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Oil-rich South Sudan trapped in dangerous cycle of debt
A terminal under construction at Juba International Airport (2017) with a US$150 million loan from China Ex-Im Bank (AFP)12
Kaieteur News – The Republic of South Sudan is a landlocked country in East Central Africa that is trapped in a borrowing cycle that it is finding it very difficult to get out of. The country continues to borrow funds from multiple major financiers for projects to lend to its development. Despite having billions of barrels of oil reserves, the country is finding it difficult to drag itself out of debt.
Anti-corruption watchdog Global Witness (GW) sounded the alarm in 2015 on South Sudan’s borrowing, when its Parliament approved the decision by the government to negotiate a loan of hundreds of millions of dollars with the Qatar National Bank (QNB). GW called the loan risky. It pointed out that the country received US$1.7 billion in oil money in the year prior, and that the US$500 million Qatari loan has an interest rate so high that Qatari would owe an additional US$281 million to pay back over seven years. This is no chump change to South Sudan. Its economy has proven to be very volatile over the years, due to years of ethnic strife, civil war, and over-dependence on oil. GW said that the deal is risky also because the government agreed that if it is low on cash, it will pay in oil.
“Using crude as collateral threatens to lock the country into a dangerous cycle of debt,” GW said. “Oil dollars are used to pay off old loans while new loans fund the budget. By taking this loan, the government risks selling South Sudan’s future to pay for today.”
Worse yet, GW said, is that there are serious concerns about the government’s spending priorities and corruption, while millions suffer in poverty.
In October, Sudans Post, an independent media organization, said that the Qatar National Bank lodged a complaint against Sudan at the International Centre for Settlement of Investment Disputes (ICSID) for its failure to repay a US$700 million debt. Sudans Post said that the African country has benefitted from multiple payments from the Qatar Bank and has defaulted.
In its Article IV consultation 2019, the International Monetary Fund (IMF) said that South Sudan is in deep economic crisis, and that debt sustainability is a key issue. Along with the World Bank’s International Development Association (IDA), the IMF prepared a debt sustainability analysis in 2019 which placed the decade-old republic’s total external debt stock at US$1.196 billion or 34.4 percent of its Gross Domestic Product (GDP).
According to that analysis, as of March 2019, South Sudan owed the World Bank US$53 million, the African Development Bank (AfDB) US$28 million, the China Export Import Bank US$150 million, Qatar National Bank US$627 million, and oil-related advances US$338 million.
The IMF and the World Bank said that South Sudan has weak debt-carrying capacity.
Even then, Reuters reported in August that South Sudan is seeking a US$250 million loan from the African Export Import Bank. The loan was requested so the country can implement a delayed peace agreement from the war ended two years ago, fight COVID-19 and work toward food security.
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