Courtesy of The Wall Street Journal, a sobering report on how rampant inflation, civil war, and food shortages threaten the future of South Sudan:

South Sudan is running out of money, which along with a civil war andmass food shortages is putting the world’s youngest country at risk of becoming its youngest failed state.

In the past two years, the U.S. government has spent more than $1 billion to try to help stave off escalating violence in South Sudan, government figures show. Other Western countries have also given massive amounts. Secretary of State John Kerry in May announced an additional $5 million to establish a court to “hold perpetrators of violence to account.”

But the South Sudanese government has run through its cash reserves and is trying to pay for a war with credit and a trickle of oil money.

“There is no money left in the central bank. There is no money left in the Treasury. The government can no longer pay for the most basic things,” said Toby Lanzer, the United Nations’ deputy special representative in South Sudan. By September, hospitals and medical clinics will have run out of medicine, he said about a week before South Sudan formally expelled him from the country. The United Nations condemned the action this month.

The central bank has been printing money to keep up. So now inflation is skyrocketing: The price of sugar has doubled in the past two months, while the price of beans has more than doubled, the World Food Program said.

Fuel prices have shot so high that companies that bottle water in the capital city of Juba have closed because it costs too much to power their filtration systems. In May, Parliament shut down a session because there was no fuel to power the generator.

 

The lack of money is raising the risk of new fault lines in the fighting between the government and rebels: a splintering of the military into factions along former militia lines that would make it exponentially harder to negotiate a peace deal.

“Those forces will go freelance. They’ll either put themselves up to the highest bidder, or if no one can bid, then they will just help themselves,” said Alex de Waal, a South Sudan expert at Tufts University.

South Sudan’s army was cobbled together from a number of militias. A militia chief in the north, Maj. Gen. Johnson Olony, defected from the government in May. Military spokesman Col. Philip Aguer said Gen. Olony’s defection was an aberration and the majority of government forces are united. He also said the financial crisis hadn’t interrupted military salaries. A Western diplomat familiar with the issue said it appeared that the government was prioritizing army salaries at the expense of items like hospital supplies.

But that may only be a matter of time: Peace talks have broken down multiple times and diplomatic pressure doesn’t appear to have brought peace any closer. Regional monitors have documented major violations of a supposed cease-fire on both sides. Gen. Olony is accused of using child soldiers first for the government and now for the rebels.

When South Sudan gained independence from Sudan in 2011, much of the international community celebrated its role in helping a persecuted region escape the grips of an authoritarian regime. Moreover, the oil-rich country wasn’t even going to need much outside financial support. At independence, the country’s gross domestic product per capita was about $1,900, according to government figures—more than twice that of most of the rest of East Africa, excluding Sudan.

But disagreements with Sudan over payments for the pipeline that gets the oil from landlocked South Sudan to ports soon halted exports, forcing the South Sudanese to take out loans from oil companies. It wasn’t long after the oil flow resumed that fighting broke out in the capital in December 2013, sparking the current hostilities. Meanwhile, oil prices have plunged, but South Sudan’s payment for pipeline access is fixed, so the country is receiving only about $10 a barrel, analysts said, well below what the government had anticipated.

South Sudan just last month secured a $500 million loan from Qatar and the government put $50 million into the banking system to help tamp down market prices, presidential spokesman Ateny Wek Ateny said.

Asked about the source of the funds, Mr. Ateny said he had heard from other government officials that it was from the government reserves but added that it could have come from other sources, saying, “The government of South Sudan does not put all its eggs into one basket.”

He added that “if there is anybody waiting for economic collapse, he is going to wait for a long time.” The South Sudanese government has been reticent to give details of its cash reserves or the details of its lenders or loan terms.

Meanwhile, Parliament is weighing a finance bill that would increase the price of work permits for foreigners to $10,000 per worker from $200, said Hosanna Fox, a policy adviser with the South Sudan NGO Forum, a consortium of nongovernmental organizations.

Asked about the increased fees, Mr. Ateny said international companies are making millions in South Sudan and the country had a right to some of that money, which makes up for a lack of taxes.

Ms. Fox saw it differently: “It’s a disturbing trend that the aid operation in South Sudan is increasingly being seen as a source of revenue by authorities at a time when aid agencies are struggling to keep up with the overwhelming needs being created by a brutal war.”