Politicians to Blame for South Sudan’s Central Bank Foreign Cash Reserve Woes

By Daniel Athior’o Atem, Nairobi, Kenya

Tuesday, September 01, 2020 (PW) — The recent admission by South Sudan’s Central Bank second Deputy Governor Daniel Kech Pouch points to politician’s adventurism and interference in the bank’s operations. After decades of civil war, the country attained independence on 9 July 2011 as the outcome of a 2005 Comprehensive Peace Agreement (CPA). 

Citizens had a lot of hope in the politicians to transform the conflict shattered country into a peaceful prosperous one. On 18^thJuly 2011, a new currency, the South Sudan Pound was introduced. With over 200,000 barrels of crude oil produced per day at the time, and 10 USD exchanging for 26.778 SDG, South Sudan’s economy was on the perfect path to development. 

However, things began to get worse in 2013 when the same politicians (liberators) who rescued the country, fell out over individualistic differences and plunged us into another conflict. The conflict has severely affected the South Sudan economy with oil production reduced by 70,000 barrels a day. The country thus loses out on foreign earnings from loss of oil sales. In fact, economists have suggested boosting oil production as the solution to the hyperinflation and foreign exchange deficit. 

The unending conflict fueled by politicians in Juba has stifled so many sectors that would propel South Sudan economic prosperity. Millions of dollars that would be invested in productive sectors like manufacturing and agribusiness are wasted on procurement of arms, shady defense contracts and maintenance of the army. The population now mainly relies on imports, even though a plunging exchange rate means imported food is overwhelmingly expensive. If it were not for the unpatriotic hearts of politicians, by now the country would be economically vibrant, producing for export. 

The appointment of senior central bank officers by the President is contested by many citing political bias as opposed to merit. It is thus not surprising that between 2017 and 2020, President Kiir has dismissed three central bank governors. On 22 January 2020, he fired governor Dier Tong Ngor and appointed Jamal Wani Abdalla. It is highly doubted that the dismissals and appointments are based on professional grounds other than personal differences with the President and kitchen un-elites.Such appointments only compromise the independence, professionalism and integrity of South Sudan’s Central Bank. In addition, the fact that the central bank is under the Ministry of Finance suppresses its freedom of making sound operational policy. 

The depletion of hard currency from the central bank is also linked to the fact those political elites in Juba and more especially those that near presidential palace exploit privileged access to bank services or control banks outright. While many government officials have dismissed the 2018 Sentry Report-Banking on War, its findings explain the current central bank situation. The report revealed that many powerful South Sudanese elite—known as Politically Exposed Persons (PEPs) in banking terminology – their relatives and their associates exploit privileged access to bank services or control banks outright. The war economy, built on PEPs’ control of banks and capture of oil profits, benefits the elites even as most South Sudanese suffer the devastating consequences of persistent inflation.

More than half, the number of banks operating in South Sudan, are partially owned or controlled by a politically exposed person, suggesting an undue level of political influence in the banking sector. A mix of local banks, joint banks co-owned with East African investors, and foreign banks operate in the war-torn market but offer few banking services.

Because political elites establish and control banks, either directly or through relatives and associates -these banks receive preferential access to foreign exchange. This corrupt practice has caused inflation as political elites have moved hard currency out of the South Sudanese economy.

South Sudanese banks operating within East Africa’s banking network have access to the global financial market through correspondent bank relationships. Many of the powerful political elites who are driving the war rely on correspondent banks in the region and in banking capitals around the world to move money, including U.S. dollars.

Regulatory, reputational, political, and money laundering risks in South Sudan’s political the elite-influenced banking sector could lead South Sudanese banks—and potentially other East African banks – to lose connections to the global financial system and decrease the economic opportunity for millions of South Sudanese.

Recommendations

First, politicians need to put aside individual differences that have cost the country millions of dollar financing the conflict. They should instead exhibit a spirit of nationalism – working for peace and prosperity for every South Sudanese. 

Second, the central bank should be free from political interference. Appointments should be based on merit and successful candidates especially for positions of Governor and Deputy Governors be vetted by Parliament. There are quite a number of South Sudanese countrymen and women both within the country and in the diaspora who are well qualified and experienced for such positions but kept at bay due to their political affiliations. This is not RIGHT. 

Third, reliance on oil production is alone as the major export is a time bomb. The government should diversify the economy by developing key sectors especially infrastructure, trade and industry, tourism, and agriculture. This will increase export earnings thereby mitigating the hard currency shortage.

Fourth, given the heavy political elites influence on South Sudan’s banking sector, there is a risk that local banks will be cut off from the global financial system. To prevent large-scale de-risking and restore international confidence in the banking sector, correspondent banks and regulators should agree to remove the most politically influenced local banks from the global financial system.

Lastly, the government should respect the regulatory framework in place and let institutions work without constant interference from politicians. 

The author was a World Bank Blog4Dev2019 Winner for South Sudan|| A Member of the Youth Transforming Africa||Mandela Scholar. Email: atemathior@gmail.com

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