South Sudan is sparsely populated with more than 200 ethnic groups and little sense of shared nationhood. In this country, 50.6% of the population lives below the poverty line, making it one of the poorest countries in the world. Of these, 55.4% live in rural areas. At the same time, 72% of the population is under the age of 30, implying a high dependency rate for this country. The economy of South Sudan is considered to be one of the world’s weakest and most underdeveloped, with little existing infrastructure in place. Most villages in the country have no access to electricity or running water and its overall infrastructure is in a poor state with very few paved roads. It is the world’s most oil-dependent country in the world, with oil revenues accounting for over 95% of total revenue collections. But ironically, 78% of households in this country depend on subsistence agriculture and animal husbandry, with very low levels of productivity
AFRODAD recently commissioned a study titled “An Analysis of Debt Governance and Domestic Resource Mobilization Processes in South Sudan” with the following objectives:
- To assess and document the trends and dynamics of domestic and external debts in South Sudan: Assessing the evolution of both external and domestic debt, highlighting the key drivers of public debt accumulation.
- To interrogate the link between national financing and investment policy and the East African Community (EAC) financing and investment protocols: Assessing the extent to which South Sudan national policies take into account regional protocols, especially those focusing on public debt.
- Examine mutual accountability mechanisms and domestic resource mobilization strategies in place with a view to strengthening capacity
- Examine civil society debt advocacy strategies and how they can inform effective debt management in South Sudan.
- To understand how rapport can be built among governments, parliaments, private sector, donors and CSOs towards effective domestic resource mobilization and debt management in South Sudan.
- Proffer recommendations through a policy brief on how best to strengthen debt management and Domestic Resources Mobilisation in South Sudan - legislative and regulatory reforms to be implemented by South Sudan to support achievement of the EAC convergence benchmarks.
Key Research Findings
The data, information and analysis from the findings reveal that generally across the entire financial and economic sector of South Sudan, there are issues to do with communication and coordination, lack of transparency and accountability, governance and lack of clarity within the institutional arrangements responsible for public finance management. These challenges have over time curtailed the development of a functional system of the management of the country’s economic affairs and they include the following:
- Communication and Coordination: There exist serious challenges in forecasting of government cash flows and coordination between government and Bank of South Sudan (BoSS) in sharing information on cash balances and forecasts, and this threatened the ability of BoSS to manage the liquidity of the banking system. Significant technical assistance is required here.
- Transparency and accountability: The study has identified several policy issues with regards to transparency. The government has failed to demonstrate practice in this area. The government has not exhibited sound practice in publishing information on debt management accountabilities.
- Governance Appropriate legal enforcement is very wanting as this has been seen many times when government has acquired funding without approval of the National Legislative Assembly (NLA). This has serious implications on the budget ceiling which consequently leads to debt unsustainability.
- Institutional Arrangements: Institutional arrangements are characterized by a high degree of dispersion of debt management functions, both between the Ministry of Finance and Economic Planning (MoFEP) and the BoSS. In addition, there is duplication of some functions by these two entities, which on occasion has led to operational difficulties as serious as delays in debt services. The fragmentation of responsibilities implies a need for high coordination and the continual processing of information flows, which places strains on institutional arrangements. This can also lead to a fragmentation of the strategy for debt management meaning that policy may focus on a particular portion of the debt. However for debt sustainability analysis and risk analysis in general, it is essential to have an integrated view of the whole debt portfolio. Consolidation of the debt management functions can lead to efficiency gains, which can also help address the shortage of qualified staff.
- Domestic resource mobilization and the tax system: There is no motivation and citizens are unclear about the benefits of paying taxes and they are skeptical about their social duty to contribute to a revenue system where they see powerful groups of people being awarded tax exemptions or just avoiding. Property tax revenues suffer from inadequate records as to who owns property and there is no streamlined policy for property valuations. Powerful political networks are protecting many tax defaulters. South Sudan tax authorities are not aware of dubious practices of multinational corporations who use complex web of international tax laws to avoid paying taxes. Many companies both national and international have exploited the limited accounting capacity exhibited by the tax authorities. Both larger and majority informally sectors are missing in the tax net due to limited capacity of the tax collector and political influence by the many patronage networks.
- While the country needs to boost the country’s revenue base, the option of borrowing to finance a larger portion of the government budget should be discouraged since it is likely to raise the cost of macroeconomic management to the economy.
- The government needs to centralize and consolidate debt management where by decision making is coordinated by a number of committees made up of representatives from various units. A simpler decision-making structure at the MOFEP will improve accountability.
- Steps of good debt contraction need to be observed including: decision of the size of debt to be pursued, how to manage contingent liabilities, coordination of contracting process with other national policy frameworks.
- South Sudan’s risk for future debt sustainability has increased significantly over the recent years and a potential debt crisis could pose a significant challenge to the financing and achieving the national agenda and including the SDGs.
- While South Sudan has the primary responsibility to keep debt on a sustainable path, both South Sudan and her lenders must take action now to mitigate the risks of a debt crisis and build financial systems that are more resilient.
- Parliament must sanction the ministry of finance and the executive to explain debt management anomalies. Accountability safeguards need to be implemented.
- In order to encourage tax payments, government should endeavor to improve service provisions especially of basic services such as water, electricity, medical care and good roads.
- Key elements for tax reforms at both the national and state level should include: establishing a predictable link between tax payment and service delivery; development of a required administrative capacity; abolition of unsatisfactory local revenue instruments that are costly to collect from administrative and political perspective.