South Sudan must exercise caution and total transparency in pursuing oil-backed financing, said Global Witness today. The detailed publication of any loan agreement will be critical in preventing exploitative terms, corruption, and mismanagement from undermining immediate benefits.
There have been several reports over the last week of the Government of South Sudan securing loans---ranging from US$100-500 million---to mitigate the impacts of the current economic crisis and finance specific infrastructure projects. The exact terms of these deals have not been published but there are indications that they will be, at least in part, tied to future oil revenues. Global Witness and others have repeatedly documented the instability and capital flight that result when resource-rich developing countries take on large public debt in the absence of robust public reporting and auditing systems. (1)
“Taking on loans with a commitment to repay them in future oil production or revenues can be risky under the best circumstances,” said Global Witness Campaigner Dana Wilkins. “The risks of corruption and mismanagement are huge, and given the importance of oil to South Sudan’s future, the Government must be extremely careful and transparent in managing these deals.”
Prior to South Sudan’s oil production shutdown in late January, oil revenues made up more than 98% of the annual budget. Though austerity measures are being put in place to address this near total deficit, reserves held by the Central Bank are reportedly depleting quickly and critical institution-building, infrastructure, and other projects may have to go unfunded. (2)
Many South Sudanese citizens believe that the state can survive until a new deal with Sudan can be agreed or alternative export routes can be built, based on the fact the country’s oil wealth will remain safe in the ground for future use. Though the oil may be physically secure, the rights to it can be mortgaged off to foreign financial institutions for immediate funding. In many cases from around the world, this process has been done behind closed doors, the wider public having no idea that their natural resources have been pre-sold, sometimes years in advance and at likely exorbitant interest rates. (3)
If the Government of South Sudan feels that oil-backed loans are currently necessary to prevent economic collapse, it is critical that robust protections are put in place to minimize future costs and consequences. According to international best practice as outlined by the International Monetary Fund, money from these loans should be received by a carefully controlled national bank account managed by the Ministry of Finance and Economic Planning, and the balance, liabilities, and loan terms should be fully disclosed to the public.
“As the rightful owners of the country’s natural resources, all South Sudanese citizens should be allowed the information necessary to understand exactly what has been agreed and what the future obligations of the country will be,” added Wilkins. “This will be one of the first major tests of the Government’s repeated commitments to transparency and accountability.”
Contact: For more information contact Dana Wilkins in the UK on +44 (0)7808 761 570, [email protected] or Andrea Pattison on +44 (0)7970 103 083, [email protected].
(1) See Global Witness reports, including Time for Transparency, Undue Diligence, The Secret Life of a Shopaholic, and International Thief Thief.
(2) A new oil deal to allow South Sudan to resume exporting its crude oil via the existing pipelines and marine terminal in Sudan is still possible. But the protracted and volatile nature of the negotiations and recent border conflicts make it difficult to foresee a return to normal production and export operations within the next 6 months at least.
(3) This can very quickly create a debt cycle whereby a developing country is caught in a loop of repaying debt with current revenues, will being forced to take out more loans to finance public services and government salaries.