Austerity and Corruption in South Sudan

Last month, South Sudan’s Minister of Finance & Economic Planning presented the country’s 2012/2013 budget before the National Legislative Assembly. The budget, which is 6.4 billion South Sudanese Pounds (roughly $1.3B USD at black market rates), went into effect at the beginning of this month, taking into account the austere conditions brought about by the government’s decision back in January to cut off oil production in order to pressure Sudan to agree to more favorable oil pipeline transit fees. Prior to the shutdown, oil revenues accounted for 98% of South Sudan’s public expenditure, and 99% of foreign currency export earnings. To put South Sudan’s potential economic prospects over the 2012/2013 budget year in perspective, I would advise reading the leaked World Bank memo that outlined the likely economic and social impact of the oil shutdown, the policy decisions the government will face, and the support the World Bank may be able to provide.

Back in February, Marcelo Giugale, the World Bank Director of Economic Policy and Poverty Reduction Programmes in Africa briefed South Sudan’s President Salva Kiir on the likely economic impact of the government’s decision to shut down oil production. The details of this briefing were then disclosed to a group of key donors that included the United States, United Kingdom, European Union, Norway, and the International Monetary Fund (IMF) – and subsequently documented in a memo labeled “CLOSE HOLD NOT FOR DISTRIBUTION OR ATTRIBUTION.”

Giugale opens with the assertion that the World Bank has never seen a situation as dramatic as the one faced by South Sudan, and the belief that neither the President nor senior government ministers were aware of, or understood, the economic implications of the oil shutdown. These potential consequences include: collapse of the Gross Domestic Product (GDP), massive depreciation of the South Sudanese Pound, an exponential rise in inflation, and depletion of government reserves. On the last point, the World Bank estimates that, with the austerity measures the government adopted in the aftermath of the oil shutdown, government reserves would be depleted by July 2012. (In the memo, one can also find estimates ranging from an estimated depletion of government reserves by June 2012 if there is a 0% reduction in monthly expenditure to an estimated depletion of government reserves by December 2013 if there is a 77% reduction in monthly expenditure.)

Based on the social impact of the oil shutdown anticipated by the World Bank, indicators of social well-being are expected to revert to 2004 (wartime) levels by 2013 – essentially erasing peacetime improvements in the standard of living in South Sudan. The projected social impacts of the shutdown may include:

  • Increased proportion of people living in poverty – from 51% in 2012 to 83% by 2013
  • Doubled under-5 child mortality rate – from 10% of live births to 20% by 2013
  • Reduced school enrollment rates – from 50% in 2012 to 20% by 2013

Amid such pessimistic prospects for South Sudan’s economy over the next year, President Kiir sent a letter to over 75 former and current senior government officials in May in an effort to recover stolen government funds. Key excerpts from the letter are as follows:

“The people of South Sudan and the international community are alarmed by the level of corruption in South Sudan.”

“Many people in South Sudan are suffering, and yet some government officials simply care about themselves. The credibility of our government is on the line.”

“An estimated $4 billion are unaccounted for or, simply put, stolen by current and former officials, as well as corrupt individuals with close ties to government officials.”

“We fought for freedom, justice, and equality. Many of our friends died to achieve these objectives. Yet, once we got to power, we forgot what we fought for and began to enrich ourselves at the expense of our people.”

The amount of money unaccounted for is estimated to comprise about a third of South Sudan’s oil revenue between the signing of the Comprehensive Peace Agreement (CPA) in 2005 and the country’s independence last July. In addition to opening a bank account in Kenya to which accused parties could return said stolen funds – either in part or in full – Kiir offered to grant accused parties amnesty and keep their name confidential if they returned stolen funds. As of the beginning of June, about $60M of the stolen money had been recovered.

As the impact of austerity measures really takes hold across South Sudan, it will be interesting to see how the population reacts to a regression in their standard of living to wartime (and pre-oil revenue) levels amid allegations of massive government corruption. According to the World Bank memo, the government asserts that the people of South Sudan have suffered for years, and will be prepared to suffer again. And this is, in my opinion, compounded by the fact that the government can point an accusatory finger towards Khartoum as a source of the population’s woes. The government of South Sudan should hope that Sudanese President Omar al-Bashir’s need to restore subsidies and other forms of patronage to cripple the protests that have erupted across Sudan since the middle of last month forces Sudan back to the negotiating table before South Sudan’s economy faces complete collapse – and before doubts about Kiir’s stewardship of the government boil over in the South.

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