South Sudan Welcomes 2016 with Placards of 28 states, Peace and Devalued Pound
5 min readWelcome 2016 economy to South Sudan with your placards of 28 states, peace and devaluation of pound
By Garang Atem Ayiik, Juba, South Sudan
Introduction
December 31, 2015 (SSB) — War started in December 2013, it last for 2 years caused by power struggle within the ruling party SPLM between His Excellency, President Salva Kiir, the chairman of the party and his deputy in SPLM Dr. Riek. IGAD mediated peace was signed late in 2015 and expected to be implemented in 2016.
Ministry of Finance and Economic Planning and Central Bank of South Sudan devalued pound from 3.16 to about 16.5 SSP per a dollar, a huge loss of pound’s value.
In Christmas eve, the President appointed governors to rule 28 states that he has created from10 states with objection from his peace’s partners and other citizens who sees a bad link with the economy. The authors of this article falls in the latter group.
The above 3 items and falling oil price in the global markets are going to be the key derivers of South Sudan economy in 2016.
Pricing 28 states, peace and devaluation of pound
Current budget for 2015/2016, constitute of 54% salaries, 26% as transfers to states and oil producing states; 17% goes to operating expenses; 2% goes to capital development and finally 1% goes to others.
Within states’ transfers, I am sure over 20% goes to salaries, approximately making over 70% as salaries moving forward in the next calendar year. In the next financial year, South Sudan will be in top 10 amongst countries where salaries forms huge portion of the budget.
Providing peace dividends and taking services closer to the people will be a true rhetoric without proper funding.
In current budget, 2.6 billion SSP was budgeted for 10 states. If you assumed 10 states will require a minimum of 2.6 billion SSP as operating budget, you require approximately additional 5 billion SSP for new 18 states.
Assuming startup of 0.5m SSP per state, which makes 14 billion SSP as a minimum additional budget in first calendar year. All put together 19 billion SSP for the first year of operationalization of 28 states.
Please note these figures are estimates to pass the message. I have been very conservative on startup capital for the states.
In addition, assuming no external funding for recent peace agreement, or even if there is external funding, how much generosity can international community, and development partners offer should be an issue South Sudanese should be mindful.
In addition to financing challenges, created without drawn and tested border, no defined criteria for creating 28 states, and no census to create decentralized units and distributed resources by governors, and going against the spirit of recent agreement with Riek-led rebels, South Sudanese must work harder to make gains from the 28 states.
Who will take the cost?
In 2015/2016 fiscal year, the government budgeted 1.2 billion SSP in net oil revenue. If reported expected reduction in oil prices globally is anything to go by, actual cash might be less than a billion SSP in 2015/2016.
In fiscal year 2014/2015, actual net non- revenues was 0.962 billion SSP. This was less budgeted of 2.654 billion SSP in 2014/2015 demonstrating how untrustworthy Ministry of Finance and Economic Planning (MoFEP) estimates.
In 2015/2016, government has budgeted 1.776 billion SSP. In an economy in contraction 2014/2015, this is being over optimistic if compare to last year performance. In 2015/2016, the government has budgeted for 7.537 billion SSP in forms deficit financing.
Of 10.6 billion SSP budget in 2015/2016, over 70% was deficit financing, meaning printing more money and putting it into circulation. With new 28 states, and my estimates of additional funding of 19 billion SSP for 28 states, economic look out look dim from worsening macroeconomic fundamentals. With more deficit financing to run 28 states, citizens will be hit hard by surging inflation.
Without proper data, citizens seem divided. Majority seem to favor the new states. Those who seems to object, do so because they don’t agree with the non-consultative process and the economic circumstances. The author of this article identifies with later group of the citizens.
In Christmas month, December 2015, MoFEP and CboSS announced float exchange rate that turned managed float few days later, a policy position that divide the country with many citizens rejecting it.
Again, as I believed in November 2013, I believe there was a need to take some action on exchange rate disparity between the official and parallel markets.
However, in implementing devaluation policy, I believe the government should put in place some economic helmets to protect citizens from the policy impact: namely continue with fuel subsidy to support businessmen on fuel cost and citizens on transport cost; raise public sector employees’ salaries immediately; and zero-rate all essentials import. These were to neutralize the impact of inflation.
Constant supply of dollars to the market is require but a lot will go to those well-connected foreigners who would want to repatriate their capitals with uncertain economic environment in South Sudan. Continue to do deficit financing will counterproductive to Central Bank intervention.
Conclusion
With creation of 28 states, the government priority will shift from managing the impact of devaluation to financing 28 states. This can only be financed through deficit financing, which will aid to drive the prices up.
If financing peace is always included, government will have 3 new items to find money – 28 states, peace and devaluation, these are economic game changers in 2016.
We got to tighten our belts, we must be prepare for prices that change daily with rigid salaries. We are heading to year were 28 states and devaluation will impact us, each citizen individually in the pocket, we welcome 2016.
In 2016, please take your cost for 28 states, peace and devaluation without calling attention – long live Republic of South Sudan. I wish those in authority wisdom and happy new year to all.
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