On Liquidity Crisis and Cashless Economy in South Sudan

By Ajith Ajith Pioth, Juba, South Sudan

Monday, 30 June 2025 (PW) — Since its independence on 9th July, 2011, South Sudan’s economic trajectory has been characterized by a series of senseless violent conflicts, one after the other, that have caused havoc and undermined the zeal for economic growth and development, holding the young country hostage and heavily dependent on oil, with a limited diversification for nearly fifteen years.

Recently, South Sudan’s minister of Finance and Economic Planning, Hon Dr. Marial Dongrin, shared a statement that stirred up confusion among the netizens of the country, decrying the serious Liquidity Crisis that has engulfed the financial sector.

“We have been able to pay for the past seven months’ salaries without fail, but that money goes into the account without cash. So, getting cash is the biggest problem”.

What’s a liquidity crisis? What causes it? What are the consequences? What is the solution? And, as a part of a long-term solution, why can’t we adopt a cashless economy? Here is my take. Enjoy.

What is a liquidity crisis?

It is an economic phenomenon where a business, or an economy as a whole, experiences insolvency. This is a situation where a business or a financial system runs short of cash or assets that can be easily converted into cash. In a simple language, it is when the system becomes broke, the state in which there is a shortage of cash supply.

Sometimes, it is called the acute shortage of Liquidity. Liquidity, here, is an item’s ability to convert into cash. So, the inability to meet financial obligations such as payroll, debts, daily operation costs, and other immediate short-term liabilities, the basic things which fascinate the smooth running of the system, is what is generally referred to as a liquidity crisis.

What causes it?

Well, many factors abound: including but not limited to economic downturns or the waves of recessions, market shocks and market panics, lack of deposit and savings culture among the general public, higher amount of bad loans, social impediment or rigidity to cashless economy, lack of trust and confidence in the commercials banks, poor financial management at the various levels, especially on the receivables, money hoarding, often out of financial anxiety or misjudgements or the wrong anticipations of the economic situation, reducing cash in circulation, and other unmentioned factors.

What are the consequences?

Liquidity Crisis is an immature financial crisis. When it’s not combated as early as possible, it can lead to a financial crisis. Civil servants and other workforce, plus businesses are the key players in any economy. They are the backbone without which the economy barely survives, or is anything to begin with, given that they are the economy themselves in every way.

So, when the national coffers deplete, and the banking system is unable to pay the workforce and meet other immediate short-term liabilities, it overhauls the entire workings of the economy, perhaps in a subtle but sure way: businesses close, unemployment increases, crime rate rises, and the consumption level declines.

In a small, non-diversified, and cash-based economy like ours, highly susceptible to any random slight change, and which is already facing surmountable challenges, it makes the heightened struggle for the basics or necessities of life even worse to obtain, let alone any desire for progress.

It discourages the investors, both the foreign and local investors, and any other group of economic actors willing to participate and contribute to the growth and development of the economy. It greatly exacerbates the already pervasive poverty and now downward income inequality.

The liquidity crisis often leads, unless it’s noticed early and arrested, to increased borrowing costs, generally reduced economic activity, asset devaluation in the market, widespread or rampant brokenness, and a sharp drop in both demand and supply, etc, all eventually leading to a serious financial and economic crisis.

What is the solution?

In addition to the well known mechanisms such as building dependable cash reserves, a safety net for a strategic backup (by setting aside a portion of national income or revenue), ensuring a clear, structured, and closely monitored cash flow, and formulating a robust, balanced expenditure approach, a nuanced pre-financing, to potentially avoid imbalance resulting in a liquidity crisis, there is a lot more.

One way is by developing a handful of well, vigorously designed contingent plans necessary in circumventing and absorbing the market shocks and panics. This is in case of another surprisingly unexpected occurrence such as this unfolds, it can at least find that there is already a resisting mechanism in place.

Also, directing a concerted effort to re-build a safety image, trust, and confidence in the financial institutions, especially the image of commercial banks, for the general public to once again believe, trust, and cooperate, is another equally important step in solving this and avoiding any future occurrence.

Because money hoarding, a situation where people keep money in their houses, not circulating, not active in a sensible way, has become a common thing, and it is a part of what is causing the liquidity crisis right now, rendering the economy vulnerable and its arms tightly constrained in many ways.

There should be a need, too, to encourage a strong deposit and savings culture which reduces the likelihood of what is called bank runs, and allows the institutions to properly manage their assets and liabilities. It mitigates the impact of a liquidity crisis by providing a stable source of funds for banks and other financial institutions.

Reviewing the reserves ratio like what the governor of the Bank of South Sudan, Honorable Dr Addis Ababa, did last week.
The BoSS has had an extraordinary meeting wherein they reviewed the reserves ratio, raised the RRR from 20 to 25 percent and reduced the CBR by 200 percentage points, that’s from 15 to 13 percent. This is meant to create a breather in the market, lessening the towering insolvent pressures while also equally stimulating the economic growth.

For a long term solution, I would however request a joint agenda, cooperation, and collective responsibilities among the ministries and institutions that fall under the economic cluster to consider the following:

First, as a long-term solution and strategy, I think we need a richly diversified form of economy. A diversified funding structure enhances financial flexibility and reduces liquidity risk by providing alternative means or avenues for obtaining the needed cash and capital. It is, together with an overall effective governance, the fastest way to economic growth and development. It gives the senior policy makers a wide range of macroeconomic development policy options to boost and grow the economy.

Second, we should know that politics and the economy are inextricably intertwined. It’s said that when politics sneezes, the economy catches flu. To resolve this issue of liquidity crisis and other economic concerns eating into our souls, we need political stability, peace, and security. In Economics as in life, everything affects everything else. Any action or inaction, whatever the case, is accounted for in the output. If you do nothing, you will get nothing. We can’t have a growing economy when there are other issues undermining our collective efforts, namely political instability and insecurity.

But hey…

Why can’t we adopt a cashless economy?

For the context, a cashless economy is an economy whereby transactions occur through digital methods such as Mobile phones, online banking, and credit cards. It is more convenient, more efficient, and safer than the cash-based economy. A cashless economy helps us reduce the liquidity crisis such as the unfolding. On a serious note, though, the insolvency only affects the physical money. It doesn’t affect the digital one. Imagine everyone with a MoMo account. What can stop transactions? In order to reduce the risk of liquidity crisis, we need to encourage our people to go digital.

In a cashless society, one that is highly cashless, you don’t experience shortage of cash and you don’t necessarily have to move around Juba Town, Konyokonyo, or Custom carrying a bulky and heavy bag of money and risk Toronto Boys spearing you, like WWE Superstar, Roman Reigns, does. No. You just move innocently with your phone or credit card, carrying millions of Pounds, go to any shop of your choice, and do your transactions in peace and silence, and walk away with a low profile, if you want, like a broke guy. I bet you it’s better for you.

Conclusion

With great technological advancements, the liquidity crisis should no longer pose a fiscal threat in the 21th century. This is not 60s or 70s, yajama. We are in 2025 and should catch up with the world of modern economy, pretty much like every other country is now doing including our closest neighbors, Uganda and Kenya. We should have only a small portion of money in cash, probably 30%. That’s why the former governor of the Bank of South Sudan, Honorable Dr James Alic Garang, advocated strongly for the digitalization of the banking system. I am sure you can get the document online. It’s in the public domain. The reason for advocating for digital banking is to avoid the insolvent hits that are quite frequent in non- diversified economy like ours. Digital banking is now the future. Of course, yes, for various reasons, we are still required to maintain and use cash, but we can do that with both the suggested 30% cash money, and hard currency.

Let’s go digital, folks.

~ Ajith Ajith Pioth is A South Sudanese writer who is interested in Banking and Economic matters.

Disclaimer: the views expressed therein are my own; they don’t represent any institution or party, and they are not politically motivated either. They are purely the opinions of a passionate student of the field.

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