In January 2012, as a response to a dispute with the Government of Sudan on the terms in which South Sudanese oil was to be transported to market—and as a reaction to the Sudanese authorities diverting its oil to their own refineries and ships—the Government of the Republic of South Sudan decided to shut down its entire national oil production. Such a decision had never before been made by a country. And in the case of South Sudan, oil revenue constituted between 97% and 98% of its revenue: oil production is almost identical to government revenue.
The following figure shows oil production, past and forecast, from the existing fields in South Sudan.
Visiting Juba a month later, the head of a World Bank delegation had this to say:
“The World Bank has never seen a situation as dramatic as the one faced by South Sudan. In [Mr. Guigale’s] view, neither the President nor senior ministers present in the meeting were aware of the economic implications of the shut-down. He candidly said that the decision was shocking and that the officials present had not internalized nor understood the consequences of the decision.”
South Sudan’s GDP declined by 49% during 2012, a contraction without precedent in the history of economic recessions.
How did South Sudan weather this storm? Non-oil revenues were increased but that represented a miniscule addition. Reserves of between $1-2bn were used up. Debts of an estimated $4.5bn were run up. And the budget was cut—except for the army:
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