a Contents ABBREVIATIONS iv ACKNOWLEDGEMENTS v EXECUTIVE SUMMARY vi Background and Context vi State of the Economy vii Pathways to Sustainable Food Security ix RECOMMENDATIONS xii BACKGROUND AND CONTEXT 1 PART 1: RECENT ECONOMIC DEVELOPMENTS 7 1.1 Global and regional economic developments 8 1.2 Real sector developments 11 1.3 Living standards and access to services 12 1.4 Exchange rate and inflation developments 17 1.5 Fiscal policies and developments 21 1.6 Trade and external sector developments 24 1.7 Monetary and financial sector developments 27 ECONOMIC OUTLOOK AND RISKS 31 1.8 The outlook has deteriorated due to the economic impact of the COVID-19 pandemic, particularly on the 31 country’s most vulnerable 1.9 Risks to the outlook 33 PART 2: PATHWAYS TO SUSTAINABLE FOOD SECURITY 37 2.1 Factors influencing food insecurity have shifted dramatically since pre-independence 38 2.2 South Sudan’s agricultural potential has increased over the past decade 40 2.3 Conflict’s effects on food insecurity have been indirect 43 2.4 Market factors have had the greatest direct impact on food insecurity in recent years 47 2.5 Tackling food insecurity requires a comprehensive approach 50 REFERENCES 54 i Figures Figure 1: Conflict events and fatalities 1 Figure 2: Distribution of violence events by state (July -December 2020) 2 Figure 3: The evolution of COVID-19 cases 3 Figure 4: Global developments 9 Figure 5: Global oil price developments 9 Figure 6: Regional Economic Developments 9 Figure 7: South Sudan oil sector 9 Figure 8: Sources of real GDP growth (percent, y/y) 11 Figure 9: Evolution of food insecurity 2014-2021 (left) and projected IPC (Apr-Jul 2021) map (right). 12 Figure 10: Changes in living standards due to the COVID-19 pandemic 15 Figure 11: The exchange rate spread has started to narrow 19 Figure 12: High inflation followed exchange rate depreciation 19 Figure 13: Food price developments in selected towns across South Sudan (y/y changes, %) 20 Figure 14: South Sudan imports from Uganda recovered 25 Figure 15: South Sudan exports to Uganda surged in 2020 25 Figure 16: Real private sector credit growth, % y/y 28 Figure 17: Real GDP growth rate (percent) 32 Figure 18: Overall fiscal balance (percent of GDP) 32 Figure 19: Decomposition of estimated populations in areas experiencing critical food insecurity 39 Figure 20: Factors influencing food insecurity 39 Figure 21: Agricultural potential for period 2006-2013 and 2014-2019, May through September 41 Figure 22: Length of rainy season in days in South Sudan (9x9km) 42 Figure 23: Agricultural potential (14-year mean P/PET during rainy season, May-September, 2006-2019 42 Figure 24: Population weighted plant productivity and rainfall anomalies in agricultural areas, South Sudan (2007-2020) 43 Figure 25: National-level food and non-food price inflation (y/y) 47 Figure 26: Food and Non-Food Inflation with HA-adjusted FEWS Phases, Wau (Phase refers to last declared phase by 48 FEWS NET) Figure 27: Sub-national decompositions of predicted populations in areas experiencing critical food insecurity each 49 month in 9 South Sudanese admin-2 areas based on country average results, national level Figure 28: Formal agricultural and non-agricultural exports imports at Ugandan border crossings affected (red) and 49 unaffected (blue) by South Sudan’s conflict Figure 29: Agricultural ICBT exports and imports at Ugandan border crossings affected (red) and unaffected (blue) by 50 South Sudan’s conflict Figure 30: Historical estimates and forecast of population in food crisis in South Sudan, (2008-2021) 52 Tables Table 1: COVID-19 key indicators for selected countries 3 Table 2: Food Insecurity Comparison by Poverty Status 13 Table 3: Food Insecurity Comparison between Urban Poor and Rural Poor Group 14 Table 4: Government fiscal operations, % of GDP 22 Table 5: Distribution of oil revenue 23 Table 6: Debt by Creditors (millions of US Dollars) 24 Table 7: The current account (Millions of dollars, % GDP in parentheses) 26 Table 8: Economic Outlook (annual percentage changes unless stated otherwise) 33 Table 9: IPC Categories 38 Table 10: Effects and extent of conflict in select towns 44 ii © 2021 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions: The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution: Please cite the work as follows: “World Bank. 2021. South Sudan Economic Update. Fourth Edition. Pathways to Sustainable Food Security”. © World Bank. All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Photo credits: World Bank Archives Cover design and interior navigational graphics: Artfield Graphics Ltd, info@artfieldgraphics.com. Typesetting, graphics, and page layout: Artfield Graphics Ltd. Printed in Kampala by Artfield Graphics Ltd Additional material relating to this report can be found on the World Bank South Sudan website. (www.worldbank.org/southsudan). iii ABBREVIATIONS ACLED Armed Conflict Location and Event Data AfDB African Development Bank AY Annual Year BSS Bank of South Sudan CAADP Comprehensive Africa Agriculture Development Programme (CAADP) CAMP Comprehensive Agriculture Master Plan CFSAM Crop and Food Security Assessment Mission CLIMIS Crop & Livestock Market Information System POC Protection of Civilians CPI Consumer Price Index DMSP Defense Meteorological Satellite Program DDR Disarmament, Demobilization, and Reintegration DRC Democratic Republic of Congo FAO Food and Agriculture Organization of the United Nations FDI Foreign Direct Investment FCS Food Consumption Score FEWSNET Famine Early Warning System Network FSL(C) Food Security and Livelihoods (Cluster) FSNMS Food Security & Nutrition Monitoring Survey GDP Gross Domestic Product GPAA Greater Pibor Administrative Area HDDS Household Dietary Diversity Score IDA International Development Association IDP Internally Displaced Person IMF International Monetary Fund IPC Integrated Food Security Phase Classification MSSMEB Multi-Sectoral Minimum Expenditure Basket NDVI Normalized Difference Vegetation Index NTL Nighttime Lights OCHA Office for Coordination of Humanitarian Affairs OPEC Organization of the Petroleum Exporting Countries PFM Public Finance Management QNB Qatar National Bank R-ARCSS Revitalized Agreement on the Resolution of Conflict in South Sudan RCF Rapid Credit Facility RTGoNU Revitalized Transitional Government of National Unity SMP Staff Monitored Program SSA Sub-Saharan Africa SSP South Sudanese Pound TFA Transitional Financial Arrangement TNLA Transitional National Legislative Assembly UNHCR United Nations High Commissioner for Refugees UNMISS United Nations Mission in South Sudan USD United States Dollar WASH Water, Sanitation and Hygiene WEO World Economic Outlook WFP World Food Program FY Fiscal Year iv ACKNOWLEDGEMENTS The Fourth Edition of the South Sudan Economic Update was prepared by a team consisting of Joseph Mawejje, Phoebe Girouard Spencer, Nadia Fernanda Piffaretti, and Patrick McSharry. The team is grateful to Niko Alfred Hobdari (South Sudan Mission Chief, IMF), Melissa Williams, Magidu Nyende, Daniel Kiernan Balke, Uloaku Oyewole, and Matei Dohotaru for their guidance on the structure and messaging of the report. The team also recognizes the advice and suggestions received from Malcolm Smart and Bol Agoot Arok (both from FCDO, South Sudan). Joyce Gamba, Lamunu Loremo, Zewditu Banteyehun Haile, and Peter Gonda provided logistical support, while Lomoro Sindani managed the communications and dissemination strategy. Irfan Kortschak provided editing assistance. The section on living standards and access to services used a combination of High-Frequency Phone Survey data on COVID-19 and FAO/WFP Food Security and Nutrition Monitoring Survey (FSNMS) data. The team is grateful to Xueqi Li for important contributions from the COVID-19 surveys. We thank the FAO, WFP, and FSL Cluster South Sudan teams for making their FSNMS datasets available and for feedback received during a consultative meeting held on May 27, 2021. The special topic “Pathways to Sustainable Food Security” draws heavily from the background note “Agricultural and Food Insecurity Dynamics (2006-2020)” that was prepared by Phoebe Girouard Spencer, Bo Pieter Andree, Andres Fernando Chamorro Elizondo, Joseph Mawejje, Melissa Williams, Brian D’Silva, and Erick Fernandez, under the overall guidance of Nadia Piffaretti, as part of the South Sudan Country Economic Memorandum (World Bank 2021). Overall guidance provided by Husam Abudagga (Country Manager) and Mathew Verghis (Practice Manager, Macroeconomics, Trade and Investment) is gratefully acknowledged. Finally, we would like to thank Hon. Genes Karlo Ocum, Under Secretary, Ministry of Finance and Planning and Dr. John Ogoto Kanisio, Undersecretary, Ministry of Agriculture and Food Security and their staff for their close collaboration. v EXECUTIVE SUMMARY Context and Background The gradual implementation of the intercommunal violence, which usually involves cattle raids, child abductions, Peace Agreement has provided revenge killings, and ethnically motivated violence. Consequently, the number hope for stability in South Sudan. of conflict events declined by 17 percent in the second half of 2020, with Following the signing of the latest associated fatalities declining by about 42 percent. Despite this progress, truce in September 2018, a three-year however, localized violent incidents persist across the country, with the number Revitalized Transitional Government of of violent events over the full year twice as high in 2020 as in 2019. At the National Unity (RTGoNU) was formed same time, recent trends suggest escalating communal violence and roadside in February 2020. Despite delays ambushes in the first half of 2021. The latest spike in violence has been to implementation and despite the concentrated in Jonglei, the Greater Pibor Administrative Area, Warrap, Lakes, numerous challenges that have faced and the Equatoria regions. the new government, including those related to the management of the In South Sudan, the health impact of the COVID-19 pandemic has been COVID-19 pandemic, lower budgetary relatively limited compared to its impact on regional peers. With the revenue, and natural disasters, the Government initially instituting a lockdown on 20 March 2020, South Sudan peace process has held course, was among the first countries in East Africa to ease movement restrictions, in with the successful appointment of May 2020, barely one month after the first case was confirmed in early April. state governors and with ongoing However, the situation deteriorated rapidly at the start of 2021, after the end talks with hold-out factions. In a of the December/January festive season, during which period many people significant milestone, the Transitional travel to visit family. The trajectory of the pandemic displayed worrying trends, National Legislative Assembly (TNLA) with the seven-day rolling averages of daily new cases indicating that South was reconstituted on 10 May 2021, Sudan was in the middle of its second wave of infections. Consequently, new eliminating one of the major constraints partial lockdown measures were imposed in early February 2021, mandating on government business. However, the cessation of all non-essential government and private business operations, some critical issues outlined in the except through homebased work modalities. These measures were lifted on R-ARCSS remain unresolved, including 14 April 2021, following a reduction in the number of new reported infections. the finalization of transitional security At that point, the cumulative number of confirmed cases stood at 10,359 arrangements; the reunification of the (equivalent to 1,081 cases per million people), with 114 recorded deaths. While armed forces; and the advancement weaknesses in testing and contact tracing have made it difficult to assess the of the disarmament, demobilization, actual extent of the pandemic, the health impact of the pandemic has been and reintegration (DDR) process. The much lower in South Sudan than amongst its regional peers. resolution of these issues should be The economic fallout from the COVID-19 pandemic has created opportunities prioritized to anchor the peace process. for South Sudan to break free from a legacy of economic mismanagement While levels of violence declined in and to push through an ambitious reform program. The authorities have the second half of 2020, recent events commenced with a reform process that prioritizes the modernization of the suggest a reversal of this trend, with country’s public financial management systems. At the center of the process escalating communal violence and is the formation of three key structures, these being: (i) the Public Financial incidents of roadside ambushes in Management (PFM) Oversight Committee; (ii) the Technical Committee; the first half of 2021. The agreement and (iii) the Secretariat. Following the establishment of these structures, related to the number of states and the the authorities have identified 11 PFM priorities and commenced working appointment of ten state governors with a wide range of stakeholders, including those from the Government, has supported a de-escalation of development partners, and civil society, to implement the targeted reforms. vi In South Sudan, the health impact of the COVID-19 pandemic has been relatively limited compared to its impact on regional peers. With this process, the authorities have committed to a macroeconomic and food assistance, including 7.2 million fiscal reform program that is intended to facilitate macroeconomic stabilization acutely food-insecure South Sudanese and improved public financial management. In support of this effort, the IMF in rural areas; 130,000 in urban areas; Board approved a nine-month Staff Monitored Program (SMP) for the period and 314,000 refugees. An estimated 1.4 from 31 March to 31 December 2021. This program will help to anchor the million children and 480,000 pregnant ongoing reform process, the focus of which is on four critical areas: (i) restoring or lactating women will experience fiscal discipline; (ii) monetary and exchange rate reform; (iii) debt management; acute malnourishment, with need of and (iv) strengthening governance. In addition, the SMP will provide a credible treatment. monitoring and review process. Despite the large fallout from the pandemic, World Bank rapid surveys conducted between October and November 2020 show a gradual State of the Economy recovery to living standards, albeit from very low bases. The first round While South Sudan’s economy had shown strong signs of improvement of the surveys, conducted in June before the COVID-19 pandemic, with the GDP real growth rate reaching 2020, involved a total sample of 1,213 9.5 percent in FY2019/20, a contraction of -4.1 percent is projected for households in both urban and rural FY2020/21. The oil sector continued to be the primary driver of growth, with areas in all ten former states of South estimated oil production standing at 62.1 million barrels in FY2019/20, a 26.5 Sudan. Compared to findings from the percent increase over the figure of 49.1 million barrels recorded in FY2018/19. first survey, the second-round survey However, the COVID-19 pandemic has affected planned investments in showed improving food security, FY2020/21. This, coupled with a precipitous decline in global oil prices, the employment, and access to markets. impact of COVID-19 restrictions, and the resurgence in violence, has subdued However, income losses were higher growth. The services sector is estimated to have contracted by 9.6 percent, among the poor, with 41.3 percent of with businesses struggling in the context of subdued demand. By contrast, poor farming households reporting the agriculture sector is estimated to have grown by 6 percent, with increases reduced earnings, compared to 38.2 to the cultivated area more than offsetting the devastating impact of floods, percent of the non-poor. In addition, resulting in higher cereal production. However, agricultural production is still 59 percent of the poor reported losses considerably below pre-conflict levels, contributing to a high food deficit and from non-farm family business, widespread food insecurity. compared to 49.4 percent of the non- poor. Food insecurity levels remained With the economic decline in FY2020/21, living conditions in South Sudan elevated, with nearly three out of have deteriorated, with many of its people urgently requiring humanitarian four households (73%) experiencing assistance. People’s physical and mental wellbeing, living standards, and food price increases in October 2020. coping mechanisms have continued to deteriorate in 2021. According to Pressure on living conditions continues UN OCHA’s Humanitarian Needs Overview, some 8.3 million people in South to be exacerbated by displacement Sudan are estimated to need humanitarian assistance in 2021, reflecting an and the inadequate provision of basic increase of 800,000 in the absolute number of people in need from 2020, when services. the figure stood at 7.5 million. The latest food security analysis estimates that the 2021 lean season, between April and July, will be the most severe ever, Following the implementation of the with 108,000 people in the Catastrophe category (IPC Phase 5). A total of 7.7 Government’s macro-fiscal reforms, million people (more than 60 percent of the population) are expected to need vii inflation has begun to decline. a freely determined exchange rate. Not only has the BSS been auctioning FX for According to official CPI data, year- both banks and FX bureaus, but the reference rate for banks (that is, a weighted on-year (y/y) inflation rose rapidly in average of banks’ transactions with their customers) is by now fairly aligned the second half of 2020, reaching 78 with the rates prevailing at the FX auctions. These developments registered percent in November 2020, up from 7.5 immediate success, with the exchange rate in the parallel market appreciating percent in July 2020. During this period, from over 600 SPP/US$ in March to a range of about 460-500 SPP/US$ since food price inflation rose to 66 percent, April. With these developments, the spread between the market and official rate up from -1.2 percent. At the same declined from 250 percent in March 2021 to 90 percent in May 2021. time, non-food prices inflation rose to 102 percent, up from 29 percent. South Sudan’s fiscal position has deteriorated significantly, with the overall However, inflation started declining FY2019/20 cash deficit standing at 9.6 percent of GDP, compared to the from December, falling to 19 percent budgeted level of 3.2 percent. The deterioration in the fiscal position has by March 2021, as the Government resulted from a combination of factors, including a decline in oil revenues, committed to a reform program whose higher transfers to Sudan, and increased capital spending. Oil revenues are targets included curbing monetization estimated to have declined to about 24 percent of GDP (SSP 201 billion) in of the fiscal deficit and a gradual FY2019/20, down from 26 percent of GDP (SSP 198 billion) in FY2018/19. movement toward a market-determined However, non-oil tax revenue increased modestly to an estimated 3.8 percent exchange rate. Despite this, the cost of GDP in FY2019/20, up from 3.6 percent in FY2018/19. At the same time, the of the multi-sector survival minimum value of South Sudan’s financial transfers to Sudan amounted to 8.2 percent of expenditure basket (MSSMEB), which GDP in FY2019/20 (SSP 82 billion), up from 7.6 percent in FY2018/19 (SSP 68 represents the minimum culturally- billion). Budget execution challenges have led to persistently high expenditure adjusted group of items required to arrears, with salary arrears estimated at 2 percent of GDP and (unverified) support a six-person household for one goods and services arrears at 108 percent of GDP. month, increased by 69 percent in April With the pandemic and transfers to Sudan exerting pressure on the balance 2021 (y/y), with the cost of the food of payments, the current account deficit widened further, reaching an basket increasing by 62 percent (y/y). estimated 7.9 percent of GDP, up from 5.0 percent in FY2018/19. Merchandise The rising prices of essential household exports are estimated to have declined by 0.5 percent in FY2019/20, following goods, including food, could exacerbate an already dire food security situation. an estimated 0.8 percent contraction in oil exports, which declined to US$ 3.088 billion in FY2019/20, down from US$ 3.103 billion in FY2018/19. The The exchange rate policy has moved decline in oil exports, which are estimated to contribute to about 99 percent towards exchange rate unification. of South Sudan’s merchandise exports and 98 percent of total exports, The Bank of South Sudan (BSS) has reflects developments in the final quarter of FY2019/20 (April-June) with the revamped the foreign exchange auction global impact of the pandemic leading to declining international oil prices and system through weekly auctions of the OPEC+1 production cuts. Despite this, non-oil exports of goods and services IMF’s RCFs to commercial banks and are estimated to have grown by 48.7 percent, albeit from a very low base, forex bureaus, at a new auction rate that is much closer to the prevailing increasing from US$ 41 million in FY2019 to US$ 61 million in FY2019/20. market rate than the controlled/ Notably, transfers to Sudan increased by 39.7 percent, going up from US$ 335 overvalued official rate. The official million (6.5 percent of GDP) in 2019 to US$ 468 million (9 percent of GDP) in rate now applies only to transactions FY2019/20, exerting significant pressure on the balance of payments. Gross between the BSS and the Government, international reserves amounted to US$ 48 million (equivalent to about 0.1 whereas transactions involving the months’ cover) at the end of FY2020. By any measure, this is insufficient to private sector and donors now occur at provide adequate buffers to facilitate effective responses to future shocks. 1. Organization of the Petroleum Exporting Countries, including Russia and other non-OPEC oil exporters viii More than a year after the formation of the Unity Government, the main priorities of South Sudan’s authorities continue to be consolidating peace, improving service delivery, and ensuring a smooth recovery from multiple shocks. Credit conditions are dire, with real private sector credit growth effectively Pathways to Sustainable negative during the first three quarters of FY2020/21. Real private sector credit expansion picked up strongly in FY2019/20, albeit from very low levels, Food Security reflecting the strong recovery of the economy and peace dividends that Despite increased agricultural supported private investments and business growth. However, this trend production, crisis-level food insecurity reversed in July 2020, reflecting strong market exchange rate depreciation and persists, with exceptionally high food soaring inflation. In the nine-month period to March 2021, real private sector prices constraining access to food credit growth averaged -19.9 percent, compared to the 20.4 percent recorded for large segments of population. It is in the same period in the previous year. The structure of private sector credit estimated that nearly half of the total remains largely unchanged from last year. By March 2021, domestic trade population (about 5.8 million people) accounted for 50 percent of the total value of private sector credit, followed by faced severe food insecurity in the building and construction (17%) and transport and household activities (12%). period from December 2020 to March 2021. This number is expected to rise Global oil prices have recovered to pre-pandemic levels, providing an during the lean season (April to July), improved outlook in the near term. With the projected global recovery, oil when a total of 7.2 million people (60 prices are expected to increase by 30 percent in 2021, up from a low base percent of the population) are expected in 2020, in part due to the impact of OPEC+ supply bottlenecks. Oil prices to face high levels of acute food increased by 39 percent in the period from August 2020 to February 2021, insecurity (IPC Phase 3 and above), with the increases at least partially driven by positive expectations regarding with 2.4 million in the Emergency vaccination programs and the rapid economic recovery in Asia. A resurgence of category (IPC Phase 4) and 108,000 the COVID-19 pandemic and constraints on the rollout of vaccination programs people in the Catastrophe category (IPC at the beginning of the year weakened the oil demand outlook, leading the Phase 5). Disrupted markets, access OPEC+ coalition to review more prudently the relaxation of the 7 million barrels constraints, and high prices are among a day production ceiling announced in April 2020. By March 2021, the Brent the main factors driving South Sudan’s crude oil price had climbed up to $US 63.5/barrel, approximately similar to dire food insecurity situation. Analysis pre-pandemic levels. With these developments, South Sudan’s weighted oil from FAO’s FSNMS data indicate that prices are expected to recover to an average level of $US 54.7 USD/barrel in only about one in four households FY2021/22, up from the figure of $US 47.9/barrel recorded in FY2021/22. (27%) have acceptable levels of South Sudan’s economy could grow by up to 2.6 percent in FY2021/22 and calorific intake, with about 40 percent by 3.0 percent in FY2022/23, stronger rates than earlier projected. While of households categorized as poor and the economy is expected to contract by about -4.1 percent in FY2019/20, 30 percent as borderline in terms of the recovery over the medium term could be stronger that earlier projected. Recent food consumption score (FCS), a proxy advances in the development of a range of vaccines and their expanded global for the quantity dimension of calorific production have led to a degree of optimism regarding global growth. An earlier sufficiency. and speedier than projected global recovery would support inward FDI and The influence of conflict on food remittances, leading to a faster recovery. The efficient roll-out of vaccination systems has occurred mainly through programs would save lives and enable South Sudan’s non-oil economy to secondary channels, including recover faster, supporting the achievement of higher levels of resilience in the displacement and decreased crop face of a multitude of shocks. At the same time, higher oil prices would lead to production and market access. stronger export growth, higher FDI in the sector, and increased revenue flowing Conflict remains a latent threat to into the budget. If used well, increased oil revenues could support economic food security. Outbreaks of conflict diversification, leading to a more inclusive and resilient recovery. Consequently, in December 2013 and July 2016 are economic growth over the medium term could be stronger than earlier forecasts indicated. ix reflected in the increasing influence production in a number of towns, including Malakal and Torit. Second, it led to of conflict on food security in the shifts away from farmlands on the outskirts of towns in favor of more secure months following the outbreaks. A lands close to towns such as Wau, Rumbek, and Yambio. This movement has decrease in the influence of conflict on resulted in farmers cultivating smaller plots, with correspondingly lower levels food security occurred following the of production. September 2018 peace deal, attributed to increased trade flows, improved Market failures attributed to excessive inflation have had the greatest direct market access, and higher domestic impact on food insecurity since late 2015, surpassing previously dominant production. Despite this improvement, conflict-related factors. Since 2013, while South Sudan’s food security food prices remain unaffordable for situation has been deeply affected by the impacts of war, it is the impact of the many households, with modeling conflict on the economy and markets that has become the most significant efforts indicating that the continued driver of food insecurity, rather than the violence itself. In South Sudan, the impacts of violence on food security prevailing narrative focuses on conflict as the major threat to food security. remain considerable. A qualitative However, viewing conflict alone as the most critical factor misses crucial analysis in nine South Sudanese towns elements of South Sudan’s food security situation. Before the COVID-19 crisis, indicates that conflict’s main influences critical aspects of market dynamics and weather and climate patterns already on food security appear to be through played important, often overlooked or underestimated roles in this situation. At the displacement of populations and present, in the context of the ongoing pandemic, further market disruptions due damage and disrepair to infrastructure, to supply-chain breakdowns threaten to intensify increases in food insecurity. rather than directly through crop Conflict-induced trade disruptions have negatively impacted food supply, destruction, with economic and market with conflict rendering trade routes insecure and resulting in destruction and channels playing a critical role. disrepair to infrastructure. While more than 70 percent of South Sudan’s land Displacement has disrupted harvest is favorable for agriculture, less than 4 percent was being farmed in 2012 (2.7 and growing cycles, in many areas million ha). The World Bank estimates that increasing agricultural land use causing farmers to work smaller to 10 percent of the country’s total land area (6.3 million ha) would increase tracts of land close to towns due to the value of total agricultural output from approximately US$ 808 million to insecurity in more remote locations. US$ 2 billion. Barriers to this expansion include the low level of adoption of Many of the effects of conflict productivity-enhancing technologies, capacity constraints, non-tariff barriers, experienced in the surveyed towns high labor costs, and the lack of infrastructure, including for irrigation. However, are related to displacement and the destruction of infrastructure and insecurity of trade routes has made trade trade disruption. Interviewees and logistically difficult. While some roads were rehabilitated during the period from focus group participants attributed 2007 to 2012, the ensuing conflict in 2013, heavy rains, increased levels of displacement to worsened food traffic, overloaded trucks and lack of maintenance have damaged the network. security outcomes due to two main The destruction of or disruptions to major trade routes has further hampered factors. First, instability displaced trade. In addition, many roads are impassable or difficult to travel in the wet people from their towns and into UN season. Protection of Civilians (PoC) camps or While longer rainy seasons create opportunities for increased agricultural to other towns and countries, taking production, they do not guarantee increases to livelihoods. Trend analysis producers and consumers out of suggests that in coming years, growing seasons across South Sudan will start market systems and thereby weakening earlier, last longer, and have more days with greater than 5mm of rain. This local markets and reducing crop could be positive for agricultural production as a whole if farmers are able to x adjust and adapt to changing conditions. However, wetter conditions are a double-edged sword, increasing risks of flooding that result in rotted crops and devastate towns. In addition to the risks associated with flooding, the onset of seasonal rains is often followed by outbreaks of diseases such as cholera that jeopardize health and disrupt labor supply. Heavy rains in East Africa during the 2019-2020 winter season have contributed to the ongoing desert locust outbreak, which is threatening crops and food security throughout the region. Overall, the achievement of improved food security in South Sudan requires a comprehensive approach to address multiple interacting factors. While market factors exert the greatest influence over food insecurity, underlying conflict-related instability affects markets through disruptions to trade routes and lower crop yields. Even when increased rainfalls have the potential to drive higher levels of production, the issue of poor water management leaves many farmers unable to benefit. If progress with the peace process allows for the voluntary return of IDPs and refugees, stabilizing smallholder agriculture will require a shift from humanitarian aid to a more development-oriented growth path. Addressing a single factor, whether this be the underlying conflict-related insecurity, or supply-chain breakdowns, or water storage, will neither solve the current severe food crisis nor prevent future crises from emerging. Rather, this is a multidimensional problem that requires multi-dimensional solutions. As seen through the dramatic shifts in the factors affecting food security, this crisis is not static but rather requires constant vigilance and continued commitment to respond appropriately to new and evolving hazards as they emerge. In South Sudan, the Government must lead an inclusive and multi- stakeholder process to ensure broad country ownership over an initiative to transform the country’s agricultural and food security trajectory. In addition to the Government, other stakeholders involved in this process should Food insecurity remains include those currently involved in the food and agriculture sectors, such as at critical levels despite development partners, NGOs, civil society groups and nascent private sector a widely acknowledged representatives. Given the diversity of South Sudan’s geographical conditions favorable agricultural and the evolving security situation, the process should involve not only the potential. Climate change central-level authorities, but also state and county-level stakeholders. This will not improve this would be consistent with South Sudan’s policy of decentralization, which potential if investments mandates the devolution of implementation responsibilities to authorities at are not made in these levels. This discussion should be also aligned with the existing priority- water management setting process, including in particular the Comprehensive Agriculture Master infrastructure. Plan (CAMP) and the CAADP policy review. A World Bank flagship report, entitled “Transforming Agriculture from Humanitarian Aid to a Development- Oriented Growth Path”, provides an in-depth analysis of the investment scenarios necessary for this transformation.  xi RECOMMENDATIONS o Intensify efforts to address the underlying causes of conflict and to restore peace and stability across the country to provide a strong basis for economic recovery and sustainable growth. o Maintain commitment to economic and public finance management reforms to stabilize the economy, to ensure the efficient use of public funds, and to build credibility with the public and development partners. o Improve budgeting and allocation of resources for service delivery to support improved living standards and broad-based economic recovery. o Adopt a multifaceted approach to address both acute and chronic food insecurity that recognizes that the stabilization of smallholder agriculture will require additional public safety measures to enable the voluntary return of IDPs and refugees. xii BACKGROUND AND CONTEXT More than a year after the formation ambushes in the first half of 2021. in Jonglei, the Greater Pibor of the Unity Government, the Conflict events intensified in the first Administrative Area, Warrap, Lakes, main priorities of South Sudan’s half of 2020, with disagreements and the Equatoria regions. authorities continue to be on the allocation of states to consolidating peace, improving parties delaying the appointment Incidents of violence are service delivery, and ensuring a of governors and with the ensuing geographically concentrated in a smooth recovery from multiple leadership vacuum contributing to few states that are the traditional shocks. The new government instability. The agreement related conflict hotspots. Most of the violent has had to deal with a number of to the number of states and the events reported in the second half challenging shocks, including the appointment of ten state governors of 2020 are concentrated in four COVID-19 pandemic, communal has supported a de-escalation of states: Central Equatoria, Jonglei, violence, floods, and locust intercommunal violence, which Lakes (including the Greater Pibor infestation. In this context, the usually involves cattle raids, child Administrative Area), and Warrap. Government has had to contend abductions, revenge killings, and These four states accounted for with dramatically lower revenue, ethnically motivated violence. 71 percent of all violent events due to the impact of the pandemic Analysis of ACLED’s data on violent and more than two-thirds (68%) of and other factors on both oil and events and associated fatalities violence against civilians, the most non-oil revenue. Despite these shows that the number of conflict commonly reported event type challenges, the peace process has events declined by 17 percent in the across all states. At the same time, held, despite some delays, with the second half of 2020, with associated these four states accounted for appointment of state governors and fatalities declining by about 42 81 percent of all reported fatalities talks with hold-out factions. In a percent. Despite recent progress, during this period (see Figure 2). In significant milestone, the Transitional however, localized violent incidents April 2021, rising insecurity along National Legislative Assembly persist across the country, with a major highways disrupted cross- (TNLA) was reconstituted on 10 number of violent events over the full border trade, with Ugandan and May 2021, eliminating one of the year twice as high in 2020 as in 2019 Kenyan truck drivers suspending major constraints on government (see Figure 1). At the same time, their South Sudan operations due business. While the peace process recent trends suggest escalating to increased road insecurity. These is likely to be a long and potentially communal violence and roadside developments compounded an winding journey, the remaining ambushes in the first half of 2021, already difficult situation, with aspects, including the completion of with the monthly number of fatalities COVID-19 containment measures transitional security arrangements, increasing to 379 by May 27, 2021 already limiting market supplies and the reunification of the armed from 128 in April. The latest spike driving prices higher. forces, and the advancement of in violence has been concentrated the disarmament, demobilization, and reintegration (DDR) process, must be prioritized. In particular, Figure 1: Conflict events and fatalities reconstituting the Council of States will enable the Government to address numerous challenges within the states, including issues related to displacement, land ownership, and conflict. These efforts should go hand-in-hand with measures to strengthen state and county institutions. While levels of violence declined in the second half of 2020, recent events suggest a reversal of this trend, with escalating communal Source: Armed Conflict Location & Event Data Project (ACLED) violence and incidents of roadside 1 deterioration in the living standards of Figure 2: Distribution of violence events by state (July -December 2020) a large proportion of the population. Despite improvements to the security situation, severe flooding in parts of South Sudan exacerbated already high levels of poverty and food insecurity, leading to a further deterioration in living standards. The floods, which killed livestock, destroyed food stocks, and damaged crops ahead of the main harvest season, have aggravated an already dire humanitarian situation. More than 6 million people are facing crisis-level food insecurity, with 1.4 million children under the age of 5 Source: Armed Conflict Location & Event Data Project (ACLED) years expected to experience acute malnutrition in 2021. With the large economic fallout from these shocks, The health impact of the COVID-19 to have been much lower in South the proportion of the population living pandemic in South Sudan has Sudan than among its regional peers. below the poverty line (at US$ 1.90 per been relatively limited compared person per day) is projected to increase to its impact on regional peers. Six The pandemic has triggered an from 76.8 percent in FY2019/20 to months after reporting its first case economic crisis that threatens to 78.2 percent in FY2020/21. on 5 April 2020, South Sudan had reverse South Sudan’s nascent recorded 2,704 cumulative cases and economic recovery and development While the direct impact on the 49 deaths by 30 September 2020. process. Prior to the advent of the health of the population has been However, the situation deteriorated pandemic, economic growth had largely contained, there is lingering rapidly at the start of February 2021, accelerated strongly, with real GDP uncertainty regarding the pandemic’s following the end of the December/ growth estimated to stand at 9.5 longer-term economic impacts. While January festive season, a period percent in FY2019/20, building on an the major effects of the pandemic during which people often travel estimated 3.2 percent growth recorded on South Sudan’s economy have to visit family. The trajectory of in FY2018/19, which followed four been indirect, these effects have the pandemic began to display consecutive years of contraction exacerbated existing vulnerabilities, disturbing trends, with the seven-day during the period from FY2014/15 to with potentially significant rolling average numbers of daily new FY2017/18. While the oil sector has implications for long-term growth and cases indicating that South Sudan continued to be the primary driver development. In particular it has the was in the middle of a second wave of growth, the COVID-19 pandemic potential to result in disrupted learning of infections. Consequently, new has affected planned investments and physical stunting of children; partial lockdown measures were in FY2020/21. This, together with a collapsed businesses and lost jobs; the imposed in early February 2021, sharp decline in global oil prices, the depletion of savings and assets; and with all non-essential government pandemic-related restrictions, and lower budgetary revenue, depressing and private business required flooding, has disrupted the recent investment and squeezing out urgent to stop operations or to utilize positive growth trajectory. More social spending. Back in June 2020, homebased work modalities. These broadly, South Sudan suffered a the World Bank conducted rapid measures were lifted on 14 April precipitous terms-of-trade shock, surveys of households and businesses 2021, following a reduction in the which, in the context of depleted to track the economic impact of the number of new reported infections. reserves and of monetary financing COVID-19 pandemic in South Sudan. At that point, the cumulative number of the fiscal deficit, led to a rapid At the time, the disruption wrought by of confirmed cases had reached depreciation in the exchange rate the pandemic had led to widespread 10,359, equivalent to 1,081 cases on the parallel market and sharply losses of income among households, per million people, with 114 recorded increasing inflation. traders, and businesses, with half of all deaths. While weaknesses in testing households reporting lower incomes. and contact tracing make it difficult The effects of the COVID-19 Among those particularly affected were to assess the actual extent of the pandemic have been exacerbated the many households that engage pandemic, its health impact appears by concurrent shocks, leading to a in one or more non-farm business 2 activities to contribute to their pandemic in South Sudan has been livelihoods. However, key indicators relatively contained compared to its suggest that the health impact of the regional peers (see Table 1). Table 1: COVID-19 key indicators for selected countries Country Cases Deaths Cases Deaths Tests Tests Positive Latest Number of people per million people number Per 1,000 Test rate Test report South Sudan 10,688 115 955 10 164,472 14.69 0.01 26-May Ethiopia 272,285 4,185 2,368 36 2,7231,959 23.69 0.06 31-May Kenya 169,697 3,108 3,156 58 1,675,310 31.16 0.12 4-May Uganda 49,759 365 1,088 8 1,109,851 24.26 0.09 29-May Rwanda 27,119 358 2,094 28 1,445,631 111.61 0.01 01-Jun S. Africa 1,669,231 56,601 28,145 954 11,631,239 196.11 0.11 31-May Zambia 97,388 1,288 5,297 70 1,538,730 83.70 0.04 28-May Ghana 94,011 785 3,025 25 1,164,383 37.47 0.01 26-May Source: Our World in Data (OWID) resilience to a multitude of shocks. At Figure 3: The evolution of COVID-19 cases the same time, rational public health measures, including social distancing, the use of face masks, and effective testing and contact tracing, should still be implemented. The economic fallout from the COVID-19 pandemic has created opportunities for South Sudan’s government to break free from a legacy of economic mismanagement and to push through an ambitious reform program. The authorities have commenced a reform process that prioritizes the modernization of the country’s public financial management Source: World Health Organization2 (PFM) systems. At the center of the process was the formation of three key entities, these being the PFM Oversight The successful development of a authorities in Juba aim to eventually Committee; the Technical Committee; range of vaccines and their expanded inoculate 2.5 million people, expecting and the Secretariat. Consequently, global production have led to a degree a total of 732,000 doses to arrive in the authorities have identified 11 PFM of optimism regarding the expected the first six months of the vaccination priorities (see Box 1) and are working duration and impact of the COVID-19 program. Consequently, the authorities with a wide range of stakeholders pandemic in 2021 and beyond. South have targeted the procurement of an from the Government, development Sudan received its first consignment additional 2.4 million doses of the partners and civil society to implement of 132,000 AstraZeneca COVID-19 vaccine. However, as of 7 June 2021, the targeted reforms. With this vaccines on 25 March 2021, delivered a total of only 11,889 vaccine doses reform process, the authorities have through the Covax initiative. According had been administered. A timely and committed to a macroeconomic to the authorities’ guidelines, efficient vaccine roll-out would play a and fiscal reform program that is essential health workers, the elderly, strong role in preventing deaths and intended to facilitate macroeconomic and persons with underlying health further outbreaks, enabling the faster stabilization and improved public conditions were to be prioritized in recovery of South Sudan’s non-oil financial management. the initial stage of the rollout. The sectors, supporting initiatives to build 2. South Sudan Covid-19 tracking site: https://covid19.who.int/region/afro/country/ss 3 Box 1: PFM reform priorities 1. Implement a TSA 2. Strengthen cash management 3. Relocate Loan Committee to MoFP 4. Review, verify and clear all arrears 5. Review and verify loans and contracts collateralized or guaranteed against crude oil 6. Strengthen the Anti-Corruption Commission (ACC) and the Audit Chamber (external auditor) 7. Establish a Public Procurement and Asset Disposal Authority (PPADA) 8. Rollout electronic payroll using biometric system 9. Strengthen Fiscal and Financial Allocation Monitoring Commission (FFAMC) 10. Strengthen macro-fiscal framework 11. Strengthen the budget process and budget credibility Source: South Sudan authorities In support of the urgent fiscal needs on four critical areas: (i) restoring fiscal disbursed a second rapid credit facility and to anchor the reform process, the discipline; (ii) monetary and exchange to the amount of about US$ 174.2 IMF has approved a Staff Monitored rate reform; (iii) debt management; million to help finance South Sudan’s Program (SMP) for the period from 31 and (iv) strengthening governance urgent balance of payments needs March to 31 December 2021. This will (see Box 2). In addition, the SMP will and to provide critical fiscal space help to provide a strong basis for an establish a credible monitoring and to maintain poverty-reducing and ongoing reform process, with a focus review process. In parallel, the IMF growth-enhancing expenditure. 4 South Sudan authorities have taken advantage of the economic fallout from the COVID-19 pandemic to push through an ambitious reform program that prioritizes the modernization of the country’s economic and public financial management systems. 5 6 PART 1 : RECENT ECONOMIC DEVELOPMENTS 7 1.1 Global and regional economic developments After the sharp pandemic-related regional neighbors are positioned for an improved outlook for regional contraction in 2020, the global recovery and stabilization. Economic oil exporters in the near term. With economy is projected to grow activity in Sub-Saharan Africa is the projected global recovery, oil strongly in 2021, with the rollout of estimated to have contracted by -2.0 prices are expected to increase by 30 vaccination programs around the percent in 2020, plunging the region percent in 2021, up from a low base world expected to facilitate a broad into its first recession in more than in 2020, in part due to the impact of recovery. Following an estimated 25 years. However, regional growth OPEC+ supply bottlenecks. Oil prices contraction of -3.3 percent in 2020, is expected to rebound to reach 3.4 increased by 39 percent in the period the global economic growth rate is percent in 2021, as actions are taken from August 2020 to February 2021, expected to reach a robust 6 percent to contain new waves of the pandemic with the increases at least partially in 2021, higher than earlier forecasted, and as vaccination rollouts gain driven by positive expectations before moderating to 4.4 percent in speed and traction. With the expected regarding vaccination programs and 2022. The upward revision to global recovery to the global economy, growth the rapid economic recovery in Asia. A economic growth forecasts reflects in the region will also benefit from resurgence of the COVID-19 pandemic the expected impact of additional strengthening exports. In Kenya, the and constraints on the rollout of fiscal support programs in a few large growth rate is expected to reach 4.5 vaccination programs at the beginning economies; the successful rollout percent in 2021, following an estimated of the year weakened the oil demand of vaccination programs, at least in contraction of -0.3 percent in 2020. outlook, leading the OPEC+3 coalition to a number of developed economies; In Ethiopia, the rate is expected to review more prudently the relaxation of and the continued adaptation of continue to decelerate in FY2020/21 the 7 million barrels a day production economic activity to subdued mobility. to approximately 2 percent, due to ceiling announced in April 2020. By Stronger than expected growth in the reduced income on the part of firms March 2021, the Brent crude oil price United States and Japan will more and households and to a slowdown had climbed up to $US 63.5/barrel, than offset a larger than anticipated in crop production. At the same time, approximately similar to pre-pandemic contraction in Europe. At the same Uganda’s GDP growth is estimated levels. With these developments, time, a US$ 1.9 trillion rescue package to increase to a level in excess of 3 South Sudan’s weighted oil prices are in the United States is expected to percent during FY2020/21, following expected to recover to an average level further boost GDP in 2021/22, with the modest recovery in the first half of $US 54.7 USD/barrel in FY2021/22, significant spillovers to the main US of the FY, when the rate stood at 0.7 up from the figure of $US 47.9/barrel trading partners. However, there are percent. Finally, in Sudan, following a recorded in FY2020/21. also significant downside risks and decline in GDP growth over the past uncertainty to this global outlook, three years, it is projected to stabilize Following an estimated which is heavily dependent on the in 2021, reflecting the dividends from trajectory of the pandemic; the a number of major reform efforts, contraction of -3.3 percent success of vaccination programs; the including exchange rate adjustments in 2020, the global economic recovery of tourism and travel sectors; and reductions to fuel subsidies, with growth rate is expected to oil price developments; and policy these and other measures setting the reach a robust 6 percent actions at the national levels. country on a potential path toward in 2021, higher than earlier recovery. forecasted, before moderating While the COVID-19 crisis has had a severe economic impact on Sub- Global oil prices have recovered to 4.4 percent in 2022. Saharan Africa, South Sudan and its to pre-pandemic levels, providing 3.Organization of the Petroleum Exporting Countries, including Russia and other non-OPEC oil exporters 8 Figure 4: Global developments Figure 5: Global oil price developments Source: IMF World Economic Outlook, April 2021 Source: International Energy Agency Figure 6: Regional Economic Developments Figure 7: South Sudan oil sector Source: IMF WEO, April 2021; World Bank Macro-Poverty Outlook, April Source: The World Bank commodity prices data (April 2021); South Sudan 2021 data based on World Bank and IMF staff estimates. Note: e = estimate; f = forecast. 9 Box 2: The IMF Staff Monitored Program In South Sudan, the nine-month IMF Staff Monitored rate for private sector transactions. Provided that the Program (SMP), to be implemented from March authorities adhere to the agreed-upon commitments, 31 to December 31, 2021, is intended to create the exchange rate unification initiative is expected to the conditions for strong and inclusive growth by be achieved at around the time of the first SMP review restoring fiscal discipline; by implementing a rules- (September 2021). The authorities intend to pursue based monetary policy framework; and by addressing a reserve money targeting monetary policy regime distortions in the foreign exchange market. The and to rebuild the depleted international reserves to SMP is intended to support the implementation of enhance the credibility of the macroeconomic policy the Government’s current reform program; to foster framework. greater transparency within government operations; to strengthen governance; and to reduce vulnerabilities. (3) Debt management: The authorities have The SMP will include a package of measures to: (i) committed to prudent debt management and have foster macroeconomic stability to create conditions requested technical assistance to set up a debt unit for strong and inclusive growth by restoring fiscal under the Ministry of Finance and Planning and to discipline, implementing a rules-based monetary develop a framework to monitor debt obligations. policy framework, and addressing distortions in the FX However, maintaining debt sustainability and market; and (ii) increase transparency in government alleviating the risk of debt distress require the operations aiming to strengthen governance and authorities to refrain from high cost foreign borrowing. reduce opportunities for rent-seeking. These will The authorities have committed to refraining from focus on four critical areas: contracting non-concessional debt, subject to limited and well-targeted exceptions. To this end, the (1) Restoring fiscal discipline: Under the SMP, fiscal authorities have ended the use of oil advances, which policy will be leveraged to support macroeconomic complicated budget management and were expensive stabilization and debt sustainability. This will be and lacking transparency. achieved through measures to contain fiscal deficits and to refrain from deficit monetization and non- (4) Strengthening governance: The authorities have concessional borrowing. To create fiscal space, identified a number of public finance management the authorities will strengthen non-oil revenue (PFM) priorities and are working with the IMF, the mobilization, while spending will be reprioritized to World Bank, and other development partners to ensure adequate service delivery financing and timely implement targeted reforms in these areas. In 2021, payment of wages and salaries. the SMP-supported PFM reforms will focus on: (i) (2) Monetary and exchange rate policies: The strengthening the macro-fiscal framework and budget authorities have agreed to a set of foreign exchange process; (ii) commencing the implementation of the market reforms that are intended to reduce or Treasury Single Account (TSA); (iii) improving cash eliminate economic distortions and rent seeking management practices; (iv) establishing a public and to support economic diversification. Exchange procurement and asset disposal authority; and (v) rate unification will follow a gradual adjustment to strengthening the Anti-Corruption Commission the official rate to allow for an orderly transition to a and the Audit Chamber. The authorities have also unified exchange rate in the market. At the same time, committed to implementing measures to increase auctions will be expanded to include all commercial transparency in the areas of oil production, marketing, banks, with the auction rate serving as the reference and contracts. 10 1.2 Real sector developments Prior to the pandemic, South Sudan’s agriculture sector is estimated to have the average output in 2019, but still economic growth had been picking grown by 6 percent, with increases well below pre-crisis levels. The overall up strongly, with the real growth rate to the cultivated area more than cereal deficit in the January/December reaching 9.5 percent in FY2019/20. offsetting the devastating impact of 2021 marketing year is estimated at The oil sector continued to be floods. 465,600 tons, 3.5 percent below the the primary driver of growth, with deficit estimated for 2020, but still 5 estimated oil production standing The impacts of the COVID-19 percent above the 2016-2020 average. at 62.1 million barrels in FY2019/20, pandemic on agriculture were limited, While the agriculture sector made a a 26.5 percent increase over the highlighting its potential as a driver of positive contribution to overall GDP figure of 49.1 million barrels recorded resilience, diversification, and growth growth in FY 2019/20 (see Figure 8), it in FY2018/19. Growth in the non- in South Sudan. Despite the difficulties is faced with multiple challenges and oil sectors was constrained by an over the year, with flooding and locust is still operating well below potential. adverse macroeconomic environment, infestation devastating field crops in For South Sudan to realize its optimal characterized by a widening exchange a number of areas, the agricultural agricultural potential, investments rate premium, high inflation, and sector displayed a high degree of are necessary to increase domestic incidents of localized violence. The resilience, with the area of land under production; to decrease dependence on services sector is estimated to have cultivation increasing by 6 percent in the region for supplies; and to achieve contracted by 9.6 percent, with 2020 compared to the previous year. higher levels of self-sufficiency. businesses struggling in the context Cereal production was estimated to of subdued demand. Nevertheless, the stand at 874,400 tons, 7 percent above Figure 8: Sources of real GDP growth (percent, y/y) South Sudan’s non-oil industry and services sectors were relatively seriously impacted by the COVID-19 crisis, with demand collapsing due to the implementation of lockdown measures. The non-oil industry and services sectors remained stagnant in FY2019/20, with businesses struggling with subdued demand. It is estimated that these sectors contracted mildly, by about -0.02 percent. In particular, border closures impacted exporters, especially those that rely on imported inputs. While formal trade was more resilient, informal cross-border trade declined substantially in the first half of 2020, with traders struggling to comply with COVID-19 guidelines, Source: World Bank including the requirement to obtain of households (19%) reported being traders stated that they had fewer a negative COVID-19 test certificate. unable to access any markets at some customers on a typical market day (63% At the same time, demand for goods point during the first three months of respondents), and that individual and services was suppressed by since containment measures were customers bought less (60%), resulting lockdown measures, job losses, implemented, corresponding to the last in lower overall sales (58%). and declines in income. World Bank quarter of the fiscal year (April-June surveys indicate that around a fifth 2020). In addition, a majority of market 11 1.3 Living standards and access to services With the economic decline in sub-national violence, unprecedented million children and 480,000 pregnant FY2020/21, living conditions in flooding, and hyperinflation, with all or lactating women will experience South Sudan deteriorated, with of these factors further compounded acute malnourishment, with need of many of its people urgently requiring by the impacts of the COVID-19 treatment. Disrupted markets, access humanitarian assistance. People’s pandemic. The lack of durable peace constraints, and high prices are among physical and mental wellbeing, living and limited investment in basic services the main factors driving South Sudan’s standards and coping mechanisms continues to impede progress towards dire food insecurity situation. Analysis have continued to deteriorate in 2021. the achievement of sustainable from FAO’s FSNMS data indicate that According to UN OCHA’s Humanitarian development. only about one in four households Needs Overview, some 8.3 million (27% have acceptable levels of calorific people in South Sudan are estimated to Despite increased agricultural intake, with about 40 percent of need humanitarian assistance in 2021, production, crisis-level food households categorized as poor and reflecting an increase of 800,000 in insecurity persists, with exceptionally 30 percent as borderline in terms of the absolute number of people in need high food prices constraining the food consumption score (FCS), a from 2020, when the figure stood at 7.5 access to food for large segments of proxy for the quantity dimension of million. Food insecurity, or lack of food, population. It is estimated that more calorific sufficiency.4 The COVID-19 has been identified as perhaps the most than half of the population (7.2 million pandemic has aggravated people’s significant challenge experienced by people) faced severe food insecurity existing vulnerabilities and weakened the majority of affected people across (IPC Phase 3 and above) in the period the already fragile health system’s gender and age groups. At the same from April to July 2021 (see Figure ability to treat people. Among the most time, more than two-thirds of South 9). This includes 2.4 million in the vulnerable people are newly displaced Sudan’s population, together with Emergency category (IPC Phase 4) families; communities hosting large approximately 300,000 refugees and and 108,000 people in the Catastrophe numbers of displaced and/or recently asylum seekers, are in need of some category (IPC Phase 5). The number returned people; and households form of humanitarian assistance and of counties in Emergency (IPC Phase that are headed by a single parent or protection in 2021, with the country 4) is projected to increase to 46 by the looking after older people or people with continuing to experience the cumulative peak of the lean season (May to July), disabilities. effects of years of conflict, a surge in up from 28 in 2019. An estimated 1.4 Figure 9: Evolution of food insecurity 2014-2021 (left) and projected IPC (Apr-Jul 2021) map (right). Source: CLIMIS and IPC 4. The FCS aggregates household-level data on the diversity and frequency of food groups consumed over the previous seven days, which is then weighted according to the relative nutritional value of the consumed food groups (INDDEX Project, 2018). 12 World Bank rapid household surveys urban poor (see Table 3). For five out perform poorly in HDDS in terms of show that food insecurity was of eight indicators, the percentage rate the Integrated Food Security Phase relatively high among rural and stood in excess of 90 percent among Classifications (IPC).6 For instance, poor households. More than nine the rural poor. Central Equatorial State (CES) had out of ten (90.5%) households from the second lowest FCS and also has the poor group reported having to In South Sudan, conflict has the lowest HDDS ranking (Phase 4+), skip meals due to lack of money or significantly affected food production with 46 percent of households in resources, while around 83 percent and distribution systems, with most the state consuming less than three of households from the non-poor households facing limited access (0-2) food categories. Other states, group reported having to do so (see to a variety of food types. Analysis such as Jonglei, Unity and Upper Nile Table 2). At the same time, close to based on the latest FAO/WFP FSNMS State (UNS), also have more than 30 four in five (78.6%) households from data (October/November 2020) percent of their households in the the poor group reported having gone shows that only about 30 percent of Phase 4+ HDDS category. It should be without eating for whole days, which households in South Sudan rank in the noted that food intake in terms of food was around 7 percentage points highest category of the households’ security indicators (FCS and HDDS) is higher than the figure for the non-poor dietary diversity score (HDDS),5 relatively poor in states that were most group. Among the poor group, the indicating that almost 70 percent of affected by the civil war (including rural poor experienced a more severe the households have access to less Unity, Jonglei, and Upper Nile State), food insecurity situation than the than five food groups and hence are suggesting that the conflict has urban poor. For all the eight indicators consuming a suboptimal diversity significantly affected food production regarding food insecurity, the rates for of food. The states with the lowest and distribution systems in these the rural poor were higher than for the food consumption score (FCS) also states. Table 2: Food Insecurity Comparison by Poverty Status October 2020 June 2020 Non-Poor (%) Poor (%) Non-Poor (%) Poor (%) Worried about not having enough food to eat 86.5 89.4 81.8 84.3 Were unable to eat healthy and nutritious/preferred foods 87.4 92.1 86.9 89.4 Ate only a few kinds of foods 89.8 93.4 87.7 90.6 Had to skip a meal 83.1 90.5 87.3 89.2 Ate less than you thought you should 84.9 90.6 88.8 90.5 Ran out of food 77.5 83.3 80.9 84.6 Were hungry but did not eat 79.8 86.2 79.3 83.5 Went without eating for a whole day 71.4 78.6 74.7 79.1 Source: World Bank COVID-19 surveys 5. Household dietary diversity can be described as the number of food groups consumed by a household over a given reference period, and is an important indicator of food security 6. IPC is a set of standardized tools that aims at providing a common measure for classifying the severity and magnitude of food 13 Table 3: Food Insecurity Comparison between Urban Poor and Rural Poor Group October 2020 Urban Poor (%) Rural Poor (%) Worried about not having enough food to eat 87.8 90.2 Were unable to eat healthy and nutritious/preferred foods 89.5 93.3 Ate only a few kinds of foods 90.0 95.1 Had to skip a meal 88.7 91.4 Ate less than you thought you should 87.2 92.3 Ran out of food 79.2 85.3 Were hungry but did not eat 83.9 87.3 Went without eating for a whole day 77.6 79.0 Source: World Bank COVID-19 surveys As a result of the limited availability Acute Malnutrition Phase 3 and above). activities and daily labor in construction and diversity of food and its Some counties in Jonglei (31%), Upper and personal services. However, poor quality, acute malnutrition Nile (31%), Unity (17%), and Warrap broad-based recovery will be critical is widespread in South Sudan. (10%) and parts of Eastern Equatoria to reduce poverty, as most people who Approximately 1.4 million children (3%), Northern Bahr el Ghazal (3%) and lost jobs due to the pandemic remain under the age of five are expected to Lakes (3%) are classified as critical unemployed. suffer from acute malnutrition in 2021 (IPC Acute Malnutrition Phase 4). The due to high food insecurity; increased prevalence of acute malnutrition is Despite the large fallout from the morbidity/disease outbreaks; poor also cyclical, with the situation typically pandemic, World Bank rapid surveys childcare practices; limited access to deteriorating during the lean season conducted between October and basic services; and poor infrastructure, (May-August). November 2020 show a gradual including clean water supplies and recovery to living standards, albeit sanitation facilities (IPC 2020). This The COVID-19 crisis is expected from very low bases. The first round estimate can be confirmed on the to have significantly exacerbated of the surveys involved a total sample basis of same-season historical data poverty, with the impact on household of 1,213 households in both urban and from the food security and nutrition incomes expected to be greater than rural areas in all ten former states of monitoring system, SMART nutrition the projected decline in GDP. World South Sudan. While attempts were surveys, and admission trends for 2020. Bank analysis suggests that the poverty made to contact the same households This is the highest caseload for acute rate may increase to about 78.2 percent in the second round of phone surveys, malnutrition since the start of the crisis in 2021, up from 76.8 percent in 2020, the sample declined to 826 households in December 2013. The estimation of as a result of declining incomes and due to attrition. Compared to findings the caseload was based on peak lean increasing prices for food and other from the first survey, the second- season historical data, which provide vital household goods. The impact on round survey showed improving food higher caseloads for better informed household incomes is expected to be security, employment, and access to response planning. Cereal consumption greater than the projected decline in markets (see Figure 10). However, accounts for about 48 percent of total GDP, with many households depending the percentage of households basic food consumption in term of on informal, low-productivity activities experiencing an income reduction in value; livestock for approximately 30 that contribute little to overall GDP and non-farm family businesses increased. percent; followed by fish (4%); roots that are highly vulnerable to economic At the same time, households have (2%); seeds (3.8%); and other non-cereal shocks. Poverty impacts are expected struggled to cope with increasing food crops combined (12.7%). In October to be concentrated among households prices, with nearly three out of four 2020, 53 counties (68% of the total) that depend on activities that are households (73.3%) reporting such were facing serious malnutrition (IPC particularly vulnerable to the impacts of struggles in October 2020. lockdowns, including small-scale retail 14 Pressure on living conditions were first lifted in May 2020. In the end of March 2021, with 93 percent continues to be exacerbated by the six months up to March 2021, (293,004) having arrived from Sudan. displacement, with a large number of an additional 2,262 refugees were The majority of refugees are hosted refugees from neighboring countries registered by UNHCR, a fourfold in just two states: Upper Nile (52.1%) and with wide-spread conflict- increase on the 576 refugees recorded and Unity (39%).7 Some 1.6 million induced internal displacement. The in the six months to September 2020. people remained internally displaced, number of refugees has increased South Sudan’s total refugee population with another 2.2 million refugees in the consistently since lockdown measures was estimated to stand at 317,158 at region. Figure 10: Changes in living standards due to the COVID-19 pandemic Panel A: Access to markets: Access to markets improved Panel B: Income losses: Among farming households, between June and October 2020 both for poor and non-poor income loss was higher among the poor groups 34.5% 27.3% Panel C: Access to healthcare: Access to healthcare increased, with Panel D: Non-farm income: The poor reported higher losses higher improvements for households in urban areas. on non-farm family business 32.4% 24.1% Source: World Bank rapid surveys 7. UNHCR (2021). South Sudan: Refugee Population Statistics. 15 Widespread poverty and limited than 50 percent of households have individuals having to travel for long investments in social service delivery adopted emergency and crisis coping distances to access health centers, have compounded poor living strategies, such as reducing essential there is a potential for poor health standards, with many households non-food expenditure and accepting outcomes, including in the case of facing a combination of covariate high risk jobs.8 In some states, such antenatal care and delivery at health and idiosyncratic shocks. According as Jonglei, Upper Nile, Unity and Lakes, centers for mothers. to analysis based on the latest FAO/ more than 50 percent of households WFP FSNMS data (November 2020), have adopted such emergency While most households have access around two out of three households strategies, with these being the states to clean drinking water, very few (65%) experienced a series of events with relatively high levels of food have access to an improved toilet, that affect health, business activities, insecurity. The strategies adopted exposing many to potentially jobs, and prices. In the context of the indicate high levels of vulnerability preventable hygiene-related diseases. COVID-19 pandemic, floods, crime, across the country. To cope with food Boreholes are the most common and violence have created additional price increases, one in four households sources of drinking water, accounting challenges for households already (25%) that were affected have engaged for about 55 percent of access to struggling to maintain a livelihood. in additional income generating water sources. Moreover, the distance Almost four in five of the households in activities, which could contribute to to drinking water is reasonably short, Warrap and Lakes states experienced the reason for the increase in the with most households accessing such shocks, as did nearly two in employment rate. Reducing food water within less than an hour’s three (65%) of the households in other consumption was also a strategy travel from their homes, indicating a states, with the exception of Unity and commonly adopted by households significant improvement in access Upper Nile states, where less than 50 to cope with food price increase, to clean drinking water. However, percent of the households experienced with 24.5 percent of households three in four households (75%) have these shocks. The most common reporting doing so. More than one in no access to either family, shared or shock experienced by households five households (21.3%) were not able communal latrines, with this figure in all the states related to unusually to take reasonable action to cushion being consistent across states, apart high food prices and reduced income, shocks.9 from the Western Equatorial state, with more than one third (34%) and where 70 percent of households have nearly two-fifths (18%) of households Access to healthcare is constrained access to family latrines. Poor access in South Sudan reporting these two by limited government investments to improved toilets compromises the shocks, respectively. Other shocks in healthcare systems and services, sanitation and health situation of large experienced by households across resulting in generally poor health numbers of people, putting millions states related to high fuel prices, outcomes. Most people in South at risk of illness and death from illness of household members, drought Sudan continue to face constrained preventable diseases such as cholera and irregular rains, floods in some access to health facilities. For about and acute watery diarrhea. states, crop pests and diseases, and 30 percent of households, it takes between one hour and half a day to With such widespread material insecurity. walk to the nearest health facility, with deprivation and limited government- Few households have been able to significant variations across states. provided services, the humanitarian take effective, well-planned actions to More than 40 percent of households sector plays an outsized role in cushion these shocks, leading many in northern Bahr el Ghazal, Central closing important service delivery to adopt unsustainable emergency Equatorial and Unity states must travel gaps. Humanitarian assistance coping strategies. Households are for more than one hour to arrive at remains a key source of livelihood in increasingly resorting to measures the nearest health facility. Distance to South Sudan. At the national level, outside of the household to cope healthcare facility is a key indicator more than 50 percent of households with their lack of resources to buy to measure access and utilization of received humanitarian aid. At the state food. At the national level, more health care services. With most of the level, more than 60 percent of the 8. Stress coping mechanisms include measures such as spending savings, buying food on credit, and selling household goods. Crisis coping strategies include reducing essential non-food expenditure, and sale of productive assets; while emergency coping strategies include accepting high risky jobs, sending adults to beg, and sending children to beg (UNHCR, 2019). 9. World Bank (2020). Second Round Covid-19 rapid surveys. 16 households in Unity, Jonglei, Lakes, received assistance. Food support of households respectively received Upper Nile and Western Bahr el Ghazal distributed through the General Food Food for All support, followed by States received assistance, all of for All program is the most common western Bahr el Ghazal, Upper Nile and which are states with relatively high form of assistance provided to Lakes, in all of which about 50 percent incidence of food insecurity and floods. households in all the states. At the of households received this form Households in the relatively productive national level, about 40 percent of of support. Other forms of support and secure states are less likely to households received food support, with involved the provision of agricultural have received assistance, as indicated variations between states. In Unity and inputs, supplementary feeding, by the case of Western Equatorial, Jonglei states, where the figures were agricultural tools, and medicines. where only 14 percent of households highest, 80 percent and 70 percent 1.4 Exchange rate and inflation developments After depreciating rapidly in the (BSS) has revamped the foreign increased rapidly in the second half second half of 2020, market exchange exchange auction system through of 2020, standing at 78.3 percent in rates started to stabilize in April weekly auctions of the IMF’s RCFs to November 2020, up from 7.5 percent 2021 as economic reforms gained commercial banks and forex bureaus, in July 2020. During this period, food momentum. The SSP traded at at a new auction rate which is much price inflation rose to 65.7 percent, an average rate of 306 against the closer to the prevailing market rate up from -1.2 percent. Over the same dollar in the six-month period from than the controlled and overvalued period, non-food price inflation rose January to June 2020. However, this official rate. The official rate now to 102 percent, up from 28.5 percent. was followed by a period of rapid applies only to transactions between However, inflation started to decelerate depreciation, with the nominal USD/ the BSS and the Government, whereas after December, declining to 19 SSP market exchange rate averaging transactions involving the private percent by March 2021, following at 607 in December 2020 and at 625 in sector and donors now occur at a the Government’s commitment to March 2021. With these developments, freely determined exchange rate. Not a reform program whose targets the spread between the market and only has the BSS been auctioning included a cessation to the practice of the official rate widened to 250 percent FX for both banks and FX bureaus, monetization of the fiscal deficit and a in March 2021, up from 100 percent but the reference rate for banks (that gradual movement towards a market- in June 2020. Monetization of the is, a weighted average of banks’ determined exchange rate. budget deficit is the most likely cause transactions with their customers) is of the sharp depreciation, with official now pretty much aligned with the rates The pressure on food prices began data showing a significant growth in prevailing at the FX auctions. These to ease in November/December, government overdrafts from the Bank developments have had an immediate following a sustained period of of South Sudan. Given South Sudan’s positive impact, with the exchange rate inflation. South Sudan experienced high level of dependence on imports, in the parallel market appreciating from intense upward pressure on food these developments exerted upward over 600 SPP/US$ in March to a range prices due to pandemic-related trade pressure on prices, leading to higher of about 460-500 SPP/US$ since April. restrictions and the exchange rate inflation. However, the exchange rate With these developments, the spread depreciation in the second half of market started to stabilize in the first between the market and official rate 2020. However, data from the CLIMIS quarter of 2021, with the Government declined from 250 percent in March show that while food inflation remains ceasing the monetization of the budget to 90 percent in May 2021 (see Figure extremely high, the upward pressure deficit and deepening its economic 11). on prices began to dissipate towards reform program. the start of the harvest season in Following the Government’s around November/December 2020. The authorities’ exchange rate policy implementation of macro-fiscal Consequently, the year-on-year has moved towards exchange rate reforms, inflation has started to increase in the Juba prices for maize unification. The Bank of South Sudan decline. According to official CPI flour declined to 181 percent in April data, the year-on-year inflation rate 2021, down from the figure of 608 17 percent recorded in December 2020. (see Figure 14). The appreciation in the Food price movements in locations Likewise, the year-on-year increase in value of local currency has also had outside Juba are characterized by Juba prices for sorghum flour declined a positive impact. However, despite divergent trends, possibly indicating to 209 percent in April 2021, down from these positive developments, food weak market integration. Food price 617 percent in December 2020 (see prices remain exceptionally high. The volatility tends to be higher in markets Figure 13). These developments may future trajectory of food prices may outside the capital, possibly indicating reflect improved cross-border trade well depend on the sustained recovery that they are subject to different between South Sudan and its regional of agricultural production and trade location-specific market forces. Figure neighbors, following the collapse of following a particularly difficult year, 13 shows recent developments in this trade at the peak of the COVID-19 due to floods, COVID-19 restrictions, the evolution of food prices for four restrictions, with strong recovery and increased insecurity along major items (beans, wheat flour, sorghum during the second quarter of FY2021 trade routes. flour, and rice) in four locations (Juba, Box 3: The Cost of Exchange Rate Distortions The gap between the official and parallel exchange rates constitutes loss of revenue; biases government spending toward imports; places pressure on development resources; and potentially constrains investment flowing into South Sudan. Maintaining an official rate that is markedly stronger than a market clearing rate means that demand will always exceed supply, creating avenues for renting seeking among those with privileged access to FX. This may result in a number of damaging distortions, including the following: (i) lower levels of oil revenue flowing into the budget; (ii) reduced value of development assistance flowing into the country; (iii) potentially reduced foreign direct investment; (iv) distorted statistics and corporate accounts; (v) constraints on financial institutions, who may struggle to find good projects for lending; (vi) then not non-existent interbank FX markets. In general, removing exchange rate distortions can provide a substantial boost to economic development by removing uncertainty regarding the availability of FX; strengthening competitiveness; and increasing resources flowing into the budget. 18 Wau, Renk, and Yei). While pressure routes, could explain the low level of The gap between the official on prices began to dissipate in around market integration in South Sudan. and parallel exchange rates January 2021, there have been visible Non-integrated markets lead to constitutes loss of revenue; differences in trends across locations. biases government spending inefficiencies, as producers cannot Specifically, food prices in Juba not toward imports; places determine what is appreciated in other only follow smoother paths, they pressure on development markets and what is not, and therefore are also more reflective of broader they cannot make optimal production resources; and potentially macro-trends, particularly the parallel constrains investment flowing exchange rate movements and cross- decisions. into South Sudan border trade flows. Various factors, including inefficient connectivity and insecurity along major trade Figure 11: The exchange rate spread has started to narrow Source of data: Bank of South Sudan Figure 12: High inflation followed exchange rate depreciation Source of data: National Bureau of Statistics; Bank of South Sudan 19 Figure 13: Food price developments in selected towns across South Sudan (y/y changes, %) Juba Wau Renk Yei Source: Climis database: http://www.climis-southsudan.org High inflation has affected purchasing increased by 93 percent in March (y/y), share households’ expenditure on food, power, creating severe difficulties up from 19 percent in August 2020. leaving them with little to no resources for households in both urban and At the same time, the cost of the food to cover non-food needs and rural areas and depressing market basket increased by 102 percent in depressing demand for the many self- demand. The cost of the multi-sector March 2021 (y/y), up from 24 percent employed South Sudanese who trade survival minimum expenditure basket in August 2020. The rising prices of in non-food goods and services. There (MSSMEB), which represents the essential household goods, including is a real risk that these price hikes will minimum culturally-adjusted group food, could exacerbate an already result in widespread poverty and force of items required to support a six- dire food security situation. These more people into dependence on food person household for one month, developments have led to a rise in the assistance. 20 1.5 Fiscal policies and developments South Sudan’s fiscal position has Budget planning and execution While the FY2020/21 budget was deteriorated significantly, with the challenges have led to persistently eventually presented to the Council of overall FY2019/20 cash deficit high expenditure arrears. A high level Ministers for deliberation, the delayed standing at -9.6 percent of GDP, of expenditure arrears is a persistent reconstitution of the Transitional compared to the budgeted level of and chronic issue in South Sudan, National Legislative Assembly -3.2 percent. The deterioration in with these arrears being a symptom meant that there were no oversight the fiscal position has resulted from of underlying weaknesses in the institutions to provide guidance and a combination of factors, including country’s public financial management the requisite approvals. With these a decline in oil revenues, higher systems. As of March 2021, the challenges, budget implementation has transfers to Sudan, and increased Government has accumulated a total been conducted on the basis of the capital spending. Oil revenues are of five months of salary arrears for draft budget, potentially necessitating estimated to have declined to about civil servants and state transfers; four post-implementation approval. These 24 percent of GDP (SSP 201 billion) in months for the organized forces; and challenges notwithstanding, the FY2019/20, down from 26 percent of seven months for universities. The draft FY2021/22 resource envelope GDP (SSP 198 billion) in FY2018/19. cash requirements for these salary and proposed ceilings for spending However, non-oil tax revenue increased arrears stood at SSP 21.7 billion (2% agencies were presented to the modestly to an estimated 3.8 percent of GDP).10 These challenges have economic cluster and approved for of GDP in FY2019/20, up from 3.6 been compounded by unresolved submission to the Council of Ministers. percent in FY2018/19. At the same issues related to the integrity of the It is envisaged that the FY2021/22 time, the value of South Sudan’s public payroll, particularly in the case budget proposal will be presented to financial transfers to Sudan amounted of the organized forces. In addition, the Council of Ministers for approval by to 8.2 percent of GDP in FY2019/20 outstanding expenditure arrears on mid July 2021. With the reconstitution (SSP 82 billion), up from 7.6 percent in goods and services were estimated of the Transitional National Legislative FY2018/19 (SSP 68 billion). to stand at SSP 896 billion (108% Assembly in May 2021, it is expected of GDP) at the end of FY2019/20. that the FY2021/22 budget will be Spending pressures increased The authorities recognize the urgent presented to the National Legislative throughout FY2019/20. Current necessity of resolving these issues and Assembly by mid-July 2021 for debate spending in FY2019/20 increased to have requested support to complete and approval within the statutory 45 an estimated 16.4 percent of GDP, a verification exercise to determine days. Thus, the budget is expected to up from 12.6 percent of GDP, driven the extent of these expenditure be approved by the National Legislative by higher wages, interest payments, arrears. Without an approved arrears Assembly by the end of August 2021, operating expenses, transfers to management strategy, budget two months into the financial year. Sudan, and subsidies and transfers execution will continue to be a to public enterprises. The FY2019/20 challenge into the medium term. The Government is making progress budget had envisaged increased with a number of critical public capital spending (mostly on road While there were significant delays in financial management reforms. The infrastructure) of about 14.9 percent the FY2020/21 budget preparation, authorities have taken advantage of GDP, to be delivered through an oil- the FY2021/22 budget process of the economic fallout from the for-roads deal, with a daily allocation has progressed well, albeit behind COVID-19 pandemic to undertake of 10,000 to 30,000 barrels approved schedule. In the context of very critical macroeconomic and fiscal for this purpose. However, despite difficult circumstances, the FY2020/21 reforms, building on key milestones significant under-execution, capital budget was initially extended by already achieved as part of the peace spending increased to an estimated presidential decree for a period of process. Ongoing PFM and economic 3.6 percent of GDP in GY2019/20, up 90 days, allowing the authorities reforms include the establishment of from 0.8 percent in 2018/19, reflecting to continue the FY2020/21 budget a PFM Reform Governance Structure the Government’s increased spending preparation process well beyond and PFM Oversight Committee, on roads infrastructure. the commencement of the FY. to provide coordination, direction, 10. The Ministry of Finance and Planning has started paying the salary arrears from using the IMF’s Rapid Financing Facility. The payment of salary arrears will continue on bi-weekly basis, until the salary arrears are reduced to only one or two months left by June 2021 21 and oversight to accelerate the time, the social sectors not only agreements, external oil-backed pre- implementation and effectiveness receive relatively small allocations, financing loans, and transfers and of PFM reforms. In addition, the they also experience under-execution. subsidies to public institutions. While authorities have committed to Although capital expenditure outturns the Transitional Financial Arrangement discontinuing the use of oil advances reached 3.6 percent of GDP by the end (TFA) with Sudan continues to exert for budget financing, which will of FY2019/20, this is still well below significant pressure on the budget, improve budget transparency and the the budgeted 14.8 percent of GDP. the agreement will end in mid- management of oil resources. Further, The COVID-19 crisis is likely to have 2022, opening considerable fiscal the establishment of the IMF SMP exacerbated these challenges, with space. Financial transfers to Sudan in late March will help to establish a the authority seeking to create fiscal accounted for around 26.2 percent strong basis for the macroeconomic space to maintain critical expenditures of government expenditure (9.9% of reform agenda and facilitate the in the face of both declining GDP) in FY2019/20 and 30.3 percent conditions for strong, inclusive revenue and increased expenditure of the Government’s total expenditure, growth by restoring fiscal discipline; pressures. In 2019, the authorities on average, over the past three years. implementing a rules-based monetary commenced the process leading to The forthcoming completion of the policy framework; and addressing the development of a comprehensive TFA will allow for lower levels of debt distortions in the foreign exchange Public Investment Plan (PIP). While the accumulation; a more robust debt market. These steps provide a firm primary responsibility for ensuring that profile; and thus lower borrowing costs basis for optimism regarding a rapid, government resources are invested in the relatively near future. While broad-based recovery and improved in bankable projects lies with the the authorities are intensifying their resilience to future shocks, providing Ministry of Finance and Planning, other efforts to diversify non-oil revenue the necessary building blocks for Ministries, Departments and Agencies sources, expenditure pressures from an inclusive and sustainable growth (MDAs) also play a key role in ensuring oil-collateralized loans and subsidies trajectory. successful implementation and multi- and transfers to public enterprises are sectoral coordination across these offsetting the gains made in non-oil The persistent budget execution agencies to avoid duplication. Over the tax revenue mobilization. The financial challenges and the large expenditure longer term, PIM could be strengthened repayment obligations to Sudan are arrears reflect weaknesses in public by the adoption of an indicative projected to account for an estimated investment management (PIM) reference multi-year expenditure 4.1 percent of GDP in FY2020/21, while systems. Previous World Bank framework, consistent with the national public transfers and subsides (2.1%) assessments have shown that budget development strategy. and repayments (4%) that include execution continues to be problematic, arrears owed to advance oil contracts, with significant divergencies between Large portions of revenues are continue to absorb large shares of budgets and outturns. At the same absorbed through compensation revenue. Table 4: Government fiscal operations, % of GDP FY2018/19 (Actual) FY2019/20(Est) FY2020/21(Proj) FY 2021/22 (Proj) Total government revenue 29.1 28.1 26.1 31.1 Oil revenue 25.5 24.3 21.1 27.1 Non-oil tax revenue 3.6 3.8 5.0 4.0 Grants 0.0 0.0 0.0 0.0 Total government expenditure 30.1 37.7 28.7 33.6 Recurrent spending 29.2 34.1 23.5 28.6 Wages and salaries 3.1 4.4 4.5 5.2 Interest 0.5 2.0 1.3 0.9 Capital spending 0.8 3.6 5.2 5.0 Primary balance -0.4 -7.6 -1.5 -1.6 Overall balance (cash) -0.9 -9.6 -2.7 -2.5 Variation arrears 2.2 -3.2 0.0 0.0 Overall balance (accrual) -3.2 -6.8 -2.7 -2.5 Source: IMF, Ministry of Finance and Planning, World Bank estimates 22 Interest payments on public debt borrowing, although recourse to now been discontinued, contributing to continue to consume a large share monetary financing intensified in the foreign exchange rate stabilization in of government revenue. Interest context of the pandemic. Following a the second half of FY2020/21. payments increased from 1.7 sharp decline in oil revenue following percent of revenue (0.5% of GDP) the outbreak of the pandemic, the South Sudan has reached a debt in FY2018/19 to an estimated 7.0 authorities resorted to monetary restructuring agreement with Qatar percent of revenue (2.0% of GDP) in financing of the deficit. Consequently, National Bank (QNB), putting an end FY2019/20. This increase reflects the the monetary base expanded at a to external debt distress. Prior to impact of increased non-concessional faster rate in the first half of 2020 this agreement, South Sudan was in borrowing at high interest rates and than at any time during 2019. This debt distress owing to external debt the pandemic-induced decline in oil growth was led by large increases arrears, with its debt being assessed revenue that has resulted in immense in net claims on government, which as unsustainable in the 2019 DSA pressure on South Sudan’s revenue increased by 93 percent in the period and with a short-term trade facility outturns. The stock of commercial from December 2019 to June 2020, provided by QNB falling into arrears external debt increased from US$ and by 48 percent in the period from in 2015. In addition, South Sudan 965 million in FY2018/19 to US$ July to December 2020. This monetary fell behind on payments to Sudan 1,105 in FY2019/20, accounting for expansion exacerbated the pressure in 2015 and 2016 due under the 82 percent of total external debt on the SSP, contributing to a sharp Transitional Financial Arrangement (see Table 6). Going forward, the depreciation in the parallel market and (TFA), although it cleared these arrears authorities must remain committed to to increased inflation. Given South in 2018.11 The authorities negotiated non-concessional financing, limiting Sudan’s high level of dependency on a debt restructuring agreement with external borrowing only to finance imported products, including food and the QNB in July 2020, which helped critical infrastructure and necessary other essential commodities, the pass- to bring debt to sustainable levels responses to the pandemic. through of parallel market exchange on a forward-looking basis. The rate depreciation to consumer prices Government started servicing the loan Financing over the past three is very high and almost instantaneous. in October 2020 and is now current on years has been driven by external Monetary financing of the deficit has all its external debts. Table 5: Distribution of oil revenue 2018/2019 2019/20 (Est) 2020/21 (Proj) Bn SSP % GDP Bn SSP % GDP Bn SSP % GDP Gross oil revenues 198.2 25.5 201.1 24.3 234.7 21.1 Public transfers and subsidies 10.4 1.3 20.5 2.5 23.8 2.1 Payment to Sudan 68.2 8.8 81.7 9.9 46.0 4.1 Repayments 60.0 7.7 103.1 12.5 44.6 4.0 South Sudan’s external public debt including arrears, to stand at US$ The Bank of South Sudan (BSS) has an was estimated to stand at US$ 1,355 1,355 million (40.8% of GDP) at the outstanding liability to the QNB of US$ million (40.8% of GDP) at the end of end of June 2020. Debt to the World 627 million. Debt to the Afrexim Bank June 2020. With limited public data, Bank amounted to US$ 79 million on amounted to US$ 379 million, while oil- it is difficult to estimate the exact IDA terms, while debt to the African related short-term loans are estimated debt situation in South Sudan. The Development Bank (AfDB) amounted to stand at US$ 99 million. As shown latest joint IMF-World BANK Debt to US$ 28 million. In addition, the in Table 6, relatively few counterparts Sustainability Analysis (October 2020, Government had borrowed US$ 143 account for most of South Sudan’s updated March 2021) estimated million from China Exim Bank to gross external debt. In FY2019/20, South Sudan’s external public debt, upgrade Juba International Airport. around 81 percent of total loans 11. Under the agreement signed with Sudan in 2012, the South Sudanese government agrees to deliver a payment-in-kind of 10 million barrels of oil per year until FY20/21. In FY 2015/16, South Sudan accumulated payment arrears on the TFA to Sudan of US$291 million. Note: the fiscal year in South Sudan runs from July to June. 23 (46%: QNB loans; 35%: oil advances Government had stopped monetary since September 2020. While there and Afrexim Bank loans) are highly financing in late 2017, which helped are no arrears on domestic debt non-concessional. South Sudan opted to lower inflation and to stabilize the instruments, the authorities faces not to participate in the Debt Service exchange rate. The COVID-19 crisis domestic arrears related to salaries Suspension Initiative. triggered some monetary financing, and goods and services. The current resulting in increased domestic debt estimate of salary arrears is 2 percent Prior to the COVID-19 crisis, South by around 5 percentage points in of GDP, or five months of salaries. Sudan’s domestic debt had been FY19/20. However, following a cabinet The authorities’ PFM reform strategy low, at below 10 percent of GDP. resolution, there has been no further includes the review, verification and Domestic debt is mostly in the form monetary financing of the budget clearance of all other arrears. of loans from the central bank. The Table 6: Debt by Creditors (millions of US Dollars) FY2017/18 FY2018/19 FY2019/20 USD Million Share (%) USD Million Share (%) USD Million Share (%) Multilateral IDA 53 4 53 4 79 6 AfDB 28 2 28 2 28 2 Bilateral China EXIM Bank 100 8 150 13 143 11 Commercial QNB 627 52 627 52 627 46 AFREXIM 108 9 0 0 379 28 Oil advances 216 18 338 28 99 7 Arrears to Sudan 70 6 0 0 0 0 Total external debt outstanding 1,202 100 1,196 100 1,355 100 External debt to GDP ratio 1,202 37.8 1,196 26.7 1,355 28.3 Domestic debt to GDP ratio 265 8.3 229 6.0 596 12.5 Total Public debt to GDP ratio 1,466 46.1 1,424 32.7 1,952 40.8 Source: South Sudan Authorities, IMF, and World Bank 1.6 Trade and external sector developments Trade between Uganda and South collapsed in the first half of 2020, informal cross border trade fell by 97 Sudan has recovered strongly, with traders struggling to comply percent in the period from March to following an earlier collapse due with COVID-19 guidelines, including April 2020, going down from US$ 5.2 to to COVID-19-related cross-border requirements to obtain and present a US$ 0.15 million in April 2020 between movement restrictions. While COVID- negative COVID-19 test certificate. At these points, beginning to recover 19-related restrictions affected both the same time, traders were affected only in August 2020, when its value formal and informal cross-border by a scarcity of foreign currency and rose to US$ 1.9 million. By January trade, its impact on the latter was worsening security conditions along 2021, informal cross border trade had considerably greater. South Sudan’s South Sudan’s major trade routes. recovered to pre-crisis levels, with informal imports from Uganda Bank of Uganda data show that the value standing at US$ 7.8 million. 24 Informal cross-border trade, which by February 2021, standing at US$ before reverting to a normal range usually involves goods transported in 40 million, 9 percent higher than the of about US$ 0.5-0.6 million in the small quantities across the border by January-March 2020 pre-pandemic period from September onwards. foot, bicycle, motorbike, passenger car, average (see Figure 14). With these developments, the annual and bus, is a major livelihood source in value of South Sudan exports on a border towns. Formal imports declined In the midst of the pandemic, while calendar year basis increased from by about 28 percent, from US$ 38.3 South Sudan exports to Uganda US$ 9.2 million in 2019 to US$ 88.7 million in March to an average of US$ initially surged, this growth was million in 2020 (see Figure 15). Of this, 28 million over a 10-month period short-lived. South Sudan’s exports to 93 percent of the merchandise (US$ during April 2020-January 2021. Uganda surged during the pandemic, 82.2 million) was classified as “pearls, However, despite sporadic border rising from US$ 0.16 million in April precious stones, metals, and coins” delays and security concerns along 2020 to US$ 54 million in May; US$ and 4 percent was classified as “iron major trade routes, formal imports 22 million in June; US$ 5.5 million in and steel.” had recovered to pre-crisis levels July; and US$ 2.5 million in August, Figure 14: South Sudan imports from Uganda recovered While the functioning of markets has recovered somewhat following the lifting of COVID-19-related restrictions, insecurity along major trade routes continues to pose significant risks. Cross-border trade (both formal and informal) between South Sudan and its regional neighbors has recovered somewhat, after a difficult year in which floods, conflict, and COVID-19 restrictions affected connectivity. In early April, the South Sudan Joint Market Monitoring Initiative (JMMI) reported that roads were open at least irregularly in almost all assessed locations across the country, Source: Bank of Uganda resulting in a greater availability of goods in many markets/locations.12 Nearly nine in ten households (87.5%) Figure 15: South Sudan exports to Uganda surged in 2020 surveyed by the World Bank in October 2020 indicated that they could access markets, higher the figure of 83.5 percent reported in June 2020. This improvement is significantly reflected in urban areas. However, a rise in insecurity incidents along major highways threatened to disrupt the recovery in trade flows and market activity, with traders from Uganda and Kenya suspending cross-border movement in the first week of April 2021. Given the importance of regional imports to meet domestic demand for food and essential supplies, the Source: Bank of Uganda and COMTRADE database authorities acted quickly and increased security measures to ensure the safe passage of goods into the country. 12 South Sudan Cash Working Group: Joint Market Monitoring Initiative (JMMI) – April 2021 25 Table 7: The current account (Millions of dollars, % GDP in parentheses) 2019/20 2020/21 (Millions of dollars) 2017/18 2018/19 Estimate Projection Current account balance -343 -253 -406 -341 (% GDP) (-9.5) (-5.0) (-7.9) (-7.1) Balance of goods 150 267 -38 -440 (% GDP) (4.2) (5.2) (-0.7) (-9.2) Exports of goods 2,568 3,103 3,088 2,912 o/w Oil 2,552 3,086 3,061 2,883 Imports of goods -2,418 -2,836 -3,126 -3,352 Balance of services -675 -707 -648 -658 (% GDP) (-18.8) (-13.9) (-12.6) (-13.7) Income -594 -719 -576 -484 (% GDP) (-16.5) (-14.1) (-11.2) (-10.1) Current transfers 776 906 856 1,241 (% GDP) (21.6) (17.8) (16.1) (25.9) General government 0.0 0.0 0.0 0.0 Workers’ remittances 53 58 77 81 Financial transfers to Sudan -409 -335 -468 -212 Other sectors 1,132 1,183 1,247 1,372 Memoranda items Nominal GDP (USD millions) 3,596 5,093 5,147 4,788 Gross foreign reserves (USD millions) 33 31 48 133 In months of imports 0.1 0.1 0.1 0.4 Source: International Monetary Fund, World Bank Estimates In FY2019/20, with the pandemic reflects developments in the final to US$ 48 million (equivalent to about and transfers to Sudan exerting quarter of FY2019/20 (April-June), 0.1 month’s cover) at the end of pressure on the balance of payments, with the global impact of the pandemic FY2019/20. By any measure, this is the current account deficit widened leading to declining international oil insufficient to provide adequate buffers further, reaching an estimated 7.9 prices and OPEC+ production cuts. to facilitate effective responses to percent of GDP, up from 5.0 percent Despite this, non-oil exports of goods future shocks. in FY2018/19. Merchandise exports and services are estimated to have are estimated to have declined by grown by 48.7 percent, albeit from a 0.5 percent in FY2019/20, following very low base, increasing from US$ 41 an estimated 0.8 percent contraction million in FY2018/19 to US$ 61 million in oil exports, which declined to US$ in FY2019/20. Notably, transfers to Cross-border trade has 3.088 billion in FY2019/20, down Sudan increased by 39.7 percent, going recovered strongly, following from US$ 3.103 billion in FY2018/19. up from US$ 335 million (6.5% of GDP) an earlier collapse due to The decline in oil exports, which are in 2019 to US$ 468 million (9% of GDP) COVID-19-related cross- estimated to contribute to about 99 in FY2019/20, exerting significant percent of South Sudan’s merchandise pressure on the balance of payments. border movement restrictions. exports and 98 percent of total exports, Gross international reserves amounted 26 1.7 Monetary and financial sector developments The authorities have instituted impact of currency depreciation over Credit conditions are dire, with real accommodative monetary policy the loan portfolio is applied, it shows private sector credit growth effectively measures intended to sustain liquidity that there has not been any new negative during the first three in the economy and to mitigate the lending activity for years, which also quarters of FY2020/21. Real private impacts of the pandemic on the indicates the absence of liquidity in sector credit expansion picked up financial sector. On 24 April 2020, the banks. The only important dynamic strongly in FY2019/20, reflecting the BSS reduced the central bank rate in the loan portfolio was determined strong recovery of the economy and by two percentage points, from 15 by the conversion of the trade credit peace dividends that supported private percent to 13 percent. In addition, the exposures to the central government investments and business expansion, albeit from very low levels.13 However, reserve requirement ratio was reduced into loans. Since most of the loans are this trend reversed in July 2020, from 20 percent to 18 percent. This in FX, the continuing depreciation of reflecting strong market exchange was followed by additional measures the national currency and constrained rate depreciation and soaring inflation. announced on 7 July 2020, which FX inflows to the public sector have a In the nine month period to March included reducing both the Central direct negative impact on the potential 2021, real private sector credit growth Bank rate, by a further 3 percentage to recover these loans. Loans to averaged -19.9 percent, compared to points, down to 10 percent; and the private sector represent only 11 the 20.4 percent recorded in the same the Reserve Requirement Ratio, to percent of customer deposits, or 2 period in the previous year (see Figure 10 percent. It also suspended the percent of GDP, which reflects the very 16). The structure of private sector implementation of a recent regulation limited role played by banks in financial credit remains largely unchanged from that mandated higher minimum intermediation in the real economy. last year. By March 2021, domestic paid-up capital for commercial banks. The exposure to the Government is trade accounted for 50 percent of the BSS also reiterated that the South even higher, if considering the balances total value of private sector credit, Sudanese Pound (SSP) is the only at BSS, which is mainly in FX and followed by building and construction legal tender for settlement of domestic represents approximately 60 percent of (17%) and transport and household payments, encouraging banks to the liquid assets of the banking sector. activities (12%). restructure loans as necessary. Some of these monetary policy measures were reversed in November 2020, with the central bank rate increasing to its previous level of 15 percent, with the authorities moving to counter rising inflation. However, considering that the monetary transmission mechanism is not functioning effectively due to the very limited role of banks in financial intermediation, both decisions had a limited impact on commercial bank lending activity. South Sudan’s financial sector is small, with negligible levels of intermediation to sustain weak private sector credit growth. Loans represent about 44 percent of total assets, of which more than 90 percent are loans to the Government. If the 13. We define real private sector credit as the dollar equivalent of private sector credit at market (parallel) exchange rates 27 Figure 16: Real private sector credit growth, % y/y South Sudan’s banking sector faces significant risks related to solvency, liquidity, asset quality and FX and sovereign exposure. The key source of risk arises from the very high level of exposure to FX loans to the Government. These loans do not appear to be serviced for long, even while interest income continues to be shown as accrued, thereby artificially boosting income and capital. A vast majority of the assets (almost 80%) are concentrated in FX loans to the Government and FX balances at the BSS. All exposures to the Government are classified as performing, although the exposures have not decreased in the past years, which indicates that Source: Bank of South Sudan no repayments of principal have been limited role in financial intermediation the CAR by more than two-thirds (from made. Considering the overall macro- and that they do not contribute 15.6% to about 5%). At this level, the economic situation in South Sudan significantly to economic activity in BSS will have to implement resolution and the real (parallel) market exchange the country. The share of loans to measures, if urgent recapitalization rate, the Government and the BSS non-government entities represents is not feasible. Any additional losses are unlikely to have the capacity to an insignificant share of banks’ loan related to the quality of assets would repay these exposures in the short portfolios, with a considerable portion very quickly reduce the capital level, and medium term. Additionally, based of these loans already classified as taking it months into negative territory. on the banks’ assets and liabilities non-performing. Adjustment to the This may require the authorities to structure, this very high exposure Capital Adequacy Ratio (CAR) based implement significant interventions to to the Government also means that only on the real exchange rate (parallel recapitalize the banking sector. they currently only play an extremely market) would lead to a reduction in 28 Box 4: Shedding light on South Sudan’s economy: Can remote-sensed data fill important data gaps? The ability to accurately estimate economic activity harvest, with a simple linear decay. Following the is an ongoing challenge in South Sudan. We propose crop calendar, monthly GDP is then estimated and a methodology to estimate high-frequency, non-oil aggregated to quarterly GDP. Access to real-time GDP growth using a range of different data sources, rainfall and NDVI allows for quarterly forecasts including traditional surveys, trade data, and satellite with horizons of one to two quarters into the future. imagery. We also provide sub-national, non-oil GDP An additional finding was that upon release of the growth estimates at the quarterly scale for the period CSFAM report for the previous year (usually in the from 2008 to 2020. The emphasis has been on first or second quarter), it is possible to use the cereal developing a transparent and data-driven approach to production and cultivated land area to produce annual estimate and eventually forecast quarterly GDP using forecasts for the present year with a higher degree of the following methodologies. accuracy (adjusted R2 = 76%). Agriculture GDP: A reliable source of data for net Industry & Services: An extensive literature exists on cereal production in South Sudan in the period from the use of satellite-based night-time lights (NTL) as a 2008 to 2019 is available from the Crop and Food proxy for economic activity, in particular for industry Security Assessment Missions (CFSAM) annual and services. Various studies have considered NTL reports (FAO, 2020). Sorghum and maize dominate to estimate economic activity, with the assumption production quantities, contributing to 85.7 percent that undertaking the majority of these activities in and 13.6 percent respectively, based on 2014-2018 the evening or night requires lighting. NTL data is averages. The level of cereal production depends on available from the NASA Defense Meteorological local weather conditions and therefore fluctuates Satellite Program (DMSP) and has been used in annually, with potentially dramatic changes from a number of studies to estimate GDP based on one harvest to the next. In order to forecast cereal evidenced correlation between luminosity and the production, environmental data for monthly rainfall level of economic activity. Unfortunately, the DMSP and normalized difference vegetation index (NDVI) source only covers the period from 1992 to 2013. An was obtained at the state level for South Sudan. The alternative source of night-time lights is provided by NDVI provides a measure of healthy green vegetation VIIRS for the period from 2012 to 2019. A seamless and can detect abnormal changes in the growth time series of growth rates was calculated from these process. Annual cereal production was found to depend on NDVI in January and the rainfall in June two sources in order to derive state-level NTL for the and November corresponding to the last months of full period of the study. National GDP from industry the first and second harvests according to the FAO and services were then distributed across states crop calendar. This quantitative forecasting model according to the NTL. A final challenge related to allows for sub-annual estimation of agricultural estimating the expected modulation that is likely to GDP (adjusted R2 = 45%). The selected variables be present in the quarterly figures. To overcome this coincide with agronomic knowledge that production challenge, we use monthly trade data between South is particularly sensitive to receiving adequate rainfall Sudan and Uganda to infer the intra-annual weights. during the growing phase prior to harvesting. After The weights for the four quarters were as follows: wq forecasting the quantity from each harvest, it was = [0.3129 0.2129 0.2049 0.2693] indicating that the then assumed that the value can be distributed first quarter has the highest weighting, followed by the across the months until the start of the subsequent last quarter of the year. 29 Box 5: Spatial distribution of reconstructed 2019 non-oil GDP Panel A: GDP from agriculture in 2019 with quintile ranking Panel C: GDP from industry & services in 2019 with quintile ranking from from lowest (dark red) to highest (dark green). lowest (dark red) to highest (dark green). Constant 2009 millions SSP Constant 2009 millions SSP 66-88 94-96 98-111 123-148 197-213 194-211 232-254 333-336 601-1197 1938-2358 Panel B: Per capita GDP from agriculture in 2019 with quintile Panel D: Per capita GDP from industry & services in 2019 with quintile ranking from lowest (dark red) to highest (dark green). ranking from lowest (dark red) to highest (dark green). Constant 2009 SSP Constant 2009 SSP 60-65 69-81 88-96 119-145 180-272 117-227 233-247 264-336 416-1461 1775-2168 30 ECONOMIC OUTLOOK AND RISKS 1.8 The outlook has deteriorated due to the economic impact of the COVID-19 pandemic, particularly on the country’s most vulnerable In FY2020/21, South Sudan’s Recent advances in the development of points higher than the authorities’ economy is projected to contract a range of vaccines and their expanded forecast at the start of the year, when by about -4.1 percent, with growth global production have led to a degree oil prices were very low and their negatively affected by the impact of of optimism regarding the duration future path uncertain. At the same the pandemic, floods, and increased and impact of COVID-19 pandemic time, fiscal consolidation will benefit conflict intensity in parts of the into the future. An earlier and speedier from lower than planned investment country. This rate represents a 0.7 than projected global recovery would expenditures, with outturns of about percentage point reduction from the support inward FDI and remittances, 5.1 percent of GDP, lower than the 5.3 forecast presented in the December leading to a faster recovery than percent projected by the authorities at 2020 South Sudan Economic Update, earlier projected. The efficient roll- the start of the fiscal year. In addition, and a 10.2 percentage point reduction out of vaccination programs would non-oil tax revenue is projected to compared to the pre-COVID-19 save lives and enable South Sudan’s increase to an estimated 5.0 percent projection (February 2020 Economic non-oil economy to recover faster, of GDP in FY2020/21, from 3.8 percent Update). South Sudan experienced a supporting the achievement of higher in FY2019/20, reflecting the National second wave of the pandemic at the levels of resilience in the face of a Revenue Authorities’ efforts to expand start of the year, with rapidly increasing multitude of shocks. At the same the tax base, and various measures numbers of new cases and deaths. The time, higher oil prices would lead to to reform its tax revenue collection authorities instituted fresh lockdown stronger export growth, higher FDI in functions. Going forward, the fiscal measures in early February, with the sector, and increased expenditure situation is expected to improve these restrictions remaining in place revenue. If used well, increased oil gradually as South Sudan completes until 14 April 2021. Going forward, the revenues could be used to support the payment of financial transfers speed of the recovery of the oil sector economic diversification, leading to a to Sudan in FY2022/23, with these will depend on higher investments, more inclusive and resilient recovery. currently absorbing a large share of with these constrained and delayed Consequently, the economy could grow revenue, estimated at 4.1 percent of by the COVID-19 pandemic. Thus, oil by 2.6 percentage points in FY2021/22 GDP in FY2020/2021. production is projected to decline by and by 3.0 percentage points in -2.9 percent, going down from the FY2022/23, higher than our previous figure of 62.1 million barrels realized projections (December 2020) of 0.0 in FY2019/20 to 60.2 million barrels percent and 2.5 percent respectively. in FY2020/21. However, agricultural production growth is projected to The fiscal deficit is expected to average at more than 3.5 percent in the narrow to about 2.7 percent of GDP, reflecting higher than projected oil South Sudan’s economy is medium term, with the sector expected and non-oil revenue and the impact projected to contract by about to benefit from both favorable weather of fiscal consolidation efforts. Despite -4.1 percent in FY2020/21 but conditions and a gradual return to delayed oil sector investments, the may recover faster than earlier peace across the country. fiscal outlook could benefit from higher estimated, with projected Beyond FY2020/21, South Sudan’s oil prices in FY2020/21. Oil revenue is growth rates of 2.6 percent economy is expected to recover expected to increase to 25.2 percent in FY2021/22 and 3.0 in faster than earlier estimated, with in FY2020/21 from 24.3 percent of FY2022/23. projected growth rates of 2.6 percent GDP during FY2019/20. This projected in FY2021/22 and 3.0 in FY2022/23. outturn is more than ten percentage 31 Figure 17: Real GDP growth rate (percent) Figure 18: Overall fiscal balance (percent of GDP) Source: International Monetary Fund; World Bank estimates The current account is expected same time, merchandise imports GDP (US$ 254 million) in FY2020/21. to narrow to -7.1 percent of GDP are expected to increase due to the In addition, financial transfers to Sudan in FY2020/21, from -7.9 percent increased need for food imports are projected to decline to about 4.4 in FY2019/20. The trade balance is resulting from severe flooding, which percent of GDP (US$ 212 million) in expected to widen to an estimated has destroyed food stocks and crops FY2020/21, from an estimated 9.1 deficit of -9.2 percent of GDP (US$ ahead of the main harvest season. percent of GDP (US$ 468 million) 440 million) in FY2020/21, from -0.7 Nevertheless, the income account is in FY2019/20. These latter two percent of GDP (US$ 38 million) in projected to improve marginally, with developments are expected to support FY2019/20. These developments net outflows of oil-related investments an overall improvement in the current reflect lower oil revenue receipts, declining from an estimated 6.8 account balance. which are projected to decline by percent of GDP in FY2019/20 (US$ -5.7 percent year-on-year. At the 348 million) to about 5.3 percent of 32 1.9 Risks to the outlook Upside risks relate to recent advances uncertainties regarding efficiencies in to support South Sudan’s national in the development of COVID-19 the production, distribution, rollout and vaccination program, even in the vaccines and the successful rollout equitable access to vaccines, recent context of dire financing needs and of vaccination programs. Recent developments in parts of the world, pressure on the budget to implement advances in the development of particularly in rich countries, point to the peace agreement. This will be COVID-19 vaccines have raised hopes a strong recovery, with many such critical to avoid resurgences and that the global economy could recover countries gradually reopening their additional waves of the pandemic, faster than previously expected, economies and ending lockdowns. with associated lockdown measures, which should support a sustained While South Sudan has successfully especially as new variants of the uptick in oil prices, inward investment, navigated a second wave of the COVID-19 virus continue to emerge on and remittances. While there are pandemic, there is an urgent need the continent. Table 8: Economic Outlook (annual percentage changes unless stated otherwise) FY2018/19 FY2019/20 FY2020/21 FY2021/22 FY2022/23 (Est) (Prel.) (Proj.) (Proj.) GDP at constant market prices 3.2 9.5 -4.1 2.6 3.0 Oil 10.7 27.5 -2.9 3.2 1.1 Non-oil 0.0 0.8 -4.9 2.2 4.1 GDP at constant factor prices 3.2 9.5 -4.1 2.6 3.0 Agriculture 9.9 6.0 3.5 3.5 3.6 Non-oil industry and services -1.5 0.0 -6.3 2.0 4.2 Oil sector 10.7 27.5 -2.9 3.2 1.1 Inflation (average) Exchange rate, official (SSP/USD, Avg) 152.4 161.8 232.7 285.8 331.6 Exchange rate, market (SSP/USD, Avg) 251.1 310.2 542.8 --- --- Memorandum items Oil production (millions of barrels) 49.1 62.1 60.2 62.1 62.8 South Sudan’s oil price ($US/bbl, Avg) 62.9 49.3 47.9 54.7 53.4 Brent price ($US/bbl, average) 64.9 51.3 49.9 56.7 55.4 Nominal GDP (SSP billions) 776.2 827.8 929.9 1,227.4 1,503.8 Source: South Sudanese authorities; World Bank, and IMF estimates South Sudan’s current PFM reform public financial management. In reform; (iii) debt management; and (iv) program creates opportunities for the support of this effort, the IMF Board strengthening governance. Provided achievement of faster, more inclusive approved a nine-month SMP to run that the authorities adhere to agreed- growth in the near and medium term. for the period from 31 March to 31 upon commitments, the improved As discussed earlier, the authorities December 2021. This will provide a fiscal transparency, macroeconomic have committed to an ambitious but strong basis for an ongoing reform stability, and prudent use of oil feasible reform program, consistent process that focuses on four critical resources that are expected to derive with the Government’s commitment to areas: (i) restoring fiscal discipline; from this reform initiative will support achieving stabilization and improved (ii) monetary and exchange rate the development of the necessary 33 conditions to enable economic Subdued oil prices on the international including through measures to support diversification, leading to more market could also undermine South better water management, climate- inclusive and resilient recovery in the Sudan’s economic recovery. As recent smart farming practices, and the use of medium term. events have highlighted, South Sudan more resilient seed varieties, is vitally is vulnerable to adverse commodity necessary. With the security situation The major downside risk to the price shocks. Government resources improving, the authorities should also outlook relate to the sustainability of are heavily dependent on the oil focus on facilitating the achievement peace and security in South Sudan. sector, which is estimated to account of a year-round agricultural cycle that While a national Unity Government for more than 90 percent of central could improve household production was formed in February 2020, the government revenue and 95 percent of and productivity. Despite its large situation in South Sudan continues to the country’s exports. Lower oil export agricultural potential, South Sudan remain volatile. A flareup in violence revenue would negatively impact the has not achieved food self-sufficiency in parts of the country and the slow Government’s resources, potentially since 2009, resulting in high levels of implementation of key aspects of derailing the Government’s investment food insecurity that have frequently the peace agreement raise concerns program, which is already grossly reached crisis levels in a number of regarding the sustainability of the underfunded. In addition, lower oil sub-national jurisdictions. At the same peace process. The formation of a new prices may affect sector investment time, recent analysis suggests that inclusive parliament more than a year plans, requiring South Sudan to in coming years, growing seasons after the Unity Government was formed quickly locate alternative sources of across South Sudan will start earlier, represents the formal fulfillment growth. In the absence of major new last longer, and have more days with of a key pending aspect of the this oil discoveries, the known oil reserves greater than 5mm of rain, potentially process. However, its practical impact could face rapid depletion in the ameliorating conditions that constrain on peaceful modes of governance coming years. agricultural sector productivity. On the remains uncertain, while some downside, this could cause disruptions critical issues outlined in the peace Reliance on rainfed agriculture and due to the increased likelihood of agreement, including the completion the chronic issue of food insecurity flooding, potentially increasing the of transitional security arrangements continue to pose downside risks to risks for poor agricultural and food related to the reunification of the agricultural sector productivity, the security outcomes. Part 2 of this armed forces and the DDR, remain living standards of the poor, and non- Economic Update will delve into these unresolved. A resurgence in the conflict oil export earnings. As recent events issues further, providing a nuanced would reverse the gains made towards highlight, households in South Sudan analysis of South Sudan’s agricultural economic recovery and exacerbate are particularly vulnerable to weather- and food insecurity dynamics for the the macroeconomic and humanitarian related, pest, and other shocks. Thus, period from 2006 to 2020. situation a renewed focus on building resilience, 34 Despite its large agricultural potential, South Sudan has not achieved food self-sufficiency since 2009, resulting in high levels of food insecurity that have frequently reached crisis levels in a number of sub-national jurisdictions. 35 36 PART 2 : PATHWAYS TO SUSTAINABLE FOOD SECURITY 37 2.1 Factors influencing food insecurity have shifted dramatically since pre-independence While South Sudan’s food security In South Sudan, conflict, disruptions the categories Crisis, Emergency situation has been deeply affected to oil revenues, and economic or Catastrophe apply. Critical food by the impacts of war, it is the impact mismanagement have all led to a insecurity means that households of the conflict on the economy and situation in which market factors have significant food consumption markets that has become the most play the greatest direct role in current gaps, driving them to start shedding significant driver of food insecurity, food insecurity. Market effects, livelihood assets to fill that gap. rather than the violence itself. South including poor trade conditions and Rebuilding from this type of situation Sudan faces one of the most dire food hyperinflation, have stemmed in large urgently requires significant resources, insecurity situations out of all the part from conflict and economic time, and effort to protect lives and world’s nations. An analysis conducted mismanagement (World Bank, 2017), livelihoods. Below this threshold, by the FAO in December 2020 found with these playing a major role in households are deemed to be able to that about 6.35 million people (more determining the availability and avoid these stress-coping strategies than half of the country’s population) accessibility of food for South Sudan’s (IPC, 2019). faced crisis-level food insecurity population. Other secondary effects or worse (IPC Phase 3) during the of conflict, including displacement October-November period in 2020, and infrastructure destruction and Table 9: IPC Categories with 24,000 among them facing disrepair, have additionally contributed Catastrophic levels (IPC Phase 5). The to this situation. Despite South Sudan’s Phase situation was projected to deteriorate ample and growing agricultural 1) Minimal/None at the peak of the lean season in potential, agricultural production has (2) Stressed April-July 2021, when more than 7 suffered due to insecurity and lack of (3) Crisis million are expected to face acute farm labor. (4) Emergency food insecurity, with 31,000 facing Recent modeling work indicates that (5) Catastrophe/Famine Catastrophic levels.14 market factors and environmental In South Sudan, the prevailing influences play a critical role in South narrative focuses on conflict as the Sudan’s food insecurity situation.15 Factors influencing food insecurity major threat to food security. In fact, Agencies reporting to the United have shifted dramatically since the this is not incorrect: South Sudan faces Nations Security Council identify pre-independence period. This shift conflict-induced instability that affects conflict-driven displacement, low crop is highlighted in Figure 19, which the ability of its people to grow, buy, yields, economic crisis, climatic shocks summarizes the explanatory power of and sell food, ensuring a persistent and difficulties for humanitarian key drivers of interest over time. While cycle of food insecurity. Millions have access as key drivers of food insecurity violence has long been associated with been displaced from their homes due in the country (United Nations Security greater food insecurity, more than half to conflict, further constraining food Council, 2019). To further examine the of the current populations experiencing access. However, viewing conflict relative importance of these factors, crisis-level or worse conditions can alone as the most critical factor misses the analysis presented here aims attribute this to the breakdown of crucial elements of South Sudan’s food at predicting historical (2009-2019) markets and the high inflation rates security situation. Before the COVID-19 critical food insecurity levels in 21 experienced since in 2015. In fact, the crisis, critical aspects of market countries, including South Sudan, using influence of market prices on modeled dynamics and weather and climate data related to conflict, market prices, food insecurity has skyrocketed since patterns already played important, and the environment, as observed prior late 2015, coinciding with the outbreak often overlooked or underestimated to critical food insecurity events (World of conflict and politically-induced roles in this situation. At present, in Bank 2020a). Critical food insecurity economic collapse. Decades of war the context of the ongoing pandemic, is measured in terms of the Integrated have resulted in a shift toward market further market disruptions due to Phase Classification categories (see dependence that is now closely tied supply-chain breakdowns threaten to Table 9), with critical food insecurity with food insecurity (Thomas, 2019). intensify increases in food insecurity. being deemed to be present when 14. FAO (2020). IPC Acute Food Insecurity & Acute Malnutrition Analysis. October 2020 – July 2021. 15. Andree, Bo Pieter Johannes; Chamorro, Andres; Kraay, Aart; Spencer, Phoebe; Wang, Dieter. 2020. Predicting Food Crises. Policy Research Working Paper;No. 9412. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/34510 38 Figure 19: Decomposition of estimated populations in areas experiencing critical food insecurity16 At the national level, the analysis SSP’s depreciation and subsequent were acquired from markets. shows that market prices are the skyrocketing inflation. Before that However, this market dependence most significant factor driving the time, market prices were a relatively varies considerably between regions. recent food security situation in South insignificant factor in explaining food The FAO and WFP note that 2018 Sudan, following the depreciation security. Instead, conflict was the figures indicating a decrease in market dependence relative to 2017 in the value of the South Sudanese most prominent explanatory factor are unlikely to signal increased crop Pound (SSP) in December 2015. (see Figure 20). The FAO and World production. Rather, they suggest Market influences on food security Food Programme (WFP) found that excessive difficulty in obtaining market appear relatively independent of during the 2018 lean season, more goods due to inadequate market local agricultural supply, which is than 40 percent of cereals and roots supplies and/or extreme prices (FAO & especially evident following the consumed by households nationally World Food Programme, 2019). Figure 20: Factors influencing food insecurity 16. Based on 3-month centered average results, national level 39 The modelled influences of violence, seasons and the varying supply of following the outbreaks. These two inflation, and crop health on food food available during harvest and lean outbreaks occurred at the beginning of security align with key indicators. times. These influences have grown the dry season and the middle of the Food price index and price volatility during times of higher violence and rainy season, respectively, highlighting show a dramatic increase in food costs market shocks, despite violence and conflict’s negative impacts on food following the collapse of the South market disruptions being attributed security in spite of relative abundance Sudanese Pound in December 2015, to non-environmental causes. An or scarcity. A decrease in the influence coinciding with rising populations in agricultural shock of similar magnitude of conflict on food security following food insecurity crisis areas. Conflict may have more destructive impacts the September 2018 peace deal, death intensity since 2013 does not on livelihoods when the economic attributed to increased trade flows, appear to correlate tightly with food system is weak, so the overall improved market access, and higher insecure populations in the same way: impact of agricultural shocks on domestic production (World Bank, while conflict intensity has subsided food insecurity can increase despite 2020b). Despite this improvement, and stabilized to some extent since positive environmental developments. food prices remain unaffordable for 2017, food insecurity has remained Moreover, increases in rainfall are not many households, with modeling high. Environmental factors, too, show guarantees of greater crop output. efforts indicating that the continued volatility, but do not closely correlate In fact, increased volatility and a lack impacts of violence on food security with the rapid and sustained growth in of water management capacity can remain considerable. A qualitative the level of food insecurity since 2015. threaten farmers’ livelihoods. The 2019 analysis in nine South Sudanese floods, for example, are estimated to towns indicates that conflict’s main Food security has become more have caused a loss in excess of 15 influences on food security appears dependent on environmental percent to agricultural production in to be through the displacement of factors in recent years, during affected areas (FAO, 2017b). populations and damage and disrepair which period an increase in rainfall to infrastructure, rather than directly and longer growing seasons have Conflict remains a latent threat to through crop destruction, with been recorded across the country. food security. Outbreaks of conflict economic and market channels playing Environmental variables related to in December 2013 and July 2016 are a critical role. rainfall and agricultural stress shift reflected in the increasing influence of cyclically, coinciding with growing conflict on food security in the months 2.2 South Sudan’s agricultural potential has increased over the past decade South Sudan’s agricultural potential Despite South Sudan’s promising has increased over the past decade, agricultural potential, more than an with increasingly long rainy seasons. estimated 7.5 million people lived in agriculturally vulnerable areas at A novel analysis of 2006-2019 the time of the 2013 conflict. Figure historical climatic data finds that areas 22 shows areas of South Sudan where agriculture faces high levels of that are most vulnerable to weather seasonal vulnerability have decreased variability during the May-September since 2006. Figure 21 shows rainy season. The shift toward less agricultural potential17 in the periods vulnerable conditions in South Sudan from 2006-2013 and from 2014-2019, is important for the achievement Influences of conflict on of food security for those still living food systems occur mainly demonstrating that the past six years in South Sudan and for potential have been wetter, and therefore more returnees. As much of the country through secondary channels agriculturally viable, than the previous relies on subsistence agriculture, including trade disruptions and eight years. This also indicates that consistently wetter growing seasons decreased farming security. there are fewer vulnerable agricultural have the potential to yield greater food production. areas in the recent period. 17. Agricultural potential refers to mean precipitation divided by potential evapotranspiration (P/PET) 40 Figure 21: Agricultural potential for period 2006-2013 and 2014-2019, May through September 41 Box 6: South Sudan’s Landscape South Sudan’s landscapes are highly diverse, with South Sudan’s rainy season lasts for up to 248 days many livelihood specialties. FEWS NET classifies the in some locations, beginning in most areas between country into 12 zones, illustrating various types of April and June18. The southern reaches of the country farming and livestock territories and key crop zones have the earliest onset and longest rainy seasons. (FEWS NET, 2018). Agricultural activity is widespread, These southern areas, including the Equatoria with pastoralism around the Nile River running north- provinces, are considered some of the most fertile south through the center of the country and west of in South Sudan and are used to cultivate a range of the Nile in the south. Livestock raising occurs mainly cereal crops, including maize, cassava, and sorghum. in eastern areas, while crop farming occurs over a wider area. Figure 22: Length of rainy season in days in South Sudan (9x9km) Figure 22 highlights the diversity of South Sudan’s ha) would increase the value of total agricultural landscape, as well as the agricultural vulnerability output from approximately US$ 808 million to US$ 2 experienced in some areas19. While more than billion (World Bank 2012). Barriers to this expansion 70 percent of South Sudan’s land is favorable for include the low level of adoption of productivity- agriculture, less than 4 percent was being farmed in enhancing technologies, capacity constraints, 2012 (2.7 million ha) (World Bank, 2012). The World non-tariff barriers, high labor costs, and the lack of Bank estimates that increasing agricultural land use to infrastructure, including for irrigation. 10 percent of the country’s total land area (6.3 million Figure 23: Agricultural potential (14-year mean P/PET during rainy season, May-September, 2006-2019 18. Length of rainy season refers to the number of days where the rolling 10-day P/PET is greater than 0.70 with no period of 21 days where the rolling 10-day P/PET is below 0.70. 19. Areas requiring irrigation for farming refer to those with P/PET less than 0.8 P/PET, vulnerable areas refer to P/PET between 0.8 and 1.2, and arable refers to areas with P/PET above 1.2. 42 While the marked rise in the amount cannot access water management impact of the economic crisis, lack of of precipitation across South Sudan equipment and/or facilities, and who investment in the sector, and the low has resulted in increased growing therefore face the threats of inundation capacities of producing households opportunities, volatility remains without the benefit of increased water often means producers cannot take an issue. Figure 24 demonstrates availability throughout the growing advantage of the increased availability anomalies in plant productivity and season. In 2019, 73,000 metric tons of of water to produce increased rainfall at the national level, indicating potential harvests were destroyed by yields. Many farmers lack access to the instability of crop conditions flooding, with nearly one million people fertilizer, herbicides, pesticides, and beyond seasonal variations. This affected by these events (World Food high yielding seeds, further limiting variability is a concern for farmers who Programme, 2019). The combined production. Figure 24: Population weighted plant productivity and rainfall anomalies in agricultural areas, South Sudan (2007-2020) Trend analysis suggests that in conditions. However, given the lack of ecology of South Sudan’s regions); and coming years, growing seasons institutional resources, including water food storage facilities, this adaptation across South Sudan will commence management support (e.g., to build will be difficult. Environmental earlier, last longer, and have more water storage facilities and to provide changes in the context of conflict and days with greater than 5mm of rain. pumping and irrigation equipment); high inflation will pose even greater This could be positive for agricultural crop adaptation (e.g., for research and challenges. production as a whole if farmers are the provision of seeds for crops most able to adjust and adapt to changing suitable in the context of the changing 2.3 Conflict’s effects on food insecurity have been indirect While for many years conflict has Security Council, 2019); gender-based been considered the main precipitator violence (Oxfam, 2017); destruction of food insecurity, recent informant of infrastructure and disruption of analysis shows that the main effects maintenance that exacerbates limited of conflict on food security are market access and disrupts trade through secondary factors such as routes; decreased consumption displacement and decreased crop (Pape and Finn, 2019); unsustainable production and market access. Prior deforestation for conflict financing studies have connected conflict to (United Nations Security Council, agricultural productivity and food 2015); and market closures. Incidents Market failures attributed to security in many ways, with factors of crop destruction and looting as excessive inflation have the including pastoralist raid/revenge part of violent offensives, such as greatest direct impact on food cycles; displacement leading to those that occurred in Unity state in insecurity. disrupted growing and harvest cycles the period April to July 2018 (United and farming reduction (United Nations Nations Security Council, 2019) 43 can be devastating. However, these trade disruption and displacement, 2019). Interviewees and focus group occurrences do not capture the rather than through the actual acts of participants attributed displacement to broader macroeconomic impacts of violence. This finding challenges the worsened food security outcomes due conflict on South Sudan’s agriculture prevailing narrative that conflict is the to two main factors. First, instability and food security situation. main driver of food security in South displaced people from their towns Sudan, at least in terms of conflict’s and into UN Protection of Civilians Key informant interviews and focus direct impacts. These interviews and (PoC) camps or to other towns and group discussions in nine South discussions reveal rather than crop countries, taking producers and Sudanese towns show that while the destruction or theft being the major consumers out of market systems and effects of violence on agriculture mode of harm to food security, the thereby weakening local markets and and food security are diverse in their harm from conflict exacerbates already reducing crop production in a number magnitude, they share similarities in strained market systems by affecting of towns, including Malakal and Torit. terms of their disruptive effects on local supply and demand. Second, it led to shifts away from markets, trade, and the feasibility farmlands on the outskirts of towns of farming. Table 10 summarizes Many of the effects of conflict in favor of more secure lands close findings from nine towns surveyed in experienced in the surveyed towns to towns such as Wau, Rumbek, and Spring 2019. In many of these towns, are related to displacement and Yambio. This movement has resulted conflict has had dire consequences trade disruption (see Table 10). In in farmers cultivating smaller plots, on the livelihoods and well-being of total, 1.8 million people are displaced with correspondingly lower levels of the population. However, the impacts within South Sudan, with more than production. These disruptions have on agricultural production and food 2.3 million South Sudanese refugees also affected abilities to adequately security appear to manifest mainly spread across the region, mainly in store food for longer periods. through market effects related to Sudan, Uganda, and Ethiopia (UNHCER, Table 10: Effects and extent of conflict in select towns Town Effect of Conflict Related quotes Conflict Events Fatalities Admin2 2013-19 2013-19 Aweil Comparatively “The 2013 conflict has affected people in so 3 2 Aweil unaffected by 2013 many ways, because it didn’t allow people to Centre conflict, but decades- cultivate well, because the farms are located long endemic insecurity outside of the town in the villages and the in the region limits villages were where the conflict was. So, this storage and movement has led to reduction in supply of groundnut of large agricultural and groundnut paste in the market because surpluses there was no production.” (LA KII). “There was a supply of fertilizers by the Government before the 2013 conflict to help farmers, also some agriculture schemes have been abandoned not only here in Aweil, but in South Sudan at large because of insecurity. And there was a free movement of people and fuel was cheap and people who owned large farms were easily buying fuel to cultivate their farms, but now it’s expensive and if you can’t afford the cost of fuel, then you may decide to grow crops on a small scale and that bring about less production.” (CAD KII) 44 Town Effect of Conflict Related quotes Conflict Events Fatalities Admin2 2013-19 2013-19 Bor Largely destroyed in “When the conflict broke out, we went to 231 904 Bor South 2013 conflict; faced the camp, because there were no people violence in 2016 conflict. cultivating.” (FF FGD) Many were displaced to “During the crisis of 2013, the market was a UN PoC camp, moved totally burnt down and many people have lost south, or left the country. their property.” (TA KII) Juba Large inflows of “The number [of traders] decreased because 703 3406 Juba displaced people of the crisis. After the war, the markets were resulting from 2013 destroyed. Like market called Suk Jebel, conflict. Destruction all the people we employed there did not during the 2016 conflict have any activity anymore and even other disrupted markets and traders did not have capital to start over the destroyed businesses. businesses they established. So it was a total The Jebel area remains loss for both the market traders and to the insecure following body that is governing the market. So the the 2016 conflict and number decreased due to lack of necessities the market there has to be given to them.” (TA) collapsed, but overall “Although there is conflict in the country, insecurity in Juba has there has not been any change in the crops improved. people grow in Juba. Only the economic situation is very bad because there is no money and things are expensive.” (Trader FGD) Malakal Heavily impacted by “There is a lot of change. Before the incident 192 595 Malakal conflict 2013-2017; (of 2013) the market was full of different the town is largely types of crops, but now as you can see there destroyed and deserted. is not much left.” (CAD KII) Large-scale farmers left “Now there are no successful (large-scale) for Juba, Sudan, and farmers in Malakal. They used to be here, Uganda, leading to local but they are all gone to Khartoum, Juba and scarcity and inflation. Uganda, due to the incident in 2013.” (CAD KII) Renk Farming has withstood “Yes it’s dangerous to travel between Renk- 120 378 Renk conflict, though many Malakal-to Bor- Ayod- Nasir.” (MF FGD) were displaced during “Conflict has affected my work because the 2013 conflict, currently I don’t have many customers like especially Nuer and before, also before conflict I was having Shilluk people. Ethnic many branches such as in Fashoda, KaKa, tensions are still high. Malakal and Nazir but now they have closed Dangerous roads limit up due to conflict.” (Male Traders) trade. 45 Town Effect of Conflict Related quotes Conflict Events Fatalities Admin2 2013-19 2013-19 Rumbek A 2012 conflict between “Since the war or conflict occurred in 220 796 Rumbek Pakam, Kuei, and Rup 2013, people ran away from their cradle Centre pastoral communities land to seek refuge in other areas causing escalated with the high population in the places they settled 2013 national conflict. in resulting in a shortage of land for crop Violence continues production.” (P FGD) despite a 2019 “What we used to do back then was peace agreement. cultivation of both cash and food crops like Displacement to and sorghum, groundnut, and millet, and also from Rumbek occurred; tobacco cultivation and fishing. Why we don’t many farmers fled to practice them these days, it’s because of urban areas. insecurity in our areas.” (P FGD) Torit The 2013 conflict had “Many have moved away, outside of Torit 155 439 Torit smaller effects than in state, others have come into Torit town. other areas, but many Others now, they could not continue they were displaced. 2013 decided to go the camps, to Kenya, to food insecurity also Uganda. The population used to not be like caused displacement. this. Many people have moved away. Others The 2016 conflict are still coming back. What you see at this badly affected Torit moment, there is no rampant gunshot, and worsened road what is making people run away is famine. transportation from Famine has affected people, when we were unsafe conditions that hammered with war then we were hammered begun in 2013. with famine. So people would go to the camps just to get something to support your children.” (LA KII) Wau Conflict and insecurity “From the village to the town, you may be 296 581 Wau occurred from 2014- looted. There are some obstacles that meet 2018. Farmers them on the way, you may lose your property abandoned land on or you may be killed by armed robbers, the outskirts of town because of the insecurity.” (TA KII) to farm smaller plots “The conflicts of 2013 affected people in near town. Conflict was many ways, like; it displaced many people mainly intercommunal from their places, which led to no chance and tensions remain of cultivation. The insecurity also prevented high. Many left Wau or people to do other agricultural activities or moved to a UN PoC. to cultivate outside the town. So the conflict Roads remain dangerous brought some changes to the farmers. So the and limit trade and farmers do activities only for their survival.” movement. (CAD KII) Yambio Yambio faced a “The conflict has affected many farmers in a 149 214 Yambio crisis in 2016 as it way that the conflict scattered them and they became a hotspot for were not able to feel secure to cultivate a lot armed conflict and of feddan.” (LA KII) displacement. This “It is dangerous for farmers to transport conflict pushed farmers their goods to the markets, because of the off their lands. presence of rebels on the roads. Another issue is if farmers hire a motorbike, the charge will be too much and sometimes their products will not be bought, this will bring for them losses.” (LA KII) Note: LA = local authority, KII = key informant interview, CAD = County agriculture department, FF = female farmer, MF = male farmer, FGD = focus group discussion, P = processor. Number of conflict events and fatalities represent the admin-2 level total from January 1, 2013 – December 5, 2019. 46 In addition to shifting populations, and traders have also shifted their November to January, while importing conflict-induced trade disruptions trade away from towns such as maize, beans, and cassava from have resulted in shifting patterns of Malakal to more stable markets Uganda (with beans additionally supply and demand for food across coming from Ethiopia). In February and South Sudan. The destruction of During the decade before March, Southern Sudan would export infrastructure and the insecurity independence, Southern Sudan maize to DRC and CAR and import of trade routes has made trade engaged in the stable seasonal maize from Ethiopia. Exports mainly logistically difficult, for instance due trade of agricultural products with left from Yambio in Western Equatoria, to destroyed roadways around Renk, nearby countries. South Sudan would an area of high production (FEWSNET, Torit, and Wau, or destroyed markets in export beans to DRC and Ethiopia 2008a, 2008b, 2008c). Bor and Juba. Larger-scale producers and cassava to CAR and DRC from 2.4 Market factors have had the greatest direct impact on food insecurity in recent years While South Sudan’s shift towards a due to demand from international The inelasticity of staple food demand, cash economy has made selling at clientele. Many market sellers come particularly for poor households, markets more important, low yields from outside South Sudan to sell often results in greater proportions of and transportation constraints have imported goods, turning local capital income being spent on food as prices hindered market access in rural areas. into international income. increase. A movement toward market-oriented practices and the use of cash resulted While agriculture plays an important With ongoing disruptions to in the beginnings of a transition role in the livelihoods of many South agricultural activity, there is a from self-sufficiency to market Sudanese, it often provides a means risk of losing technical expertise dependence well before South Sudan’s of subsistence without necessarily independence. This shift, triggered generating income. In the current and knowledge. Disruptions to to a large extent by preceding wars, context, many farmers rely upon their the transmission of knowledge has led to a market system shaped own subsistence crops and those of between generations and within by conflict (Thomas, 2019). Previous farmers nearby, creating a volatile communities may result in a loss market assessments in South Sudan supply chain with few safeguards if of critical information within South show high prices in hub markets with crop growth is impeded. Livestock- Sudan’s agricultural sector. Widening low effective household demand, while centered livelihoods, common in knowledge gaps between generations rural markets have low supply due to northeastern areas of the country, are can increase the adoption of negative the long-term effects of conflict and sometimes linked with environmental coping mechanisms in the face of food degraded infrastructure (FEWSNET, limits to agriculture as well, such insecurity that strip households of 2019). Markets in Juba and other as flooding risks. In urban areas, human capital (a critical assumption urban areas are highly dependent on food insecurity is also influenced by underlying social safety nets) imports, with high, unstable prices markets, though in a different manner. Figure 25: National-level food and non-food price inflation (y/y) 47 Figure 26: Food and Non-Food Inflation with HA-adjusted FEWS Phases, Wau (Phase refers to last declared phase by FEWS NET) Relative to non-food price inflation, Local variations in market prices The variations in price levels over time food price inflation is highly volatile, and inflation show that food and across districts have troubling but with a more limited overall range insecurity and market factors are implications for food security. in food prices (see Figure 26). Before highly correlated across the country, Overlaying price and inflation data with July 2015, there was a disparity although in varying ways. Three IPC levels shows a clear relationship studied towns were non-food stressed between the inflation rates for food between prices and food security. The following independence, with Juba and non-food items, standing at relationship between these factors is and Wau only beginning to face severe an average of 10 points apart, with not static across towns, however. In food insecurity in 2016, aligning non-food inflation higher than food with the advent of runaway inflation. Wau, for instance, food inflation and inflation 55 percent of the time and Malakal had experienced worsening IPC have a 0.78 correlation, while this food inflation higher 45 percent of food insecurity since 2014, suggesting correlation is 0.51 in Juba and only the time. Since July 2015, food and that that town may have been affected 0.33 in Malakal. However, food CPI in non-food inflation have become more by different drivers of food insecurity. Juba is highly correlated with IPC at erratic, and decoupled to some extent Decoupling of food and non-food 0.76, while this correlation stands at when compared with pre-July 2015 inflation may also serve as a warning 0.63 in Wau and that 0.33 in Malakal. figures. Noticeably, food inflation was sign of increased food scarcity and These correlations suggest that food significantly higher than non-food food insecurity, although conclusive security in Juba and Wau may be more evidence of this relationship requires inflation during this ramp-up in overall dependent on market prices than in additional research beyond the scope inflation. Malakal. of this report. Conflict induced trade disruptions have negatively impacted food security. 48 Figure 27: Sub-national decompositions of predicted populations in areas experiencing critical food insecurity each month in 9 South Sudanese admin-2 areas based on country average results, national level In 2013, formal and informal cross- 28). This study finds that formal production, the depreciation of the border trade was deeply affected by agricultural trade from Uganda, for South Sudanese pound, and reduced the outbreak of civil war in South example, continued to flow despite the imports from other countries rather Sudan. While agricultural trade outbreaks of violence (Rauschendorfer than due to lower informal agricultural (particularly informal trade) also & Shepherd, 2020). The study product exports from Uganda. suffered, the strongest impacts were attributes food price inflation in South seen on industrial trade (see Figure Sudan to factors such as low local Figure 28: Formal agricultural and non-agricultural exports imports at Ugandan border crossings affected (red) and unaffected (blue) by South Sudan’s conflict Source: Rauschendorfer & Shepherd, 2020 49 Figure 29: Agricultural ICBT exports and imports at Ugandan border crossings affected (red) and unaffected (blue) by South Sudan’s conflict Source: Rauschendorfer & Shepherd, 2020 Sub-national models reveal vast conflict, environmental, and market Data related to informal cross-border differences in the manner in which factors. While already highly food trade in agricultural products through these variables relate to food security insecure, this area has also shifted, border crossings with Uganda also within South Sudan. In recent years, with market trends becoming a show that agricultural exports from market factors are found to be the more significant factor following the Uganda to South Sudan experienced most influential estimator of food monetary collapse. Among the nine a downward trend following the security in the districts of the nine towns, only Yambio is seen to have outbreaks of violence in 2013 and towns surveyed on conflict above (see maintained seasonal food security 2016 and the increasing inflation Figure 27). The magnitude and timing following the collapse, though this is of this influence differ greatly across offset by high levels in lean seasons. from 2015 onward (see Figure 29). these areas, however. While Aweil, Bor, Yambio’s location near the border with The drastic decline in agricultural Juba, Torit, Rumbek, and Wau show the Democratic Republic of Congo exports in the period around the 2016 similar patterns, with food insecurity and relatively fertile land may help to conflict had a widespread impact as shocks following the collapse of the explain its seasonal pattern of food the conflict largely occurred in Juba, an South Sudanese Pound, Malakal and security, which were not seen in the important hub for trade. Interestingly, Renk show increases to food insecurity other districts. These modeled outputs agricultural imports do not appear to prior to this collapse. In particular, are further explained by underlying have been affected to the same extent Malakal shows a marked increase factors, including food price index (Rauschendorfer & Shephard, 2020). following the outbreak of violence in and volatility, conflict intensity, and 2013, attributed to a combination of environmental trends. 2.5 Tackling food insecurity requires a comprehensive approach With market factors exerting South Sudan, food insecurity has been before South Sudan’s independence. the greatest influence over food generally increasing. While underlying Mismanaged macroeconomic insecurity, addressing these factors conflict-related instability affects decisions in 2015 resulted in additional food insecurity to a far greater offers the greatest opportunity to markets through disruptions to trade extent than can be explained by the improve food security outcomes. routes and lower crop yields, inflation direct impacts of violence. Thus, Despite a number of initiatives to has been the most significant driver in macroeconomic oversight is a crucial increase agricultural production in the increase in food insecurity since piece in the food security puzzle 50 With market factors exerting While longer rainy seasons create production, the issue of poor water the greatest influence over food opportunities for increased management leaves many farmers insecurity, addressing these factors agricultural production, they do unable to benefit. Conflict-related offers the greatest opportunity to not guarantee improvements to instability that limits the areas viable improve food security outcomes. livelihoods. Wetter conditions are for crop production will also not be Despite a number of initiatives to a double-edged sword, creating addressed by wetter seasons, with increase agricultural production in greater risks of flooding that result in these conflict factors still limiting South Sudan, food insecurity has been rotted crops and devastated towns. South Sudan’s agricultural production. generally increasing. While underlying In addition to the risks associated Key informant interviews and focus with flooding, the onset of seasonal conflict-related instability affects group discussions, for instance, show rains is often followed by outbreaks markets through disruptions to trade that insecurity in many areas has of diseases such as cholera (UNICEF, routes and lower crop yields, inflation resulted in the movement of farmers 2019) that jeopardize health and has been the most significant driver in from large plots on the outskirts of disrupt labor supply. Heavy rains in the increase in food insecurity since towns to smaller, more secure plots East Africa during the 2019-2020 before South Sudan’s independence. near towns (World Bank, 2019a). Even winter season have contributed to Mismanaged macroeconomic with these smaller plots, hiring farm the ongoing desert locust outbreak, decisions in 2015 resulted in additional labor is often too expensive for many which is threatening crops and food food insecurity to a far greater security throughout the region (World farmers. A range of other factors not extent than can be explained by the Meteorological Organization, 2020). explored in this report, such as the direct impacts of violence. Thus, gender dynamics of South Sudan’s macroeconomic oversight is a crucial Even when increased rainfalls have agriculture and food systems, can also piece in the food security puzzle the potential to drive higher levels of impact farmers’ production. 51 Box 7: Impacts of the COVID-19 pandemic on South Sudan’s food insecurity International organizations and others have raised markets is expected to pose major threats to food major concerns regarding the impacts of the security in the country (UN OCHA, 2020). With market- COVID-19 pandemic on food security at a global related factors having played a leading role in South level. Export restrictions, broken value chains, labor Sudan’s food insecurity situation over the past five shortages, and loss of income and remittances years, this decrease in supply could easily exacerbate have all been identified as potential threats to food an already dire situation. availability for people worldwide (World Bank, 2020c). Estimates of food insecurity in the period up until In the context of the COVID-19 pandemic, 2021, shown in Figure 30 below, shows that high South Sudan’s food security situation has been populations face an increasingly intense food characterized by increased instability. News of the insecurity crisis, with less seasonal change than in spread of the virus among UN workers, heads of the past two years (in essence, a temporary relief government, and UN PoC camps raised concerns from insecurity following crop harvests). With the high regarding extensive infection throughout the country level of uncertainty regarding the trajectory of the and region. Coupled with underlying risk factors, the COVID-19 pandemic and its effects not only on health, COVID-19 pandemic presents a critical threat to the but also on markets and general instability, outcomes wellbeing of South Sudan’s population. Decreases could certainly be worse than current estimations in food imports among populations highly reliant on suggests. Figure 30: Historical estimates and forecast of population in food crisis in South Sudan, (2008-2021) The international community’s nutrition outreach programs (World human rights, and to support the response to South Sudan’s food Food Programme, 2018). The UN delivery of humanitarian assistance insecurity crisis has been largely Peacekeeping Mission in South Sudan (United Nations Peacekeeping, 2019). implemented through humanitarian (UNMISS) was established in 2011 and Peacekeeping and aid have been initiatives. In 2018, the World Food now includes over 19,000 deployed provided through the aftermath of the Programme assisted 5.3 million personnel. Following the outbreak 2013 and 2016 conflict outbreaks, with people in South Sudan through of war in December 2013, the UN food assistance comprising about 13 the provision of food assistance, Security Council reprioritized UNMISS percent of cereals and roots consumed cash transfers, school meals, and to protect civilians, two monitor across during lean seasons (FAO & 52 World Food Programme, 2019). By To stabilize smallholder agriculture livelihoods (World Bank, 2015). working with UNMISS, WFP, and other will require a sufficient level of Infrastructure and security must humanitarian actors, South Sudan public safety to enable the voluntary both be strengthened in order to can ease the transition toward the return of IDPs and refugees. Part of restore trade to pre-civil war levels. self-sustaining food production that the challenge relating to voluntary At present, even local access to will be necessary to ensure long-term returns will involve land claims, markets has become dangerous or food security. To facilitate this, these and land ownership and tenure, impossible due to infrastructure and initiatives should address chronic food as returnees reclaim previously security breakdowns, which has kept insecurity (driven by structural issues) occupied or held property. Land issues markets from rebounding following the in addition to acute food insecurity related to conflict, such as between subsiding of conflict. (driven by shocks such as conflict or cattle-owning Dinka and sedentary flooding). farmers, are likely pose further While implementing technological challenges if Equatorian farmers improvements to increase agricultural In 2015, a World Bank Systematic return from Ugandan PoC camps. productivity can be challenging due Country Diagnostic suggested that Conflict avoidance measures may be to infrastructure constraints, it has the low levels of productivity and necessary and could require formal the potential to improve food security commercialization of agriculture agreements between community outcomes and reduce poverty in the and livestock in South Sudan could leaders. Landholding reform, including long term. Shortages and high costs of be addressed through measures measures to enable women to own fuels indicate a need for the application to strengthen smallholder-based land independently, could further drive of technological solutions that do not agriculture and to develop large- improvements in shared prosperity rely on fuel. Rather, farm equipment, scale commercial farms. This and social inclusion. Agricultural storage, and other facilities should be recommendation was intended to jobs programs could also assist the tailored to meet the needs of small improve food security and nutrition in returning labor force to find productive farmers. Augmentative irrigation can the short term and to reduce poverty work and increase food availability. further stabilize growing, providing a in the long term (World Bank, 2015) cost-effective solution in the context D.C.”,”source”:”documents.worldbank. Given the impact of inflation on of high levels of weather/climate org”,”event-place”:”Washington, market prices and food security, it is variability. The provision of additional D.C.”,”abstract”:”The combination crucial for the authorities to continue food storage facilities could also help of South Sudan’s historical and to implement measures to facilitate to reduce waste. Such improvements geographical isolation, extreme the achievement of economic would require long-term investment fragility to conflict, oil dependence, stabilization. While inflation has and commitment to agricultural and extremely low socio-economic already declined from its 2016 peak, research. conditions represents a formidable and prices remain excessively high for a almost unique development challenge. significant proportion of consumers. Overall, the achievement of The Republic of South Sudan emerged Thus, measures to stabilize the improved food security in South from decades of conflict in 2011 overall economic situation and to Sudan requires a comprehensive as the world’s newest independent support and protect the incomes of approach to address multiple country. In an extremely fragile country the poor is crucial to redeveloping interacting factors. Addressing a like South Sudan, reducing extreme markets. Improved agro-logistics are single factor, whether this be the poverty is closely linked to finding also necessary to support locally- underlying conflict-related insecurity, paths out of recurrent cycles of conflict sourced markets (Pape et al. 2017). or supply-chain breakdowns, or water and fragility. Hence, the systematic Part of a strategy to achieve this storage, will neither solve the current country diagnostic (SCD. Measures to requires the establishment of safe severe food crisis nor prevent future support this development could also access to markets (e.g., through crises from emerging. Rather, this be paired with programs to promote collective activity such as local co- is a multidimensional problem that entrepreneurship and social inclusion, ops/aggregators or through safe requires multi-dimensional solutions. such as through the provision of routes that allow passage without As seen through the dramatic shifts in training for women to improve their extortion or violence). 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