To fight hyperinflation, South Sudan decides to tax aid workers

Famine, war and incompetence in the world’s newest country

Mar 18th 2017|JUBA

EVEN in the posher restaurants in Juba, the capital of South Sudan, the world’s newest country, the menus are printed on cheap paper. It is not worth having more expensive ones when they have to be updated every few weeks. Thanks to an inflation rate that touched more than 50% a month at one point last year (the conventional definition of hyperinflation, though price rises have since eased off a bit), even a modest meal costs a brick-sized bundle of currency. Over the past year, the value of the South Sudanese pound has collapsed. It used to take 30 to buy a dollar; now it takes 120. The biggest banknote in circulation, the SSP100, is now the world’s least valuable highest-denomination national note.

This nasty bout of inflation has two causes: money-printing and economic collapse. South Sudan’s economy is among the least diversified in the world. In 2014 oil provided 99.8% of the country’s export revenues. At independence in 2011, when production was high and oil fetched over $100 a barrel, petrodollars flowed freely and fuelled colossal political patronage. But a shutdown in 2012 followed by civil war, which broke out in 2013, has slashed output. South Sudan now produces around 120,000 barrels of oil a day; half as much as it did at its peak, and the price per barrel is only half what it was in 2011. The government has printed fresh banknotes to try to cover this gigantic shortfall, with predictable results.

An NGO worker in Juba shows off a picture of boxes and boxes of currency loaded onto a small plane: to pay local staff, the NGO must first pay a hefty extra baggage fee. Taxi drivers, a prominent source of black-market currency, tie up bricks of pre-counted banknotes with elastic bands to save people from having to count them out themselves.

Government salaries, when they are paid, are now worth almost nothing. And food, which is mostly imported from Uganda and Kenya, has soared in price, adding to the near-famine situation in much of the country. At Gumbo market, a litter-swept patch of dirt near where the tarmac road to Uganda starts, Grace Asio, a Ugandan trader, laments the state of her business. “The dollar costs more and more,” but the price in South Sudanese pounds that her customers can pay stays the same. “If this carries on, then definitely I will have to close,” she says.

A normal economy would adjust to the worse terms of trade, says Peter Ajak, a South Sudanese economist. Indeed, faced with a worse exchange rate, in 2015 farmers in Equatoria, an area of rich soil south of Juba, began selling their produce to Uganda—reversing the normal trade flow. Conflict, however, has stopped this. In July, a barely respected ceasefire broke down in Juba; since then the civil war, which had previously been confined to the north, has spread to Equatoria. The number of South Sudanese refugees in Uganda has more than tripled to above 700,000, while farming has all but stopped. “There is really no productive capacity left,” says Mr Ajak.

Inflation has slightly decelerated in the past few months, taking South Sudan out of technical hyperinflation. Yet the fundamental problems remain. The government is still overspending, despite having no new sources of revenue. There are still almost no non-oil exports. With peace, a bail-out might come from international donors. But South Sudan’s leaders keep fighting. Their latest revenue-raising proposal, announced just a few weeks after famine was declared in parts of the country, is to raise the cost of work permits for foreign aid workers from $100 per person to $10,000. Feast on that.

Correction: A previous version of this article claimed that South Sudan produces around 120,000 barrels of oil a month. In fact, it produces that amount each day. Sorry.

This article appeared in the Middle East & Africa section of the print edition under the headline "Death spiral"