The South Sudanese authorities are facing multiple challenges including significant spillovers from the conflict in neighboring Sudan, protracted flooding, declining humanitarian assistance, the incorporation of newly constituted security forces into the payroll, and the need to finance elections planned for 2024; Macroeconomic policies have remained broadly oriented towards stability. In particular, the authorities have refrained from monetary financing since August 2022, and as a result the exchange rate has shown signs of stabilization in recent months. The risk of debt distress remains high, however, owing in large part to the high debt service costs, and low levels of foreign exchange reserves and fiscal buffers.

The Article IV consultations focused on medium-term policies to address fragility relating to increasing fiscal space, enhancing transparency, and improving public financial management (PFM). Progress has been made towards meeting the objectives of the Program Monitoring with Board Involvement (PMB) and discussions on the completion of the first and second reviews will continue in the coming weeks.

An International Monetary Fund (IMF) staff team, led by Mr. Niko Hobdari, visited South Sudan during November 29- December 8, 2023. The team held discussions with the authorities on the 2023 Article IV consultations and the Program Monitoring with Board Involvement (PMB) approved by IMF management in February 2023. At the end of the visit, Mr. Hobdari issued the following statement:

"The authorities have faced multiple economic and humanitarian challenges resulting from the spillovers of the conflict in Sudan, protracted flooding, and declining humanitarian support. In addition, efforts to strengthen administrative procedures for public sector salary payments have contributed to salary arrears while the need to finance elections scheduled for 2024 might put further pressure on expenditures. The conflict in Sudan has created logistical challenges, increased the cost of oil production, and exacerbated an already difficult humanitarian situation in South Sudan, with over 400,000 refugees having arrived in South Sudan as of early December 2023.

"Despite the circumstances, the authorities have supported macroeconomic stability through implementation of prudent fiscal and monetary policies. Progress on domestic revenue reforms continue, with an adjustment to exchange rates used for customs valuation and improved tax collection contributing to a significant increase in non-oil revenues. Efforts to improve governance and transparency have continued, including the publication of the budget execution report for FY2022/23 and preparation for publication of oil revenue and budget execution reports for the first quarter of FY2023/24.

"The Article IV consultations assessed medium-term policies to support sustained and inclusive growth and address fragility. In this context, discussions focused on: (i) putting economic reforms under the previous Staff Monitored Program (SMP) and current PMB on a sustainable footing; (ii) boosting domestic non-oil revenue mobilization to create fiscal space; (iii) enhancing social spending to allow the government to shoulder some of the support for nutrition, health and education largely provided by international donors; (iv) implementing governance and transparency reforms to reduce vulnerabilities to corruption; and (v)assisting the authorities through a tailored capacity-building program in key areas, such as PFM, revenue administration, and monetary operations. This focus is aligned with key outcomes of the National Economic Conference held in September 2023, which addressed many of these issues, with recommendations for a more balanced allocation of government spending, shifting from roads to social sectors and improved transparency and value for money in the use of oil revenue.

“The mission also conducted a review of the PMB’s quantitative targets and assessed progress on the structural benchmarks (SBs). Quantitative targets for end-March and end-June 2023 covering fiscal, monetary and debt were met, while the target on social spending was missed. As a result of the prudent monetary policy followed by the Bank of South Sudan (BoSS) combined with continued regular auctions of foreign exchange, the exchange rate has showed signs of stabilization in recent months. The risk of debt distress remains high, owing to elevated debt service costs, and low levels of foreign exchange reserves and fiscal buffers. The need to remain cautious on contracting new debt has also contributed to a continued reliance on costly oil advances.

“The mission discussed how to address multiple fiscal challenges during the second half of the fiscal year. Specifically, the authorities will need to eliminate salary arrears, finance elections, address the humanitarian crisis, and build buffers against possible further downside risks linked to the Sudan conflict. With limited room to boost revenues in the near term and the need to increase spending on health, education, and social assistance, the mission emphasized that fiscal space should be created through containing low-priority and low-efficiency expenditures.

“The mission reached agreement with the authorities on key policies. These include the clearance of salary arrears, the publication of the first quarter fiscal report for FY2023/24 and completing the audits of the last Rapid Credit Facility (RCF) disbursement and the FY2021 BoSS financial statements. Discussion with the authorities will continue in the coming weeks on policies to allow the completion of the PMB reviews.

“The IMF mission met with the Minister of Finance and Planning, Mr. Bak Barnaba Chol Bak, Governor of the Bank of South Sudan, Mr. James Alic Garang, Commissioner General of the National Revenue Authority, Mr. Africano Mande, and other high-level government officials, and representatives of the diplomatic community, private sector, and civil society. The IMF team thanks the authorities for the productive discussions.”