Juba dollar restrictions to stay as pressure mounts for reforms

The Bank of South Sudan is intensifying efforts to reduce the dependence on the US dollar in the country's economy, aiming to stabilize capital outflows and bolster the shrinking foreign exchange reserves. The move comes as the nation's forex reserves have dwindled to below one month of import cover, prompting a crackdown on the use of the dollar in transactions. CNBC Africa spoke to Akol Dok, Managing Partner at Orus, to shed light on the challenges facing South Sudan and the strategies being employed to promote the local currency, the South Sudanese pound. South Sudan's government is actively pushing back against the dollarization of the economy, urging traders, entrepreneurs, and businesses to conduct transactions in South Sudanese pounds rather than US dollars. This push is an attempt to combat the prevailing demand for the dollar and encourage the use of the local currency. The increasing dollar dependency has adversely affected the liquidity levels held by the Bank of South Sudan. The current liquidity level barely covers half a month of imports, falling significantly short of the East African Community Convergence Criteria's minimum requirement of 4.5 months import cover. The single-commodity reliance of South Sudan on oil exports for generating dollars exacerbates the challenge of maintaining adequate forex reserves. Fluctuating oil prices directly impact the country's revenue generation, leading to fluctuations in reserve levels. Furthermore, the government's high spending, especially in the aftermath of the peace agreement, has strained the reserves, creating additional hurdles in sustaining the required import cover. The strong demand for US dollars in South Sudan, coupled with the prevalent use of the dollar over the South Sudanese pound, further complicates the economic landscape. According to Akol Dok, the stringent measures being implemented aim to enhance the financial system's integrity, combat corruption, and deter money laundering. The overarching goal is to instill trust in the South Sudanese financial sector, fostering economic growth and attracting domestic and foreign investments. The South Sudanese government's efforts to address allegations of money laundering have been notable, with initiatives to adhere to international anti-money laundering standards. Through collaborations between the central bank, the Ministry of Finance, and foreign entities, South Sudan is striving to bolster its financial credibility and integrity. Despite these efforts, the flight to safety to the US dollar continues to impact the South Sudanese pound, which has been subject to a floating exchange rate system for approximately two years. The transition to this system triggered initial challenges, leading to a significant appreciation of the pound against the dollar. New regulations mandating South Sudanese pound bank accounts for residents and restricting dollar transactions have been introduced to stimulate the local currency's circulation and curb dollar outflows. Getting broad acceptance and compliance from various economic stakeholders remains a critical challenge in fully transitioning to the South Sudanese pound. While a complete return to regular South Sudanese pound usage may not be immediate, gradual progress is anticipated. The post-conflict country is navigating a complex landscape, characterized by low oil production levels, a bloated government structure, and ongoing peace agreement implementation. Short-term measures aimed at enhancing reserves, fiscal policies, and regulatory frameworks are expected in the next six months to a year. A long-term vision spanning three to five years envisions a stronger political will and infrastructure to support widespread adoption of the South Sudanese pound, reducing reliance on the US dollar to essential imports only. The road to currency reform in South Sudan is a multi-faceted journey that requires sustained efforts and strategic planning to pave the way for a more stable and self-sufficient economy.