(Reuters): South Sudan, mired in conflict, squeezes budget

By Denis Dumo

JUBA, June 29 (Reuters) - South Sudan's finance minister on Monday presented a proposed budget for the upcoming fiscal year, describing it as "ambitious under the current circumstances", with an ongoing conflict hampering the economy.

The budget, estimated at 10.8 billion South Sudanese pounds (about $3.7 billion), will be debated by parliament in three weeks and is due to take effect next month.

The spending plan is smaller than last year's budget, which at the time was put at some 11 billion pounds. That budget depended heavily on borrowing about $1 billion from oil companies to help cover repayments on domestic loans and previous oil advances, the government said at the time.

It was not immediately clear if the government would seek a similar borrowing scheme for the current budget.

The world's newest nation plunged into civil war in late 2013 when a political crisis provoked fighting between forces loyal to President Salva Kiir and rebels allied with his former deputy Riek Machar.

The conflict has reopened ethnic fault lines that pit Kiir's Dinka people against Machar's ethnic Nuer forces.

Several ceasefires have been agreed but broken. Talks to try to end the conflict in South Sudan, which seceded from Sudan in 2011, are set to resume in mid-July.

"I recognise this plan is ambitious under the current circumstances, but I also believe that the priorities I have outlined are the utmost necessity in the achievement of a lasting peace settlement," said David Deng Athorbei. "Our resources remain constrained until peace is achieved."

The government, which gets most of its money from oil revenue, said the spending plan assumes that current production levels in the upper Nile fields continue.

"Our gross oil revenues are expected to amount to three million one hundred and eighty six South Sudanese pounds," Athorbei said.

Production has been slashed by at least a third since the fighting broke out, with many South Sudanese oil wells damaged and output in decline at functioning fields due to a dearth of spare parts.

In late May, South Sudan's petroleum and mining minister said oil production had dropped to 165,000 barrels per day from between 168,000 and 169,000 barrels per day in January. He cited technical reasons as opposed to fighting in oil producing areas. (Writing by Edith Honan; Editing by Crispian Balmer)