Alaco

23.06.2016 | Economic crisis threatens South Sudan peace process

The new transitional government is running out of cash as it seeks to stabilise the strife-torn country.

The euphoria that greeted South Sudan’s secession from Sudan in 2011 is a fading memory.  Then hopes were riding high that the world’s youngest state would get to grips with the many challenges it faced.  The country’s significant oil wealth, sub-Saharan Africa’s fourth-largest proven reserves, was seen as a potential driver of economic development. Skilled exiles returned to bolster the workforce, international assistance flowed in, and foreign investment interest surged.

Today the picture is very different. A brutal civil war broke out two years after independence, and now an economic crisis may undermine efforts to restore stability.

The conflict began after President Salva Kiir accused his deputy Riek Machar of plotting to overthrow him. Fighting between the army and rebel forces loyal to Machar claimed the lives of tens of thousands and displaced more than two million. A peace deal was eventually agreed in 2015. Under pressure from the international community, Kiir and Machar grudgingly patched up their differences to form a transitional government, with Kiir at its head. Machar returned from exile in April to take up his former position. The power-sharing administration was charged with the formidable task of stabilising the country and delivering economic development.

South Sudan’s finances are in tatters, the economy shrinking by 5.3% last year.  Revenue from oil, its main source of income, has fallen sharply due to a halving of production and the slump in oil prices. The value of the Sudanese pound has dropped 90% since December and inflation climbed to 266% in May. The IMF says the budget deficit this year could exceed $1.1 billion, 25% of GDP, and has warned the economic slide threatens to derail the peace process and deepen the humanitarian crisis. 

Despite the ceasefire, the country is far from secure, with sporadic clashes between the security forces and rebel groups. The UN says the continuing instability, poor harvests and population displacement may result in over 5 million people, around half the population, facing severe food shortages this year.

The IMF is urging South Sudan to raise non-oil revenues and cut spending. But little has been done to diversify the economy over the years and state coffers are so low that the government is struggling to pay civil servants. Hospital workers, university lecturers and judges have gone on strike over unpaid salaries.

Kiir is hoping international donors will step in. However, Machar’s spokesman has warned that this is unlikely to happen until the government starts to make significant headway with the peace agreement. Given their bitter rivalry and mutual distrust, some observers question whether the Kiir and Machar camps will be able to work together to implement the deal, especially if there is a lack of funds to support the process. Machar’s return to the capital, Juba, was delayed because of disputes over how many men and weapons he could bring with him. And following the formation of the unity government, the wrangling has continued.

Machar supporters have challenged Kiir’s decision to expand the number of regional states from 10 to 28, a move seen as benefiting his Dinka ethnic group.  They have also been critical of delays in forming a new parliament and the cantonment of rebel forces, which does not bode well for plans to integrate them into the army.

Prospective donors will also want to see progress on economic reforms and seek assurances that funds will not be squandered or embezzled. This month 16 former officials, including top presidential aides, were sentenced to life imprisonment for the theft of over $14 million. But the influential rights group the Enough Project is urging Kiir to take bolder steps to combat corruption and recover looted assets. In 2012 the President urged 75 serving and former officials to return $4 billion they allegedly stole in exchange for an amnesty. It is unclear how much was recovered, but the Enough Project say looting continued and anti-corruption measures have too often been used to target political opponents.

With no sign of an international bailout on the horizon, the government is under pressure to generate revenue. Officials say there are plans to repair war-damaged oil facilities in Unity State, one of the two main producing regions. They are also negotiating flexible transit fees with Khartoum for piping oil across Sudan – payments rising and falling with the global price of crude.  And there are plans to export 6.3 million heads of cattle this year, which is expected to generate nearly $1billion. Amid the financial gloom, these are encouraging signs, but much more will be needed on the economic front to consolidate the fragile peace process.