South Sudan’s oil did not merely finance fragility. It reorganised the state around fragility’s most efficient operating model: monetise the future, disburse in the dark, and manage the present through arrears and discretion. When a new country inherits a high-value export before it has built a treasury capable of routine discipline, the commodity becomes less a revenue stream than a governing technology. It supplies cash, yes—but also shortcuts: direct awards, pre-export advances, earmarked side-funds, and the quiet substitution of accounting with access.
By the IMF’s own description, oil exports have accounted for nearly 90 percent of fiscal revenues and 95 percent of exports, leaving the macro-fiscal system exposed to any interruption in flows. [IMF Press Release No. 24/210, 10 June 2024]. (IMF) South Sudan then experienced precisely the sort of interruption that a landlocked oil producer cannot treat as a temporary logistics issue: since mid-February 2024, pipeline damage linked to the war in Sudan cut exports to about one-third of their previous level. [IMF Press Release No. 24/210, 10 June 2024]. (IMF) The World Bank later characterised the economic effect with unembellished severity: an estimated 23.8 percent contraction in FY25, driven by a year-long shutdown of the Dar Blend pipeline (February 2024–2025), which carries 63 percent of South Sudan’s oil. [World Bank South Sudan country strategy fragment, 2025]. (World Bank) In such a setting, “fragility” is not an atmosphere. It is a fiscal architecture.
The deeper point is about sequencing. There is a persistent temptation—among politicians, lenders, and even well-meaning development actors—to treat resources as the enabling condition for institution-building. South Sudan illustrates the inverse risk: resources can arrive early enough to prevent institution-building. The political economy of a large, liquid rent can crowd out the slower work of treasury control, because it allows a state to function (just) without it. The consequence is not simply corruption, though corruption becomes easier. The consequence is statehood without order: budgets that do not bind; accounts that do not settle; and elites who find it rational to compete for “channels” rather than build a common ledger.
What follows is a deliberately practical reading of how oil revenues outpaced fiscal and control capacity; why monetisation before discipline becomes a governance hazard; how opacity and off-book flows fracture elite coalitions; and what alternative sequencing—still feasible—might look like for DFIs, energy actors, and sovereign planners who prefer stability to improvisation.
I. When revenue arrived before the treasury
The IMF mission statement of October 2024 is candid about the immediate transmission mechanism from oil disruption to state stress. The pipeline carrying about 70 percent of South Sudan’s oil exports had been inoperable since February 2024; the decline in oil revenues drove depreciation, inflation, and “challenging budget execution.” [IMF Press Release No. 24/354, 2 October 2024]. (IMF) That is the surface story. The more instructive story sits beneath it: budget execution was already a fragile practice even before the shock, because the treasury’s basic control systems remained partial, thinly enforced, and too often bypassed.
In the IMF’s 2024 technical assistance summary on budget execution, the diagnosis is not exotic. It is recognisable to any public finance practitioner: realistic budgets are hard to prepare; disciplined execution is hard to enforce; cash shortages produce rationing; arrears accumulate. Crucially, the report notes that while the 2011 Public Finance Management and Accountability Act provides a foundation, the absence of detailed regulations and procedures means legal provisions are “not enforced in practice.” Expenditure controls are weak due to poor commitment controls and payment procedures; a cumbersome paper-based process persists; and “a large amount of oil revenue is earmarked,” constraining allocation to development priorities. [IMF HLS/24/03, Strengthening Budget Execution, Feb 2024]. (IMF)
This is what it means for oil revenues to outpace fiscal capacity. It is not that officials cannot write a budget. It is that the budget cannot credibly function as a contract between the centre and the rest of the state. Where a Treasury Single Account (TSA) exists only in narrow form, cash pooling is incomplete and decision-making reverts to bargaining among claimants. The IMF describes progress on cash planning and TSA implementation, but stresses that the cash plan is not used effectively to guide decisions; forecast quality is weak; and the TSA’s limited scope prevents the state from fully benefiting from cash pooling. [IMF HLS/24/03, Strengthening Budget Execution, Feb 2024]. (IMF)
In those conditions, oil does not merely fund the state. It substitutes for the state’s most important discipline: the rule that commitments should be made only when cash is available and recorded. Once that rule is weakened, arrears become an alternative budget. They are political IOUs, issued without appropriation, and cleared when oil returns—or when inflation erases them.
The IMF staff report on the third review under the PMB makes the mechanics visible. For FY2023/24, oil revenue outturn fell (24.8 percent of GDP versus 30.5 percent in FY2022/23), while non-oil revenue rose (6.5 percent of GDP versus 4.2 percent), partly compensating through exchange-rate and administration measures. Yet the shock compressed spending: public wages were not paid in the first half of 2024, with arrears reaching eight months by end-June; the fiscal deficit reached 5 percent of GDP and was mainly financed by monetary financing. [IMF Country Report No. 24/327, 2024]. (IMF)
This matters for fragility because arrears and monetary financing are not neutral financing tools in a low-trust environment. They are distributive choices. Arrears push the cost of adjustment onto civil servants and service providers—groups whose patience is not infinite. Monetary financing turns fiscal stress into price instability, which is socially regressive and politically combustible. The result is a feedback loop: weak controls produce arrears; arrears undermine compliance; compliance shortfalls intensify reliance on oil; reliance on oil strengthens incentives to keep revenues discretionary.
The state then becomes unusually sensitive to external choke points. A landlocked oil producer dependent on transit through a conflict-affected neighbour does not have a standard commodity risk profile. It has a sovereign vulnerability embedded in its export route. South Sudan’s experience since February 2024 is the macro-fiscal version of a single-point failure.
II. The hazard of monetising resources before treasury discipline
In mature fiscal systems, resource revenue is received, recorded, appropriated, and spent—sometimes with stabilisation rules. In immature systems, the temptation is to convert expected revenue into spendable cash through mechanisms that sit adjacent to the budget. The result is a shadow fiscal state: still sovereign in name, but operating with the liquidity habits of a distressed firm.
Three patterns recur.
First, pre-commitment through earmarks and special programmes. The IMF technical assistance note flags “a large amount of oil revenue” being earmarked. [IMF HLS/24/03, Strengthening Budget Execution, Feb 2024]. (IMF) Earmarks are not inherently improper. They become hazardous when they reduce the budget’s capacity to reprioritise under shock and when they are administered outside standard reporting. In South Sudan’s case, the fiscal system has repeatedly been forced to treat salaries and basic services as residual claimants, while “priority” programmes retain privileged access.
Second, monetisation through oil-for-infrastructure arrangements. The IMF staff report references an oil-for-infrastructure scheme tied to a pipeline channeling 30 percent of oil production, with funds previously earmarked for road building; it also notes that capital spending under this scheme was projected to resume gradually from early 2025. [IMF Country Report No. 24/327, 2024]. (IMF) Such schemes are often justified as a pragmatic way to build assets when procurement capacity is weak. The deeper issue is that they embed a non-cash budgeting mentality: the state trades entitlements for works, but the valuation, project selection, and payment discipline become harder to audit than standard appropriations. They also generate vested interests whose loyalty depends on continuation, not performance.
Third, monetisation through oil-backed borrowing. The Reuters report of 13 November 2025 documents that the petroleum ministry confirmed requests for $2.5 billion in oil-backed loans—larger than the annual budget (under $2 billion). Reuters also reports that the UN estimates South Sudan has received roughly $2.2 billion in oil-backed loans since 2011. [Reuters, 13 Nov 2025]. (Reuters) Whether or not particular facilities are executed, the scale signals a persistent governing instinct: when revenue is volatile and controls are weak, borrow against the stream and treat the advance as administrative breathing space.
For DFIs and sovereign planners, the critical point is not that oil-backed loans can never be appropriate. It is that they represent the fiscal equivalent of selling the steering wheel to buy fuel. They reduce tomorrow’s discretion to fund today’s discretion. In a setting where transparency is already contested, they deepen opacity: repayment is made in kind; entitlements are hard to track; and effective budget scrutiny is undermined because obligations sit in contracts rather than in debt service lines.
The IMF has repeatedly framed the macro costs of such practices in orthodox language: avoid arrears, monetary financing, and non-concessional borrowing; improve governance and transparency. [IMF Press Release No. 24/210, 10 June 2024]. (IMF) But South Sudan’s case suggests an additional behavioural observation: when the state can monetise oil outside the normal appropriation cycle, it weakens the incentive to build that cycle. The gains from discipline are long-term and diffuse; the gains from monetisation are immediate and concentrated.
The 2025 IMF staff-level agreement on a new SMP reflects this tension explicitly. It notes that the February 2024 pipeline damage halted oil exports, fiscal revenues, and FX proceeds for over a year; inflation remained high; debt vulnerabilities were large; and governance and accountability reforms—explicitly including transparency of oil-related investment programmes—were critical to addressing sources of fragility. [IMF Press Release No. 25/209, 20 June 2025]. (IMF)
In other words: the IMF is not merely asking for better accounting. It is asking for a reversal of the political utility of opacity.
III. Opacity as operating system: off-book flows and elite fragmentation
Opacity is often treated as an ethical failure. In fragile rent states it is frequently an organisational choice: a way to keep coalitions together without formalising the distribution. The difficulty is that it rarely stays cohesive. Once multiple opaque channels exist, elites fragment around them, because control over a channel is more valuable than participation in a rule-based system.
The most detailed public anatomy of this dynamic is found in the UN Human Rights Council’s 2025 report, “Plundering a Nation.” It documents how oil and non-oil revenues are siphoned through opaque off-budget schemes and politically connected contracts, weakening public services. [UN Human Rights Council, A/HRC/60/CRP.5, 16 Sep 2025]. (OHCHR) The report’s treatment of the “Oil for Roads” scheme is particularly instructive—not because infrastructure programmes are unusual, but because of how the programme became a fiscal bypass.
By end-2024, the Commission reports, $2.2 billion of oil revenue had been dedicated to the Oil for Roads initiative; in FY2023–2024, the Government allocated $778 million to it, while the combined budget allocation to the rest of the national government that year was $1.1 billion. [UN Human Rights Council, A/HRC/60/CRP.5, 16 Sep 2025]. (OHCHR) The report further notes that although Oil for Roads was formally excluded from the 2024–2025 national budget passed in November 2024, a similar opaque allocation for agriculture projects suggested the practice of off-budget diversions would continue. [UN Human Rights Council, A/HRC/60/CRP.5, 16 Sep 2025]. (OHCHR)
Two implications follow.
Opacity weakens fiscal sovereignty by weakening the budget. A budget is supposed to be the sovereign’s main instrument of prioritisation. When the largest revenue stream is repeatedly carved out into special projects, the formal budget becomes a residual document: administratively necessary, politically secondary. The IMF staff report’s references to earmarking and oil-for-infrastructure, alongside its emphasis on regular publication of budget execution and oil revenue information, reflect the same diagnosis from a different angle. [IMF Country Report No. 24/327, 2024]. (IMF)
Opacity fuels elite competition because it turns institutions into spoils. A transparent system makes rents predictable but contestable through politics. An opaque system makes rents uncertain but capturable through position. This raises the value of controlling ministries, national oil companies, procurement gateways, and exchange-rate mechanisms—not as policy tools, but as access points.
Even the exchange-rate regime becomes part of the rent architecture. The UN report notes large losses associated with maintaining a gap between official and parallel exchange rates in FY2023–2024, identifying $342 million in “exchange rate gap losses” in the Government’s use of oil revenue for that fiscal year. [UN Human Rights Council, A/HRC/60/CRP.5, 16 Sep 2025]. (OHCHR) The IMF mission statement of October 2024 similarly describes a large parallel market depreciation (222 percent during January–September 2024) and high inflation (107.3 percent y/y at end-July 2024), in a context of sporadic monetary financing and reduced FX inflows. [IMF Press Release No. 24/354, 2 October 2024]. (IMF)
This is why “budget opacity” is not an abstract governance concern. It is a macroeconomic variable. When revenue is off-book, the state’s liquidity management deteriorates; when liquidity management deteriorates, currency and prices become unstable; when currency and prices become unstable, the political premium on immediate cash rises; and immediate cash is most easily obtained through more opacity. The loop is self-reinforcing.
The IMF technical assistance note adds a stark institutional marker: annual financial statements had not been prepared since 2011, though steps were being taken to address the backlog with partner support. [IMF HLS/24/03, Strengthening Budget Execution, Feb 2024]. (IMF) A state without routine annual closure is a state that cannot reliably distinguish between temporary stress and structural insolvency. It is also a state in which personal trust substitutes for institutional memory.
IV. Why oil became centrifugal rather than stabilising
A standard narrative claims that resource rents can “buy” peace by funding patronage. South Sudan’s experience suggests a more precise formulation: resource rents can buy temporary quiet, but they also raise the stakes of succession, factional competition, and territorial control. Oil does not inherently stabilise; it stabilises only when its distribution is rule-governed and its macroeconomic management is credible.
South Sudan’s oil sector sits at the centre of both revenue and vulnerability. The IMF staff report states that, before the shock, oil revenue constituted more than 85 percent of fiscal revenues and 95 percent of exports—then notes how the post-February 2024 reduction in oil production and exports constrained salaries and social services. [IMF Country Report No. 24/327, 2024]. (IMF) The World Bank’s FY25 snapshot—hyperinflation dynamics, currency depreciation, extreme poverty near 91 percent—shows what happens when that centre fails. [World Bank South Sudan country strategy fragment, 2025]. (World Bank)
In such conditions, oil becomes centrifugal through three channels.
It concentrates political competition on “control points”. If the budget is not binding, actors compete for institutions that sit upstream of cash: petroleum administration, the national oil company, the central bank’s FX allocation rules, and large special programmes. Frequent leadership changes in such roles do not merely reflect dysfunction; they can be instruments of control and discipline, preventing any single bureaucratic centre from accumulating autonomy. Reuters reporting in late 2025 describes repeated reshuffles in petroleum leadership and warns that revolving-door governance fosters corruption and short-term extraction. [Reuters, 26 Nov 2025]. (Reuters)
It externalises the state’s stabilisation problem. Because export revenue depends on an external route through Sudan, domestic political order cannot alone secure fiscal order. The IMF’s June 2024 press release explicitly links the war in Sudan to pipeline damage and reduced exports, emphasising the fiscal impact. [IMF Press Release No. 24/210, 10 June 2024]. (IMF) Sovereign planners recognise this as a structural fragility: an external actor can unintentionally produce a fiscal crisis without aiming at the state at all.
It fragments elites when “the pool” shrinks. Patronage systems can survive when rents are abundant. They fracture under sustained compression, because promises cannot be honoured and claimants look for alternatives—often violent or secessionary. The IMF press release notes salary arrears and policy slippages returning when the shock tightened constraints, including renewed monetary financing and exchange-rate distortions. [IMF Press Release No. 24/210, 10 June 2024]. (IMF) The UN report’s emphasis on off-budget diversions similarly suggests that scarcity does not automatically produce reform; it often produces more aggressive extraction. [UN Human Rights Council, A/HRC/60/CRP.5, 16 Sep 2025]. (OHCHR)
For external partners, the conceptual error is to treat “oil wealth” as a stabiliser in itself. Oil is a stabiliser only when it is embedded in a treasury system that can (a) pool cash, (b) commit spending within a credible appropriation process, and (c) report outcomes with enough regularity that political competition moves from channels to policies.
V. What alternative sequencing could still be possible
Sequencing is not a moral judgement about what South Sudan “should have done”. It is an operational judgement about what a fragile state can plausibly implement first, in order to make later reforms viable. The IMF technical assistance summary makes an especially important point often ignored in reform programmes: a medium-term PFM strategy should focus on a small number of priorities that are well sequenced and reflect reform capacity. [IMF HLS/24/03, Strengthening Budget Execution, Feb 2024]. (IMF)
A realistic alternative sequencing—still partially available—would treat oil as the last thing to be fully monetised, not the first. That is counterintuitive to political actors, but it is precisely why external partners matter: they can help make restraint feasible.
Five steps form a workable spine.
1) Make cash pooling real before making new promises
The TSA must move from “subset” to system. The IMF already notes the narrow scope of the TSA and the weak use of cash plans. [IMF HLS/24/03, Strengthening Budget Execution, Feb 2024]. (IMF) Practically, this means: consolidate central government accounts; require that all oil revenue receipts and associated fees enter accounts visible to the treasury; and link monthly spending limits for ministries to the cash plan rather than to budget estimates. The political test is simple: can any spending agency bypass the pool? If yes, the pool is decorative.
2) Treat arrears as a governance failure, not a financing tool
The IMF staff report shows how quickly arrears accumulated and how socially damaging they became. [IMF Country Report No. 24/327, 2024]. (IMF) A credible arrears strategy requires three linked actions: an independently verified stocktake; a clearance plan with explicit prioritisation (wages, critical suppliers, then others); and—most important—commitment controls so arrears cannot rebuild. Without the third, the first two become political theatre.
3) Put oil-related special programmes under budget law, not presidential discretion
The UN report’s central warning is not “stop infrastructure”. It is: stop off-budget diversion and restore oversight. [UN Human Rights Council, A/HRC/60/CRP.5, 16 Sep 2025]. (OHCHR) The practical prescription is to require that any oil-for-infrastructure or oil-for-roads-type mechanism be appropriated as a programme within the budget, with published project selection criteria, contract disclosure, and reporting against physical outputs. If that cannot be achieved, the programme should be paused rather than continued “in the dark”.
4) Halt the escalation of oil-backed borrowing and convert existing exposure into a transparent debt strategy
Reuters reporting indicates continued appetite for oil-backed advances at a scale comparable to the entire budget. [Reuters, 13 Nov 2025]. (Reuters) For DFIs, this is the clearest red flag: it signals that the budget is not the binding constraint. An alternative approach would be to (a) publish a consolidated registry of all oil-collateralised obligations and their repayment terms, (b) impose a moratorium on new facilities pending the registry, and (c) pursue restructuring where possible so that repayment schedules align with realistic production and price scenarios.
5) Use external programmes to lock in transparency, not just macro targets
The IMF’s 2025 SMP press release explicitly frames governance and accountability reforms—especially around oil-related investment programmes—as critical to addressing fragility. [IMF Press Release No. 25/209, 20 June 2025]. (IMF) DFIs can operationalise this by tying disbursements and parallel financing to a narrow set of observable transparency milestones: regular publication of oil revenue reports and budget execution; audited financial statements; procurement disclosures for major oil-funded programmes; and measurable expansion of IFMIS coverage. The IMF staff report already notes progress in making oil revenue reports available and the intention to continue regular publication. [IMF Country Report No. 24/327, 2024]. (IMF) The point is to turn reporting into routine, not an “event”.
None of this is glamorous. That is the point. In fragile systems, institutional seriousness is rarely grand. It is repetitive.
VI. Implications for DFIs, energy actors, and sovereign planners
For DFIs, the South Sudan case argues for an inversion of the traditional pitch. Do not treat oil as the collateral that makes reform financeable. Treat reform as the collateral that makes oil financeable. A DFI package that prioritises TSA expansion, cash management, arrears controls, and audited reporting is not ancillary to development. It is the condition for development spending to mean anything in practice.
For energy actors, there is a reputational and operational incentive to prefer transparency even when counterparts do not. In an environment where off-budget schemes and oil-backed borrowing proliferate, contract stability becomes fragile: the sovereign’s future revenue is already pledged, and political turnover may reinterpret obligations. Energy operators benefit from insisting on publication of key fiscal terms and from ring-fencing payments through auditable accounts, because opacity today is dispute tomorrow.
For sovereign planners—within South Sudan and among its partners—the main lesson is that resource revenue should be handled as a volatility problem and a governance problem before it is handled as a spending problem. The World Bank’s FY25 snapshot of contraction and extreme poverty illustrates the human cost of volatility unmanaged. [World Bank South Sudan country strategy fragment, 2025]. (World Bank) The IMF’s repeated concerns about monetary financing, arrears, and debt sustainability illustrate the macro cost. [IMF Press Release No. 24/210, 10 June 2024; IMF Country Report No. 24/327, 2024]. (IMF) The UN’s account of off-budget diversion illustrates the governance cost. [UN Human Rights Council, A/HRC/60/CRP.5, 16 Sep 2025]. (OHCHR)
“Oil without order” is not a slogan. It is an institutional diagnosis. The optimistic conclusion is not that oil can rescue South Sudan, but that order can still rescue oil—from becoming the state’s centrifugal force.
