SOUTH SUDAN-POLICY ADVISORY NOTE - Budget and Resource Management: Addressing Fiscal Imbalances
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AFRICAN DEVELOPMENT BANK
AFRICAN DEVELOPMENT FUND
ADB/BD/IF/2020/159 - ADF/BD/IF/2020/100
SOUTH SUDAN-POLICY ADVISORY NOTE
Budget and Resource Management: Addressing Fiscal
Imbalances
Flávio A. Soares da Gama1
April 2020
1
Flávio A. Soares da Gama is a Senior Economist at the Africa Development Bank.
1Executive Summary government expenditure of USD775
million3, whilst humanitarian financing
1. South Sudan’s prolonged years of accounts for 71.3 percent. The budget has
conflict and political instability has led to deficiencies including discrepancies between
severe institutional capacity gaps, the programmed and executed resources due
particularly in the areas of public finance to extra-budgetary expenditures. For
management, and allowed the culture of rent instance, in 2018/19 fiscal year, there was an
seeking and avenues for corruption. The key average of 24 percent of budget resources
crucial elements- transparency and unutilized, of which 60 percent from the
accountability in the use of public resources health sector4. In addition, the budget
were compromised. This situation has also execution is also undertaken outside the
affected the creation of economic integrated financial management information
opportunities for the people of South Sudan. system (IFMIS) and it is manually prepared.
These constraints also reflect the institutional
2. The country’s economic structure capacity weakness in budget planning and
is highly dependent on oil resources. South execution as well as lack of credibility,
Sudan has the third largest oil reserves in accountability and transparency. It is not
Sub-Saharan Africa with an estimated 3.75 credible and comprehensive because it does
billion barrels of oil reserves. This not fully take into consideration sector
dependency exposes the country’s ministries’ planning despite their
vulnerability to oil prices fluctuations and submissions. In addition, the internal and
reduce its competitiveness against other external control and oversight mechanisms
economies, and compromises efforts to are weak with internal and external oversight
mobilize non-oil domestic tax revenues. The institutions including the Audit Chamber
challenge compounds as the ongoing assigned to undertake regular audit lacking
Coronavirus (COVID-19) pandemic has autonomy to efficiently perform its roles.
induced reductions in global demand and
prices for commodities, and consequently 4. The Government is cognizant of the
reduction in crude oil prices. The oil sector budget execution shortcomings.
remains the key driver of economic growth Nonetheless, in the 2019/20 state budget
and supply side economy. On the demand speech, the Minister of Finance, Planning and
side economy, growth was driven by public Economic Development (MoFPED)
and private investments in 2019. announced stringent measures to address and
strengthen budget execution and control
3. The state budget is the main tool procedures as per the 2011 Public Finance
used by the Government for public Management and Accountability Act. Some
resource allocation and financing its of these measures include but are not limited
policies and national development to; (i) efficient use of an Integrated Financial
strategy. However, it is also important to Management Information System (IFMIS) to
highlight the contribution of the Official ensure alignment between expenditures and
Development Assistance (ODA) to the revenues (available cash); (ii) limiting no-
budget. In 2018, ODA contribution stood at priority operating expenditures; (iii)
USD1.577 billion2 compared to the establishment of a cash management
2 3
Ministry of Finance and Planning- Budget Speech-
https://data.worldbank.org/indicator/DT.ODA.ALLD.CD?l 2019/2020.
ocations=SS 4
UNICEF Budget Brief-2018/19.
1committee; and (iv) establishment of an
arrears management committee.
5. This Policy Advisory Note assesses
the efficient use and management of public
resources by the Government of South
Sudan as a transition state. The Note
provides a review of budget planning and
execution, revenue mobilization efforts-the
role of oil sector, and proposed some policy
recommendation options for the
Government. The proposed policy
recommendations are: (i) Ensure
independence of internal and external
oversight institutions such as internal audit,
external audit/national audit office, public
accounts committee, and civil society
organizations; (ii) Strengthen the tax
administration system through capacity
development and use of information
technology (automation) to ensure efficiency
in tax collection and address leakages;(iii)
Implementation of a mid-term budget
framework that accounts for the impact of
policies in the long-term; (iv) Ensure public
debt management system is anchored on a
medium-term fiscal framework; (v) Urgent
focus on economic diversification to reduce
vulnerability of the economy; (vi) Improve
capacity of the debt management unit,
ministry of finance and spending agencies in
budget execution and planning and build
resilience against exogenous shocks; (vii)
Improve governance of natural resources;
(viii) Use of gas associated with oil
production for power generation; and (ix) set
up an oversight committee to drive the
needed PFM reforms.
2I. Introduction 3. The country’s economic structure is
highly dependent on a single commodity-
1. South Sudan is confronted with oil. South Sudan has the third largest oil
several financial and economic challenges, reserves in Sub-Saharan Africa with an
particularly with regards to management estimated 3.75 billion barrels of oil reserves.
of public finances. This Policy Advisory For instance, oil revenue averaged 86 percent
Note (‘hereafter the Note’) assesses the of total Government’s revenue from 2015-
efficient use and management of public 2019. This dependency exposes the country’s
resources by the Government of South Sudan vulnerability to oil prices fluctuations and
as a transition state. In this context, the Note reduce its competitiveness against other
reviews the budget planning and execution, economies. It also compromises efforts being
revenue mobilization efforts-the role of oil made to increase non-oil revenue collection.
sector, and proposed some policy The oil sector remains the key driver of
recommendation options for the economic growth and supply side economy.
Government, which could be used by the On the demand side economy, growth was
African Development Bank Group driven by public and private investments. The
(henceforth the Bank) and international country’s medium-term economic prospect is
community, to help the country restore outshined by COVID-19 and decline in
transparency and accountability in public global oil prices. As a result, real GDP
finance management. growth is projected to contract to -0.4 percent
in 2020, from 5.8 percent in 2019, due to the
2. South Sudan is Africa’s youngest state reduction in global demand and prices for oil
that gained independence from Sudan on and unresolved political, social and economic
9th July 2011 but has struggled with lack of issues.
good governance and capacity for nation
and state building. The independence 4. South Sudan’s economic and
brought a new impetus for the country away financial governance indicators are among
from Sudan’s domination, and lay the path the lowest ranked in Sub-Saharan African
for an equitable and inclusive development, and the world. The country leads the table as
as well as an opportunity to rebuild a new one of the most corrupt countries in the world
nation. However, the independence has rather in the 2019 Transparency International’s
created economic and political Corruption Perceptions Index (ranked 179
marginalization, and ethnic divisions, which out of 180 countries). Similarly, it was also
has led to ethnic conflict heralded by the 2016 ranked at the bottom of the 2018 Mo-Ibrahim
war and over 17.7 percent of the population Index of African Governance, with
leaving outside the country as refugees. The transparency and accountability being the
situation has also led to insecurity across major areas of concern. South Sudan’s score
several states and minimized the free has also declined to 2.15 in 2018 from 2.33 in
movements of persons and economic 2014 in the 2018 Bank’s Country Policy and
activity. Nonetheless, new hope emerged Institutional Assessment. The country also
with signing of the Revitalized Peace performed poorly in the 2017 Open Budget
Agreement in September 2018 that Survey (OBS), scoring a transparency index
culminated with the formation of the of 5 out of 100 (compared to the global
Transitional Government of National Unity average of 42). Furthermore, there is also a
on 22nd February 2020. need to improve fiscal governance including
procurement practices, public finance
controls among others.
35. The Government is committed to affected the creation of economic
implement reforms to improve opportunities for the people of South Sudan.
management of public funds, but In addition, the country is also confronted by
challenges remain. Some of the reforms lack of economic diversification driven
include, but not limited to, (i) introduction of mainly by the high dependency on oil
a stamp tracking system for imports aimed at resources-key driver of economic growth and
reducing tax evasion, (iii) establishment of a source of revenue. Oil resources accounted
cash management committee among others. for over 90 percent of total exports, 96
However, there are several shortcomings in percent5 of total revenues, and about 70
the Public Finance Management (PFM) percent of GDP in 2017. Meanwhile,
system including; (i) poor budgetary livelihoods supported largely by low
transparency, oversight and execution, (ii) productivity agriculture and pastoralists
failure by the Government ministries, work, accounted for about 10 percent of GDP
departments and agencies to prepare and and two thirds of employment in the same
submit annual financial statements for audit; period.
and (iii) lack of independence of oversight
institutions among others. 9. Disruptions in oil production
caused by internal political wrangling in
6. As alluded in paragraph 1, this Note recent years (2013-17) affected the
will assess Government’s prevailing country’s economic performance. The
challenges in ensuring fiscal sustainability situation has led to declining in output, high
by looking at the budget planning process, inflation (187.9 percent in 2017), weak
execution and revenue mobilization efforts. agriculture production (10 percent of GDP in
2017) and soaring parallel foreign exchange
7. The rest of the report is structured as market premium due to depreciation of South
follows: Section 2 provides a brief contextual Sudan Pound-SSP (SSP172 per dollar by
analysis; Section 3 reviews the country’s August 2017). In addition, the fall in global
budget and resource management focusing oil prices (from USD97.32 in 2013 to
on budget planning and execution, tax USD59.8 in 2017) amplified the challenge
system, sources of revenue, policy priorities thus increasing the fiscal deficit (from 20.3
and commitment; Chapter 4 provides percent of GDP in 2015 to 23.8 percent in
conclusion; and Chapter 7 presents policy 2016). These years of persistent instability
recommendations. has also led the Government to shift its
priority to security spending rather than
I. Contextual Analysis development. The economic prospect is
further challenged by the COVID-19
8. South Sudan’s prolonged years of pandemic that indirectly led to decline in oil
conflict and political instability created prices due to reduction in global demand and
severe institutional capacity gaps, prices for commodities. As a result, real GDP
particularly in the areas of public finance growth is projected to contract to -0.4 percent
management, and allowed the culture of rent in 2020 from 5.8 percent in 2019. The decline
seeking and created avenues for corruption. in oil prices will negatively impact the
The key crucial elements- transparency and government’s revenue collection projection
accountability, to good governance have and thus widening the fiscal budget deficit to
been compromised. This situation has 4.1 percent of GDP in 2020, higher than 1.3
5
2019/20 Fiscal Year State Budget
4percent of GDP initially projected for the submissions as well as lack of reporting from
year. In addition, lower demand from trading the states on the central government transfers.
partners like China, will weakens South The recurrent failure to meet the approval
Sudan’s external position through reduction deadline, which is before or by 30th June8, by
in international foreign reserves and parliament is another contributing factor.
deterioration of current account deficit to 5.8 Furthermore, the internal and external control
percent of GDP in 2020 from 3.2 perecent of surveillance mechanisms are weak with
GDP in 2019. While the agriculture sector is internal and external oversight institutions
expected to underperform due to disruptions including the Audit Chamber assigned to
in the rainfalls pattern and the locust undertake regular audit lacking autonomy to
infestation damaging agricultural production efficiently perform its roles. For instance, no
leading to reduced farmer’s income and comprehensive audit of Government
exacerbate poverty and humanitarian crisis in expenditure has been done since
the country, the service sector is projected to independence, and Government line
improve. Capital investments into ministries and agencies fail to provide annual
infrastructure will drive growth on the financial statements for audit. In addition, the
demand side economy. Parliament has not been efficiently exercising
its role to ensure oversight of the budget
10. The state budget is the main tool expenditures due to human and financial
used by the Government for public constraints. Moreover, budget preparation
resource allocation. However, Official cycle is still not inclusive because of limited
Development Assistance (ODA) to the nationwide consultation with civil society
budget has been instrumental. In 2018, ODA due to insecurity outside Juba. Therefore,
contribution stood at USD1.577 billion6 strengthening capacity of these institutions is
compared to the government expenditure of critical to enable them to create a well-
USD775 million7, whilst humanitarian functioning internal organizational structure.
financing accounts for 71.3 percent. The
budget preparation is conducted in close 12. South Sudan’s economic and
collaboration between the MoFPED and financial governance indicators are
executing sector ministries as entrusted in the worrisome. The country was ranked 179 out
national law. Sector ministries prepares their of 180 countries in the 2019 Transparency
annual budget proposals and submit to the International’s Corruption Perceptions Index.
MoFPED for arbitration and consequent Similarly, South Sudan was also ranked 53
endorsement, which is latter approved by the out of 54 countries in the 2018 Mo-Ibrahim
parliament. Index of African Governance with
transparency and accountability being the
11. However, the budget process has major areas of concern. The country has
several limitations linked to lack of scored 2.15, the lowest in the governance
credibility and transparency. The budget cluster (e.g. quality of budgetary and
lacks credibility and comprehension because financial management, and transparency and
it does not fully take into consideration sector accountability) in the 2018 Bank’s Country
ministries’ planning despite their Policy and Institutional Assessment, which is
6 8
The 2016/17 state budget approved in December 2016;
https://data.worldbank.org/indicator/DT.ODA.ALLD.CD?l 2017/18 state budget approved in August 2017; and
ocations=SS 2018/19 state budget approved in July 2018.
7
Ministry of Finance and Planning- Budget Speech-
2019/2020.
5lower than 2.33 observed in 2014. In alignment between the available resources
addition, according to the 2017 Open Budget and Government’s fiscal objectives.
Survey, South Sudan scored poorly in the
following indicators: transparency index (5 15. Since independence, Government
out of 100, compared to the global average of has been implementing a loose fiscal
42), public participation (2 out of 100), and policy. The policy focuses mainly on security
an oversight (54 out of 100). spending averaging 29 percent of GDP from
2015 to 2019 period. Nonetheless, in the
II. Budget and Resource Management approved 2019 state budget, infrastructure
was the main beneficiary sector accounting
Budget planning and execution for 54 percent of the total expenditure (Figure
13. The Public Financial Management 1). Whilst, the social sector (health and
and Accountability Act, 2011 is the education) had received limited attention in
institutional legal framework put in place and the same period. Although there were
permits the Ministry of Finance, Planning nominal increases in allocations, the overall
and Economic Development to exercise share of the 2019/2020 budget for education
powers in ensuring effective and efficient and health declined. Allocation to education
public financial management and sector declined to 5 percent from 9 percent
accountability including budget preparation, from the previous fiscal year, and below the
execution, management and reporting; Incheon Declaration (2015) of at least 15-20
internal audit; and public procurement among percent of total public expenditure for the
others. sector. Meanwhile, health sector represented
only 1 percent of the national budget, a
14. South Sudan’s state budget has reduction from the 2 percent, which is short
deficiencies including discrepancies of the Abuja Declaration of at least 15 percent
between the programmed and executed of the national budget for the sector. When
resources due to extra-budgetary analyzing the budget execution from 2015 to
expenditures. These constraints reflect the 2019 period, the analysis reveals that
institutional capacity weakness in budget significant budget operations overruns9
planning and execution as well as lack of occurred outside the approved budget
accountability. Despite introduction of an framework that created arrears accumulation
integrated financial management information on wages and salaries and transfers to states.
system aimed at enhancing public The public debt stock accumulation is
accountability and transparency, clear negatively affecting the country’s debt
assessment of the impact remains premature. sustainability as public debt was 41.7 percent
Furthermore, the situation has prompted of GDP as of March 2019.
members of parliament, during the 2019/20
budget discussion, to recommend the setting- 16. The Government is cognizant of the
up of an independent office of the controller budget execution shortcomings. The
budget to address the issue of budget challenge was also corroborated by the
indiscipline at the MoFPED. The creation of findings of the 2018 Assessment of Public
the office controller could help in the Finance Management (PFM) based on the
implementation and monitoring of a mid- Public Expenditure and Financial
term budget framework that will ensure Accountability Framework (PEFA)10, which
9 10
In the 2015/16 fiscal year, government spending was SSP Before independence in 2011, the World Bank conducted
6,885 million over the approved budget. PEFA assessments for selected states and the central
6rated South Sudan overall score of D in terms measures to address and strengthening
of PFM. According to the report, there are budget execution and control procedures as
several shortcomings in the Public Finance per the 2011 Public Finance Management
Management (PFM) system including; (i) and Accountability Act. Some of these
poor budgetary transparency, oversight and measures include but not limited to; (i)
execution (ii) failure by the Government efficient use of an Integrated Financial
ministries, departments and agencies to Management Information System (IFMIS) to
prepare and submit annual financial ensure alignment between expenditures and
statements for audit; (iii) lack of revenues (available cash); (ii) limiting no-
independence of oversight institutions, and priority operating expenditures; (iii)
(iv) weak institutional capacity in PFM establishment of a cash management
systems. To address these challenges, the committee; and (iv) establishment of an
Minister of Finance announced stringent arrears management committee.
Tax system withholding tax (10-20 percent). The
Government has operationalized in March
17. South Sudan has a progressive 2018, the National Revenue Authority
income tax system. The tax system is fairly (NRA) to strengthen its non-oil revenue
well designed but remains very narrow base mobilization efforts. The NRA is mandated
coupled with several shortfalls that increases to work with concerned partners and
the surveillance mechanism challenges. The Government institutions such as customs, in
tax and customs are the key sources of non- order to beef up collection and reduce
oil revenue collection. All imports into South revenue leakages.
Sudan are subject to import taxes, unless
exempted by law. Tax on all imported goods 18. There are three levels of revenue
is fixed at 4 percent while tax on imported collection in South Sudan: national, state
food items is at 2 percent as stipulated in the and local Governments. Most revenues (oil
2016 Taxation Amendment Act, which revenue receipts, corporate taxes, personal
replaced the 2009 Taxation Act. Other income tax, dividend tax and capital gains
applicable import duties comprise excise (0- tax, custom duties and excise tax) are
300 percent), VAT (18 percent) and collected at the national level. Tax revenue
government. The PFM assessment was therefore the first
PEFA done for South Sudan after independence.
7averaged 31 percent of GDP from 2015- framework governing the tax regime.
2019, driven mainly by oil resources that Capacity constraints, lack of transparency,
accounted for over 86 percent of the total insufficient tax infrastructure leading to tax
revenue. Tax revenue was initially expected avoidance and evasion, are the other
to grow in the short to medium term contributing factor.
averaging 40 percent of GDP from 2020-
2021, driven by oil resources. However, this 20. Evidence shows that non-oil
projection will be negatively affected due to resource contribution to the gross
the impact of the COVID-19 leading to domestic product (GDP) averaged 4.1
reduced demand in commodity prices and percent over the last four years (2015-
decline in crude oil prices standing at USD 27 2019), driven by petroleum as well as
barrels per day as at 2nd April 2020, which is trading and manufacturing companies.
below the government’s oil sale price Data revealed that by 2015, non-oil
forecast of USD70 barrels per day. With an contribution stood at 6.1 percent of GDP, but
estimated oil production of 180,000 barrels significantly declined by 60 percent to reach
per day in 2020, this will yield a revenue 3.7 percent of GDP in 2017 due to negative
shortfall of USD7.74 million. The tax system effects of the internal conflicts that erupted
is characterized by poor accountability of the again in 2016 displacing the fragile economic
revenue collected, excessive tax evasion and progress and led to an outflow of citizens
tax avoidance, and a weak administration escaping the conflict (Figure 2).
system compromised by significant
institutional capacity gaps. 21. Nonetheless, the Government
estimates increase in non-oil revenues in
Non-oil revenues 2019. The 2019/2020 state budget foresees a
19 percent increase against the previous year
19. Mobilization of non-oil domestic budget. The estimated increase is supported
tax revenues remains a challenge. This is by measures to strengthen domestic revenue
because the non-oil sector continues to be collection including an increase in personal
overshadowed by the country’s economic income tax rate and business profit tax. The
structure heavily reliant on oil resources. The latter was charged at a flat rate of 25 percent
challenge is exacerbated by weak and an in the last 2018 financial year. However, in
inefficient institutional and regulatory the 2019 state budget, the new proposed
Figure 2. Oil and Non-oil resource
(% of GDP)
40
35
30
25
20
15
10
5
0
2015 2016 2017 2018 2019 2020
Total revenue Oil Non-oil
Source: Government and IMF-Article IV , June 2019
2business tax rates range between 15 percent production in 1999, Sudan production (Nile
to 30 percent. Value added tax has been blend) was at mere 35,000 barrels per day.
established at 18 percent. On the other hand, Post-independence in 2011, South Sudan’s
the personal income tax brackets, initially oil production reached 325,000 barrels per
charged at an average of 7.5 percent for day, though below its peak production
income between SSP5,000-10,000, has been (380,000 barrels per day in 2009) at the time
increased by 5 percent. The effective of a unified country with Sudan. The
operationalization of the NRA supported by separation from Sudan12 has led to a
the African Development Bank through the significant decline in oil production that
Non-Oil Revenue Mobilization and stood at 27,000 of barrels per day in 2012.
Accountability (NORMA) project, which led Although below production capacity at the
to creation of a single block account for NRA then unified country, the situation has,
in January 2019 was one of the key reforms however, improved to 126,000 of barrels per
that also helped to spur revenue collection. day in 2017 (Figure 3).
According to the Government report, the
NRA block account collected USD4.7
Figure 3. Oil Production- 1999-2017
400 380
351 356 357
350 325
300
247
1000bb/day
250
195 209
199
200 162 165 162
141 145 135
150 124 126
100
35
50 27
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Dar Blend Nile Blend
Source: National Development Strategy 2018-2021
million (0.1 percent of GDP) in January
2019.
23. The increase in oil production also
Oil revenues
led to an expansion in Government’s
22. The oil sector is the main source of revenue collection. Prior to separation from
domestic resource mobilization. It Sudan, South Sudan has witnessed a
accounted for over 90 percent of total significant increase in oil revenue from
exports, 96 percent11 of total revenues, and USD1.2billion (39 percent of GDP) in 2006
about 70 percent of GDP in 2017. With an to USD3.3billion (104 percent of GDP) in
estimated 3.75 billion barrels of oil reserves, 2011, which has translated into a budget
South Sudan has the third largest oil reserves surplus. Following the separation and
in Sub-Saharan Africa. From inception of oil resumption of internal conflict, oil revenue
collection has massively dropped, thus
11 12
2019/20 Fiscal Year State Budget South Sudan still depends on Sudan’s pipeline to transfer
its crude oil.
3leading to a decline in the net oil transfers to is contraction of short-term non-concessional
Sudan (Figure 4). The situation has worsened loans that are pre-financed with oil receipts.
with falling oil prices and production. As
indicated in paragraph 18, there will be a
USD7.74 million shortfalls on government’s
revenue due to the falling in crude oil prices
driven by reductions in global demand for
commodities caused by the ongoing COVID-
Figure 4. Average Annual Net Oil Revenues -2006-2017
4000
3500 3348
3000
2694
2566
2437 2412
2500
Million USD
2020
2000
1417
1500
1160
Net Oil Revenues (est)
1000
2 per. Mov. Avg. (Net Oil Revenues (est))
464
500 337
166
0
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: National Development Strategy 2018-2021
19 pandemic.
Debt
24. Management of debt issues in post-
conflict countries like South Sudan is a
complex task. The key challenges faced by
these countries include the lack of
prioritization of debt-related policy and
institutional reforms; strengthening ongoing
debt reforms; and weak implementation
capacity. In South Sudan, another challenge
25. South Sudan’s debt position has representing 72 percent of overall debt stock.
been unsustainable for many years. The The situation further deteriorated with a
combined impact of civil conflict, a large fall resurgence of another internal conflict in
in oil prices, and high levels of fiscal 2016. By December 2016, the stock of
spending have left South Sudan in debt external debt owed and guaranteed by the
distress. These conflicts have negatively Government represented 87.8 percent of
impacted the Government’s ability to honor GDP, while foreign exchange reserves
its obligations, which resulted in remained at around 0.2 months of import
accumulation of domestic and external cover. Total public debt stood at 127.9
arrears. Following the 2013 internal conflict, percent of GDP in 2016 (Figure 5).
South Sudan’s public debt stood at 15.1 Furthermore, it also contributed to
percent of GDP in 2014 with external debt deteriorations of the country’s economic
4conditions (e.g. falling output, high inflation, estimated to decline to 43 percent in 2019
currency depreciation, and current account from 47.1 percent in 2018.
and fiscal deficits) and declines in foreign
reserves due to falling global oil prices. Economic Diversification
Payment to major creditors including the
Qatar National Bank (QNB) was also 27. South Sudan’s inclusive economic
delayed. The lack of prioritization in loan progress require a shift from oil sector to
acquisition for priority investment projects other productive sector of the economy. As
with high spillover development impact has previously underscored, the country is
also contributed to this challenging situation. overwhelmingly dependent on oil resources.
Thus, implementation of fiscal adjustment It has also a significant potential and an
policy in order to build foreign reserves estimated 63.71 billion cubic meters of
would have been beneficial for the country. proven natural gas that could also be used for
In addition, implementing sound public debt power generation. Regarding the latter,
management to help guide prioritization of enactment of the electricity bill into remains
future public investments and their financing critical. The capital-intensive sector of
becomes critical. extractive industries has ‘weak’ connections
with the rest of the economy and often does
26. The joint assessment conducted by not generate enough employment
the IMF and WB in 2017, concluded that opportunities. For instance, the country’s
South Sudan is still in debt distress. The population consisting mainly of the youth
present value (PV) of public sector debt-to- estimated at 8.7million (about 50 percent
revenue was estimated at 167.4 percent (of unemployed), poses a great threat to peace
which 109.2 percent is external) in 2017, and social stability. As the peace agreement
down from 399.5 percent in 2016 because of holds, the job creation challenge will increase
some payments made by the Government. in the medium to long term with the return of
Meanwhile, the debt service–to-revenue ratio more South Sudanese’s refugees. In addition,
increased to 11.7 percent of GDP in 2017, it also makes the country vulnerable to
from 9.9 percent in 2016 due to reduction of exogenous shocks (e.g. price fluctuations),
domestic financing to finance the fiscal gap. which in turn leads to decline in public
The report also estimates that the PV of resources as demonstrated in paragraph 9 in
external debt to GDP ratio to stand at 25.9 the case of South Sudan.
Figure 5. Public Debt 2014-2020
(% of GDP)
140
127.9
120
100
87.8
80
62.1
60
46.3
40.1 42.1 41
38 38.8 37.1
40 35.3 34.5
29.5
20
20 15.1
10.9 8.3
4.2 5.8 4.3 3.9
0
2014 2015 2016 2017 2018 2019 2020
Public Debt Domestic External 2 per. Mov. Avg. (Public Debt) Linear (Public Debt)
Source: Government and IMF- Article IV, June 2019
percent in 2019 from 32.4 percent in 2018.
The PV of external debt to export ratio is also
528. The Government lack a clear policy Box 2. Botswana Success Story
plan for diversification. Such limitation has Botswana is a landlocked country located in
prevented resources from oil being deployed Southern Africa with an estimated population of 2
to a more productive sector of the economy million. At independence in 1966, agriculture
such as agriculture and infrastructure with particularly livestock, was the main driver of
potential for job creation and poverty growth accounting for over 40 percent of GDP. The
country was also dependent on imported goods
reduction. The lack of diversification can be from South Africa for private consumption as well
also linked to low productivity and as exporting all its production. And few years after
competitiveness. However, the Government independence, it discovered significant deposits of
could learn from success stories on economic diamond. Between 1974 and 1994, exports of
diversification from other economies such as diamond increased in value averaging 30 percent
per year13. As a result, the mining sector accounted
Mauritius (Box 1) and on extractive industry for over 40 percent of GDP while agriculture
governance from Botswana (Box 2). represented only 2.2 percent of GDP during 2000s.
Empirical evidence from Leiderman and In addition, real GDP growth averaged 6.8 percent
Malone (2007) indicated that diversified between 1990 to 2009. Botswana’s success story
economies performs better in the long term. was due in large part to political stability, and
Government measures to use diamond resources to
finance the livestock sector. It also created
Box 1- Mauritius Success Story conditions for private sector development (e.g.
Mauritius is a small island in the Indian Ocean with recognized international contract law, trade and
an estimated population of 1.3 but has no mineral monetary integration with South Africa economy,
resources. At independence in 1968, its economy tax concessions on profits and capital transfers).
was highly dependent on sugar cane farming Other measures included the creation of Botswana
accounting for 20 percent of GDP and over 60 Development Corporation, the National
percent of exports earnings, thus exposed to trade Development Bank among others.
shocks. Between 1980 and 2009, Mauritius’s
average GDP growth stood at 5 percent. In 1980, Policy priority versus commitment
the country embarked on structural transformation
focusing on industrialization with an introduction of
the free trade zone (FTZ). The FTZ, inspired by the
29. Priority setting is essential since
Taiwanese model, allowed for resurgence of a resources are never unlimited. The priority
competitive service and tourism sectors. By 2009, setting process is politically driven though a
sugar accounted for less than 3 percent of GDP, shared responsibility between the
while textiles exceeded 5 percent and tourism 10 Government and the entire citizens and
percent. The FTZ contributed significantly to the
creation of the global business sector by exporting
stakeholders’ groups. It also helps the
financial services and outsourcing. Government in decision making after an in-
depth analysis of the current context.
30. However, in South Sudan, there is a
mismatch between commitments and
priority. This mismatch is mainly driven by
the conflicts and insecurity. As a result, since
its independence, the Government spending
policy has prioritized security and military to
restore security and provide peaceful and
living environment to its citizens. This in turn
has led the Government to ‘neglect’ its
13
Article by Arthur Silve-Afrique Contemporaine 2012/2
(No 242)
6overall commitment of ensuring a sustainable 34. Maintaining the current
and inclusive development, which should expenditure pattern and fiscal
allow for job creation, improved basic social indiscipline, will provide disappointing
service and ultimately reducing inequality future development outcomes. Therefore,
and poverty. the Government should be encouraged to
assess its current priority settings in terms of
31. Despite efforts to fulfil its strategic planning, budget preparation and
commitments, challenges remain. In the execution arrangements, are effective to
Government 2019/2020 state budget manage resource and expenditure
humanitarian affairs will receive only 2 reallocation towards development and
percent of the allocation, mainly funded by achieving quality service delivery.
donors, in a country with several
humanitarian challenges. Additionally, South V. Policy Recommendation
Sudan’s human development index for 2018
is 0.413-ranked 186th out of 189 countries in 35. Below are some policy
the 2017 Human Development Report. With recommendations worth considering by the
the peace holding and return of refugee’s Government.
more support and response from the
Government will be required. Policy recommendation 1. Ensure
independence of internal and external
IV. Conclusion oversight institutions including external
audit, public accounts committee, and civil
32. The analysis above reflects the society organizations. Such independence
budget and resource management will allow these institutions to efficiently
constraints facing South Sudan as a monitor the accountability of budget
transition state. These constraints and lack execution vis-à-vis the resources allocated to
of priority continues to hinder the country’s institutions, which aims at helping to reduce
development progress. It also calls for an extra-budgetary expenditure.
urgent implementation of structural reforms
to improve transparency and accountability Policy recommendation 2. Strengthen the
in governance of public funds and help tax administration system through capacity
restore credibility of public sector development to ensure accountability. This
institutions. will assist the Government, not only to
increase domestic revenue mobilization, but
33. Despite efforts made by the also to ensure transparency in the way the
Government, weaknesses persist in terms resources collected are sent to Governments’
of budget planning and execution, thus coffers.
leading to extra-budgetary expenditure
beyond the programmed amount, misuse of Policy recommendation 3. Implementation
funds and lack of accountability. Therefore, of a mid-term budget framework that
it is important to prioritize expenditure within accounts for the impact of policies in the
the budget ceiling, strengthening fiscal long term. This is to ensure that budget
reporting and ensuring alignment between appropriations for upcoming years are
expenditures and revenues. aligned with the available resources and
Government’s fiscal objectives. It will also
help protecting social and capital outlays
7while maximizing efficiency of current Policy Recommendation 6. Improve
expenditures. capacity of the debt management unit,
Ministry of Finance and spending agencies
Policy recommendation 4. Ensure public in budget execution and planning and build
debt management system is anchored on a resilience against exogenous shocks. The
medium-term fiscal framework. This will implementation of sound public debt
help and drive prioritization of the future management based on a medium-term fiscal
public investments and their financing. In framework, to help guide prioritization of
order to build resilience against any external future public investments and their financing.
shocks, particularly those emanating from It will also help strengthening national and
falling commodity prices, the Government state level oversight mechanisms
should move towards fiscal adjustment and
build international reserves buffers. Policy Recommendation 7. Improve
governance of natural resources. This
Policy recommendation 5. Urgent focus on include implementation of transparency
economic diversification including strategy standards and practices in the sector (e.g.
development, to reduce vulnerability of the Extractive Industry Initiative) among others.
economy by drawing lessons from resource Capacity building (hard and soft) to manage
rich countries. The measure will help the these resources is also critical.
Government to diversify its source of revenue
away from oil and reduce exposure to oil Policy Recommendation 8. Use of gas
price fluctuations and production. It will also associated with oil production for power
create headroom for investments in other generation. These volumes are still flared yet
critical sectors for job creation and poverty and could be used for power generation
reduction such as agriculture and which is needed for the country. This could
infrastructure. enable the enactment of the electricity bill
into law.
Policy Recommendation 9. Setting up of an
oversight committee for driving PFM reforms
that are sorely needed and necessary to
improve transparency of public finance,
strengthen accountability among the civil
servants, and build credibility in the donor
community.
8References
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