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

By Hereward Holland

JUBA, Oct 12 (Reuters) - South Sudan needs a lasting peace with Sudan and to meet major challenges such as weak state institutions and a lack of infrastructure to unlock its economic potential, the International Monetary Fund (IMF) said on Friday.

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

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

In its latest outlook, the IMF said South Sudan had sizeable economic potential due to oil, livestock, fishery, agricultural and forestry reserves.

"Major challenges will need to be overcome if this potential is to be realised. These challenge include institutional weaknesses, limited physical infrastructure and a weak human capital base," the IMF said in its report.

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

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

Despite receiving billions of dollars since a 2005 peace agreement with Sudan, the government has achieved little to kickstart development, build up efficient state institutions and end tribal and rebel violence.

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

The IMF predicts South Sudan's GDP to fall by 55 percent in 2012 as a result of the oil shutdown. For 2013, when oil exports are exacted to resume, it expects the GDP to grow by 69.6 percent, according to the report.

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

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

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

"It was a balance thing. If you import more and you export less, what do you have? You have lower growth," David Chan Thiang, head of economic statistics at NBS, told reporters in Juba.

(Reporting by Hereward Holland and Ulf Laessing)

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

Keywords: SOUTHSUDAN GROWTH/