The Fiscal Challenge of South Sudan

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  • Oil revenues accounted for 98% of fiscal revenues in South Sudan in 2011. South Sudan has recently decided to shut down its oil production, stemming from the lack of agreement post-independence between South Sudan and Sudan regarding oil revenues.
  • The aim of this paper is to evaluate fiscal sustainability in South Sudan. The starting point regarding fiscal revenues is the reserves estimates and production path forecasts provided by the operating oil companies in 2010.
  • This paper argues that the pre-crisis fiscal stance of South Sudan was not sustainable and the fiscal expenditures should be considerably reduced. The paper also points to arguments about absorptions constraints in the economy and institutional capacity for efficient fiscal spending for why the pre-crisis level of fiscal spending in South Sudan was too high.
  • If the Sudans are able to solve their current crisis and South Sudan can get back to building up the new state, several experiences from the CPA-period and 2011 should be useful to inform policies going forward.
  • The most important issue may be to curb political pressure to spend all of the oil revenues in the short run. Fiscal sustainability and the low capacity to spend public funds efficiently suggest that the fiscal policy should be considerably more prudent going forward. The current situation should increase the political appetite for more forward looking, prudent policies.
  • South Sudan should seek guidance from countries with success in controlling spending and achieving stable and sustainable fiscal policy outcomes.

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