By Pursuit of Fiscal, Monetary, Property Rights, and Institutional
The Economy Caught
between a Rock and Hard Place?
Sudan… there is no more country",
runs the title of a recent headline article in New York Times. The article was read in Juba and, not surprisingly,
life went on pretty much the same – business as usual. "The economy of South
Sudan will collapse,"
pronounced Tom Lanzar, the former
Assistant to the UN Secretary General for Humanitarian Affairs in South Sudan, after
which he was declared non-persona grata,
and politely asked to leave the country. These pronouncements were somewhat
exaggerated, I must confess. However, it is for our own good not to dismiss such
outlandish observations out of hand and go to bed undisturbed, without pausing
for a moment to reflect. Who knows, they could be the tips of an iceberg.
The New York Times article exhibits a
country gripped in damaging civil war in which the state appears to be losing
its monopoly of violence with the attendant negative consequences on the effective
administration of justice and the rule of law. It echoes the warnings of the
great 17th century English thinker and apologist of a strong centralized
state, Thomas Hobbes, in his magnum
opus book, Leviathan, that: "The
obligation of the subjects (citizens) to the sovereign is understood to last as
long, and no longer, than the power lasts by which he is able to protect
them…the end of obedience is protection." Namely, any inkling
by the citizens that their state is not able to protect them enough leads to
the termination of social contract with the state; that is, the citizens may
decide to renege on their obligation to obey the sovereign. Instead they will decide
to take charge of their own protection and that of their properties. It follows
from there that most will live in continual fear and danger of violent death. With
the result that, as Hobbes describes
it, "the life of man [becomes] solitary, poor, nasty, brutish, and short."
other hand, Tom Lanzar's unfortunate pronouncements emanated from the persistent
decline of the value of South Sudan pound against US dollar in recent months,
with no evidence in sight as to the possibility of new fiscal and monetary reforms
that would arrest the fall. Left unchecked, an uncontrolled depreciation of our
national currency has the undesirable potential of ruining our economy through
hyperinflation. In state of hyperinflation, prices of consumer goods increase
by the day, and in extreme cases, by the hour. That is, what you bought in the
morning could cost more in the afternoon. That, I believe, was the gist of
Lanzar's message. Alarmist as it was, but not far-fetched.
The two verdicts
(that is, the New York Times article, and Tom Lanzar's statement), hasty as
they may be, are reflections of two faces of the same coin: war ruins national economy; bad economy leads
to social unrest, undermines the rule of law, and the legitimacy of the state.
measures that will halt further decline
of our national currency, and quickly raising the revenue through taxes as we
continue to search for a sustainable and lasting peace; this writer believes
the sovereignty, ostensibly pronounced 'lost' by New York Times, can be
reclaimed; the feared collapse of our national economy through hyperinflation,
can be averted; and the many skeptics and doomsayers can thankfully be proven
the implementation of some radical economic reforms, everyone stands to gain,
even those who perceive themselves 'losers' to the inevitable forces of
creative destruction such reforms are bound to unleash. And let us be assured
that doing nothing is no longer an
option. Neither will half-hearted, knee-jerk prescriptions do the trick.
The Origins of South Sudan Economic Owes
government income is mostly dependent on oil revenue (accounting for about 98% between
2005 and 2011; decreasing to 96% by December 2014; and dropping further to 60%
by June 2015 of the total revenue).
2014, the monthly oil revenue stood at around SSP 360 million (USD 120 million)
per month. By June 2015, it has halved to SSP 180 million (USD 60 million) per
month, using Central Bank fixed exchange rate. The drop in oil revenue is
attributed to drop in global oil prices per barrel from USD 101.2 in June 2014
to USD 50.7 in May 2015.
meantime, tax revenues rose from SSP 75 million per month in 2013 to SSP 120
million per month by January 2015. This brings the total government revenue by
June 2015 to at SSP 300 million per month.
At the same
time, the government monthly expenditure by June 2015 stood at SSP 900 million
per month. This leads to a gap or deficit of SSP 600 million per month or
shortfall of 66%.
in the finances is being closed through bank borrowing, which economic experts
believe will undermine South Sudan economy in short, medium, and long term by
making the national currency worthless
against other currencies. Bank borrowing or monetization of deficit was
responsible for causing hyperinflation in Zimbabwe and in DRC.
more, the Ministry of Finance and Economic Planning has not been collecting much
tax and tax income has been low because of the very narrow tax base (mostly
customs and excises, and personal income tax of basic pay excluding allowances.)
Many constitutional post holders such as government ministers, members of
parliament, governors, commission chairs and members, county commissioners etc
are not taxed. Hence, despite the potential for raising the government revenue through
taxation are significant, and yet it remains untapped.
The Possible Remedial Options to
effective remedies that our country can pursue to address the recent financial
challenges. It must come as a surprise to many that we have not been able,
until now, to use them so far. It reminds us of Sirr Anei Kelujang's prophetic lines
in his poem written in the late 1970s that reads: "South Sudan do not be like little
Gaak (bird) who died of thirst in rich field of ground nut by River Jel; Nor be like the Jalaba who died of hunger in a cage full of
gold." (Kelueljang, The Myths of Freedom and Other Poems).
to Kelueljang, Gaak ate plenty of peanuts and became thirsty; unable to locate
the river close by, died tragically of thirst. The unfortunate Arab trader was
locked up in a cage (goodness knows by who), and therefore was not free to benefit
from his valuable possessions and died as miserable cage-prisoner.
There is a
strong moral lesson for us in the tale of the poem. First of all, the options
for resolving South Sudan's economic challenges are quite straightforward, and
yet appear so illusive, so remote and so unattainable to our finance
decision-makers. Vested interests have always made sure the attention of our
government is deflected to other matters.
Unifying Exchange Rates
line of attack should be to unify the exchange rate. In other words, to move
away from the fixed exchange rate policy that has been maintained by the
Central Bank of South Sudan since 2005, and adopt flexible, market-determined exchange
rate. The Ministry of Finance can ask central bank to pay for its monthly oil
revenue the equivalent of today value exchange rate of SSP 14.5 to a dollar.
That means for the USD 60 million per month from oil sale, the Ministry of
Finance will fetch at least SSP 870 million per month. Add to that the SSP 120
million that is raised every month from customs and excises, and the Ministry
will have in its account a sum of SSP 990 million. It means market determined
exchange rate will bring in additional SSP 690 million of income per month and
create a surplus of SSP 90 million that we can spend on other things.
The Impact of Currency
Realignment on the Economy
implication for such a step is that there will be no need for the Ministry of Finance
to borrow from the central bank to pay salaries and other expenditures. Every
time the exchange rate goes up the Ministry of Finance will get more for its
oil revenue. The effect will be that those hording dollars under their pillows will
sell it to the Central Bank and the exchange rate will start to stabilize or even
falls according to laws of demand and supply. Prices of consumer goods will also
stabilize. The cost of imported goods will rise and in long term, and set in motion
the pressure on entrepreneurs to meet the demand for some imported consumer
goods locally. Markets will adjust and eventually stabilize. The pound
will be saved, and with it, the country. We do not need foreign currency
reserves in order to "defend" the pound; or is it in essence the defending
the dollar? As some experts would want us believe. Waiting or doing nothing to
stabilize the pound is not an option.
Increasing Tax Revenues
taxes is the base on which all modern states are founded.
Ministry of Finance and Economic Planning needs to raise more tax revenues in
order to improve to meet its national obligations. Suppose we as a country did
not have oil in the first place to pay our public servants and provide public
services, how on earth were we going to survive? In fact, many countries such
as Germany, Israel, South Korea, Switzerland, and our neighbours Ethiopia and
Kenya do not have oil and yet enjoy thriving economies. How they do it? The
answer is simple: they use taxation in different guises and forms in order to
fund government expenses, build infrastructure, fund development projects, and
maintain national security.
the examples of many countries that do not depend on oil and yet thrive, the
government of South Sudan could make a conscious strategic decision to fund it
budget through tax (and only fund a small part of by oil revenue, preferably infrastructure
project funding). Tax reforms should include, a centralized tax revenue
authority, a progressive tax that does not exclude constitutional post holders,
and at least 95% of taxes should be collected by the national government
represented by National Revenue Authority.
example, based on the current public sector pay of SSP 600 million per month,
and assuming an average of 30% personal income tax rate on the gross pay of all
the public sector employee through the Republic of South Sudan, the Ministry of
Finance can take back at least SSP 200 million per month as tax which leads to
total tax revenues jumping to SSP 320 million per month. Add this to the oil
revenue of SSP 870 per
month (using current market rate of one SS 14.5 to a dollar), the government revenue will total to SSP 1.19
billion a month or SSP 14.28 billion a year. With widening of tax base
to include private sector income tax, value added tax on luxury consumer goods
and telephone calls, tax revenues can be doubled or tripled. The government will have no difficulty
rendering the services and protect us and our property because it will have the
resources it needs. South Sudan will be once again bankable to international
finance bodies such as IMF and World Bank. Lost friends will renew relations
To sustain economic stability and
spur growth, other measures need to be taken in order to improve economic
governance and create attractive investment climate.
Property Rights Reforms
The National government must enact
speedy reforms to regulate and control land property rights across out ten
states and one administrative area; while making sure that communities
displaced from lands for developmental purpose are adequately compensated. The
notion that community own and control land is responsible for current conflict
over lands, land grabbing, and insecure property rights that scare away foreign
Setting Up New Institutions for
Improved Economic Governance
To ensure better and more effective
economic governance the following institutions need to be set us as soon as
possible. These are:
Independent National Revenue
To be set up as lead agency responsible
for collecting taxes and identifying new opportunities for raising tax revenues
and improving tax collection efficiency. It should be responsible for
collecting 95% of tax revenues throughout the country.
Institution for Strategic Planning
country must have strategic goals that define where the nation wants to be in
the next 3, 5, 10, 15, 20 years and beyond. What we do at present will bear
fruits in the distant future. What we do not do at present can be a missed opportunity
tomorrow. Hence, South Sudan can do better with a little more strategic
thinking and less with groping in the dark.
example, where South Sudan finds itself today in terms of shortage and high
fuel prices is hardly an accidental misfortune, but rather the ultimate prize
for not thinking and acting strategically five or seven years ago. It is a
living proof of the cliché: failing to plan [strategically] is planning to fail
for strategic planning are vital for the survival and future prosperity of any
country. All forward-looking nations must have institutions that specialize in
scanning the horizons for risks, threats, and opportunities; then prod the
governments to plan and act well ahead of time upon the findings in order to
minimize risks, reduce threats, and exploit opportunities. The government of
South Sudan must set up a council for strategic planning that consults and
works with academic and research institutions, think-tanks, and civil society
groups to conduct policy analysis and compile reports that inform government
strategic policy design and long-term development plans.
also means the government should avail funds for think-tanks, research and
academic institutions, and civil society groups to build up their capacity to
play their role in socioeconomic development. And more important still, the
government must act upon their analysis and findings.
designated institution(s) for strategic planning should monitor how
developmental projects are faring and frequently publishes reports (internal
and public), meets with the legislators and executive branch of the government
to discuss the status of progress of major projects and performance of the
economy; thus enabling the executive branch to take informed actions and
corrective measures in good time. The institution(s) of strategic planning need
to have specialized committees or department within it dealing with specific
issues and ministries. Its membership should include heads of specialized
committees in the legislative assembly, among others.
South Sudan Economic Advisory Board
multi-disciplinary body with secretariat hosted in the Presidency or Cabinet
Affairs and works closely with the Council for Strategic Planning and the
Ministry of Finance and Economic Planning, Academia and Civil Society to make
informed decisions that affect the economy in the short and medium term.
Financial Allocation, Monitoring and
works closely with Council for Strategic Planning, South Sudan Economic
Council, the Ministry of Finance and Economic Planning, specialized committees
in the national legislative assembly, anti-corruption commission, office of
auditor general, statistics commission etc. It should report and publish
allocations and use of funds at least once or twice a year.
In order to move
forward, three keys words are central to the success of any radical economic
reforms in South Sudan: strong
political will. Such a strong political will was demonstrated recently when the
SPLM party leaders took brave steps to implement Arusha Agreement and reunify
the party. SPLM leaders can demonstrate such courage once more time by
taking measures that will bring about serious and speedy economic reforms, to
rescue the South Sudan pound, and save country. We are at critical juncture: to thrive as a prosperous and free nation,
or suffer the immense consequences of a contracting economy.