South Sudan is under pressure to implement fiscal reforms and introduce transparency and accountability in oil revenue, in exchange for international support.
This resulted from a combined effort by the International Monetary Fund (IMF) offer of the first Rapid Credit Facility (RCF) last November, and a group of reform-minded South Sudanese and their external partners demanding accountability in the corruption-riddled oil sector.
South Sudan has been on the global radar for corruption in the oil sector since it became semi-autonomous in 2005, with various international human rights organisations accusing the country’s leadership of allowing the military elite to loot the sector while the majority of the revenue does not reach the books of the national budget.
A new report by the International Crisis Group (ICG), says that an acute fiscal crisis triggered by falling oil prices in 2020 opened a window to press for changes because stabilising the country appears impossible without fixing its finances, particularly by bringing its oil revenues back into public view.
Titled Oil or Nothing: Dealing with South Sudan’s Bleeding Finances, the report that was released on October 6, says the pressure is showing positive signs in a country where leaders have emptied state coffers, siphoned its oil income and mortgaged its future oil revenue.
“Top officials hold the oil riches close, barring scrutiny of how much revenue it receives and where it goes. This slush fund governance is at the heart of South Sudan’s broken winner-take-all politics and helps explain why so much went so wrong so quickly after independence in 2011,” said Alan Boswell, the ICG Senior Analyst for South Sudan.
The government led by President Salva Kiir is under increasing pressure to allow for transparency and accountability in the oil sector, the linchpin of South Sudan’s economy that accounts for 85 percent of government revenue and over 94 percent of exports.
The IMF stepped in, dangling the carrot of $550 million in relief to address the urgent balance of payments needs, in exchange for transparency and accountability in handling of oil revenue.
In March this year, Auditor-General, Steven Kiliona Wondu, reported that scrutiny of the share of the oil-producing states and communities between 2011 and 2020, revealed that a total of $78 million was paid to parties other than those stipulated under Petroleum Revenue Management Act, 2013.
“The information, data, and explanation provided by the Ministry of Finance and the Bank of South Sudan do not represent a complete, reliable, true and fair record of the amounts and usage of the two and three percent share due to oil-producing states and communities,” Mr Wondu said in the report table before the Council of States Business Committee.
In 2012, President Kiir conceded that the government could not account for $4 billion that was embezzled by senior government officials in the lead-up to independence in 2011.
The ICG report says that while a combination of IMF stopgap relief and rebounding oil prices has thus far given respite to the government and prevented fiscal collapse, South Sudan’s economic woes — declining oil production, meagre to non-existent foreign reserves, high-risk debts — have not been solved.
A 2013 law stipulates that all oil revenue be deposited in a single Petroleum Revenue Account. Government’s failure to do so resulted in a clause in the September 2018 peace deal on reforms designed to combat corruption and build more accountable public finances, and ordered the closure of all other petroleum accounts.
“Reform will not come easy, given the incentives for President Kiir and his allies to cling to South Sudan’s oil wealth. If the political class and outside powers do not succeed in convincing Kiir to enact these reforms, the country could squander an opportunity to start afresh before its wells run dry,” said the report.
“South Sudan is a divided and fragile state that requires fairer power-sharing at the centre. But the parties cannot reach such a political settlement until they adequately account for and sharing the oil funds,” said Muriithi Mutiga, the ICG Horn of Africa project director.