South Sudan Economic Update July 2018 RECENT ECONOMIC DEVELOPMENTS • Real GDP is projected to further contract by 3.5 percent in FY2018, following the contraction of about 6.9 percent in FY 2017. Monetization of the fiscal deficit led to strong money growth and high inflation, although there are indications that borrowing from the Bank of South Sudan had been limited in the second half of 2017. The spread between the official and the parallel market exchange rates remains wide, despite the recent exchange rate appreciation. 82 percent of South Sudanese were living under the international poverty line in 2016. High inflation, disrupted trade flows, and conflict continue to expose many households to food insecurity and displacement. • South Sudan's cabinet approved the general budget for fiscal year 2018/19, which increased by about 60 percent to reach 584 million USD up from 366 million USD in FY17/18. It remains unclear how South Sudan will finance the budget, given its struggling economy amidst the ever-rising inflation and conflict. Spending continues to be skewed toward defense at the expense of poverty reduction. • Developed nations recently expressed their intention to impose political and economic sanctions on South Sudanese government officials and restrict the trade flows of defense articles and services to help contain the damages of the current domestic armed conflict. Although South Sudan’s president signed a peace agreement with opposition leaders on June 27, 2018, the negotiated ceasefire has been violated hours after it began with the government and armed opposition trading blame. The UN approved an arms embargo on South Sudan on 13 July 2018, following through on its warning in early June that it would do so if no progress were made in peace talks. OUTLOOK AND RISKS • The first challenge is restoring peace and security through cessation of hostilities and implementation of governance and security arrangements, including the peace agreement signed in June 2018, which serve the interests of the nation's people. • The government would then need to tackle the underlying causes of the country’s current economic collapse and food insecurity. The government urgently needs to implement comprehensive macroeconomic reforms. The latter include measures to unify the official and parallel exchange markets and reduce inflation, as well as longer-term action to boost employment, build infrastructure, and diversify the economy, with special emphasis on agriculture development. • The June 2018 peace agreement between President Salva Kiir and opposition leader Riek Machar had been seen as a breakthrough in efforts to end South Sudan’s civil war, but since then progress has been mired by infighting. Without the government’s real commitment and proactive action to end the conflict and stabilize the economy, it is premature to envisage a post-conflict path for the economy. SOUTH SUDAN Economic Update | July 2018 Recent Economic Developments: Economic collapse, decreasing oil revenues, with soaring inflation and food insecurity Growth South Sudan’s economic collapse continues in Declining oil production and revenues have put FY2018, with output contracting, and inflation and additional pressure on the economy already parallel exchange market premium soaring. The weakened by the civil war. Oil production is estimated economy is estimated to have contracted by about 6.9 to have decreased to about 46.3 million barrels in percent in FY2017 due to the ongoing conflict, oil FY2017 down from 60.2 million barrels in 2014, itself production disruptions and below-average agriculture less than half of the peak production before production. Real GDP is projected to further contract independence in 2011. According to IMF and WB by about 3.5 percent in FY2018. Exports and projections, oil production is expected to remain households’ consumption declined, while government between 46.5 and 47.8 million barrels per year for the consumption increased because of spending on 2018-2021 period. Oil price is expected to increase up defense and security operations. Both exports and to USD 55.8 per barrel in FY 2018 and then decline in household consumption are expected to decrease subsequent years (Table 2). (Table 1). Table 1: South Sudan – key economic indicators 2012 2013 2014 2015 2016 2017e 2018f 2019f GDP, at constant market prices -46.1 13.1 3.4 -10.8 -11.2 -6.9 -3.5 1.8 Private Consumption 4.5 4.2 -6.5 -26.0 -16.0 -15.0 -7.5 0.7 Government Consumption -6.8 10.9 13.0 1.4 3.0 3.0 4.0 4.0 Gross Fixed Capital Investment -53.2 17.6 -2.5 2.0 0.0 3.0 4.0 5.0 Change in Inventories, % contrib 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Exports, Goods and Services -91.9 99.5 52.8 -40.0 -44.0 -20.0 -10.0 0.0 Imports, Goods and Services -35.3 10.7 5.1 -41.0 -17.0 -10.0 3.2 5.1 GDP, at constant factor prices -46.1 13.1 3.4 -10.8 -11.2 -6.9 -3.5 1.8 Agriculture 8.4 15.5 5.0 2.5 -15.0 -10.0 -5.0 0.0 Manufacturing -81.2 45.7 26.9 -23.3 -20.5 -7.0 -1.5 1.8 Services 4.8 18.2 -6.2 -6.1 -6.1 -6.1 0.0 2.0 Inflation (Consumer Price Index) 45.1 0.0 1.7 153.0 410.0 125.0 n.a n.a Current Account Balance, % of GDP -20.6 8.7 -4.8 -4.8 -3.8 -6.1 -5.2 -3.7 Fiscal Balance, % of GDP -16.3 -3.3 -12.0 -20.8 -8.5 -4.6 -4.4 -3.6 Poverty rate ($1.90 a day, PPP terms) 50.1 .. 55.1 58.5 Poverty rate ($3.10 a day, PPP terms) 71.0 .. 74.6 77.6 Poverty rate ($5.50 a day, PPP terms) 89.9 .. 90.8 92.9 Notes: e = estimate, f = forecast. Sources: National Bureau of Statistics (2012 – 2014), World Bank projections (2015 – 2018); Poverty: World Bank projections. Table 2: Oil production and price estimates 2015 2016 2017e 2018f 2019f 2020f 2021f Oil production 59.3 45.5 46.3 46.5 47.6 47.7 47.8 (millions of barrels) South Sudan’s oil price 43.3 35.3 45.3 55.8 51.7 49.1 47.6 (USD per barrel) Notes: e = estimate, f = forecast. Source: South Sudanese authorities; and IMF estimates and projections. SOUTH SUDAN Economic Update | July 2018 Government revenues continue to be highly oil- signed on June 27, 2018 includes provisions on dependent, with oil revenues accounting for more than collaboration between Sudan and South Sudan for the 80 percent of all revenues (Figure 1). A large proportion rehabilitation and protection of oilfields in Unity state of Nilepet’s1 income is generated from the minority (Blocks 1,2 and 4) and Tharjiath (Block 5), and the shares (between 5 to 8 percent) it holds in each of South eventual resumption oil production to pre-conflict levels Sudan’s three oil projects (Dar Petroleum, Sudd (290,000 barrels per day). According to Sudan’s Ministry Petroleum and Greater Pioneer Operating Companies). of Oil and Gas, a delegation has been dispatched to South These investments are majority controlled by foreign Sudan in early July 2018 to check on arrangements for companies such as China National Petroleum resuming oil pumping. However, the Khartoum Corporation (CNPC) and Malaysia’s Petronas. Declaration does not provide for the immediate resumption of oil production since South Sudan’s Figure 1: Share of total government revenues opposition rejected the proposal arguing that this step 100% should only come after the signing of a comprehensive 90% peace agreement. Hence, it is uncertain if the bilateral 80% agreement will lead to an increase in oil production to 70% pre-conflict levels. 60% 50% South Sudan is losing large portions of revenues 40% through compensation agreements and defense 30% expenses. Little net oil revenues are expected to be 20% available to fund the government budget (Figure 2) as 10% net oil revenue went entirely towards repaying Trafigura, 0% 2015 2016 2017e 2018f 2019f 2020f 2021f an oil trader, and other oil advances. Given these Oil revenue Non-oil tax revenue Grants and other GoSS revenue financing shortfalls, the government has faced difficulties in meeting its payment obligations. Pay scales Notes: e = estimate, f = forecast. Source: South Sudanese authorities; and IMF estimates and projections. remain restricted. Even under these conditions, the Notes: e = estimate, f = forecast. Source: South Sudanese authorities; and IMF estimates government expenditures have exceeded the available and projections. resources by SSP 978 million in the first quarter. This was partly funded by a net inflow of SSP 590 million from oil New investments in the oil sector? The Minister of advances. With most of the oil coming out of the ground Petroleum and Mining recently stated in an interview2 already sold, or going to service debts to Sudan, South that the government is currently making efforts to attract new oil drilling investments from the French Sudan remains trapped in a worsening cycle of debt3. company Total to reach a daily production of 200,000 Figure 2: Share of total government expenditure barrels by the end of 2018 (currently at 127,000 barrels 100% per day). Also, the government declared it is trying to 90% encourage more investment in the petroleum sector by 80% extending the exploration and production sharing 70% agreement with Petronas for six years. The deal covers 60% 50% blocks 3 and 7 in Unity oilfield, which have been shut 40% down due to the ongoing civil war. However, it is 30% uncertain if Nilepet will be able to effectively attract 20% 10% investments, since the oil fields are still maturing, and 0% investors are wary. 2015 2016 2017e 2018f 2019f 2020f 2021f Transfers to Sudan Salaries Increased oil revenues as Sudan and South Sudan Operating and other expenses Subsidies and contingency fund authorities begin collaboration to rehabilitate damaged Notes: e = estimate, f = forecast. Source: South Sudanese authorities; and IMF estimates oil fields? The Khartoum Declaration of Agreement and projections. 1 3 Nilepet is South Sudan’s national oil company. The combined impact of a civil conflict, a large fall in oil prices, and high levels 2 https://www.bbc.co.uk/iplayer/episode/b09t27r0/hardtalk-ezekiel-lol- of fiscal spending left South Sudan in debt distress (DSA 2017). gatkuoth-minister-of-petroleum-south-sudan SOUTH SUDAN Economic Update | July 2018 Exchange rate and inflation Despite the recent exchange rate appreciation, Figure 4: CPI, year-on-year. volatility remains. Although the implementation of the 800% recent Khartoum Declaration of Agreement is starting to 700% falter, the ongoing peace negotiations have brought a 600% relatively positive mood to the country with the parallel 500% exchange rate dropping from 310 South Sudanese 400% Pounds (SSP) per US dollar to 230 SSP by mid-July 2018 300% (Figure 3). The spread between the official and the 200% parallel market exchange rates reached 44 percent in 100% July 2018 down from a record-high 55 percent in May 0% Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Oct-16 Oct-17 Feb-17 Apr-17 Feb-18 Apr-18 Aug-16 Aug-17 2018. Despite the recent exchange rate appreciation, the spread between the official and the parallel market exchange rates remains high. Since the move from a General Food Non-food fixed exchange rate arrangement to a managed float in Source: South Sudan National Bureau of Statistics January 2016, the SSP has depreciated by 790 percent (July 2018). Earlier this year, the government announced High inflation puts households in both urban and rural measures to crack down on parallel market currency areas in a difficult situation. The cost of the minimum exchange operations to prevent the pound from further expenditure basket, which measures what a household depreciating against the US dollar and reduce the wide requires to meet basic needs, increased from 5,370 SSP spread between official and parallel market exchange in May 2016 to 31,632 in May 2018. The sharp increase rates. was mainly driven by high prices in food items (Figure 5). Figure 3 Parallel Market Exchange Rate (PMER), SSP/USD Figure 5: Cost of Minimum Expenditure Basket (SSP) 350 35000 300 30000 250 25000 200 150 20000 100 15000 50 10000 0 5000 16-Dec-15 16-Apr-16 16-Dec-16 16-Apr-17 16-Dec-17 16-Apr-18 16-Aug-16 16-Aug-17 16-Feb-16 16-Feb-17 16-Feb-18 16-Oct-16 16-Jun-16 16-Jun-17 16-Jun-18 16-Oct-17 0 Mar-16 Mar-17 Mar-18 Jan-16 May-16 Jan-17 May-17 Jan-18 May-18 Jul-16 Nov-16 Jul-17 Nov-17 Sep-16 Sep-17 Commercial Parallel Source: South Sudan National Bureau of Statistics. Climis Database - http://www.climis- FoodCost Non-FoodCost southsudan.org. Data. Climis Database - http://www.climis-southsudan.org. Increasing inflation. The year-on-year annual Consumer Monetization of the fiscal deficit explains to a large Price Index (CPI) increased by 88.5 percent between June extent the high inflation. The pace of fiscal deficit 2017 and June 2018 (Figure 4). The increase was mainly monetization slowed in 2017, following the driven by high prices in non-food items such as government’s efforts to limit borrowing from the central communication and housing, water, electricity and gas. bank. The monetary base increased by 132 percent from The monthly CPI decreased by 4.6 percent between May March 2016 to March 2017, while it has increased by 21 2018 and June 2018. Notwithstanding the recent percent from April to December 2017 (Figure 6). downward trend, inflation remains high. Households in However, monetization seems to have increased in 2018 both urban and rural areas remain unable to afford the with a corresponding increase in inflation. minimum food basket. SOUTH SUDAN Economic Update | July 2018 Figure 6: Monetary base expansion (million SSP) Figure 7: Budget allocation by sector, percentage 350,000 6.0 Infrastructure 0.7 300,000 1.4 1.8 3.5 250,000 Health 2.2 1.8 3.1 200,000 16.6 Education 4.0 4.2 6.6 150,000 9.0 Transfers 5.6 5.8 9.8 100,000 34.4 Security 27.5 33.1 50,000 44.3 Accountability, 46.1 0 43.2 Public Admin… 30.7 2014 2015 2016 2017 2018f 2019f 2020f 2021f 26.7 Currency in circulation Commercial banks deposits Other sectors deposits 0 10 20 30 40 50 2018/19 2017/18 2016/17 2015/16 Source: South Sudan Ministry of Finance and Economic Planning (MOFEP), http://grss- Notes: e = estimate, f = forecast. Source: Bank of South Sudan Statistical Bulletin; and mof.org/. IMF estimates and projections. The fiscal deficit is projected at about 4.4 percent of A new, higher-denomination SSP banknote will be GDP in FY2018 (Table 2). Given the oil dependent introduced to manage the volume of cash in this high- structure of the economy, the decline in global oil prices, inflation environment. As a direct result of the soaring and the progressively lower production, the government inflation, the Central Bank announced by early June spending is far exceeding revenues and the government 2018, the upcoming release of a new 500 SSP banknote, continues to face difficulties in meeting its payment which will be the highest-domination note in circulation obligations. Government authorities recently admitted in the country. According to authorities, the measure that the treasury has run out of cash and that the Central would help reduce the volume of cash people carry. The Bank no longer keeps the foreign currency proceeds from measure followed the dismissal in May 2018 of the oil sales. Although the pay scale remains unchanged and Central Bank governor who was fired after inflation hit a operating and capital expenditures are restricted, record high in the country. Financial authorities wait for government expenditures are expected to exceed the the improvement of the political situation and the available resources by SSP 16,800 million, equivalent to signing of a peace agreement before introducing the new 36 percent of the total budget. banknote in the market. It remains unclear how South Sudan will finance its Fiscal policy budget, given its struggling economy amidst the ever- rising inflation figures. During execution, budget South Sudan's cabinet approved the general budget for credibility is undermined by lack of transparency and the fiscal year 2018/19, which increased by about 60 fact that budget outcomes per spending agency percent to reach 584 million USD up from 366 million significantly differ from the approved budgets. For the USD in FY17/18. According to government authorities, fiscal year 2017/18, which is already at its end, only the the increase came as a result of the lifting of the fuel report of the first quarter is currently available. subsidies, the rise in the prices of oil, and the improvement in the collection of non-oil revenue. The Budget performance report for the first Quarter of the approved budget for 2017/18 has allocated 3.5percent, FY2017/18. The Government’s First Quarter Macro- 6percent and 16.6 percent to Health, Infrastructure and Fiscal Report for FY17/18 reveals a government spending Education, respectively. Both security (34.4 percent) and of SSP 6,108 million, which was equal to 14 percent of accountability/public administration & rule of law (46.1 the annual budget (Figure 8). Oil revenue captured by percent) account for 80.5 percent of the total budget, MoFPED was at SSP 1,723 million, around 27 percent of taking the largest share continuing the trend of the last the budgeted projection for the quarter, well below the three fiscal years (Figure 7). forecast. Non-oil revenue totaled SSP 3,406 million, around the expected amount for the quarter. SOUTH SUDAN Economic Update | July 2018 Figure 8: First Quarter Revenue & Expenditure FY2017- forces, into the budget. Extra-budgetary expenditures 18 (million SSP) are not specifically reported but it is assumed that large 12,000 10,923 amounts are being spent on security related matters. Further it is assumed that a high level of debt and arrears 10,000 were accumulated outside of the normal budgeting 8,000 6,443 process, but the amount remains unknown4. 6,108 6,000 Tax administration needs to be strengthened. Recently, 4,000 3,406 3,512 the South Sudan’s Revenue Authority claimed that the 1,723 2,000 country has lost over 750 million South Sudanese Pounds -978.00 -1615.00 (SSP) due to tax evasion in February alone. The 0 Net oil revenue Non-oil revenue Total Government Fiscal Deficit government has revealed that about ten companies had Spending -2,000 failed to pay over SSP 3 billion in tax. The extent of tax -4,000 evasion has prompted a positive reaction from the South Sudanese authorities to strengthen tax administration. Q1 FY2017/18 Actual Q1 FY2017/18 Budget Following a meeting with nine commercial banks, the Source: Government First Quarter Macro-Fiscal Report for FY17/18 Commissioner General of South Sudan’s Revenue Authority announced the Revenue Authority intention to Expenditures continue to be skewed toward defense at interlink the banking system with the revenue the expense of poverty reduction. Security and technological system to improve the country’s revenue accountability/public administration and rule of law collection system. spending have accounted for over 70 percent of the total budget over the past three fiscal years. By contrast, The credibility of the budget has eroded over the past education and health sectors were the only sectors years. The fundamental challenge for fiscal space in the which underspent their original budgets in the past fiscal budget of South Sudan is the inherent indiscipline in the year (around 6 percent of total government spending). management of approved budgets caused by the lack of Social services are currently severely underfunded and effective oversight from the legislative branch of the even more dependent on donor-funded development government. During execution, budget credibility is projects. undermined by the fact that budget outcomes per spending agency significantly differ from the approved Salary arears prevent the effective functioning of the budgets and there is a large buildup of payments arrears. Government. The central Government has sought to As a result, there is a high risk of wasteful spending, low honor wage payments, transfers to state levels, and value for money and public services not being delivered security expenditures, but even limited to those as planned. Also, oil-rich countries tend spend categories, existing expenditures commitments far government revenues more inefficiently than non-oil exceed available resources thus leading to continuous countries, especially in terms of spending composition. cash rationing during budget execution. As of late 2017, there were significant salary arrears for several months, ’Oil-for-food’ scheme put in place. Despite recent and this is despite the fact that for most staff, the value announcements about empty coffers, the South of individual salaries has greatly eroded. There is Sudanese government is continuing to buy equipment anecdotal evidence that non-payment of salaries has for the army. Supplying companies are obliged to accept increased absenteeism of civil servants. in-kind quotas of crude oil as payment for their services. While bartering barrels for military equipment, the Fiscal discipline remains a priority. While the Ministry of soldiers of the Sudan People’s Liberation Army (SPLA) Finance broadly recognizes the need to make steep fiscal have not been paid for over a year and have seen their cuts to bring expenditure closer into line with available food budget of USD 134 million vanish. Also, the revenues, it is struggling to introduce the necessary cuts, increasing use of this bartering system is transforming oil in particular to the number of armed and organized trading in South Sudan, reducing the involvement of 4 According to the recent released Open Budget Survey 2017, South Sudan https://www.internationalbudget.org/open-budget-survey/results-by- has a score of 5 out 100 in terms of the Transparency Open Budget Index, country/country-info/?country=ss. while the global average is 42. Available at: SOUTH SUDAN Economic Update | July 2018 Trafigura, the main multinational oil trading company, accused of corrupt practices. In this setting, as long as and initiating talks with other traders. conflict and corruption prevail, the reshuffling of ministers and other government officials will most likely Oil revenues are funding civil conflict. The national oil fail to address the real economic challenges. company, Nilepet, finds itself at the heart of the economics that sustain South Sudan’s civil war and Phasing out fuel subsidies. Fuel prices paid by consumer violence. Nilepet is not subject to the same oversight and have continued to increase over the past months (Figure scrutiny as a government ministry. Therefore, Nilepet’s 9) and the value of subsidies kept increasing in real term expenditure is not clearly delineated within the due to the deteriorating exchange rate (Figure 10 and ministerial budget, making it hard to form an accurate 11). Following the deteriorating macro-fiscal situation, picture of its activities. The passage of a bill to regulate the South Sudanese Council of Ministers has officially Nilepet and its activities ground to a halt with the approved the removal of fuel subsidies in May 2018. In a outbreak of conflict in 2013. Without this law, the briefing to the media, the deputy information minister regulation of South Sudan’s powerful state-owned has informed that the government will no longer allocate company hangs on a few provisions in the barely funds to the national oil company, Nilepet, to import implemented Petroleum Act of 2012 and Petroleum fuels for sale at a reduced price to the public. Also, the Revenue Management Act of 2013. Ministry of Finance has been instructed to redirect these funds and prioritize the payment of civil servants’ Transparency questions remain in regard to Nilepet’s arrears. management. The combination of secrecy and capture has made Nilepet the vehicle of choice for many of the As of October 2017, Nilepet, the sole fuel importer in transactions carried out by South Sudan’s ruling elite and the country, has stopped procuring fuel for subsidized security forces wish to shield from prying eyes. sale, and allowed private firms to import and sell fuel at Institutions such as the National Security Services (NSS) market prices. This development has led the majority of and the military are allegedly given direct access to the consumers to turn to the parallel market where one liter funds generated by the company, which is well beyond of petrol is currently priced up to SSP 317. its intended role as a commercial oil company5. Figure 9: Fuel prices (SSP per liter/kilo/bundle) Who is capturing the oil rents? Reports recently released 600 by the Global Witness6 and The Sentry7 groups implicate the leadership in South Sudan and detail how oil 500 revenues are being diverted with little oversight and 400 accountability to support the country’s security services and ethnic militias. These reports list over USD 80 million 300 in payments to authorities and private companies directly linked to the government’s defense effort. 200 Tackling corruption? In an apparent attempt to ward off 100 government officials who are suspects of being behind 0 the misappropriation of Nilepet funds, the government Mar-16 Mar-17 Mar-18 May-17 Jan-16 May-16 Jan-17 Jan-18 May-18 Jul-16 Nov-16 Nov-17 Sep-16 Jul-17 Sep-17 has embarked on a successive reshuffle of ministers and other government officials. However, the appointment Petrol Charcoal Diesel Firewood of certain officials has caused concern over their Source : Climis database - http://www.climis-southsudan.org. suitability for public office, as some were previously 5A report recently released by The Sentry groups implicate the leadership in from Nilepet for military or security-related activities, transactions involving South Sudan and details how oil revenues are being diverted to support the flights or military logistics operations in 2014 and 2015, during a period of country’s security services and ethnic militias, with little oversight and intense fighting in Unity and Upper Nile. accountability. The document lists a total of 84 security-related payments 6 Global Witness (2018), Capture on the Nile. Available at: made by Nilepet spanning a 15-month period beginning in March 2014 and https://www.globalwitness.org/en/campaigns/south-sudan/capture-on-the- ending in June 2015. The document lists over USD 80 million in payments to nile/ politicians, military officials, government agencies, and private companies, 7 The Sentry (2018), Fueling atrocities. Available at: many of which include captions that describe activities directly linked to the https://thesentry.org/reports/fueling-atrocities/ government’s war effort. It indicates that these companies received payments SOUTH SUDAN Economic Update | July 2018 Figure 10: Fuel subsidy (SSP per liter) substantially from 51 percent in 2009 to 66 percent in 350 2015 and further to the current rate of 82 percent in 298 2016 (Figure 12). Much of the population in 2016, 300 remained, returned or even dropped further into a state 250 of destitution with extremely low rates of access to 208 200 amenities, infrastructure, and services. 138 146 150 108 118 Figure 12: Poverty headcount in South Sudan and comparators 98 100 70 53 50 10 3 0 Mar-16 Mar-17 Mar-18 May-16 May-17 May-18 Jan-18 Jan-16 Jan-17 Sep-16 Jul-16 Nov-16 Jul-17 Nov-17 Sep-17 Prcie of Liter (Nile Pet) Subsidies Source: Winners and the Losers of Removal of Fuel Subsidies in South Sudan. Ebony Centre for Strategic Studies (2018) Figure 11: Total amount of annual and monthly fuel subsidy (USD million) 400 377 350 Source: South Sudan Poverty Assessment 2017. 300 250 227 202 200 Agriculture production is disrupted and food prices are 150 high. South Sudan has a wealth of untapped agricultural 100 assets. With 30 million hectares of arable land, across six 50 18 31 33 agro-ecological zones, the country can produce an array 0 of agricultural products, from cereals to oil seeds and 2016 2017 2018 horticulture. Despite the large agricultural potential, only Annual Fuel Subsidies Average Monthly Fule Subsidies about 5 percent of the country’s land is cultivated. Source: Winners and the Losers of Removal of Fuel Subsidies in South Sudan. Ebony Centre for Strategic Studies (2018) Food production shortfalls are substantive. The net cereal production in 2017 is estimated at 764 thousand Poverty, Food insecurity, and Displacement tones, a decrease of 7.5 percent from 2016 (Figure 13). It is also 14 percent below the average of the previous five South Sudan has become one of the poorest countries years, showing the smallest output since the start of the in the world with more than 4 out of 5 people living conflict. With a projected population of about 11.4 under the international poverty line in 20168. The million in mid-2018, the overall cereal deficit in the protracted impact of the conflict and the recent January-December 2018 year is estimated at about 482 macroeconomic crisis have driven poverty rates to thousand tones, 26 percent above the deficit estimated unprecedented levels. The poverty headcount – for 2017. The poor performance of the 2017 cropping measuring the proportion of the population living under season is due to the combination of reduced number of the international poverty line of US$ 1.90 PPP (2011) – farming households, and lower than average area was equal to 82 percent in 2016. Such a poverty planted per household as a result of the increased headcount places South Sudan amongst the poorest intensity and scale of the conflict. The most significant countries in the world. Currently, South Sudan ranks 181 reductions of harvested area occurred in Central out of 188 countries in the Human Development Index Equatoria (-48 percent) and Western Bahr el Ghazal (-28 with a life expectancy of only 56 years. Poverty increased percent). 8 Sudan Poverty Assessment 2017”. World Bank (2018), “Impact of Conflict and Shocks on Poverty – South SOUTH SUDAN Economic Update | July 2018 Figure 13: Estimated production and consumption (thousand depleted their food stocks and are reliant on wild foods tones) and fish, which will become less available over the 1,500 coming months. In the continued absence of all forms of humanitarian assistance, an estimated 7.1 million people 1,000 (63 percent of the population) would face Crisis (IPC Phase 3) or worse acute food insecurity, of which 500 155,000 are estimated to be in Catastrophe (IPC Phase 5) and 2.3 million are estimated to be in Emergency (IPC 0 Phase 4) by May–July 2018 (Figure 15). According to the 2010 2011 2012 2013 2014 2015 2016 2017 latest World Bank Poverty Assessment for South Sudan, -500 malnutrition amongst children is particularly worrisome, with some 1.1 million children under five expected to be -1,000 acutely malnourished and almost 300 thousand severely malnourished. Net Production Cereal Requirements Cereals Deficit/Suplurs Source: FAO/WFP Crop Production Data. Climis Database - http://www.climis- southsudan.org. Interventions supporting agricultural production can help alleviate food insecurity. Improved agricultural Food prices are increasing. High inflation, disrupted productivity is an important pathway out of poverty by agricultural production and trade flows, and the reducing food insecurity and improving income. continuous depreciation of the pound continue to Contingent on ending the conflict, interventions to expose many households to high food prices. Trade to address agricultural productivity and improve rural and within South Sudan continues to be severely connectivity will be key to enhancing livelihoods in the disrupted, greatly reducing food supplies in most longer term. markets. High prices, especially for meat and fish, keep aggravating food insecurity (Figure 14). Figure 15: Integrated Food Security Phase Classification – 2014 to 2018. Figure 14: Retail food prices (SSP) 100% 90% 900 80% 800 70% 60% 700 50% 600 40% 500 30% 20% 400 10% 300 0% May/July-15 May-17 Oct/Dec-14 Oct/Dec-16 Jan-17 Jan-18 Jan/Mar-15 Aug/Sept-16 Apr-15 Apr-16 Sep-14 Aug/Sep-15 Sep-17 May/July-16 Jun/Jul-17 May/Jul-18 Oct/Dec-15 Oct/Dec-17 Jan/Mar-16 Feb/Apr-17 Feb/Apr-18 200 100 0 Mar-16 Mar-17 Mar-18 Jan-16 May-16 Jan-17 May-17 Jan-18 May-18 Nov-17 Jul-16 Nov-16 Sep-16 Jul-17 Sep-17 Minimal Stressed Crisis Emergency Catastrophe Source: South Sudan IPC Technical Working Group. Climis Database. Maize Wheat Flour Vegetable Oil Beans Meat Fish Current levels of aid are expected to reach less than 50 Source: Climis Database - http://www.climis-southsudan.org. per cent of people in need across the country. In addition, restricted access to aid and other food sources Many households continue to face severe food will be extremely low, as food stocks run out in many insecurity, including potentially large‐scale child parts of the country while the lean season of May to July malnutrition and stunting. High inflation continues to approaches. In this setting, the forum for non- put many households in both urban and rural areas in governmental organizations (NGOs) in South Sudan, difficult situations as they remain unable to afford the which consists of over 300 local and international minimum food basket. Crisis (IPC Phase 3) and members, has appealed for more funding from donor Emergency (IPC Phase 4) persist in all regions of South countries. Public social services are currently severely Sudan, though assistance is preventing more extreme underfunded and increasingly dependent on outcomes in several counties. Many households have humanitarian aid. SOUTH SUDAN Economic Update | July 2018 Areas worst affected by the food crisis are those Figure 16: Total government expenditure and ODA in South exposed to the armed conflict, including central and Sudan, 2011-2017. 6.0 200% southern Unity, northwestern Jonglei, and Wau in Western Bahr el Ghazal, according to the Famine Early 5.0 in billions of current USD 150% Warning Systems Network (FEWSNET)9. Other areas are 4.0 seeing massive arrivals of displaced communities, 3.0 100% increasing pressure on already limited resources. 2.0 50% The number of refugees and IDPs continues to increase. 1.0 Insecurity continues to be widespread in the country as 0.0 0% evidenced by the increasing number of people fleeing 2011 2012 2013 2014 2015 2016 2017e Government expenditure (left axis) from their regular area of residence. According to ODA (left axis) ODA as a % of expenditure (right axis) December 2017 figures from OCHA and UNHCR, 4.5 Note: e = estimate. Source: IMF and OECD-DAC database million out of a population of 12.2 million have been displaced internally or are seeking asylum in neighboring South Sudan’s president signed a peace agreement with countries, with up to 85 percent estimated to be children opposition leaders at the end of June; however, the and women. Citizens continue to flee their area of negotiated ceasefire has been violated hours after it residence as of spring 2018. More than half of the began. On June 27, 2018 President Salva Kiir and former population is expected to require humanitarian Vice President Riek Machar signed a peace agreement in assistance in 2018 (7 million). the Sudanese capital, Khartoum, in the presence of Sudanese President Omar al-Bashir and Ugandan Internal displacement increases food insecurity. President Yoweri Museveni. The agreement calls for the Internal displacement, and the absence of humanitarian opening of corridors for humanitarian aid, the release of aid stopped by various armed groups, including prisoners of war and political detainees, and a Government troops, contributed to the record-high 6 transitional unity government to be formed within four million severely food insecure people in September 2017 months and govern the country for 36 months. It also (OCHA, 2017). Access to food is generally better for those allows members of the African Union and the East who fled to neighboring countries, but conditions remain African regional bloc, Intergovernmental Authority on difficult, especially given the rapid increase in refugee Development to "deploy the necessary forces to numbers. supervise the agreed permanent ceasefire". The ceasefire has been violated hours after it began with the Development assistance and the threat of sanctions government and armed opposition trading blame. Development assistance exceeds the Government Targeted sanctions are gaining momentum as a means budget. For FY2017/18, the official development of isolating those at the center of the conflict, with the assistance (ODA) is significantly larger than the entire UN approving an arms embargo on South Sudan. On 13 government budget. According to estimates from IMF July 2018, the United Nations Security Council approved and the OECD-DAC database, the total state budget is the adoption of an arms embargo on South Sudan until less than USD 1 billion, while ODA funding is totaling USD 31 May 2019, following through on its warning in early 1.75 billion for the same period. Between 2011 and 2015, June that it would do so if no progress were made in ODA amounted to approximately one-third of the budget peace talks. The Security Council also added two (Figure 16). Such an event is not the result of a significant government officials to the UN sanctions blacklist subject increase of ODA resources, but rather due to the to travel ban and assets freeze. The resolution expressed deterioration of the real budget value since 2015. concern at the failures of South Sudan's leaders to bring However, it confirms the importance of development an end to the hostilities. The embargo is seen as an assistance on the education and health sectors. important step towards increasing pressure on the parties to compromise. 9 http://www.fews.net/east-africa/south-sudan/key-message- eastern-middle-africa/South%20Sudan update/march-2018 and http://www.ipcinfo.org/ipcinfo-countries/ipcinfo- SOUTH SUDAN Economic Update | July 2018