : https://www.theeastafrican.co.ke/tea/business/juba-dollar-restrictions-to-stay-as-pressure-mounts-for-reforms-4430294?view=htmlamp
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Publish date : 2023-11-13 08:00:00
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