South Sudan slashes spending after halting oil output

  • 20 February 2012
  • From the section Africa
South Sudanese citizens hold banners expressing solidarity as President Salva Kiir declared a halt on all oil operations in South Sudan
Leaving the oil in the ground has been a popular move in South Sudan.

South Sudan has halved spending on everything but salaries to compensate for the loss of revenue following an oil shutdown due to a row with Sudan.

Oil makes up 98% of its budget, after it split from the north last year.

There will be no job losses and government wages will still be paid, the finance ministry stressed.

President Salva Kiir said his nation would rather struggle for a bit than continue to hand over its oil revenues to the old enemies in Khartoum.

The pipelines run from South Sudan through its northern neighbour, with which it fought a bitter civil war for decades, leading to the deaths of some 1.5 million people.

But the two countries have never reached an agreement over how much the south must pay.

In January, South Sudan shut down its entire oil production of 350,000 barrels a day after Sudan started seizing southern oil to compensate for what it called unpaid transit fees.

After the new country shut down its oil production, Sudan's President Omar al-Bashir responded by saying war was now closer than peace.

Each country accuses the other of backing rebel groups and there have been clashes along the new border.

'Swift and deep'

The austerity measures are immediate.

"These are swift and deep cuts, but no layoffs of civil servants, organized forces personnel and [army] SPLA," Finance Minister Kosti Manibe said in a statement on Sunday.

"Everyone's paycheck is being maintained," he said.

The BBC's James Copnall in Khartoum says this is good news for South Sudan's hundreds of thousands of civil servants and men and women in uniform.

South Sudan's first budget allocated over 40% of $2bn (£1.2bn) to salaries, the AFP news agency reports.

Our correspondent says leaving the oil in the ground has been a popular move in South Sudan - many people see it as the moment the country finally became truly free.

Tax collection

The amount transferred to each of South Sudan's 10 states will also be lowered, though the reduction will be "minimal" according to the statement.

The government says it will also triple tax revenue within six months through better tax enforcement.

Our correspondent says detailed figures are not available, but it seems unlikely these measures will fully compensate for the loss of the oil revenue since no significant economy exists outside of oil.

Vice-President Riek Machar told the BBC last week that the loss of oil revenues would mean development would have to be put on hold for several years, but basic services would not suffer.

"For a period of 30 months we will definitely freeze our activities on development, but we'll provide basic services: Health; education; water and even some infrastructure projects will go on," he said.

New talks to try to resolve the oil impasse between South Sudan and Khartoum are due in the next few days in the Ethiopian capital, Addis Ababa.

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