South Sudan’s ruling class has officially milked the economy dry, according to a latest report.
The report says a small number of “privileged people close to the ruling circles” in South Sudan are benefiting from the country’s collapsing currency and shortage of dollars.
They access dollars from the Central Bank at a rate of about 3:1 and then sell them for pounds at a rate of about 9:1.
According to European Union, these men who are close to President Salva Kiir, are profiting from the difference between the official rate and the street rate, the reason government refused to alter the official rate, which would ease the dollar shortage and in turn drive down consumer prices.
The independent Indian Ocean Newsletter says while meeting with Kiir in March, the International Monetary Fund (IMF) and Finance Minister-designate David Deng Athorbei discovered this scheme.
Foreign exchange bureaus and banks have run out of dollars forcing some companies to close.
Heavy military expenditure
While the economic crisis rages, South Sudan finance ministry has allocated 70% of its expenditure to security, an amount of about $210m a month.
According to The East African, South Sudan has the highest military spending in the region.
The country relies on oil revenue to fund about 80 per cent of its budget but the output has reduced and prices declined due to the ongoing conflict.
Last year, total income from oil stood at $3.38 billion.
However, after deducting $884 million in payments due to its neighbour Sudan and $781 million as loan repayments to donors as well as international financiers, South Sudan remained with just $1.715 billion from oil revenue.
A report from the Stockholm International Peace Research Institute (SIPRI) released last week shows a rise in South Sudan’s military spending to $1.08 billion last year, up from $982 million in 2013.
This means that Juba spent more than 60 per cent of its net oil revenue on the military.
Traders arrested, intimidated to accept price controls
In Northern Bahr al Ghazal State, Radio Tamazuj reports incidents of traders being intimidated and arrested in order to force them to accept price controls.
The state deputy chairman of the chamber of commerce, Garang Athian, cited random arrests by the government to control prices as one of three main factors affecting trade in the state.
He said the intimidation would deter traders from coming to the state while others would leave the area to work elsewhere where there is safety.
He said the other two factors were poor road conditions between Juba and Aweil and the scarcity of dollars to enable imports.
IMF confirms milking of economy by state officials
The International Monetary Fund (IMF) says South Sudanese currency policy results in a hidden transfer of resources to individuals with privileged access.
This follows a memo by European Union which described South Sudan’s system of governance as ‘kleptocratic’ or “rule by thieves.”
According to the IMF’s latest Article IV Consultation Report for South Sudan, the black market or ‘parallel market’ began in September 2011 when the official rate began to diverge from the rate used in street sales.
The IMF report hinted that some foreign exchange bureaus are linked to the black market, noting that the number of banks and foreign exchange houses is “excessive” compared to the size of the country’s financial system and that these financial institutions are not well regulated.
IMF’s Executive Board has recommended that South Sudan’s central bank change the official exchange rate to a realistic level to eliminate the large transfer of funds from the government to a few beneficiaries and provide reliable and transparent access to foreign exchange for the public and businesses.”
Citizens resort to Ethiopian currency
With the continued decline in national currency, local authorities in the eastern South Sudanese border town Akobo have declared that Ethiopian currency may be used in local markets instead of the South Sudanese pound.
According to a notice posted on the Akobo main market board, Commissioner of Akobo East County, Tut Chot Rial, has ordered all traders to recognize the birr as valid legal tender.
Local authorities also set their own local peg for the rate of the Ethiopian birr to the South Sudanese pound at 1 SSP for 2.8 ETB.
This is less than half the rate the pound would trade against the birr if South Sudan’s central bank rate were used.