S.Sudan faces "major challenges" to unlock economic potential-IMF

By Hereward Holland

JUBA, Oct 12 (Reuters) - South Sudan needs a lasting peacewith Sudan and to meet major challenges such as weak stateinstitutions and a lack of infrastructure to unlock its economicpotential, the International Monetary Fund (IMF) said on Friday.

Last month, South Sudan signed several agreements with Sudanto end hostilities and resume oil exports through the northafter the African neighbours came close to war in April.

But both nations still need to end other conflicts left overfrom South Sudan's secession in July 2011 such as finding asolution for Abyei and other disputed border areas.

In its latest outlook, the IMF said South Sudan had sizeableeconomic potential due to oil, livestock, fishery, agriculturaland forestry reserves.

"Major challenges will need to be overcome if this potentialis to be realised. These challenge include institutionalweaknesses, limited physical infrastructure and a weak humancapital base," the IMF said in its report.

It urged the government in Juba to invest oil revenues intoinfrastructure and development in a country with only 300kilometers of paved roads and few schools.

South Sudan split away from Sudan in July last year, takingwith it three-quarters of 500,000 barrel per day oil production.Oil exports, accounting for 98 percent of state revenues, wereshut down when tensions with Sudan escalated in January.

Despite receiving billions of dollars since a 2005 peaceagreement with Sudan, the government has achieved little tokickstart development, build up efficient state institutions andend tribal and rebel violence.

Analysts blame mismanagement, inexperience Of officials,spending on army salaries and corruption for the lack ofdevelopment.

The IMF predicts South Sudan's GDP to fall by 55 percent in2012 as a result of the oil shutdown. For 2013, when oil exportsare exacted to resume, it expects the GDP to grow by 69.6percent, according to the report.

The government said on Friday GDP growth halved to 1.9 pctin 2011, after 4.2 percent in 2010 and 4.3 percent in 2009.

In the African nation's first publication of gross domesticproduct data, exports of goods and services dropped to 16.4billion South Sudanese Pounds (SSP) ($4.1 billion) in 2011, downfrom 16.7 billion SSP in 2010.

Meanwhile imports of goods and services increased to 10.9billion SSP in 2011, up from 10.0 billion SSP in 2010.

"It was a balance thing. If you import more and you exportless, what do you have? You have lower growth," David ChanThiang, head of economic statistics at NBS, told reporters inJuba.

(Reporting by Hereward Holland and Ulf Laessing)

((ulf.laessing@thomsonreuters.com)(Reuters Messaging:ulf.laessing.reuters.com@reuters.net))