South Sudan’s economy hit by drop in oil prices, floods

The drop in international oil prices coupled with the impacts of COVID-19 and floods in South Sudan have had a severe negative impact on the economy, the country’s central bank governor said on Thursday.

Dier Tong Ngor said the approval of the $174.2 million Rapid Credit Facility by the International Monetary Fund (IMF) to South Sudan will enable the country to use half of the amount to support the budget and the other half to meet the balance of payment needs.

“Definitely, this loan is meant to fill our reserves so it will have a significant effect on our balance of payment. It will significantly have a positive effect on reducing inflation. This loan will help us stabilize the exchange rate and if we stabilize the exchange rate, then automatically we will stabilize prices,” Ngor told reporters during a news conference in Juba on Thursday.

“To respond to these challenges, and as part of our commitment to implement the economic and financial reforms outlined in the revitalized peace agreement, the Bank of South Sudan has embarked on strengthening its monetary policy framework and correcting distortions in the foreign exchange market,” he added.

He said they will operationalize a monetary policy framework based on reserve money targets while preparing to transition to an interest rate-based monetary policy framework in the medium to long term.

“Our foreign exchange market reforms’ primary objective is to unify the official exchange rate with the market rate. The bank will, therefore, take several steps to achieve this objective.”

He added the bank will put in place institutional and operational requisites in the coming months, aimed at developing the market exchange rate and allow commercial banks to participate in its foreign exchange auctions. An amount of $3 million will be sanctioned to eligible banks in addition to $2 million to forex bureaus every week.

On Wednesday, the IMF said it released $174.2 million to South Sudan under its Rapid Credit Facility to address urgent balance of payments needs, after floods and an oil price shock hurt economic performance.

“The pandemic-related oil price shock and devastating floods have led to an economic downturn. The … downturn widened the fiscal and the balance of payments deficits, opening large financing gaps in the absence of concessional financing,” the IMF said in a statement.

It expected the economy would contract 4.2% in the 2020/21 (July-June) fiscal year, the statement added.