By: Samantha Retrosi
Happy Independence Day!
July 9th, 2011 marked South Sudan’s birthday: day one in the existence of the world’s newest nation! In January 2011, the South took to the polls, in which an overwhelming majority (99%) voted to split from Sudan. South Sudanese freedom is the final outcome of a 2005 Comprehensive Peace Agreement that put an end to Africa’s lengthiest civil war. Marked by the death of 1.5 million people and the displacement of 4 million more, this date concluded nearly 22 years of conflict.
South Sudan will start its own history accompanied by an unexpected birthday gift: freedom from the $38 billion debt carried by a formerly unified Sudan. In the past, other nations such as Bangladesh, Zimbabwe and South Africa have not been so lucky and inherited unjust debts from past regimes. Starting off debt free is nothing less than momentous for the new nation but this does not come without its own unique difficulties, especially for the new southern state. The trouble is: how can South Sudan stay debt free?
South Sudan already struggles with a lack of schools and health services. Human capital levels are extremely low. Only 10 percent of all children who enroll in primary school complete it. Fifty percent of South Sudan’s population lives below the poverty line. The new nation also falls far below the rest of sub-Saharan Africa on the majority of the U.N.’s Millennium Development Goals. Basic infrastructure is lacking as South Sudan contains only 100 kilometers of paved roads and has no airport that currently meets international aviation standards. Few river channels are navigable, power outages are frequent and access to water and sanitation services is limited.
In order to address the immediate demands of new statehood, South Sudan is struggling to find solutions. Consequently, dependence upon international banks and other Western donors has already become a reality. Economic policy geared toward maintaining good relationships with Western powers from the get-go doesn’t bode particularly well on the autonomy front for South Sudan. Released from debtor status as of late July, the infant state has already accepted new loans from the International Monetary Fund and other international financial institutions (IFI). The nation seems to be falling back into a cycle of debt that will severely limit its ability to charter an economic and political future unhindered by the manipulation of external creditors.
History tells us that loans from IFIs create problems within debtor nations due to hindering austerity measures. Austere IMF budgetary and monetary requirements have prevented poor country governments from spending adequately on short-term financial recovery and long-term development. In fact, a unified Sudan qualified for debt relief under the IMF’s Heavily Indebted Poor Countries Initiative, only to find itself with a decreased capacity to continue investing in social programs. Low-income countries (LICs) have little voice within the institution to hold the Fund accountable, and increasing IMF lending capacity, instead of supplying needed grants, threatens to undermine LICs’ long-term debt sustainability. Read more by downloading Jubilee’s publication, “Unmasking the IMF.” In order for South Sudan to stay autonomous and create sustainable solutions the country needs grants, not loans. The international community should advocate for a debt-free South Sudan to prevent it from becoming yet another poor country stuck in the the cycle of debt that plagues LICs.
Additionally, if South Sudan were to engage in IFI lending, how do they plan on paying back the loans? It may seem to IFIs that South Sudan has a powerhouse of revenue from its vast reserves of oil. Though 98 percent of South Sudan’s revenue capacity is generated by oil, future reliance on this resource would be foolhardy. The new nation must prepare for long-term economic sustainability, and therefore shouldn’t focus exclusively on oil profits as a means to address development imperatives. Oil is a non-renewable resource, the extraction of which often leads to considerable environmental degradation. Furthermore, with considerable volatility in its international price, oil alone cannot be relied upon to build a lasting economy. South Sudan would be wise to pursue a development platform that is rooted in economic diversity rather than a deepening dependency upon one limited commodity.
Instead of using oil revenue to pay for debt servicing, South Sudan should keep a diverse array of development imperatives in mind and take measures to ensure that any state revenue generated by oil extraction is conducted back into local economic schemes that can stimulate the development of a rich and varied economy. The key here is limiting unfettered access to this resource by external investors, instead favoring internal control and regulation of industry that can ensure South Sudan sees the benefits of its own resource richness.
If the new nation has any chance for long term sustainability, any available revenue should be used to provide the base of a diverse economic infrastructure, ensuring that short-term loans do not suffocate the nation in the long-term. While perhaps somewhat visionary, if the South wants to move in the direction of long-term viability, it would be wise to make use of grants and initiatives that can help the nation pursue clean energy alternatives to the tempting allure of a monoculture created by continued dependency on oil revenues. Funding for this kind of alternative program could be pursued through grant organizations such as Africa Adapt, Alliance for a Green Revolution in Africa, the Global Green Grants Fund, the Small Planet Fund and the Africa Enterprise Challenge Fund. Additionally, the allocation of southern funds should be applied toward community-oriented development within which social spending is the primary focus, rather than pushed to the side as the last priority. The most valuable resource possessed by any nation is its people. While South Sudan certainly faces an array of discouraging limitations, it is also on the precipice of a new horizon with an opportunity to lead by example in a different kind of direction: one where human development takes center stage.
Further Reading:
http://www.imf.org/external/pubs/ft/survey/so/2011/car071811a.htm
http://www.imf.org/external/np/sec/pr/2011/pr11292.htm
http://www.bbc.co.uk/news/world-africa-14069082
http://www.sudantribune.com/South-Sudan-launches-private,38131
http://www.jubileedebtcampaign.org.uk/South3720Sudan3720starts3720life3720debt3720free+7163.twl
http://www.gurtong.net/ECM/Editorial/tabid/124/ctl/ArticleView/mid/519/articleId/5484/EU-Toughens-Funding-Measures-On-South-Sudan.aspx
http://freesouthsudanmediacenter.com/2011/03/01/south-sudan-launches-private-sector-development-program-with-world-bank-group/
http://www.brettonwoodsproject.org/art-568923
http://www.un.org/millenniumgoals/ww.iijd.org/
http://windex.php/news/entry/south-sudan-independence-marked-by-major-challenges/
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