A South Sudanese think-tank has released a policy brief warning a possible economic collapse if the government does not make radical reforms and adjust expenditure.

“Closing the gaps between the official and parallel rates would require a well-coordinated and coherent monetary framework and fiscal discipline without which gains from new exchange rate regimes would be a budget improving mirage. Eventually the economy runs the risks of crumbling under the heavy weight of uncontrolled public expenditures, deficit-financing, and repeated episodes of devaluations of the local currency and hyperinflation,” says the policy brief published on Tuesday.

The local think-tank, Sudd Institute, stressed that limited scope for tax revenues and fiscal flexibility had forced the government to resorting to printing more money and increased domestic borrowing to make up for lost revenues from oil and other sources.

“Money supply has increased by over 20 percent over a short time between the fourth quarter of the last fiscal year and the first quarter of the current fiscal year. This means much of the fiscal deficit is being and will continue to be financed through monetization or money creation where the amount of the local currency in existence has far exceeded the demand in the economy,” the brief adds.

It added that the gap between the official rate and the parallel market continues to widen, with the devaluation of the SSP and spikes in inflation contrary to expectations and policy intention even after the government had introduced auction policy to subsidize foreign exchange rate in the market.

The Central Bank of South Sudan has started to inject hard currency to commercial banks through auctions. By the end of January 2016, according to the brief, three foreign exchange auctions were conducted where the Central Bank sold a total of 56,630,000 dollars to bidding commercial banks.

The brief authored by Ariic David Aguto Reng and Augustino Ting Mayai explained that the Central Bank of South Sudan has technically instituted a two-way foreign exchange auction process where the Central Bank can make sale or buy dollars from participating commercial banks.

There have, according them, only been sale auctions, where the Central bank sells dollars to participating commercial banks through bidding. The auction system uses a uniform price where all successful bidders (winning bids) are sold dollars at the same cut-off rate determined by the Central Bank.

In the three auctions, according to the brief, the Central Bank obtained 1,036,518,800 SSP by selling roughly $60 million.

The report notes that the auction policy had run into problems, resulting in the sudden devaluation of the pound and induced unraveling inflation in the country.

It stressed that prices of essential goods and services have risen with far reaching impacts on the poor who have limited means of coping with inflation. The situation, it added, is compounded by the fact that the country depends on dollar-priced imports for most of its consumption needs.

It identified 25 commercial banks which had bought dollars from the central bank. It listed the banks which received in the first, second and third auction exercises as seen below.

KENYA COMMERCIAL BANK FOREIGN SUBSIDIARY 0 0 2000000.00

EQUITY BANK FOREIGN SUBSIDIARY 0 0 2,000,000

CO-OP BANK OF SOUTH SUDAN JOINT VENTURE 0 2,620,000 0

ECOBANK JOINT VENTURE 0 0 2,000,000

CFC STANBIC BANK FOREIGN SUBSIDIARY 0 4,000,000 0

IVORY BANK DOMESTIC 500,000 0 0

AFRILAND FIRST BANK JOINT VENTURE 2,000,000 0 2,000,000

BUFFALO COMMERCIAL BANK DOMESTIC 2,500,000 0 2,000,000

ORBIT PLC BANK JOINT VENTURE 0 0 450,000

COMMERCIAL BANK OF ETHIOPIA FOREIGN SUBSIDIARY 3,900,000 0 0

QATAR NATIONAL BANK FOREIGN SUBSIDIARY 0 0 2,000,000

KUSH BANK DOMESTIC 1,350,000 0 2,000,000

LIBERTY COMMERCIAL BANK DOMESTIC 1,000,000 0 2,000,000

AGRICULTURAL BANK DOMESTIC 180,000 1,450,000 0

OPPORTUNITY BANK JOINT VENTURE 0 750,000 0

NATIONAL CREDIT BANK JOINT VENTURE 600,000 0 0

NILE COMMERCIAL BANK DOMESTIC 150,000 0 0

SOUTH SUDAN COMMERCIAL BANK JOINT VENTURE 100,000 0 0

CHARTER ONE BANK JOINT VENTURE 0 4,000,000 0

INTERNATIONAL COMMERCIAL BANK JOINT VENTURE 500,000 0 0

ALPHA COMMERCIAL BANK JOINT VENTURE 3,000,000 4,000,000 0

REGENT AFRICAN BANK JOINT VENTURE 100,000 0 0

PEOPLE'S PLC BANK DOMESTIC 0 220,000 0

AFRICAN NATIONAL BANK DOMESTIC 750,000 2,750,000 2,000,000

ROYAL EXPRESS BANK DOMESTIC 0 210,000 1,550,000