South Sudan Economy: Central Bank and Lack of Foreign Reserves
8 min read
By Jok WaMonychok, Juba, South Sudan
Friday, August 28, 2020 (PW) — Concerning Economics, the easiest fact ignored by the majorityis the fact that every action or decision we make involves economic aspect. In other words, it’s difficult to understand that Economics is an overlapping discipline cutting across politic, business, health, diplomacy and fundamentally, war. I know some of you will question my argument and if you do, there is nothing I can do now because I am going to talk about South Sudan Economy and why there is no foreign reserve in the central Bank. I will only manage to tell you that if you are endowed with wisdom, you don’t need to study Economics in order to make right economic decisions.
South Sudan broke away from the Sudan on 9th July, 2011 after 21 years of bloody civil war and plunged back into a more deadly civil war in December 2013. Its population of more than15 million according to South Sudan Population Clock is made of 70% youth, UN estimates. The combined life expectancy is 58.7, while for men and women it is at 57.2 and 60.3 years respectively. 66% is leaving on less than 2 dollars per day. The literacy rate is 34.52%, an increase of 7.69 in 12 years. There is a minimal access to basic services, putting the population into food insecurity as there are no sufficient infrastructures.
The maternal mortality rate was 789 per 100,000 in 2019 according to United Nations Population Fund (UNFPA), while the infant mortality rate is 62.05 per every 1,000 for 2020 according to the United Nations projection. 80% of the population lives in the rural areas, depending on agriculture, fishery, and forestry for livelihood. According to IMF- World Economic Outlook Database, 2020, the Gross Domestic Product (GDP) is $3.36 billion and the GDP per Capita is $243. The inflation rate is 8.1% with its worst in 2016 when it was 800%, but dropped to 118% in 2017. Sector by sector, agriculture leads the employment with 50.3%, services with 34.7% and industry with meager 14.9%.
The economy of South Sudan depends entirely on oil and agriculture. South Sudan, also referred to as the “Land of Great Abundance” is made up of 86% arable land, which supports agriculture. In agriculture sector, the primary products are peanuts, sorghum, millet, Arabic gum, sugarcane, cotton, wheat, manioc, meat, and rice. While in mining sector, the world’s youngest nation is blessed with mineral resources such as gold, iron ore, copper, chromium, zinc, tungsten, mica, and silver. Of all these minerals, only gold is being exploited.
Having looked at those indicators, it is clear that it is easy to blame our government for our economy in shambles forgetting that there is some economic wisdom we need. And that’s when maximum peace is achieved. In this way, the central bank will be able sustain a healthy foreign account.
But without being told that the central bank has run out of foreign reserves, have you ever asked yourself about it sources of incomes and financial position? Well, let’s take a glance at thesources of public finance because a public institution such as central bank generates its finance from the public for the publicfrom natural resources, taxes, dividends from government corporations such as NilePet, loans, fines, fees, and donations from friendly countries.
Oil is the biggest source which generates 98% of the revenues. In addition, gold, although there are no official figures on the revenues generated from it, is being mined though it is not clearto me whether or not it goes into national treasury.
Tax which is categorized into corporate tax, income tax, property tax, estate tax, tariff and sales tax on the other hand is the next after natural resources – the biggest income earner for some countries national budget. Within each type of tax, there are further characterizations under Public Finance which this article cannot cover in detail.
Despite rampant corruption which has deprived the national treasury of this vital source of revenue, it is one of the vital sources of the government revenues. There are many attempts in place to reform revenue authority to avoid channeling of taxes into individual pockets.
The government may take part in business ventures by buying shares in national and international companies. The profit generated by the companies in which the government has a share is received as a dividend, which goes direct to the national treasury.
Loan is also one of the sources of public finance. The government borrows both internally and externally. Internal creditors are national companies while external creditors are international Monetary Funds (IMF), World Bank, friendly countries and foreign multinational companies. No nation in modern world has no debt. The biggest economies such as China, the US, Germany and the UK have huge debts. The US in particular has a debt of 24.95 trillion dollars for 2020 mainly from China.
Fines are money generated by the courts from those who have broken the law, from the roads by the traffic police, and police stations by law enforcement police. Fees on the other hand are generated from those who acquire license, permit, certificate, parking etc. Until recently, the UK, the US, and EU and generally Troika funded some of the government’s programs. This form of financing is termed as donation. Every nation has a friendlycountry which offer donation for the implementation of certain developmental projects.
As we have seen, as far as the economy of south Sudan is concerned, the biggest source of finance is natural resources. Thus, let’s attest to the fact that vast area of national resources, not natural resources, are left unexploited and that oil which we still believe to contributes to 98% of national income gives a hazy figure considering the fact that some part of crude oil is siphoned by China in exchange for constructing roads and the rest goes to military expenditure.
Sudan under crafty Bashir, I don’t know about now, used to steal thousands of barrels a day besides transit fees. And then the fluctuation of oil prices which often slumps. All these are crowned by the massive corruption in which the pitiable revenue that comes from oil ends up in individual pockets, putting the last sword to the threat of the dying horse. What about youth, which make up 70% of the population? Don’t forget that human being is a national resource and that’s why Human Resources Management is a career. As of 2019, the unemployment rate for youth is 18.78%, a 0.04% decline from that of 2018. And now with the Coronavirus, it may decline by a wide margin.
However, what raises the eyebrows is that agricultural sector has not been commercialized to realize export. The produces are either sold or consumed locally. This can take us back to question the validity of 50.4% employment from agriculture sector because even those who sell their agricultural produce do that to buy other basic needs. Presumably, majority of these people take part in agricultural activities for subsistence purpose for even animal husbandry in which South Sudan has the highest number of cattle of 10-20 million is not mainly for commercial purpose, but for marriage, prestige, and religious rituals.
When central bank’s Deputy Governor, Daniel Kech Pouch announced on 19th august, 2020 that the country’s only custodian of money has ran out of foreign reserves, but later denied again by the same central bank, many people with economic knowhow embraced themselves with the reality. Things have been hard as far as our economy is concerned.
Obviously, there are ways of maintaining foreign reserves account. One way is through export to the extent where the level of export is higher than that of the import. A country which imports good for domestic consumption uses foreign reserves to acquire goods and services. On the other hand, a country which imports less and exports much acquires foreign currency which sustains a foreign reserve. This leads to a surplus or healthy balance of payment account.
A surplus in the balance of payment puts the national currency into good position and thus, the central bank will embark on saving to avoid future devaluation of local currency by buying gold to back it up and which can be used also to buy hard currencies in time of needs like now that we don’t have hard currency.
Some years back, central bank had announced that it was planning to build a gold refinery. I don’t know and have no sufficient information about what happened to that plan, but what I know is that, it was the smartest plan to back the South Sudanese Pound and at the same maintain healthy foreign reserves.
In summary, a country with poor citizens cannot have a rich government or central bank because as we have seen the types of taxes, the ability to pay tax is not with many citizens. The same is true when the country’s has no access to healthcare, because health and wealth go hand in hand. We have natural resources alright, but do we have the capacity to exploit them? What percentage does oil sector employ? And in agriculture, is the government able to generate revenue from that low level commercial production or should the government tax subsistence production? Having known all these, the government should prioritize the improvement of human resources and device technological development to exploit natural resources and mechanize agriculture for commercial purpose to achieve export.
In this way, youth, which make up almost two third of the population should be empowered economically through entrepreneurship and improvement in services and industry sectors. Education needs improvement and the ministry of labour should device reformatory majors to curb discrimination by foreign companies in employing South Sudanese because one of the reasons for the lack of hard currency is capital plight.
The writer is a graduand of Economics at Catholic University of South Sudan. He is a business Strategist and the author of the upcoming novel, The Twisted Destiny. He can be reached via his email: jokwamonychok@gmail.com
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