South Sudan’s deepening economic crisis appears to be spiralling, with latest disclosures of a desperate plan to completely shut down its oil exports through the war-torn Sudan.
This puts more pressure on the falling forex reserves, stifling business activities and making operations of local and foreign companies difficult.
This follows a ruptured pipeline that is yet to be repaired, as Khartoum grapples with a prolonged conflict between the army and a paramilitary force Rapid Support Forces (RSF), which broke out in April 2023.
Thenews portal The Sudan Tribune reported on July 22 that Juba was considering a shutdown of its oil export through Sudan, citing a lack of consensus amid dwindling financial resources in a country where civil servants have gone without salaries for close to nine months.
The publication, which covers Sudan, South Sudan and neighbouring countries, also cited lack of consensus among the warring parties over sharing of oil revenues, with less than 140,000 barrels of oil being exported through the pipeline.
“This is why we have gone for nine months without paying salaries of our civil servants while the oil continues to flow, actually less than 140,000 barrels is being exported now.
"When you take the operating expenses of the oil companies from this, you find that nothing is left. It does not cover expenses”, the publication reported, quoting an anonymous official at the country’s Petroleum ministry.
“There are varying views. Some are advocating for a total shutdown of the oil because it is only benefiting the rival factions in the Sudan conflict.
“Others are saying let us manage with whatever little that we continue to get from the flow but clearly, what comes from the oil now is close to nothing.
“It goes into obligations and leaves nothing for paying salaries.”
But Bank of South Sudan (BoSS) Governor James Alic Garang denied that there would be a total shutdown of oil exports through Sudan, without giving more details on the plan.
“The news of the shutdown is not true,” Dr Garang told The EastAfrican in an e-mailed response.
Oil exports account for roughly 90 percent of South Sudan’s revenue, and it is feared that the conflict in the northern parts of the country will further obstruct the production and export of oil through Sudan and subsequently cause economic turmoil in terms of public debt sustainability and cross-border trade.
Economists at Oxford Economics Africa forecast the South Sudanese economy to grow two percent in 2024.
“Along with an increase in humanitarian aid for Sudanese refugees and high debt servicing costs, the fiscal deficit is expected to widen in 2024.
"A rise in refugees has also increased South Sudan's import requirements to provide products for a larger consumer base.
“Hence, the trade balance is forecast to be in the red this year,” the economists say in a country economic forecast for South Sudan dated April 17, 2024.
Juba’s oil production declined from an average of 150,000 barrels per day (bpd) in 2023 to 90,000bpd in March 2024, and in the same month a major pipeline in Sudan ruptured.
This brought South Sudan's ability to ship its crude oil through Port Sudan to international markets to a standstill, as Sudan is the only conduit for crude oil exports out of landlocked South Sudan.
According to the report, only 1.2 million barrels of South Sudanese oil was shipped to international markets in March, compared with 2.2 million in February, and six million in January.
Oil shipments began to decline in February, as damage to the pipeline was detected on February 10.
“Given that oil production accounts for over 90 percent of total fiscal revenue, we anticipate public expenditure to be under pressure until the pipeline is fixed or an alternative pipeline can be used,” the report says.
Juba is grappling with a shortage of dollars as a result of declining revenues from oil production -- the nation’s chief revenue earner -- on depleted wells and military conflict in the neighbouring Sudan.
BoSS Governor Garang admitted that the oil reserves are at “historic low” levels as a result of geopolitical tensions, including the raging conflict in neighbouring Sudan and the Israel-Hamas war.
He said the low reserves have huge implications for the country’s balance of payments, with consequences for currency depreciation and high volatility manifested in prices of goods and services.
“Geopolitical tensions, including the raging war in neighbouring Sudan, have affected our pipeline to Port Sudan, and the Hamas-Israeli war has disrupted the major trading route in the Gulf of Eden, where shipment of our crude oil takes place, posing a challenge to South Sudan’s economic outlook,” Dr Garang told the 27th Ordinary Meeting of Monetary Affairs Committee of the East African Community in Juba in May.
Since April 2023, Sudan has been engulfed in a conflict between the army and the RSF, leading to the deaths of tens of thousands and the displacement of millions, both within Sudan and across its borders.
The conflict has also severely damaged the healthcare system and infrastructure, pushing the country to the brink of famine.
Despite several rounds of negotiations in Jeddah, Saudi Arabia, a ceasefire has yet to be achieved.
Washington has invited the Sudanese army and the RSF to US-mediated ceasefire talks scheduled for August 14 in Switzerland.
In a statement, US Secretary of State Antony Blinken said that the talks will include regional stakeholders and international organisations seeking a comprehensive cessation of violence across Sudan.
They are also meant to pave the way for the delivery of humanitarian aid to those in need and establish a robust monitoring and verification mechanism to ensure the implementation of any reached agreements.
