What Are Dire Causes of Hyperinflation in South Sudan?

By: Isaac Yak R. Tutdel,

Analysis,

money changers carry loads of low value notes in wheelbarrows on the street, Barao,....

money changers carry loads of low value notes in wheelbarrows on the street of African country(Photo: file)

Nov 25, 2016(Nyamilepedia) —— Of recent days, South Sudanese pounds have dwindled sharply to extreme inflation due to lack of enough availability of hard currency. The phenomenon sound unbelievable for a country that is producing oil where crude oil is auctioned at the international market with hard currency either in Euros or Dollars. The fundamental question that begs an answer is what happened? According to my modest assumption, the following factors could trigger the bizarre inflation.

  1. The continued civil war in the country;
  2. The global oil prices recessions and;
  3. The cooperation agreement between Juba and Khartoum 2012.

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  1. The continued civil war that engulfs almost the whole country poses unprecedented financial challenges to the young nation. The increase of security sector budget undermines other priorities that can stabilize the national economy.
  2. The global oil prices recessions cut the projected income aimed at the crude oil proceeds. This sudden cut made it impossible for South Sudan to stabilize its foreign currency market.
  3. The cooperation agreement between Juba and Khartoum contains exorbitant financial terms and conditions. Under the said agreement, South Sudan is obliged to pay 24 USD (twenty-four United States Dollars) on average, per a barrel of crude oil produced in South Sudan to Sudan in the form of processing, transit, pipelines and Transitional Financial assistance.

In this piece of article, I run a simple arithmetic simulation of South Sudan revenues expected from its crude oil sales. The variables in considerations include the discount rate in the international market (5 USD); the cumulative costs of operating a barrel of crude oil, assumed to be (15 USD); Company share is projected to (5 USD); South Sudan share is estimated to be (20 USD) and the payment to Sudan standstill at (24 USD) on average per a barrel of crude oil.

The price of one barrel of crude oil at the international market is assumed to be (45 USD). The above figures are not exact but on unrealistic either.

inflation

From the above table, you will find that South Sudan revenue from its oil resources after payment to Khartoum is minus four (-4). That means South Sudan is operating its petroleum resources at a loss with debts accumulating in favor of Sudan.

Recommendations

  1. Stop the war by all means as soon as possible and peacefully
  2. Renegotiate the Cooperation Agreement with Sudan
  3. Expedite the refining industry locally
  4. In the absence of the above, shut down the oil operations with immediate effect to avoid much loss.

The author, Isaac Yak R. Tutdel, is a Ph.D. Candidate at China University of Petroleum-Beijing, Academy of Chinese Energy Strategy, 18 Fuxue Road, Changping, Beijing, 102249, China. He can be reached at isaacyakr.tutdel@yahoo.com

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One comment

  • five men in a room, 4 have SSP one has dollars. The men say, I give you 500 SSP for 100$, the other one says, I give you 1000, the third says 5000 and the last one says 10,000. deal made quickly. There are no dollars coming because there is nothing in South Sudan that can be bought using SSP. Not really.

    Everything you purchase was paid for in USD, so there is no possibility to attract USD to come in.

    Insecurity and the Juba mobs ineptitude is the cause of this. Once they vanish, things can change. But not before this happens, is as simple as that.