Battered South Sudan currency cries for change
By David Mayen
Sept 2, 2020(Nyamilepedia) — South Sudan’s leaders have been rushing to shore up the country’s economy amid disappearing foreign exchange earnings after global prices and the Covid-19 pandemic conspired to hurt oil sales.
As the country’s economic experts advise tighter monetary policies on exchange rates, President Salva Kiir and his top officials have made a series of decisions, just weeks after he admitted the country’s export revenues had run dry.
In a decree on Tuesday, the President formed a committee headed by the vice president for the economic cluster, James Wani Igga, to come up with modalities to improve the economy.
The group consists of ministers of finance and economic planning, trade and industry, petroleum, and mining.
Other members are the governor of the Central Bank, police inspector-general, deputy director of the National Revenue Authority, vice-chancellor of the University of Juba and the director of the National Security Service.
In their first meeting held last week, the sub-committee of the group recommended the suspension of Director of Customs Services Ayii Akol.
“The resolution also calls for closure of illegal accounts in the process of implementation. All the accounts that are illegally open in any other bank should be closed” said Puot Kang Chol, Minister of Petroleum.
Akol has been directly fingered for looking the other way in managing the country’s income from exports, typically oil sales, which account for nearly 98 per cent of the country’s budget.
On Thursday, President Salva Kiir reconstructed the Board of Directors of the Nile Petroleum and Gas Cooperation, NilePet.
NilePet is the state-run oil firm, which is supposed to make deals and sell the country’s precious resources.
President Kiir lamented in public on how ‘oil was disappearing without money appearing’.
He appointed Minister of Presidential Affairs, Nhial Deng Nhial, as the new chairperson of the board after relieving Mayiik Ayii of his duties.
Due to the influence of oil in most of South Sudan’s economic operations, they set up the National Petroleum and Gas Commission which is under chapter three of the Petroleum Act.
The policy-making body is mandated to participate in all oil and gas dealings on behalf of the State, meaning it participates in contracting for exploration, drilling, transportation of crude, refinery as well as sale of final products.
Following the decisions by the President three weeks ago, the government will be exploring ways to speedily rectify the worsening economic situation so that at the very least, it can pay monthly salaries on time.
As part of the solution, the Economic cluster council of ministers announced a plan to borrow $250 million from the African Export-Import Bank (Afreximbank), ostensibly to cover losses created by the coronavirus pandemic.
Speaking on the State Run-TV SSBC on Monday, the Deputy Minister of Agriculture and Food Security, Lily Albino Akol said the loan will be used to fund the economy and infrastructure projects, a slight contradiction from an earlier indication that it may be used for recurrent expenditure.
In June, the government said it intended to borrow $500 million from Afreximbank to fund government activities.
On Friday, the yet to be reconstituted national parliament summoned the finance minister, Central Bank governor, and the acting commissioner-general of the National Revenue Authority over the economic downfall.
“The assembly business committee, after various deliberations, decided that these three senior government officials be summoned next week to update MPs on the rapid depreciation of South Sudanese pounds” said Paul Yoane, head of the Information Committee.
In January, Transparency International ranked South Sudan as the world’s second most corrupt country in the world, listing it at position 179 out of 180..
Prominent policy scholars in the country say the problem is due to the lukewarm policy on exchange rates.
South Sudan is a net importer of consumables like food from Uganda and Kenya despite its large arable land.
Its banking and insurance sectors are also dominated by foreign companies from Kenya and other African countries.
In 2012, Kenyan airline Jetlink grounded its fleet after failing to convert cash earned in South Sudan into dollars.
Amid economic turmoil, Central Bank’s second deputy governor, Daniel Kech Pouch, admitted that the financial institution had run out of foreign reserves.
This claim was later revoked by the governor, Jamal Abdallah Wani.
South Sudan produces at least 230,000 barrels of oil per day.
Prof Abraham Matoc, vice-chancellor of Dr John Garang Memorial University, says the country made its first mistake in picking up the 2015 International Monetary Fund’s advice to change the country’s economic model from developmental to free market.
“The dollar is in the hands of speculators and the government floating rate gives room for them to monopolise what has become a commodity,” he told the Nation last week.
“The outflow of dollars in suitcases hinders banks from generating interest and that makes the economy remain stagnant because there is no circulation of currency,” said Matoc, who recommends a change in the currency to shock speculators out of their holes.
“When the currency is changed, people keeping cash in their houses will be pressured and this will make the central bank to get cash back again which will make circulation proper embark again, thus boosting the business sector.
South Sudan’s economy has been devastated by several factors since its independence in 2011.
Years of civil war, a drop in global oil prices and the pandemic have brought the young economy to its knees.
But the troubles date back to January 2012, when South Sudan suspended all oil production following disputes with Sudan over processing and transit fees for exporting Juba’s crude.
Officially, the South Sudan Central Bank says the local pound should exchange with the dollar at SSP164 per dollar. But the black market which runs the show can sell as high as SSP400 per dollar as the bank itself has insufficient reserves.
In 2015, the government adopted a floating foreign exchange policy, which some activists say contributed to the economic downfall.
In economics, a floating exchange rate policy is a regime in which a currency’s value is allowed to fluctuate in response to foreign exchange market events.
This means that in South Sudan, the government does not fix the rate but allows it to change based on supply and demand.
Prof Kuol Nyuon, the Dean of the School of Social Science at the University of Juba, says a change of currency must be followed by institutional reforms.
“If you change the currency alone without putting in place policies that will prevent the same scenarios from happening, you are doing nothing,”
“The way forward is reforming institutions that are dealing with the economy first and this can be done by putting in place policies that will prevent people from mismanaging public funds and trying punish those engaged and caught in those acts.”
Last month, President Kiir admitted that non-oil revenues are not being fully remitted into the single block account of the National Revenue Authority.
He said the country has been unable to compensate for the fall in oil revenues with tax collections.
The President added that when collected and well-managed, the non-oil revenue should meet the government’s expenditure, including timely payment of monthly salaries.