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South Sudan Economic Outlook
Real GDP contracted by an estimated 3.8% in 2018, following a contraction of 6.3% in 2017, supported by a slight recovery in global oil prices. On the supply side, the oil sector continued to be the main contributor to growth, accounting for about 70% of GDP in 2017, followed by agriculture (10%), manufacturing (7%), and services (6.1%). On the demand side, public consumption was the main contributor, following the 2017 56% increase in public salaries. The current account turned to an estimated deficit of 12.7% of GDP in 2018, from a surplus of 1.7% in 2017, due to a decline in exports, and continued to stymie growth. Income tax increases, high inflation, internal conflicts, disruptions to oil production, a fall in oil prices, and weak agricultural production were the main drivers of the decline in GDP.
The fiscal deficit was an estimated 1.5% of GDP in 2018, down from a surplus of 5.8% in 2017. Recent debt sustainability analysis puts South Sudan in the debt distress category, with total public debt estimated at 48.5% of GDP in 2018 and public external debt at 32.6% of GDP. Inflation remained high at an estimated 104.1% in 2018, due mainly to uncontrolled growth in the monetary base. The South Sudanese pound depreciated further in 2018, and the economy continued to have severe foreign exchange shortages, leading to an active parallel market.
Tailwinds and headwinds
Further improvements in growth prospects are due mainly to projected increases in global oil prices and oil production. Real GDP is projected to contract further, by 2.6% in 2019 and 2.5% in 2020. The signing of the peace agreement in June 2018 and the opening of four border crossings with Sudan are vital opportunities for reviving the economy. The country’s main downside risks are the vulnerability of agriculture to climate change, the high volatility of oil prices, and ongoing conflicts in the Blue Nile, Darfur, and South Kordofan states.
Key challenges include continued internal and external threats to peace, security, and stability; the disputed oil-producing region of Abyei; institutional and human capacity weaknesses; a narrow economic base; and dilapidated infrastructure. Peace, security, and stability are the most pressing challenges for South Sudan. The territorial boundaries of Abyei remain contested and could reignite hostilities between affected people on both sides, with dire social, security, and economic consequences. Institutions and the human resource base remain weak, as the country is in tremendous need of massive financial and technical education services support at all levels. Heavy dependence on the oil sector is a source of economic fragility and vulnerability and underscores the urgent need for economic diversification. And decades of civil war destroyed the country’s basic infrastructure and much of its productive capacities.
Key opportunities include abundant natural resources, potential hydropower sites, and regional integration. South Sudan is endowed with abundant natural resources, including a large amount of fertile rain-fed agricultural land that is potentially irrigable, aquatic and forest resources, and mineral resources, including oil. It is also has several potential hydropower sites on the White Nile River that could provide up to 3,000 MW, suiting the country’s energy and security needs. And regional integration can act as a major driver for economic development, particularly in the form of investment and imports from neighboring countries and regional blocs and as a market to support economic diversification. The tourism industry has great potential to ensure inclusive growth but lacks investment in infrastructure, human capital, and adequate policy reforms.