September 12, 2017 / 3:35 PM / a year ago

War-ravaged South Sudan may scrap expensive oil subsidies

JUBA (Reuters) - War-ravaged South Sudan is considering scrapping state subsidies on oil because it hasn’t been able to pay civil servants for four months and diplomatic staff abroad are being evicted over unpaid rent, the deputy finance minister said.

FILE PHOTO: Sudan People's Liberation Army (SPLA) soldiers walk past the Paloch oil field facility in Paloch, Upper Nile State, South Sudan, March 2, 2014. REUTERS/Andreea Campeanu/File Photo

Ending the subsidies would free up desperately needed cash, Mou Ambrose Thiik told Reuters in an interview.

Nearly four years of civil war have destroyed South Sudan’s economy. Inflation was at 165 percent in August, the 21st consecutive month of triple-digit growth. The government depends on oil revenues, but attacks have slashed production to less than a third of pre-war levels.

The government expects to receive $820 million from oil this year. Out of that, $453 million will go to neighboring Sudan as payment for using its infrastructure for export; $183 million on the oil subsidy; and $166 million is allocated to the budget, which has a gaping deficit.

“We were thinking that we would lift subsidies on the oil and will be able to cover this (deficit) and pay our salaries more easily,” said Thiik. “But we have some resistance from the parliament.”

Lawmaker Nailo Mayo, the chair of the finance committee, said parliamentarians just wanted more information on who might be affected by ending the subsidies.

“The committee ... is concerned about the social cost, I mean the suffering that could accrue to the poorer section of the community, and also we are afraid of the political cost, that is stability, arising from lack of transport,” he said.

State-subsidized oil sells at 22 South Sudanese pounds (SSP) per liter, but severe shortages mean many people buy it on the black market for 300 SSP per liter. The SSP trades at about 17.5 to the dollar on the black market and 17.68 at the central bank.

The process for allocating subsidized fuel, which is purchased with government-issued coupons, is unclear.

South Sudan’s conflict began in 2013 after President Salva Kiir, an ethnic Dinka, fired his deputy, Riek Machar, a Nuer. The conflict degenerated into ethnic fighting marked by widespread sexual violence.

Out of an original population of 12 million, 4 million have fled their homes. More than half of those who remain in South Sudan need food aid and nearly three-quarters of children are out of school.

Thiik acknowledged social services were dire and said the finance ministry was trying to save money. It wants to reduce the number of embassies by a third, he said, because it is unable to fund them.

“They (embassy staff) didn’t get their salary for seven months and also they have arrears in their premises,” he said.

Asked about civil servants who had not been paid for four months, he said: “it is true that we have not secured money to pay salaries.”

Editing by Katharine Houreld and Mark Potter

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