8th August 2020
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Gov’t warned against selling oil in advance

Author: Rosemary Wilfred | Published: Tuesday, March 19, 2019

File: President Salva Kiir shakes hands with IMF Managing Director Christine Lagarde at IMF Headquarters.

The International Monetary Fund or IMF has advised the government of South Sudan against selling crude oil in advance, saying it is expensive and non-transparent.

This is one of the recommendations of the IMF staff team that visited the country recently to conduct discussions of the 2019 Article IV Consultation that assesses the economic status of a member country.

The 2019 article IV mission was conducted between March 5th and 15th.

IMF further advised the government to do its part by restoring budgetary discipline and applying rigorous priorities on spending with due consideration to peace-related spending.

In an end-of-mission statement, the head of the delegation – Jan Mikkelsen, states that the resumption of hostilities in July 2016 severely impaired the South Sudanese economy, leading to a “substantial loss of income, high inflation, foreign exchange shortages, and acute deterioration in humanitarian conditions.”

Although the IMF team acknowledges that the September peace agreement has significantly increased the prospects for lasting peace in the country, it says “policy adjustments are urgently needed to reestablish economic stability and credibility.”

The mission recommends that the government stop contracting oil advances to ensure that oil revenues will be fully available for financing budgetary spending.

Ariic A. Reng, an Associate Lecturer of Economics and Public Finance at the School of Public Service at the University of Juba agrees with IMF recommendations. He said it is ill-informed to sell oil in advance:

“Let’s say for example you have mangoes and you want to sell mangoes, but the mangoes are not ripe, so then you go and get the money from whoever will be the buyer and promise them that the mangoes will ripen in 2 months, and I will give you the mangoes,” Ariic illustrated.

“Now the issue with that is 3 months down the line, what if the mango is $30, you can’t go back [on your price] you are basically losing. If you relate that to oil ….you cannot go and negotiate again and say oh, let me sell my oil at the current higher price.”

Meanwhile, to reduce inflation and gradually restock foreign exchange reserves, the IMF recommends for the Central Bank to continue tightening monetary policies and refrain from lending to the government.

The IMF Head of Mission – Jan Mikkelsen said: “dedication to peace, economic stabilization, and robust management of oil revenue and public finances will be key in rebuilding policy credibility and regaining access to external financial support.”

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