Eminent South Sudanese Economist Dr. Kimo Adiebo Aban contends that if the Government of South Sudan wants to fix the economy, it must first and fast deal with the political instability and insecurity debilitating the country. He argues that no matter what the central bank does to address the economic crisis, if political instability and insecurity remain unresolved, nothing will change.
In an exclusive interview with Radio Tamazuj, Dr. Adiebo also criticizes the frequent firing and appointment of finance ministers and Bank of South Sudan (BoSS) governors, stating that it leaves little time for these officials to plan and implement policies, thereby fueling corruption. He argues that political interference in financial institutions deepens the economic crisis and that top officials must have fixed terms and contracts.
Below are edited excerpts:
Q: What does it imply to the layman when the Government of South Sudan says the country is facing a cash shortage?
A: Well, people usually deposit their money in financial institutions like commercial banks based on mutual trust. The idea is that whenever a depositor wants anything, depending on the account they have, they can go to the commercial bank and request money, as long as they have sufficient funds. If customers go to the bank and do not get the money they want, they lose trust. Sometimes they are told the bank does not have enough funds and has to ration what is available. This is what happened around 2012. On the other hand, it can happen due to the relationship between the central bank and commercial banks because the latter are required by the former to keep a certain portion of depositors’ money with the central bank. So, sometimes, the commercial banks run into some kind of pressure from depositors who are asking for huge amounts of money, and the bank might not have sufficient funds. The only resort is for the commercial banks to go to the central bank to get money to meet their obligations towards their depositors. What may happen is that some commercial banks may go to the central bank to get cash, and they are told there are insufficient funds. So, this is a crisis, and it becomes a cycle.
When commercial banks fail to meet their obligations to their depositors, the latter become hesitant to bank their money and either keep it underground or find other ways of keeping it. The amount of money taken to banks will gradually decline, and the commercial banks will automatically take the same measures of getting their money from the central bank or find other ways of keeping their money away from the central bank. It gradually becomes a pattern, and money will be pulled from circulation, and this is why you have cash shortages.
The issue is about mistrust, and we have been talking about this. I spoke to some of the commercial banks in 2012 after the war with Sudan over the crude oil pipeline transit and transportation fees, when the country went for nine months without oil money. That was the time the then Finance Minister Kosti Manibe introduced austerity measures. To me, that was the starting point of the crisis, and when people started losing trust in the commercial banks and the commercial banks started losing trust in the central bank.
So, you need to give customers assurance that they can deposit their money and withdraw it when they need it. Also, assurances should be given to the commercial banks that they can give money to the central bank and get it when they need it. The same applies to the other operators in the economy, like foreign businesses and international organizations; they should be assured that they can access their money when they need it.
Q: Are you saying the primary reason is that the public lost trust in banks?
A: If you look at the nature of the commercial banks and the nature of the people doing business in South Sudan, the majority of them are foreigners. Most of the time, foreign business people have to import items, which means they have to have cash. So, if they cannot get the cash from the commercial banks, the only option is for them to keep their cash in their places, and this also means a skyrocketing exchange rate.
The central bank deals with many institutions, and I have interacted with the different governors, and they might have requests from commercial banks that need money, the money which was originally theirs, because the depositors’ money was taken to the central bank. At the same time, the central bank receives, under pressure, a request for money from government institutions. Now, because most of the governors are interested in keeping their positions, they always give priority to meeting the demands of the government institutions. So, when the commercial banks come, they find that there is no money. This has to stop, and priority has to be given to commercial banks such that we build trust in the banking system. It is very unfortunate that officials go to the central bank with letters from certain powerful government offices demanding huge sums, and the money is given to them.
Q: Some people suggest the printing of high-denomination currency bills as a solution to cash shortages. Do you think this can mitigate the issue?
A: I do not think so. It has been tried in many places, and was done in Sudan in 1991 because of similar reasons, and up to now, the people do not trust commercial banks. When you talk about printing money, for the money to have value, you need to have a backup. By regulation, you cannot just issue a bank note unless you have backup in terms of either gold or foreign currency, and everybody knows that we do not have sufficient foreign currency to ensure that our currency has a legal value. The other thing is to address the root causes of the economic crisis in the country.
Q: Observers have also argued that printing more currency has worsened inflation. How can the central bank manage this while building public trust in the banking sector?
A: It is all about having the right institutions and policies. I can take you back to the time when the central bank introduced the auctioning of the dollar. The idea was that if there were enough dollars in circulation, then it would reduce the pressure on the pound and stabilize the exchange rate. Some of us were very clear that we do not have a system to ensure that whatever dollar is pumped into the market will remain in South Sudan, because many of the businesses are foreign. Most of the items are imported, so they need hard currency at any cost, and these are the people who have been pushing up the exchange rate. They are ready to pay any amount of South Sudanese Pounds to get the dollar. So, I do not think the central bank can manage that.
Q: There is a significant gap between the official and black-market exchange rate of the dollar. Also, what can be done to strengthen the pound?
A: The shortage is in the banking system, and it does not mean people do not have pounds. The local currency is available, but outside the banking system. The traders use their pounds to buy dollars from the market to carry out business and import goods. So, like I said, it is all about mistrust.
Most of the commercial banks do not keep their assets within the country, even the business people do not keep their assets in South Sudan, but back home, because anything can happen here. They keep a certain amount to facilitate their daily activities. The major issue is the mistrust that was created by the political instability in the country.
Q: What should be done from the side of the banking sector to rebuild public trust in banking?
A: If you want to fix the economy, fix the politics. No matter what the central bank does to address the economic crisis, if the political instability and insecurity have not been resolved, nothing is going to change. So, the starting point is for us to fix the politics and security, and automatically, the rebuilding of trust will start, and the economy will pick up.
Q: The central bank revealed plans to work with telecom companies to use their digital money platforms. Do you think this will help?
A: I do not think so because the issue is not about transferring money but about currency (cash). The mobile money platforms just facilitate the transfer of money. So, even if you introduce this and have no cash in the economy, it is not going to work.
Q: There have been frequent changes in the leadership of the central bank and the finance ministry. What is the implication of these frequent changes?
A: How many finance ministers and central bank governors were removed in the last five years? I believe the Interim Period of the Comprehensive Peace Agreement (CPA) from 2005 to 2011 was more stable, and we probably had only two central bank governors. The governor of the central bank does not have a magic wand to address the problem. To me, that is part of the problem because if you appoint me today as finance minister or central bank governor, and do not give me assurances, then there is a problem. The law says the central bank governor has a contract of five years, and you have to stick to this and give them assurances and space such that they can start planning, and you must facilitate them. The political interference is not solving the problem but instead deepening the crisis. If I am not sure of completing my term in office, why bother about planning or doing anything? And I always say this trend is fueling corruption.
Q: What has to be done for South Sudan to embrace cashless payments?
A: Where these (cashless platforms) were introduced in Kenya and other places, they have the right environment in terms of politics, security, and even their economy, and they have the right infrastructure. We are still struggling to make normal phone calls here. So, you need the right economy, political environment, and communication systems to embrace these innovations. In South Sudan, when you call a person in a remote area, they tell you that they have to go to a certain area to have better communication. We need to address these issues before introducing those innovations. They are not bad, but timing is of the essence.
Q: How can the weak pound be propped and strengthened?
A: As I said, you cannot address the economic crisis in isolation. The priority is for the country to have political and security stability. Without stability, people will continue to keep their money in their houses, and businesses will not bank because they do not want to incur losses. Many people were dealing with government contracts and did not diversify; now the government is broke, and they are also broke.
Q: There have been reports over time that tax collections go to individuals instead of government coffers. Could this be contributing to the cash crisis and inflation?
A: I normally repeat a speech made by Former Finance Minister Aggrey Tisa, where he appealed to the Legislative Assembly to scrap tax exemptions and said he does not need oil money to run the government. This means the volume of tax exemptions in South Sudan exceeds the government’s budget. The government should only give somebody a tax exemption if they have done something very important to the people and the country, they have implemented a huge developmental economic project, and then they are given recognition. However, unfortunately, some people trade in those tax exemptions, and this is one of the problems.
One of the reforms that should have been done is to streamline the non-oil revenue collection, but people are still receiving cash. A person or company paying tax should channel the money directly to the bank using a cheque. We have been hearing stories of cash (taxes) being collected at the border in Nimule and transported to Juba in boxes. So, if six boxes are sent from Nimule to the finance ministry in Juba, for example, only three will reach, and this is part of the problem, and it is worsening the situation.
Q: What is the way forward?
A: If you do not have stability, you cannot address the economy. The central bank should be empowered to carry out its mandate without interference. They should be allowed to keep sufficient cash reserves so that they can meet the demand from the commercial banks.
The central bank should also be allowed to build foreign currency reserves instead of eroding what is there, because this is how you can strengthen the local currency against other currencies. They should be empowered such that they can introduce regulations. For example, capital flight is a major factor in the context of South Sudan because many businesspeople do not reinvest in the country. The traders have a right to transfer their money, but give them some conditions, like reinvesting 30 percent of their income within South Sudan. There are other mechanisms, too. This will help, and also ensure that some money remains in the economy.
When you go to other countries, even in the region, it is not allowed to carry out transactions in foreign currencies in the market. I know we have regulations in place prohibiting people from transacting in dollars; unfortunately, it continues to happen, and even government institutions do it. So, how will people obey? Foreign currency has to be monitored because you need to know how much is there. When you talk about stabilizing your currency, you have to have an idea about the amount of supply.
Some government institutions block whatever the central bank is doing, and it is very frustrating to some of the senior officials. You need to have a robust board of directors instead of people who rubber stamp.