South Sudan, which has stopped shipping crude oil exports, has enough foreign exchange reserves to cover imports for up to one year, the deputy Finance Minister said on Monday.
In January, South Sudan shut down its entire oil production of 350,000 barrels a day after Sudan started seizing southern oil to compensate for what it calls unpaid fees.
Landlocked South Sudan, which became independent in July after seceding from Sudan, has to use a northern pipeline and the port of Port Sudan to export its crude, and the two countries are in dispute over the transit fees it should pay.
Oil is the lifeline of both countries' economies, with China the biggest buyer of crude from the two countries.
Diplomats say the South, a country devastated by years of civil war, is unlikely to survive longer than several months without new oil revenues which make up 98 per cent of the income in one of the world's poorest nations.
Many in South Sudan's capital Juba say they back the oil shutdown and are confident they can cope as many basic services are provided by the United Nations and aid agencies, but they still concede development could stall.
Marial Awou Yol, South Sudan's deputy minister for Finance and Economic Planning, said his country still had ample foreign exchange reserves but would cut down on government spending, improve non-oil revenue collection and borrow externally.
"Well, we have enough to take us for a reasonable period of time. From seven months to a year," Yol told Reuters in an interview in Arusha, northern Tanzania.
"Cutting down oil production has left a very big gap in the budget which has to be financed either from outside, or borrowing from inside," he said on the sidelines of a meeting of the five-nation East African Community (EAC) regional bloc that his country is planning to join.
South Sudan's application to join the bloc will be presented for approval at an EAC heads of state summit later in the year.
No public data exists for South Sudan's foreign currency reserves or detailed 2012 budget projections. South Sudan has no significant economic activity outside the oil industry.
The row with Sudan has angered many in South Sudan, where independence, the result of a referendum following a 2005 peace accord, is often framed as the climax of a long struggle against political and economic marginalisation by the north.
Although worried about how long Sudan can hold out, many of South Sudan's population of about 8 million say the row is a chance for the mainly Christian and animist South to cement its independence from the mostly Muslim north.
Yol said South Sudan plans to build pipelines, one running through Kenya and another through Ethiopia and Djibouti, to export its crude.
Yol said the country also planned to build domestic refineries -- within 11 months to three years -- to take advantage of existing regional demand from markets in neighbouring Kenya, Uganda and Ethiopia.
"These refineries are not only to supply the domestic market, but they will be able to supply the neighbouring countries with refined products from our oil," he said.
The cabinet plans to cut non-salary expenditure by half as part of austerity measures to compensate for the loss of oil revenues. But that might not be enough to make up
for the loss of oil revenues as salaries make up roughly half the budget, meaning the total cuts only amount to 25 percent in real terms.
Yol said that the cabinet had already approved the plan and it was due to go before parliament soon for approval.
Yol said the options on the table to raise financing included issuing Treasury bills, borrowing externally using oil as collateral and seeking loans from domestic banks.
"As a new country we don't have sufficient assets to be used as collateral for borrowing. So we have our oil, and whatever it takes, we can use oil as a collateral or we borrow against the oil in future payment," he said.