South Sudan, Africa's newest nation which broke away from Sudan last year, has suffered a severe shortage of hard currencies since it stopped oil exports earlier this year due to a dispute with Sudan, which controls the export pipeline.

The South Sudanese oil minister has said the country could resume producing up to 230,000 barrels per day of oil by the end of November.

"We have suspended our flights from today and the reason is that we have accumulated a lot of Southern Sudanese pounds from our ticket sales in Juba," said Elly Aluvale, chief executive of Jetlink.

He said the airline, which operates a fleet of eight Bombardier CRJ jet engines, had about $2 million in local currency stuck in the South Sudan capital Juba.

The fleet has been grounded at Nairobi's main airport.

"With the scarcity of dollars in Juba, the situation has been getting critical and obviously we need that money here to run operations," Aluvale said.

Airline executives in Kenya say flights to Juba are some of the most lucrative due to huge demand by investors and people moving into the new country for work.

Jetlink's bankers in Kenya, which have been extending the airline credit against Sudanese pounds banked in Juba for several months, pulled the plug this week.

"This has left us in a situation where we are unable to meet our short term obligations as they fall due," the airline said.

Jetlink has been profitable since it started operations in 2004. Its experience in Juba highlights one of the risks facing small airlines in the region, which offer competitive prices to national carriers.

Fastjet (FJET.L), a new budget carrier for the region, is due to start operations this month while Kenya Airways (KQNA.NR) plans to start a low cost carrier, Jambojet, for the region.

Due to their focus on local business travel, low-cost airlines are shielded from factors that affect major carriers like travel warnings by Western governments due to security incidents or the economic slowdown in the euro zone.

Jetlink's move will affect 800 passengers who fly the airline daily. It flies twice a day to Juba, thrice a week to Mogadishu in Somalia, and has several domestic routes in Kenya.

The firm, which employs 350 people, said it was talking to the Kenyan and South Sudanese governments about help to convert the cash in Juba into dollars, in order to resume flights.

South Sudanese officials were not immediately available for comment. (Reporting by Duncan Miriri; Editing by Yara Bayoumy and Mark Potter)

• A Permanent Economic Emergency