IMF urges South Sudan to halt dubious oil-backed loans
Revenue from the resource should be used for peace-related projects instead of being tied up in debts to Chinese companies
Nairobi — South Sudan should stop selling expensive and opaque oil advances, the IMF said, because loan resettlements are hindering spending vital for the implementation of a peace deal.
President Salva Kiir and his former deputy Riek Machar signed an accord in September, halting fighting that had uprooted more than a third of the country’s 12-million people. South Sudan was plunged into war in 2013 after a political disagreement between the two men, who hail from rival ethnic groups, escalated into a military confrontation.
The government took out loans from several Chinese companies during the war, offering to repay them with future oil proceeds from fields that at their height pumped 350,000 barrels per day (bpd).
“On the management of oil revenues, the mission urges the authorities to immediately stop contracting oil advances that are expensive and nontransparent,” said Jan Mikkelsen from the IMF, who led a mission to Juba.
“This measure will also help to ensure that oil revenues will be fully available for financing budgetary spending.”
The IMF said spending in the remaining part of the 2018/2019 fiscal year will be constrained by large repayments of oil revenue advances.
“With a tight resource envelope, the authorities should strictly prioritise core peace-related spending and payment of civil servant salaries.”
The landlocked country has one of the most oil-dependent economies in the world, accounting for more than 95% of revenues. The oil ministry hopes to push production back up to more than 350,000bpd by the middle of 2020, up from current levels of just above 140,000bpd.
Inflation had dropped to 40% by the end of 2018, down from triple digits, but the central bank needs to address the gap between the official and black-market exchange rates, the IMF said.
“The current dual foreign exchange rate system with a large spread between the official rate and the parallel market rate is unwarranted, as it gives rise to rent-seeking and reduces inflows of foreign exchange into the country,” the IMF said.