MIL-OSI Russia: IMF Executive Board Concludes 2023 Article IV Consultation and IMF Management Completes First and Second Reviews and Extends Staff-Monitored Program with Board Involvement with the Republic of South Sudan

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MIL OSI Translation. Region: Russian Federation –

Source: IMF – News in English

June 10, 2024

South Sudan is significantly impacted by the war in Sudan, especially from a very large and growing number of refugees, and by a sharp decline in oil production and exports since mid-February 2024 due to damages to the oil pipeline. Article IV discussions focused on putting economic reforms on a sustainable footing, boosting domestic revenue mobilization, enhancing social spending, and implementing governance and transparency reforms to reduce corruption. The extension of the Staff Monitored Program with Board Involvement (PMB) through November 15, 2024, provides time to the authorities to implement corrective actions to bring macroeconomic policies back on track and implement governance reforms; building a strong track record is essential for any financial arrangement with the IMF.

Washington, DC: On June 7, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV consultationyu1sch with the Republic of South Sudan. On May 14, 2024, IMF Management also approved the completion of the first and second reviews as well as an extension through November 15, 2024, of South Sudan’s Staff Monitored Program with Board Involvement (PMB) which was initially approved on February 16, 2023.

The war in Sudan is exacerbating an already dire humanitarian situation. The Sudan conflict has led to massive return of refugees (over 675,000 as of late-May 2024 in total), higher food and fuel prices due to difficulties in importing from Sudan, and rising oil production costs caused by the disruptions of operations at the Port of Sudan. Delays in the repair of the oil pipeline have reduced oil exports since mid-February 2024 to about one-third of their previous level. This has exerted pressure on South Sudan’s external and fiscal accounts given that oil exports account for nearly 90 percent of fiscal revenues and 95 percent of exports.

A 9-month PMB was approved by IMF Management in February 2023 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 PMB was initially strong. However, there have been several slippages in recent months, including the resumption of monetary financing of the deficit since December 2023, an accumulation of public sector salary arrears (currently at six months), and the reemergence of a significant gap between the official and market exchange rates. The program has been extended through November 15, 2024, to allow the authorities time to implement policies aimed at restoring macroeconomic stability, safeguarding gains on FX reforms, addressing salary arrears, and taking further steps to strengthen governance and transparency of oil revenue and its use .

Article IV discussions focused on: (i) putting economic reforms under the PMB on a sustainable footing; (ii) boosting domestic non-oil revenues to create fiscal space; (iii) enhancing social spending to allow the government to shoulder some of the support for nutrition, health and education that are currently provided mostly by international partners; (iv) implementing governance and transparency reforms to reduce corruption; and (v) assisting the authorities through a tailored capacity building program in key areas, such as public financial management, revenue administration, and monetary operations.

Escaping fragility requires domestic sustained and multilateral efforts. South Sudan has significant medium-term BOP financing needs. This reflects several factors, including social and development spending needs, debt service obligations on a large stock of non-concessional external debt, reserve coverage of below one month of imports, against a background of a projected decline in oil prices, and a continued downward global trend for international aid. To help address these challenges, the authorities have requested a 3-year arrangement under the ECF. Implementation of macroeconomic stabilization policies and continued progress on the authorities’ reform program would help establish a track record towards a potential financial arrangement in the future.

Executive Board Assessmentyu2sch

Executive Directors broadly agreed with the thrust of the staff appraisal. They seriously expressed concerns over South Sudan’s severe economic and humanitarian challenges, which have resulted from numerous external shocks, including flooding, the Red Sea crisis, and the war in Sudan; as well as from domestic policy slippages. Against this worrying backdrop, Directors encouraged the authorities to return to prudent macroeconomic policies to restore economic stability, rebuild buffers, and maintain debt sustainability. They stressed that pressing ahead with fiscal, governance, and structural reforms, together with continued multilateral support, is crucial to help South Sudan overcome fragility and address the serious humanitarian crisis.

Noting the drastic decline in oil revenues, Directors called on the authorities to enhance non-oil revenue collection and tax administration and to prioritize spending on salaries and critical social spending, while cutting non-priority spending, as needed, to close the budget financing gap and preserve debt sustainability. They underscored the need to avoid recourse to arrears, monetary financing, and non‑concessional borrowing. Directors called for resolute reforms to improve governance and transparency of public operations, including the use of IMF resources. They recommended improving public financial management and the public investment framework, including for the oil‑for‑infrastructure program, which has weak controls. Directors saw merit in further strengthening the debt management framework.

Directors underscored that ending monetary financing and keeping money growth in check is essential to bring inflation under control and stabilize the foreign exchange (FX) market, which would also help in addressing food insecurity. They emphasized the need to build reserves and to maintain a unified and market determined exchange rate to eliminate FX distortions and support economic diversification. Directors recommended enhancing the monetary policy framework, including by implementing the remaining recommendations of the 2021 Safeguards Assessment. They called for addressing the banking sector’s undercapitalization and for continued efforts to strengthen the anti‑money laundering and counter‑terrorism financing framework.

Directors emphasize the need to press ahead with other reforms, including building climate resilience and improving data provision. They stressed the importance of capacity development support from the international community, including the IMF, given the large reform needs amid limited capacity. Directors encouraged the authorities to facilitate the delivery of support by humanitarian agencies to help address the dire conditions faced by the population.

Directors took note of the Management‑approved 6‑month extension of the Staff Monitored Program with Board Involvement (PMB), which will give the authorities more time to address recent policy slippages and implement outstanding reforms amid the challenging domestic and external environment. They called on the authorities to sustain a strong commitment to the reform agenda and, in this context, welcomed the corrective policy actions being implemented. Noting the authorities’ interest in a possible arrangement under the Extended Credit Facility, Directors stressed that successful completion of the PMB with a strong policy track record is essential for any consideration of a possible arrangement.

It is expected that the next Article IV consultation with the Republic of South Sudan will be held on the standard 12‑month cycle.

Republic of South Sudan: Selected Economic Indicators, 2021/22–2026/271

2021/22

2022/23

2023/24

2024/25

2025/26

2026/27

Act.

Prel.

Proj.

Output, prices, and exchange rates

Real GDP growth

-8.0

-2.4

-8.5

21.1

5.2

5.1

Oil

-14.8

-6.8

-16.6

30.i

3.5

3.0

Non-oil

6.0

7.2

7.1

7.4

8.2

8.2

Prices

Inflation (%)

0.i

25.3

42.2

62.ya

11.8

7.6

Central government budget

Revenue (%GDP)

30.5

33.7

31.0

33.0

31.7

30.5

Of which: Oil

27.i

29.6

25.3

27.0

25.5

24.1

Expenditures (% GDP)

37.0

25.6

27.3

29.3

27.7

26.2

Fiscal balance (% GDP)

-6.5

8.1

3.8

3.7

4.0

4.3

Non-oil 2

-27.5

-17.1

-16.i

-15.2

-14.0

-12.7

Public debt (% GDP)

47.2

51.2

42.i

29.5

23.6

20.8

Balance of payments

Current account (% GDP)

-1.6

8.3

4.3

7.1

7.3

6.4

FDI (% GDP)

0.1

0.1

0.6

0.5

0.3

0.5

Reserves (in months of imports)

0.5

0.4

0.7

1.4

2.0

2.4

External debt (% GDP)

34.8

34.8

42.i

36.3

32.8

30.0

Sources: South Sudanese authorities; and IMF staff estimates and projections.

1 The fiscal year runs from July to June.

2 Non-oil revenue excluding grants minus domestically-financed current expenditure minus transfers to Sudan (including pipeline fees).

               

yu1sch Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials of the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

yu2sch At the conclusion of the discussion, the Managing Director, as Chairman 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.

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EDITOR’S NOTE: This article is a translation. Apologies should the grammar and or sentence structure not be perfect.

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