26 June 2012- South Sudan has taken steps forward during its first year of independence, but faces multiple crises on the security, economic and humanitarian fronts, Secretary-General Ban Ki-moon says in a report issued today.

Challenges expected to hinder further progress in coming months include the looming economic crisis following shutdown of oil production and loss of 98 per cent of the nation's income, Mr. Ban says in his quarterly report on South Sudan.

"The impact of the loss of Government revenue is not limited to Juba or the few urban centres alone," the report says. "Most South Sudanese live in remote areas outside the monetized economy, yet are heavily affected by fluctuations in grain and livestock prices."

The Secretary-General notes that growth of a parallel market has led to inflation and unavailability of food, with shortages of basic commodities affecting urban markets and fuel shortages the general population.

He also highlights security along the Sudanese border, inter-communal tension, rebel militia group activity, food insecurity, closure of the border with Sudan and returnees as major challenges facing the nation.

"Prudent measures by the Government of the Republic of South Sudan are urgently required to address these potentially devastating developments," the report states.

Hostilities on the border and loss of oil revenue have also affected the government's reform agenda, especially in the areas of security and disarmament, demobilization and rehabilitation, the Secretary-General says.

"To make progress in this priority area, the government ... must take steps to halt all recruitment and mobilization efforts and the Government and UNMISS must complete preparations for a disarmament, demobilization and reintegration pilot phase," the report says.

The country has also encountered significant challenges in its state and capacity building priorities, Mr. Ban says, noting that the National Constitutional Review Commission has yet to become operational.

In addition, the Elections Law must be passed, the National Elections Commission established, and anti-corruption measures continue to ensure progress on key political milestones, according to the report.

The Secretary-General commends the government for taking measures to break the vicious cycle of inter-communal violence in Jonglei State through the All Jonglei Peace Conference and deployment of additional security forces. In its first two months, the civilian disarmament process has occurred in a relatively peaceful and orderly manner.

And he praises the government for its commitment to address reported abuses during disarmament, adding that sustained inter-communal reconciliation efforts should take place to ensure disarmed communities are protected.

The report stresses that accountability is also necessary to restore peace and security. "I urge the Government to implement the recommendations of the All Jonglei Peace Conference and of the UNMISS Human Rights Report on the attacks in Jonglei State from December 2011-February 2012."

Expressing concern about reported incidents of rape, abductions, killings and other serious human rights violations in Jonglei and Eastern Equatoria states, the report welcomes actions taken against perpetrators of abuses during civilian disarmament thus far.

The Secretary-General suggests a link between challenges the country faces and its current uneasy relations with Sudan, urging it to establish good relations with Khartoum.

"South Sudan and the Sudan currently stand at a crossroads and this is a defining moment for both countries," the report says. It is critical that the two nations establish border monitoring mechanisms and agree on outstanding issues as quickly as possible.

Mr. Ban says he is aware of South Sudanese government reservations about the UNMISS mandate, as expressed in 12 June letter addressed to the Security Council by Vice-President Riek Machar. But due to the security situation, loss of civilian lives and the government's capacity to protect civilians, UNMISS should continue under the Chapter VII (protection clause) so that it can assist.

The report recommends that the UNMISS mandate be extended for one year under existing terms, until 8 July 2013.

But it also states that a reassessment would be carried out on mission resources, noting that UNMISS needed increased mobility, including military helicopters, to carry out its protection and peace consolidation role.

An assessment would also be performed to determine whether mission mobility could be enhanced by deploying marine assets to navigate the river system of South Sudan.