9 Jul 2012

South Sudan faces economic disaster as cost of independence bites

One year after the euphoria of independence, South Sudan faces economic disaster that could reverse recent development gains after it shut down oil production in a dispute over pipeline fees with Sudan.

Preying on people's minds in Juba is the thought that the government is about to run out of money – shutting down vital services in an already impoverished country. A few months ago, some thought the government would run out of cash to pay teachers and health workers as early as August; now the prediction is September or the end of the year.

A group of girls looks across Juba, Sudan, from atop a hill overlooking the city. Voting begins Sunday for the referendum of self-determination of Southern Sudan.

Khartoum is feeling the economic and political heat as well. Taking a leaf out of South Sudan's book, Sudan's president, Omar al-Bashir, is cutting the number of cabinet posts from 31 to 26. However, other austerity measures – a rise in transport costs and a doubling of fuel and food prices following cuts in subsidies – have provoked demonstrations and calls for Bashir to step down.

Analysts say the calamitous economic situation in both countries could force Juba and Khartoum – with prodding from outside, particularly the US and China – to cut a deal to start the oil flowing again.

"The fiscal picture in South Sudan is terrible, the socio-economic stress is harsh, there are protests in Sudan, there are border tensions," said Jason Mosley, an associate fellow at the Africa programme at Chatham House, the international affairs thinktank. "The economic picture is so bad it could push both sides towards some sort of compromise."

The Guardian