Oil-rich South Sudan’s economy to shrink by 30% in FY24/25, World Bank says

But the economy is expected to rebound in the subsequent year if oil exports resume, offering a potential path to recovery.

Juba, South Sudan | THE INDEPENDENT | Oil rich South Sudan’s economy is projected to contract by 30% in the Financial Year 2024/25 that ends in June due to disruptions in oil production, according to the latest South Sudan Economic Monitor (SSEM) report released by the World Bank.

But the economy is expected to rebound in FY25/26 if oil exports resume, offering a potential path to recovery.

The report, titled ‘A Pathway to Overcome the Crisis’, highlights the continued decline of South Sudan’s economy, which has contracted for five consecutive years. It also projects that Gross Domestic Product (GDP) per capita will fall to roughly half of what it was in the 2019/20 financial year.

The projected contraction is primarily due to the disruption of oil production, which has led to a significant decline in export revenues, estimated at $7 million per day. This has strained public finances, contributing to salary arrears and reduced spending on essential services like health and education.

In addition, hyperinflation and widespread food insecurity affect nearly 80% of the population, while poverty is calculated to have risen to 92% based on available data. Weak governance, poor management of oil revenues, and ineffective fiscal policies have also contributed substantially to these issues. Furthermore, the underdeveloped financial sector limits economic diversification and access to credit.

Brighter future

Despite these challenges, the SSEM highlights the potential for a brighter future for South Sudan through decisive action and comprehensive reforms. The report emphasises the urgent need for measures to stabilize the economy and foster sustainable growth.

“The situation is very challenging, but the government has committed to undertaking reforms to tackle macroeconomic and fiscal challenges and enhance governance. If carried through, these reforms will provide for greater macroeconomic stability as well as greater fiscal sustainability that will allow the government to improve its delivery of services to the population,” said Charles Undeland, World Bank Group Country Manager for South Sudan.

“By maintaining macroeconomic stability, improving governance, and enacting strategic structural reforms, South Sudan can unleash the potential of its private sector and pave the way for recovery and prosperity. The World Bank Group is keen to support the government in these efforts,” he added.

The SSEM suggests that strengthening macroeconomic frameworks, increasing exchange rate flexibility, and curtailing monetary financing of the deficit could contribute to the South Sudan’s macroeconomic stabilization.

SSEM says enhancing oil revenue management and fiscal transparency, boosting non-oil revenues, supporting economic diversification, and prioritizing social spending are also recommended.

The SSEM also says implementing a credible strategy to clear salary arrears of government employees, addressing pervasive poverty, and enhancing drivers of growth such as agricultural production through key structural reforms could strengthen the country’s economy.

Shift in policy framework

“A fundamental shift in South Sudan’s policy and institutional framework is needed to reduce poverty and enhance economic growth. Many of the essential actions to address the root causes of poverty in the country and for providing the basis for lasting peace are long-standing government policy and institutional reform commitments,” said Kamer Karakurum Ozdemir, World Bank Senior Economist.

He added; “Investing in a growth model that creates more, and better jobs will be key to poverty alleviation. The overarching priorities should be to invest in building human capital and state capacity, create the conditions for a dynamic private sector to boost growth, and support the development of local institutions and civil society.”

The South Sudan Economic Monitor is an annual World Bank report series that assesses key economic developments, prospects, and policies in South Sudan. It is intended for a broad audience including policymakers, business leaders, analysts, and development partners involved in macroeconomic and structural reform priorities in South Sudan, as well as the general public.