IMF staff commends the authorities for implementing key economic reforms supported by the Staff-Monitored Program (SMP) that have stabilized the exchange rate, contributed to a significant decline in inflation, and unified the exchange rates in the market; it will be important to make sustained progress under the SMP, especially by deepening public financial management (PFM) and other governance reforms that are essential for efficient use of public funds and building the foundations for strong and inclusive growth.

The Management of the IMF approved on October 18, 2021 the completion of the first review under the SMP for South Sudan. The SMP, which was approved on March 30, 2021 , supports the authorities’ program of reforms that are aimed at strengthening governance and helping create the conditions for strong and inclusive growth by restoring fiscal discipline, implementing a rules-based monetary policy framework, and eliminating distortions in the foreign exchange market.

South Sudan’s near-term outlook is for moderate economic recovery. Real GDP growth for FY2021/22 is projected at 1 percent, boosted by higher oil prices. A national vaccination campaign has made some progress distributing COVID-19 vaccines, supported by the World Bank and COVAX. However, so far only a small share of the population has been vaccinated. As such, increasing the share of the population vaccinated is critical to mitigating risks of new pandemic variants and waves that could have devastating implications for lives and livelihoods.

A foreign exchange (FX) reform introduced at the beginning of the SMP sought to liberalize FX markets and eliminate the large distortion from a significant premium of the exchange rate in the parallel market relative to the official rate. The faster-than-expected completion of this goal constitutes a notable success with tangible benefits. Supported by two disbursements under the Rapid Credit Facility (in November 2020 and March 2021 ) and higher global oil prices, the macroeconomic stabilization and FX market reforms have contributed to an appreciation of the market exchange rate. The appreciation has translated into a significant decline in inflation, with domestic prices (including those for food) falling slightly in recent months.

Economic governance remains weak following years of civil conflict. This includes large oil advances and other non-concessional loans and guarantees outside the budgetary process which are indicative of weaknesses in central control over debt contracting and management. In this respect, it is a promising first step that PFM reforms have been initiated, including those aimed at improving cash management, strengthening spending controls, starting the implementation of the Treasury Single Account, discontinuing the use of nontransparent oil advances for budget financing, starting the publication of budget implementation updates, and initiating reforms to strengthen the Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) framework. Going forward, the authorities and IMF staff agreed to establish a robust debt management framework and tackle a legacy of non-concessional external debt. In addition, the authorities expressed commitment that no new debts should be incurred without the approval of the newly established Loan Committee, the Cabinet of Ministers, and the National Assembly, and no new oil advances would be contracted.

The recent publication of the audit by the Auditor General on the use of the first f RCF funds disbursed in November 2020 marks an important step towards greater fiscal transparency and accountability in the use of public resources. An effective follow-up by the appropriate institutions on the findings of the audit will be essential.