In a significant move to modernize its financial landscape, South Sudan has introduced strict limits on cash withdrawals in an effort to promote the use of electronic payment systems. The Bank of South Sudan (BoSS), the country’s central banking authority, has capped daily cash withdrawals at SSP10 million (approximately $3,730.58) per individual or entity. The restrictions apply to both the public and private sectors, as part of a broader initiative aimed at reducing the reliance on physical currency and fostering the digitalization of the nation’s financial services.

Encouraging a Cashless Economy

This decision is part of South Sudan’s broader efforts to shift towards a more cashless society. The central bank has been vocal about the benefits of digital transactions, highlighting their potential to lower costs associated with printing and handling physical currency. BoSS has urged individuals and businesses to embrace various electronic payment platforms, including mobile money, credit, and debit cards, which are considered to be more efficient, cost-effective, and secure compared to cash transactions.

In a circular issued on September 16, 2024, the central bank emphasized that any cash withdrawal exceeding the SSP10 million threshold would have to be conducted through bank deposits, interbank transfers, or mobile money transactions. This approach is aimed at ensuring greater oversight of cash flow within the economy, while simultaneously boosting financial inclusion by making it easier for more citizens to open bank accounts and engage with the formal financial system.

“The public is encouraged to embrace electronic payment platforms, including mobile money, credit and debit cards, which incur low charges on transactions while offering convenience and establishing individual credit history,” the circular stated. This statement underscores the central bank’s commitment to integrating digital financial services into the broader economy, ensuring that citizens can access these platforms seamlessly.

Expanding Financial Inclusion

One of the key objectives of this new policy is to bring more people into the formal financial sector. South Sudan’s banking system has traditionally been exclusionary, with many citizens unable to access basic banking services due to a variety of barriers, including complex account-opening procedures and geographical limitations. To address these issues, BoSS has directed commercial banks to simplify the process of opening accounts, particularly for those who have historically been excluded from the financial system.

The central bank’s policy signals a transformative step towards digitalization in South Sudan, where financial technology applications are becoming increasingly essential for economic operations. This policy shift is expected to mitigate the risks associated with carrying large amounts of cash, while also enabling more efficient transactions, faster payments, and improved security. In addition, the move will allow the central bank to exercise greater control over the cash in circulation, which is crucial for the effective implementation of monetary policy.

Addressing Economic Challenges

South Sudan’s economy is heavily reliant on oil revenues, which account for more than 90% of the country’s foreign exchange earnings. However, declining oil production, coupled with ongoing political instability and the conflict in neighboring Sudan, has placed significant pressure on the nation’s economy. The country is also grappling with a shortage of US dollars, which has exacerbated inflation and led to a sharp decline in the value of the South Sudanese pound.

In an effort to stabilize the currency and reduce the demand for US dollars, the Bank of South Sudan suspended the use of foreign currencies in local transactions in February 2023. This move was intended to promote the use of the South Sudanese pound, which had been significantly undermined by hyperinflation and volatility. According to the central bank, the widespread use of the US dollar in domestic transactions was fueling speculation in the foreign exchange market and putting additional pressure on the already limited supply of hard currency.

Despite these efforts, South Sudan continues to face significant economic challenges. The International Monetary Fund (IMF) has warned that the country’s risk of debt distress remains high, due to its heavy reliance on oil revenues, high debt service costs, and low levels of foreign exchange reserves. The country’s fiscal buffers are also weak, leaving it vulnerable to external shocks.

The Impact of Conflict and Climate Change

South Sudan’s economic difficulties have been further exacerbated by the ongoing conflict in neighboring Sudan, which has led to a disruption in trade and a spillover of violence. The situation has been worsened by protracted flooding in many parts of the country, which has destroyed crops and displaced communities. These twin crises have compounded the already severe humanitarian situation in South Sudan, where an estimated 7.1 million people are facing acute food insecurity.

The challenges facing South Sudan are not only economic but also political. The country is preparing for national elections in 2024, and the government is under increasing pressure to finance the incorporation of newly constituted security forces into the national payroll. This comes at a time when international humanitarian assistance is declining, further straining the country’s limited resources.

According to the IMF, South Sudan’s economy is expected to remain fragile for the foreseeable future, with ongoing political instability, climate-related shocks, and declining oil revenues posing significant risks to its recovery prospects. However, the IMF has also highlighted the potential benefits of the country’s digitalization efforts, particularly in the financial sector. By promoting the use of electronic payment systems, South Sudan could reduce its reliance on foreign currency and strengthen the role of the South Sudanese pound in the economy.

International Monetary Support and Reforms

In light of South Sudan’s economic challenges, international organizations like the IMF and the World Bank have been providing financial assistance and technical support to help the country stabilize its economy and implement necessary reforms. These efforts are aimed at improving the country’s fiscal management, enhancing transparency in public financial operations, and reducing corruption.

The IMF has urged South Sudan to accelerate its structural reforms, particularly in the areas of governance, public financial management, and the oil sector. The country’s oil industry, which is its main source of revenue, has been plagued by mismanagement and corruption, leading to significant revenue losses. Strengthening oversight and accountability in this sector is seen as critical to ensuring that oil revenues are used to support economic development and poverty reduction.

The Role of Financial Technology in South Sudan’s Future

As South Sudan continues to face significant economic and political challenges, the digitalization of its financial services sector offers a glimmer of hope for the country’s future. By promoting the use of mobile money and other electronic payment platforms, the government and central bank are taking important steps toward creating a more inclusive, efficient, and resilient financial system.

Mobile money services have already gained traction in other African countries, such as Kenya and Uganda, where they have revolutionized the way people conduct financial transactions. In South Sudan, where access to traditional banking services is limited, the adoption of mobile money could play a key role in expanding financial inclusion and reducing the costs associated with cash transactions.

Furthermore, the shift towards a cashless economy could help reduce the risks of corruption and money laundering, which have been persistent problems in South Sudan. By increasing transparency in financial transactions, digital payment systems could help authorities track and combat illicit financial flows, thereby improving governance and strengthening the country’s institutions.

Conclusion

South Sudan’s decision to limit cash withdrawals and promote electronic transactions marks an important step in the country’s journey towards a cashless economy. While the country faces numerous economic challenges, including a shortage of foreign exchange, declining oil revenues, and ongoing political instability, the digitalization of its financial services sector offers a potential pathway to greater financial inclusion, transparency, and economic stability.

By embracing electronic payment platforms and reducing its reliance on cash, South Sudan could improve its monetary policy, reduce the risks associated with carrying physical currency, and enhance the efficiency of its financial system. However, the success of these efforts will depend on the government’s ability to implement reforms, address underlying economic challenges, and build a more resilient and inclusive economy for all its citizens.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

23rd September, 2024