- Severe spillovers from the conflict in Sudan, including refugee inflows and damages to an oil pipeline, have exacerbated South Sudan's difficult humanitarian and macroeconomic situation, resulting in an economic slowdown, sharp exchange rate depreciation, high inflation, and higher spending needs against the backdrop of large fiscal revenue losses.
- Discussions with the South Sudanese authorities during the Third Review of the Staff Monitored Program with Board Involvement (PMB) focused on re calibrating macroeconomic policy to address the impact of the external shocks. The authorities remain committed to implementing strong policies and reform measures to restore macroeconomic stability.
- IMF Management completed the Third review of the PMB with South Sudan. The implementation of commitments taken by the authorities under the Letter of Intent will continue to support macroeconomic stability and debt sustainability.
Washington, DC: On November 15, 2024, the Executive Board of the International Monetary Fund (IMF) discussed the Third and Final Review of South Sudan's Staff‑Monitored Program with Board Involvement (PMB). The review was approved by IMF Management on November 1, 2024.
Spillovers from the war in Sudan have worsened South Sudan's macroeconomic situation and exacerbated an already difficult humanitarian situation. Damages to the pipeline that carries 70 percent of South Sudan's oil production through Sudan has led to a sharp decline in oil exports. This resulted into lower foreign exchange inflows, a large exchange rate depreciation in the parallel market, sharp fiscal revenue drop leading to the accumulation of salary arrears, and high inflation. The war in Sudan has also led to a massive refugee inflow (over 800,000 as of mid‑October 2024) and a supply chain disruption (mainly imports of fuel and key food staples). In addition, more than half of the population (about 7.1 million) is estimated to be experiencing acute food insecurity. The South Sudanese authorities face the challenging task of meeting higher spending needs, including on humanitarian relief, against the backdrop of limited financing options.
A PMB was approved by IMF Management in February 2023 and subsequently extended to November 15, 2024 following a request by the authorities. The program's objectives are to support the authorities' reform agenda aimed at maintaining macroeconomic stability and debt sustainability and improving governance and transparency with the objective of building a track record in support of the authorities' request for a financing arrangement under the Extended Credit Facility (ECF). Performance under the third review was mixed with two quantitative targets at end-June 2024 met (the zero ceiling on contracting non-concessional debt and the floor on net international reserves) out of five. The other quantitative targets at end-June 2024 related to salary payments, social spending execution, the primary deficit, debt to the central government, and reserve money growth were missed, partly because of the oil production shock. While the structural benchmarks were not implemented at end-June 2024, two out of three were completed subsequently. The Bank of South Sudan' s 2021 audited statements were published in early September 2024 and the authorities formulated a salary arrears repayment plan under the FY2024/25 draft budget submitted to Parliament in September 2024. The authorities took steps toward hiring an international firm to audit the central bank's financial statements of 2022−24.
Discussions with the authorities during the review focused on: (i) accelerating reforms and collection efforts to continue strengthening non-oil revenue and redirecting funding towards urgent social spending, including salary payments; (ii) continuing prudent borrowing and contained monetary financing, against the backdrop of financing pressures, to maintain economic stability and debt sustainability; (iii) further exchange rate management flexibility to reduce external imbalances and improve market functioning; and (iv) reforms to further strengthen governance and fight corruption, while improving public finance management.
South Sudan faces protracted balance of payments financing needs, partly reflecting development spending needs; large external debt service obligations in the medium term; weak foreign exchange reserves; and limited external financing options amidst a decline in international aid. To address these challenges, the authorities have requested an arrangement under the Extended Credit Facility (ECF) to anchor their macroeconomic policy design and implementation while catalyzing external financing.
Executive Board Assessment [1]
Executive Directors noted with concern South Sudan's severe economic and humanitarian challenges, which have resulted from numerous external shocks, including the war in Sudan and its spillovers, flooding, and a disruption of oil production, combined with domestic policy slippages. Against this worrying backdrop with successive negative growth rates, exchange rate depreciation, and high inflation, Directors urged the authorities to continue building on the progress made under the Management‑endorsed Staff Monitored Program with Board Involvement (PMB) to restore economic stability and maintain debt sustainability. Concrete steps to strengthen political stability and address policy missteps and structural challenges, particularly on governance and transparency, would be essential to boost donor confidence.
Noting that program performance has significantly weakened, Directors welcomed the corrective measures taken by the authorities and their commitment to further remedial measures in support of the program's objectives, including efforts to clear salary arrears and prioritize critical social spending. In that context, they welcomed the resumption of salary payments and efforts to strengthen non‑oil revenues and public financial and debt management, to help avoid monetary financing and preserve debt sustainability. Stronger monetary and fiscal policy coordination is also important, as well as ensuring that all new lending remains concessional.
Directors welcomed the gradual depreciation of the official exchange rate to narrow the gap with the parallel market. They underscored the need for further adjustment to unify the FX markets and eliminate distortions. Directors encouraged efforts to further strengthen the monetary policy framework and preserve financial stability, including by enacting remaining recommendations from the Safeguards Assessment.
Directors positively noted the improvements in transparency and governance of fiscal and monetary operations and the oil sector. They called for sustained efforts in these areas, including further improvements in anti‑corruption initiatives and in strengthening the AML/CFT framework.
Directors stressed the importance of continued Fund engagement with South Sudan, particularly through well‑sequenced and tailored capacity development, to build on the policy dialogue and progress made under the PMB. Many Directors considered that the PMB met its objectives. However, noting the expiration of the PMB, most Directors indicated that further and sustained efforts by the authorities would be needed to establish a sufficiently strong track record for any consideration of a possible Upper Credit Tranche arrangement. Some Directors saw scope for a successor SMP/PMB.
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[1] At the conclusion of the discussion, the Managing Director, as Chair of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
