South Sudan: Low Oil Revenues Shrink South Sudan's Economy

This Day

Azikel Refinery

4 AUGUST 2021

The East African (Nairobi)

By Albert Mwazighe

South Sudan’s real GDP is expected to contract by a further 1.1 percent this year as a result of a drop in revenues generated from oil, which accounts for 90 percent of the country’s goods exports and more than 80 percent of total government revenue, says rating agency Fitch Solutions.

In a study on the macroeconomic situation of the country, Fitch says foreign and private investment in the oil sector will continue to be hampered because of insecurity, thus resulting in an eight percent drop in oil production this year.

With the dominant oil sector shrinking, it is expected that the non-oil economy will also struggle to recover in 2021, keeping the country in a recession. The agency notes that the country’s inflation rate, which has been showing signs of stabilising over the past two years following the country’s attempts at peace, shall increase, dampening purchasing power.

Inflation versus stability

At 19 percent, South Sudan’s inflation rate is highest in Eastern Africa followed by Ethiopia, Eritrea, Kenya, Tanzania, Uganda and finally Rwanda, which has the most stable economy in the region.

South Sudan’s economic woes have been aggravated by the global pandemic and two consecutive years of flooding which have affected agricultural outputs. The agriculture sector in South Sudan employs 38.4 percent of the country’s workforce.

To fund its infrastructure development budget, its recurrent budget as well as its peace budget, the country will have to rely on external financing from loans, which will sink the nation into further debt.

In November 2020, the country received a $52.3 million loan from the International Monetary Fund to help cushion it against the effects of the pandemic.

It then secured a $174.2 loan from IMF this March, majority of which was used up to pay staff salaries which were reportedly in arrears for over five months.

On the bright side, as weather conditions normalise, and travel restrictions are eased due to an increase in domestic Covid-19 vaccine roll-out, it is expected that the real GDP will return to growth in 2022, expanding by about 1.7 percent.

Read the original article on East African.