South Sudan’s economy has remained unstable for years. Inflation is persistently high, the national currency continues to depreciate, and ordinary citizens steadily lose purchasing power. These challenges are often attributed to conflict, declining oil revenues, and global economic shocks. While these factors are important, they do not fully account for the depth or duration of the crisis.
A closer examination reveals a deeper, institutional problem. The Bank of South Sudan has struggled to fulfill its core mandate of maintaining price stability and sustaining confidence in the national currency.
For several years, the government has relied heavily on the central bank to finance public spending by creating new money to cover budget deficits.
The International Monetary Fund (IMF) has repeatedly warned that deficit financing through money creation is a primary driver of inflation in South Sudan. When the money supply expands without a corresponding increase in production, prices rise, and the currency weakens.
The World Bank has reached similar conclusions, noting that inflation in South Sudan is largely driven by policy. Rising prices erode household incomes, discourage savings in the local currency, and weaken confidence in the South Sudanese pound.
As a result, many citizens prefer holding foreign currencies—particularly the U.S. dollar—further undermining monetary policy effectiveness and limiting the central bank’s ability to control inflation.
In most economies, central banks use interest rates to manage inflation and encourage savings. In South Sudan, however, interest rate policy plays only a limited role.
IMF assessments indicate that weak interest rate signaling discourages savings in the local currency and constrains the development of credit markets. This has contributed to a shallow financial system that struggles to support productive investment and economic growth.
The Bank of South Sudan Act of 2011 establishes the central bank as an independent institution responsible for price stability, banking supervision, and foreign exchange management.
In practice, however, this independence remains constrained. IMF and World Bank governance assessments suggest that political influence continues to affect key decisions, particularly regarding government financing and foreign exchange allocation.
When a central bank lacks operational independence, public confidence erodes. Inflation expectations rise, parallel exchange markets expand, and investor confidence weakens.
Another structural challenge is the banking sector’s limited support for productive investment. Most lending is concentrated in short-term trade and consumption, while agriculture, manufacturing, and small-scale industries receive minimal financing.
The World Bank and African Development Bank have noted that this pattern hinders economic diversification and keeps South Sudan heavily dependent on oil revenues. Without stronger financial support for productive sectors, job creation and sustainable growth will remain limited.
In recent years, South Sudan has experienced repeated cash shortages. While authorities often cite technical constraints, many market participants report widespread conversion of local currency into foreign exchange and cross-border movement of funds.
Although some claims regarding the destination of these funds require verification, the domestic impact is evident. Reduced liquidity has disrupted trade, increased transaction costs, and contributed to higher prices.
With support from international partners—including the IMF—the Bank of South Sudan has developed policies aimed at strengthening monetary management, banking supervision, and compliance with anti-money laundering standards.
However, implementation remains uneven. The World Bank has consistently identified weak policy execution as a major challenge in fragile states such as South Sudan.
South Sudan’s economic challenges are not solely the result of conflict or external shocks. They are also rooted in weak monetary governance and institutional constraints.
For economic stability to improve, several reforms are essential: – Reducing reliance on money printing to finance government spending – Strengthening the operational independence of the central bank- Using interest rates and liquidity management tools more effectively- Improving oversight and transparency in foreign exchange markets.
Without serious reform, inflation and currency instability will continue to undermine households, businesses, and the country’s long-term development prospects.
The writer is a legal scholar and policy analyst specializing in governance, economic reform, and institutional development in South Sudan. He can be reached viadr.stephen.dhieu@gmail.com.
The views expressed in ‘opinion’ articles published by Radio Tamazuj are solely those of the writer. The veracity of any claims made is the responsibility of the author, not Radio Tamazuj.