April 20, 2011 (WASHINGTON) – The Government of Southern Sudan (GoSS) made a formal request with the International Monetary Fund (IMF) to become a member, according to a press release made by the IMF on Wednesday.
The global financial institution said in a statement that the application “will be considered in due course”. Until then, the united Sudan “will remain a member of the IMF and retain all its quota in the Fund as well as all its assets in, and liabilities to, the IMF”.
South Sudan voted overwhelmingly in favor of independence last January and will legally join the international community as its newest state next July.
But North and South have yet to untangle a range of economic issues such as wealth sharing and splitting national debt.
The IMF said that North Sudan may lose 75% of oil revenues in a worst case scenario that would result in domestic and external imbalances.
While most of Sudan’s proven daily output of 500,000 oil barrel is extracted from oilfields in the south, the pipelines infrastructure and refineries are based in the north. The South will therefore be required to pay a fee to transport its oil and ship it abroad from Port Sudan terminal.
But it is all but certain that the North will receive far less than the 50-50 split currently in place. The loss will cause a drop in inflow of foreign currency, impact public finances and balance of payments which could lead to additional pressure on the fiscal deficit and the country’s foreign exchange reserve which already at record lows.
"Under the IMF’s prescribed procedures for membership applications, South Sudan’s application must first be investigated by the IMF’s Executive Board,” the IMF said.
“After its investigation, the Executive Board submits a report to the Board of Governors of the IMF with recommendations in the form of a Membership Resolution. These recommendations cover the amount of quota in the IMF, the form of payment of the subscription, and other customary terms and conditions of membership. After the Board of Governors has adopted the Membership Resolution, the applicant country may become a member once it has taken the legal steps required under its law to enable it to sign the IMF’s Articles of Agreement and to fulfill the obligations of IMF membership”.
If accepted, South Sudan will become the Washington-based lender’s 188th member country.
The IMF also announced that it will seek donor funds for a special Trust Fund for IMF Capacity Building for South Sudan.
“This trust fund will provide intense IMF technical assistance to the authorities in critical areas relevant to building the new country’s macroeconomic institutions. Harnessing its expertise and infrastructure, the IMF would provide technical assistance in its areas of core expertise to enable the design, implementation and monitoring of sound macroeconomic policies, including by developing a fiscal framework, establishing the central bank and its core activities, building statistical capacity and putting in place the legislative framework required for effective economic and financial management” the press release said.
“The trust fund would total US$10.6 million for just under four years and aims to mobilize quickly, given the urgency of needs in South Sudan”.
The IMF describes South Sudan as one of the poorest regions in the world where 9 out of 10 people live on less than $1 a day. It has only about 30 miles of paved roads and almost 80 percent of services such as health, education, safe drinking water and sanitation are provided by NGO’s.
Furthermore, according to the UN Food and Agriculture Organization (FAO), almost half the population is in need of food assistance.
But the IMF notes that South Sudan is a region endowed with large oil reserves, fertile soil and many other minerals such as uranium, gold, and copper.
“If these resources are properly managed, it has the potential to become a viable state and important player in the region”.
For the moment, the IMF stresses that South Sudan would face “major challenges in creating a functioning government”.
“These include its near total dependence on oil revenue (about 98 percent of government revenue), weak institutions, absence of virtually any infrastructure, a dearth of trained civil servants, and the lack of basic statistics. These compound the government’s inability to tackle poverty and infrastructure challenges, and constrain both growth and access to basic social services. Potential political and military divisions may also inhibit the ability of the South to address the social and economic expectations of its people”.