Addressing South Sudan’s Economic and Fiscal Crisis

 

As conditions for ordinary South Sudanese people continue to deteriorate, government mismanagement is combining with economic and political crises to create a “toxic situation,” according to a Enough Project brief. The brief, Addressing South Sudan’s Economic and Fiscal Crisis, calls for action by the international community, and also for commitment by the warring parties to put the needs of the people ahead of their own.

On December 14, 2015, South Sudan’s finance minister announced a major shift in the country’s money supply policy that has brought in some revenue (in the form of local currency) for the cash-strapped government but created severe hardships for most people that have not been mitigated. The policy change seemed to strike a heavy blow initially for some currency speculators but at the same time it created an inflation rate of 110 percent and intolerable conditions for ordinary South Sudanese people—notably consumers of food, fuel, and medical supplies and those with no income or low fixed incomes, including a large number of public servants and people in the military and security sectors. In the last several weeks, economic conditions have worsened, creating the potential for unrest in the population and in the state security forces as well as national bankruptcy. Amid these conditions, U.N. agencies say a quarter of the population urgently needs food assistance and at least 40,000 people face catastrophe.

Strong, concerted diplomatic engagement by international partners, and expert technical assistance and oversight at this critical time, could begin to stabilize and ease the worst fallout from South Sudan’s poorly managed fiscal and monetary policies. Such urgently-needed economic support, however, is directly tied to progress by South Sudanese leaders in implementing the terms of the peace agreement signed in August 2015. Implementation is delayed and has experienced crippling setbacks and impasses, prompting the former president of Botswana, Festus Mogae, who is tasked with overseeing the formation of the transitional government, to call on South Sudan’s leaders to “avoid ruin: Form the transitional government of national unity without further delay, restore stability, repair the damage that has been done before it is too late.” Those paying the highest price for a stalled peace process and international support are the average South Sudanese citizens and consumers. The South Sudanese government and the international community cannot afford to look away as living conditions deteriorate dramatically.

The parties have already missed the January 22 deadline for forming the government of national unity. The political stalemate is hurting the South Sudanese people at a time when economic difficulties, exacerbated by devaluation and insecurity along the borders, are affecting the inflows of commodities and essential medicines. A diplomatic surge by international leaders and donors, supported and led by the United States, can increase the pressure on South Sudanese parties to reach a compromise. The strong international and regional pressure exerted when the August 2015 peace agreement was signed is needed now at this critical stage.

To mitigate the shocks of devaluing the currency, food items and essential medicines entering South Sudan should be subsidized in the immediate term. Wage increases announced by the government are by themselves not sufficient as they mainly benefit those who have paid jobs. The vast majority of the South Sudanese population is unemployed and cannot afford the current high food prices, hence the necessity to subsidize food items.

The government’s spending is skewed in favor of security even in the face of the current urgent humanitarian crisis and growing concerns of potential widespread famine. Going forward, there is a need for South Sudanese policymakers to adjust the national budget and provide the necessary subsidies to ensure that the food crisis does not threaten the whole population.